Commercial Division Blog

Posted: February 27, 2018 / Categories Commercial, Contracts

Indenture Trustee Can Bring Claims to Recover Losses Incurred by all Noteholders from Unpaid Notes

On February 20, 2018, the Court of Appeals issued a decision in Cortlandt St. Recovery Corp. v. Bonderman, 2018 NY Slip Op. 01149, holding that an indenture trustee can bring claims to recover losses incurred by all noteholders from unpaid notes, explaining:

An indenture is essentially a written agreement that bestows legal title of the securities in a single Trustee to protect the interests of individual investors who may be numerous or unknown to each other. As a partial solution to the collective-action problem presented by a fluctuating group of securities-holders with diverse interests, an indenture trustee is appointed to act as a type of agent on behalf of the securities-holders collectively. Unlike the ordinary trustee, who has historic common-law duties imposed beyond those in the trust agreement, an indenture trustee is more like a stakeholder whose duties and obligations are exclusively defined by the terms of the indenture agreement. Therefore, to determine the trustee's authority to pursue the causes of action in the appeal before us, we look to the language of the indenture.

Under New York law, interpretation of indenture provisions is a matter of basic contract law, and we construe an indenture subject to the rule that a written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms. It is well established that when reviewing a contract, particular words should be considered, not as if isolated from the context, but in the light of the obligation as a whole and the intention of the parties manifested thereby. . . . .

Indenture section 6.03, titled "Other Remedies," states, in relevant part: "If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal, premium, if any, and interest on the Notes or to enforce the performance of any provision of the Notes or this Indenture." Occurrences that would be considered an "Event of Default" are enumerated in section 6.01, and include a default in the payment of interest when due for 30 days, default in the payment of principal of any Note when due at its maturity, and the failure by Hellas I or Hellas Finance to comply for 60 days after notice with its other agreements contained in the indenture. Thus, by the terms of the agreement, the trustee is empowered to bring this third-party suit against the defendants in order to recover monies due and unpaid on the PIK notes.

(Internal quotations and citations omitted).

This decision relates to a significant part of our practice: litigation regarding structured finance transactions. Contact Schlam Stone & Dolan partner John Lundin at if you or a client have questions regarding litigation about financial products and services.