Morgan Stanley & Co. v. Archer Daniels Midland Co.

570 F. Supp. 1529 (S.D.N.Y. 1983)



In discussing the various types of available redemption provisions, instead of an absolute restriction on redemption, parties may agree that the borrower may not redeem with funds borrowed at an interest rate lower than the interest rate in the debentures. Such an arrangement recognizes that funds for redemption may become available from other than borrowing, but correspondingly recognizes that the debenture holder is entitled to be protected for a while against redemption if interest rates fall and the borrower can borrow funds at a lower rate to pay off the debentures.


Plaintiff corporation held debentures in defendant borrower. When interest rates went down, and prior to the redemption date set out in the debenture documents, the borrower began to redeem the bonds. The corporation filed an action and sought an injunction to prohibit the redemption, alleging that the proposed redemption plan was barred by the terms of the indenture and the debentures. Additionally, the corporation argued that the borrower's failure to reveal its intention to redeem the debentures amounted to an intentional, manipulative scheme to defraud in violation of federal and state securities and business laws. Therefore, the corporation's preliminary injunction motion sought to enjoin borrower from consummating the redemption. The borrower contended that the corporation's allegation of securities fraud stemmed from its strained and erroneous interpretation of the redemption language. 


Was the corporation entitled to an injunction?




With respect to the corporation's preliminary injunction motion, the court held that the corporation failed to present any facts supporting its contention that the money damages would be an adequate remedy should it prevail in the underlying action. Moreover, the court held that the corporation failed to establish the likelihood of success on the merits on any of its claims. Lastly, the court held that the corporation also failed to make a showing of a balancing of hardships tipping decidedly in its favor.

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