The derivatives provisions of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”) amendments greatly enlarged the scope of the financial contracts that are shielded from traditional bankruptcy limitations such as the automatic stay and the prohibition on ipso facto clauses. Those exceptions were reaffirmed in a strong anti-debtor opinion in Am. Home Mortg. Inv. Corp. v. Lehman Bros. (In re Am. Home Mortg. Holdings, Inc.), 388 B.R. 69 (Bankr. D. Del 2008). Although Lehman may now regret its victory since it is a debtor in its own bankruptcy case, it succeeded in defeating a number of theories that might have limited the scope of the exceptions. In an opinion relying in part on the market protection policy reflected by the exceptions, the Delaware Bankruptcy Court adopted a liberal definition of “repurchase agreement” that turned mostly on the intention of the parties as stated in the four corners of their agreement. Thus, providing greater protection to non-defaulting parties to Master Repurchase Agreements (“MRAs”).
This memo begins with a concise overview of the relevant facts of American Home. Next, it briefly reviews the pertinent amendments made to the Bankruptcy Code by BAPCPA. It then considers in detail the decision in American Home and its relevancy on future Bankruptcy proceedings involving Master Repurchase Agreements. It also examines Calyon New York Branch v. American Home Mortgage Corp. (In re Am. Home Mortg. Holdings, Inc.), 379 B.R. 503 (Bankr. D. Del. 2008), a case related to American Home, in which the Court adopted a similar interpretation of the definition of repurchase agreements. The article concludes with a short discussion of the importance of the decision in American Home and the impact it will have on our financial future in this tough economic climate.