The Structured Finance Industry Group ("SFIG") submitted a proposed amicus brief to the SDNY Bankruptcy Court presiding over the involuntary chapter 11 petition pending against Taberna Preferred Funding IV, Ltd. In the brief, SFIG argued that Taberna is a non-recourse securitization that lacks the capacity to be reorganized and should be liquidated by its terms.

The potential erosion of this fundamental tenet of the securitization industry is not just of significant import to Taberna, SFIG asserted, but to securitization markets and the industry at large:

"[T]o jettison the already agreed liquidation procedures under the Taberna indenture in favor of bankruptcy . . . would result in a significant jolt to investor confidence in the non-recourse and bankruptcy-remote nature of securitization vehicles. This will threaten to upend and substantially impair the securitization market and, by extension, the primary and secondary loan market that form a vital part of the nation's financial system."

SFIG also asserted that the petitioning creditors do not satisfy the requirements under the Bankruptcy Code to file an involuntary case in the first instance because they do not hold unsecured claims. This is because "Taberna is designed to either monetize its assets per the parties' agreement . . . or sell its remaining assets to pay off its debts – even if they are insufficient to pay the notes in full on the maturity date" (i.e., noteholders are not entitled to any unsecured deficiency claims in the event the assets are insufficient). Additionally, SFIG asserted that bankruptcy is inappropriate because "Taberna is nothing like a typical chapter 11 debtor. It has no employees and no other business or assets not governed by the indenture." Unlike typical debtors for whom chapter 11 bankruptcy was designed, SFIG said, "Taberna has no economic interest in its assets or business prospects. There is no reorganization to be had here."

Cadwalader is representing SFIG in this matter. The team includes Neil Weidner, Mark Ellenberg, Howard Hawkins, Michele Maman, Andrew Greenberg, Nick Vislocky and Joe Gambino.

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