Richards Layton & Finger

DE Bankruptcy Court Enforces X-Clause

April 2008

The Dura case should provide necessary caution to those parties who trade in distressed debt. The terms of these types of instruments must be closely scrutinized before making an investment, as the provisions of these agreements require considerable analysis. If an investor, upon fully considering the ramifications of subordination and the narrow scope of an x-clause decides nonetheless to make the investment, it is particularly critical that a solid valuation of the debtor be performed.