## Facts

- Ion Media Networks, Inc. and affiliates filed for Chapter 11 reorganization in the Southern District of New York.
- The debtors had a first-lien credit facility and second-lien notes; the creditor groups were bound by an intercreditor agreement.
- The intercreditor agreement subordinated the second-lien debt and included “no-challenge” and “no-objection/silencing” covenants restricting junior creditors from disputing first-lien liens or opposing a plan accepted by the first-lien lenders if the agreed priority scheme was followed.
- A second-lien holder (Cyrus) purchased its position at a discount and pursued litigation and objections to DIP financing and plan confirmation, asserting that FCC broadcast-license value was not encumbered by the first-lien liens and should support recoveries for the second-lien debt.
- The debtors and first-lien lenders argued Cyrus had contractually waived the ability to challenge the senior liens or object to plan treatment accepted by the first-lien lenders, and thus could not be heard on those objections.
- The court addressed Cyrus’s objections in the course of the confirmation decision.

## Issues

1. Whether § 510(a) required enforcement of the intercreditor agreement’s subordination and “silencing/no-challenge” provisions, thereby barring Cyrus from challenging the first-lien lenders’ liens (including disputes tied to FCC license value) and from objecting to plan confirmation.
2. If Cyrus could object, whether the plan satisfied confirmation requirements under § 1129, including good faith, best interests, absolute priority, and the permissibility of non-debtor releases connected to regulatory approval and third-party contributions.

## Decision

- The court held the intercreditor agreement was enforceable under § 510(a) to the extent enforceable under applicable nonbankruptcy law, and its terms unambiguously barred Cyrus’s lien challenges and plan objections.
- The court treated the dispute as one of contractually limited participation rights: Cyrus could not assert rights it had agreed not to exercise.
- The court overruled Cyrus’s objections and confirmed the Chapter 11 plan.
- The court further found that, even if reached on the merits, the plan satisfied § 1129’s requirements, including good faith, best interests, and absolute priority.
- The court approved non-debtor releases as justified by the deal structure and necessary contributions related to consummation and regulatory approval.

## Legal Principles

- Under 11 U.S.C. § 510(a), subordination agreements are enforced in bankruptcy to the same extent enforceable under applicable nonbankruptcy law, and may include covenants restricting a junior creditor’s litigation and objection rights.
- Clear and specific intercreditor “no-challenge” provisions may bar junior creditors from contesting the validity, perfection, or priority of senior liens, including disputes framed as collateral-scope disputes.
- Clear and specific intercreditor “no-objection/silencing” provisions may bar junior creditors from opposing plan terms accepted by senior secured lenders when the plan implements the agreed priority waterfall.
- A creditor’s ability to be heard in Chapter 11 may be contractually limited; a party that waives objection and challenge rights may be denied the ability to prosecute those positions in the case.
- A plan may be confirmed over objections where it is proposed in good faith, satisfies the best-interests test, and complies with absolute priority; non-debtor releases may be approved when supported by case-specific findings of necessity and substantial contribution.

## Conclusion

The court enforced the intercreditor agreement under § 510(a) to bar a second-lien holder from challenging senior liens and objecting to confirmation, and it confirmed the reorganization plan, including approved third-party releases tied to the transaction and regulatory requirements.


Ion Media Networks, Inc. v. Cyrus Select Opportunities Master Fund Ltd. (In re Ion Media Networks, Inc.), 419 B.R. 585 (Bankr. S.D.N.Y. 2009)