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Realogy Check

January 22, 2009

By Thomas Kent, William S. Kirsch and Jonathan V. Temps

In a recent decision, the Court of Chancery of the State of Delaware held that an attempt by a borrower to exchange certain of its unsecured indebtedness then trading at substantial discount for a lower face amount of a new structurally senior and secured debt tranche would be in violation of certain covenants governing an existing debt tranche. While the impact of the Delaware Courts decision on similar future transactions may be limited due to the specificity of the provisions of the documents at issue in this case, the decision may nonetheless provide guidance on how Delaware and other Courts may view other similar transactions which may be proposed in todays credit environment.