October 13, 2021 - by Elliot Ganz. Recently, the District Court for the Southern District of NY issued a ruling in Kirschner v. JPM that could be very important for the syndicated loan market.

Background.  In August 2017, Marc Kirschner, the trustee for the Claims Trust arising out of the Millennium bankruptcy, sued JPM and other banks in connection with the origination and distribution of loans to the debtor.  Among the allegations was that the banks violated state and federal securities laws and was based on the premise that term loan Bs are securities.  The LSTA filed an amicus brief in that case taking the position that loans are not securities and are therefore not subject to the securities laws. JPM filed a motion to dismiss and, in May 2020, that motion was granted.  However, the court allowed the plaintiff to file a motion to amend its complaint, which it did.  Importantly, the plaintiff did not seek to amend its securities law claims but reserved the right to appeal that part of the court’s decision.  Recently, the court denied the plaintiff’s motion to amend the complaint so the case is over insofar as the District Court is concerned.

Why is this important?  Now that the plaintiff has exhausted his options at the district court it is quite possible that he will appeal the entire decision, including the “loans as securities” issue, to the federal Court of Appeals for the 2^nd Circuit.  We have written extensively in the past about the existential threat that treating loans as securities poses for the loan market and it is beyond the scope of this article to address that issue here.  If an appeal is taken, the LSTA will monitor the case closely and continue its engagement and advocacy for the principle that loans are not securities subject to state and federal securities laws.