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Recently, our congress has decided to look at a law enacted in 1939 during the Great Depression that ravaged the economy of our country before World War 2. During the Depression, the Trust Indenture Act of 1939 was enacted to help deal with issues that were arriving have to do with debt and restructuring during a time when businesses were failing left and right, leading to confusion and people taking advantage of existing laws. However, while it may seem like a good idea to revisit a law enacted during a time of turmoil, the news is drawing opposition.seal of the US Congress

When it was announced that the law was going to be changed in congress, a group of 18 law professors from around the country banded together to write a letter to congress. The letter urges lawmakers to reconsider changing the law so quickly without thinking about the unintended consequences that the law could have on the economy, especially when talking about the securities market. The changes being discussed include adding legislation making it harder for bondholders to challenge restructuring deals that are happening outside the courtroom. However critics of the proposed amendments are saying that smaller bondholders are going to get the short end of the stick due to this law and private equity firms are going to become stronger.

One of the major reasons these changes are even being considered is due to the current restructuring deal involving Caesars Entertainment, a large casino operator in the country. While recent court decisions have been favoring the minority bondholders that could be stripped of power if these changes happen, critics of those decisions say that it leads to companies seeking court protection in bankruptcy procedures and makes them less likely to negotiate restructuring settlements outside of the court walls. If the proposed changes happen, those previous decisions would be undone and could lead to serious repercussions that haven’t been fully explored or thought of. The letter was sent to senators Harry Reid and Mitch McConnell, as well as representatives Paul Ryan and Nancy Pelosi. Theses are the current leaders in both the house and the senate and they hold sway over proceedings in both chambers of congress. While the letter doesn’t say changes shouldn’t happen (in fact, it explicitly mentions that even the professors disagree on what changes should occur), it is simply pushing for more research and a chance for public opinion.

If you’d like to read more, the link is here.