Bondholders' outcome mixed in New Orleans Archdiocese bankruptcy

Bondholders in the Archdiocese of New Orleans bankruptcy will retain principal but will lose interest from the start of the bankruptcy, following the judge's approval of the plan of reorganization Monday.

According to the approved version of the plan, $9.3 million in payments made in the months after Chapter 11 bankruptcy filing that had been called interest will be recharacterized as principal. The archdiocese entered bankruptcy in May 2020 with $38 million in principal owed.

The archdiocese will make 4.25% interest-only payments annually for 12 years then it will pay the remaining principal.

The amended bonds will be callable without premium or penalty.

Additionally, the archdiocese will pay bond trustee Argent Institutional Trust Company $2 million on or before Dec. 26, and law firm Greenberg Traurig $2.5 million in four allotments from October 2026 to December 2029.

A member of the bond trustee's legal team said the firm would have no comment on the plan.

Bondholders in the fall voted against an earlier version of the plan of reorganization that would have given them new bonds worth just 11% of the original principal. Late in November the bond trustee reached a new agreement on bondholder treatment.

In her approval of the plan, U.S. Bankruptcy Judge Meredith Grabill said the bond trustee has "at the direction of the beneficial holders of a majority in aggregate principal amount of the bonds outstanding, withdrawn the bond trustee's objections and agreed to the treatment of the bond claims as set forth ? in the joint plan."

"Bondholders reached a settlement in the Archdiocese of New Orleans bankruptcy case that 'averted a catastrophic failure' for the nonprofit sector," Managing Director Lisa Washburn wrote in Municipal Market Analytics' Weekly Outlook. "Had the court ruled that the fair and equitable cram-down test did not apply because the borrower lacked shareholders, it could have undermined the recovery expectations across the nearly $500 billion of outstanding municipal nonprofit debt and materially increased future borrowing costs."

While the judge didn't rule on the matter, investors in nonprofit bonds may still seek additional compensation because of this possibility, Washburn wrote.

The Roman Catholic Church of the Archdiocese of New Orleans didn't respond to a request for a comment.