Client Alert

Borrower's Inaccuracy or Intentional Fraud in its Financial Reporting May Not Allow for Retroactive Accounting and Recovery of Interest

July 19, 2006

Jesse H. Austin, III and Kristine Shryock

Recently in the Adelphia bankruptcy case, the Bankruptcy Court for the Southern District of New York ruled that the debtor, whose obligation to pay interest to its lenders was computed from a pricing grid based on market rates and the debtors financial condition, did not have to retroactively pay additional interest for the prepetition period when the debtor inaccurately reported its financial condition which had resulted in the application of a lower interest rate.

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