Adversary Proceeding in Adelphia Bankruptcy – Adelphia Communication Corporation, et al., Case No. 02-41729 (REG) Jointly Administered

Subordination: The Power of Punctuation

Successfully represented trustee for the holders of over $5 billion dollars in senior notes in a subordination dispute with holders of junior notes in the context of the Adelphia bankruptcy.

Seward & Kissel represented the trustee for the holders of the senior notes of the parent corporation in the Adelphia family of companies against holders of junior debt, who asserted that, because of the specific language of the trust indenture with respect to a limited exception to subordination (the “X-Clause”), the junior debt was entitled to share pari passu with the senior debt in any recoveries against the Adelphia estate. The case turned on a number of factors, including the punctuation found in the X-Clause, which was designed to provide a mechanism for distributions in bankruptcy, but was not designed to upend the traditional view that the senior debt must be paid in full before the junior debt receives anything. The case was tried by Bruce Paulsen before United States Bankruptcy Judge Gerber, who ruled in favor of the senior notes trustee (represented by Seward & Kissel) and against the holders of the junior notes. A copy of an article concerning the case and its implications is annexed.