The US District Court for the Western District of Washington (the "District Court") recently affirmed a bankruptcy court decision that prohibited a transferee of a secured lender's interest in a loan from voting on a debtor's plan of reorganization on the grounds that such transferee, a distressed debt investor, was not an Eligible Assignee under the applicable loan agreement. Meridian Sunrise Village, LLC v. NB Distressed Debt Investment Fund Ltd., et al., No. 13-5503 (W.D. Wash. March 6, 2014) (In re Meridian Sunrise Village, LLC).

Background -

In 2008, Meridian Sunrise Village, LLC (Meridian) borrowed $75 million from U.S. Bank (the "Agent") to finance the construction of a shopping center. The Agent syndicated the loan, assigning portions to Bank of America, Citizens Business Bank, and Guaranty Bank and Trust Company (each a "Lender" and, collectively with the Agent, the "Lender Group"). Section 13.2 of the loan agreement among the parties (the "Loan Agreement") included the following limitation on subsequent transfers...