Thank You For Submiting Feedback!
In interpreting contract language, New York contract law instructs courts ordinarily to give the words and phrases employed their plain and commonly-accepted meanings.
All of the borrower's unsecured indebtedness was trading at a deep discount to face value. The borrower proposed to take advantage of the arbitrage opportunity presented by offering to refinance a large amount of the unsecured indebtedness with a substantially smaller amount of a senior secured term loan. The borrower meant to do this by offering holders of the unsecured indebtedness the opportunity to exchange notes for a participation in a new term loan facility secured by a second lien on its assets. Holders of a class of unsecured notes that permitted the borrower to make interest payments either in kind or in cash (the "Toggle Notes") objected to the terms of the exchange offer because it discriminated against them in favor of holders of other classes of unsecured notes that pay interest in cash. These holders have enlisted the trustee under the indenture governing the Toggle Notes to sue the borrower for a declaration to the effect that the proposed transaction would violate the terms of that indenture. The borrower and the indenture trustee both moved for summary judgment.
Did the proposed borrowing satisfy the definition of “Permitted Refinancing Indebtedness” found in the bank credit agreement incorporated by reference into the Toggle Note indenture?
The court held that the proposed borrowing did not satisfy the definition of “Permitted Refinancing Indebtedness” found in the bank credit agreement incorporated by reference into the Toggle Note indenture. According to the court, there was no right in the notes at issue to additional security, nor was there any provision in the relevant section of the credit agreement that would have permitted it. As a result, the refinancing of those notes with second lien term loans did not qualify as Permitted Refinancing Indebtedness.