Milken & the Courts
Which investment bank is credited with creating the modern high-yield bond market?
Drexel Burnham Lambert
Which section of Windstream's indenture restricted sale-and-leaseback transactions?
Section 4.19.
What restructuring technique combines an exchange offer with a solicitation to remove protective covenants from existing debt?
An exchange offer with exit consents.
Which airline offered bondholders financial incentives to approve amendments relaxing its restrictive covenants?
Eastern Airlines
Which hedge fund challenged Windstream's sale-and-leaseback transaction?
Aurelius Capital Master, Ltd.
What is a fallen angel, and why did Milken see an investment opportunity in these securities?
A bond downgraded from investment grade to speculative grade. Milken believed the market often overestimated default losses relative to yields.
Which section of Windstream's indenture governed the incurrence of additional indebtedness?
Section 4.09
What percentage of Oak's aggregate debt principal needed to participate in the exchange for Allied-Signal's equity investment obligation to become binding?
85%
What two alternative incentives did Eastern offer consenting bondholders per $1,000 of principal?
$35 in cash or $125 in Eastern Airlines ticket vouchers.
What were the original aggregate principal, coupon, and maturity of Windstream's disputed senior unsecured notes?
$700 million, 6⅜% coupon, due August 1, 2023.
How long do bankruptcy judges serve, and who appoints them?
14-year terms; appointed by the U.S. Courts of Appeals.
What consolidated leverage ratio generally limited Windstream's ability to incur additional indebtedness?
4.5x
What were the two transactions Allied-Signal agreed to undertake with Oak, and for what amounts?
Acquire Oak's Materials Segment for $160 million and invest $15 million in Oak common stock and warrants.
Which transaction motivated Eastern's proposed amendments, and what specific payment would those amendments permit?
Eastern's merger with a Texas Air subsidiary; a $1.75-per-share dividend to Texas Air after the merger.
What was the purpose of Windstream's 2017 exchange offers and consent solicitations?
To dilute Aurelius's voting position by issuing additional notes, then secure a majority waiver of the alleged sale-and-leaseback default.
Is an SDNY district court decision automatically binding on every SDNY bankruptcy judge? Which higher courts establish binding precedent?
No. Decisions from the Second Circuit and U.S. Supreme Court are binding.
A company refinances $1 billion of debt by issuing $1.08 billion of new notes. Identify the three categories of additional amounts that could qualify under Windstream's Permitted Refinancing Indebtedness definition.
Accrued and unpaid interest, reasonably determined necessary refinancing premiums, and reasonable transaction expenses.
What consent thresholds were required to amend Oak's three note indentures versus its three debenture indentures?
More than 50% of principal for each note class and at least 66⅔% for each debenture class.
Why did Chancellor Allen reject the argument that Eastern's consent solicitation constituted unlawful vote buying?
The offer was publicly available to all affected holders on identical terms, without fraud or disenfranchisement. Each holder remained free to consent or refuse.
Approximately how much additional indebtedness did Windstream incur through its exchange transactions, and why did this create a problem under Section 4.09?
~$40 million. The additional principal did not qualify as Permitted Refinancing Indebtedness, violating the debt-incurrence covenant.
What are the two possible routes for the first appeal of a bankruptcy court decision, and how do they differ?
Federal District Court, where an Article III judge reviews the decision, or a Bankruptcy Appellate Panel (where available), consisting of three bankruptcy judges.
Windstream's Section 2.02 permitted the issuance of Additional Notes. Why did that provision not independently authorize the company's exchange transaction?
Section 2.02 expressly subjected Additional Notes to Article Four, including Section 4.09's debt-incurrence restrictions. Additional Notes still had to satisfy the indebtedness covenant.
Why did Chancellor Allen reject the argument that Oak's exchange offer at less than the contractual redemption price was effectively an unlawful compulsory redemption?
Bondholders retained the contractual option not to tender. The exchange consideration was above market value, despite being below redemption value, and did not constitute a unilateral exercise of Oak's redemption rights.
What alternative consent-payment arrangement did Chancellor Allen suggest could raise a stronger implied-covenant challenge, and why?
Secretly or selectively paying only the bondholders necessary to obtain the required majority. This could undermine the negotiated voting mechanism and reasonable contractual expectations, unlike an offer equally available to all holders.
Windstream obtained approximately $699 million in purported consenting principal. Why did Judge Furman conclude that these consents failed to waive the default despite exceeding the required majority?
More than $525 million of the consents came from improperly issued Additional Notes that violated Section 4.09. Excluding those notes eliminated the majority necessary to waive the default.