Unreported / Non-Citable
Background
Genesis Healthcare Inc. and several affiliates filed for Chapter 11 bankruptcy protection in July 2025. To continue operating during reorganization, the debtors obtained bankruptcy-court approval to borrow up to $30 million from post-petition lenders in exchange for liens and security interests. The bankruptcy court found that the financing was necessary to prevent serious and irreparable harm, more favorable terms were unavailable, and the transaction was negotiated in good faith and at arm’s length.
Sixty personal-injury and wrongful-death claimants appealed the final debtor-in-possession financing order. They challenged provisions releasing claims held by Genesis against prepetition lenders that also supplied post-petition financing, asserting that the releases might encompass claims the appellants could have pursued outside bankruptcy and extended too broadly to Genesis insiders. The appellants did not seek to invalidate the financing, debt, priorities, or liens themselves. The financing order was not stayed pending appeal.
The Court’s Holding
The district court dismissed the appeal as statutorily moot under 11 U.S.C. § 364(e). Reading Fifth Circuit precedent, Judge Jane J. Boyle concluded that the provision protects more than liens and priorities: when an order authorizes post-petition financing, § 364(e) prevents appellate relief affecting bargained-for financing terms if the lender acted in good faith and the authorization was not stayed.
The releases were part of the lenders’ bargain because lenders would not reasonably provide new funds that could then be used to pursue claims against them. The appellants did not dispute the releases’ importance to the financing agreement, challenge the lenders’ good faith, or obtain a stay. Because removing the releases would affect the validity of the approved loan, § 364(e) barred the requested relief even if the challenge questioned the bankruptcy court’s authority to approve those releases.
Key Takeaways
- In the Fifth Circuit, failing to stay a post-petition financing order can make an appeal statutorily moot under § 364(e).
- Section 364(e) may protect bargained-for financing provisions beyond the loan’s debt, liens, and priorities, including releases that induced lenders to extend credit.
- Limiting an appeal to release provisions does not avoid statutory mootness when modifying those provisions would affect the approved financing bargain.
Why It Matters
The decision underscores the potentially dispositive importance of seeking a stay when appealing debtor-in-possession financing orders. Parties that allow financing to proceed without a stay may lose the ability to challenge releases or other negotiated protections, even when they argue that the bankruptcy court lacked authority to approve those terms.