Comment Letter of 18 Law Professors on the Trust Indenture Act

Adam J. Levitin is Professor of Law at Georgetown University Law Center, specializing in bankruptcy, commercial law, and financial regulation. This post contains the text of a letter spearheaded by Prof. Levitin, and co-signed by 18 professors of bankruptcy and corporate finance law, regarding a proposed omnibus appropriations rider that would amend the Trust Indenture Act of 1939. The complete letter is available here.

We are legal scholars of corporate finance. We write because we are concerned by a proposed omnibus appropriations rider that would amend the Trust Indenture Act of 1939 without any legislative hearings or opportunity for public comment on the proposed amendment.

As you may know, the Trust Indenture Act is one of the pillars of American securities regulation. Congress passed the Trust Indenture Act in the wake of the Great Depression to protect bondholders in restructurings. Among other things, the Trust Indenture Act provides that no bondholder’s right to payment or to institute suit for nonpayment may be impaired or affected without that individual bondholder’s consent. These provisions are intended to protect bond investors by requiring any restructuring of bonds to occur subject to the transparency of a court supervised bankruptcy process, absent bondholder consent to a debt restructuring.

Recently, several Members of Congress have been lobbied to amend this longstanding law, first through a rider to the highway bill and now through a rider to the omnibus appropriations legislation. The proposed amendment would narrowly define impairment of the right to payment and the right to institute suit for nonpayment. The proposed amendment would also be retroactive and apply to litigation that is presently on appeal before the Second Circuit Court of Appeals.

As corporate finance law experts who teach and write about the Trust Indenture Act, we have differing opinions about whether the Trust Indenture Act should be amended, and if so, how. Several of us believe that the Trust Indenture Act should be amended, but not in the way proposed. We agree, however, that any amendment of the Trust Indenture Act should take place only after legislative hearings and opportunity for public comment. The proposed amendment has not been subjected to the customary vetting through public hearings and other mechanisms that are critical to improving the public confidence in Congress’ ability to govern. There have been no hearings on the matter, no opportunity to hear from a diverse group of experts or the public, and no attempt to establish a legislative record.

The amendment of federal securities laws is not something that should be undertaken lightly. A hasty amendment of the Trust Indenture Act could have broad negative unintended consequences in the securities markets. Accordingly, we urge you to postpone any amendment of the Trust Indenture Act until after legislative hearings that enable more deliberate and careful consideration.

Sincerely,

Douglas G. Baird
Harry A. Bigelow Distinguished Service Professor of Law
University of Chicago Law School
William W. Bratton, Jr.
Nicholas F. Gallichio Professor of Law
University of Pennsylvania Law School
Ralph Brubaker
Carl L. Vacketta Professor of Law
University of Illinois College of Law
Michelle Harner
Professor of Law
University of Maryland Francis King Carey School of Law
Edward Janger
David M. Barse Professor of Law
Brooklyn Law School
Marcel Kahan
George T. Lowy Professor of Law
New York University Law School
Robert M. Lawless
Associate Dean for Research & Max L. Rowe Professor of Law
University of Illinois College of Law
Adam J. Levitin
Professor of Law
Georgetown University Law Center
Lynn M. LoPucki
Security Pacific Bank Distinguished Professor of Law
UCLA Law School
Stephen J. Lubben
Harvey Washington Wiley Chair in Corporate Governance & Business Ethics
Seton Hall University School of Law
Ronald Mann
Albert E. Cinelli Enterprise Professor of Law
Columbia Law School
John A.E. Pottow
John Phillip Dawson Collegiate Professor of Law
University of Michigan Law School
Mark J. Roe
David Berg Professor of Law
Harvard Law School
Steven A. Schwarcz
Stanley A. Star Professor of Law & Business
Duke University School of Law
David A. Skeel, Jr.
S. Samuel Arsht Professor of Corporate Law
University of Pennsylvania School of Law
Richard Squire
Professor of Law
Fordham University School of Law
Charles J. Tabb
Mildred Van Voorhis Jones Chair in Law
University of Illinois
Jay L. Westbrook
Benno C. Schmidt Chair of Business Law
University of Texas School of Law
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