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LLM Law Outlines Corporate Bonds and Credit Agreement Outlines

Special Payment Provisions Monetary Terms Outline

Updated Special Payment Provisions Monetary Terms Notes

Corporate Bonds and Credit Agreement Outlines

Corporate Bonds and Credit Agreement

Approximately 204 pages

Corporate Bonds and Credit Agreement with Kahan Spring 2019...

The following is a more accessible plain text extract of the PDF sample above, taken from our Corporate Bonds and Credit Agreement Outlines. Due to the challenges of extracting text from PDFs, it will have odd formatting:

B. Special Payment Provisions in Indentures

Hawaiian Electric Indenture, Section 2.01, 2.02, Exhibit A

BMS, Exhibit A, Section 1

Sprint Supplemental Indenture, Section 1401, 1402, Exhibit A

Coronet Insurance v. GAAC (N.D. Ill. 1991) (P. #1)

Problem Set # 2
Consider the Hawaiian Electric Indenture

  1. What are the Company’s options and constraints with respect to the shortening or extension of the maturity date? Can the Company change the maturity date once or multiple times?

  • Embedded Options

    • Economics of Extension

      • depends on the borrowing cost of the co. at that time (e.g. market interest rate) vs. the coupon rate in bond

      • lower Co. would want to pay early

      • higher Co. would want to pay late

  • Maturity Date

    • Default maturity date 2034

      • s.2.02(d) The Stated Maturity Date of the Series 2004 Debentures is March 18,2034. The Stated Maturity Date for the Series 2004 Debentures may be shortened or extended at any time at the election of the Company for one or more periods, but in no event to a date earlier than March 18, 2009 or to a date later than March 18, 2053

      • Security P.4 “Company shall have the right at any time and from time to time to extend the interest payment period…”

    • Can it be extended? Shortened? By how much?

      • may be shortened to 2009

      • extended to 2053

    • How often? Once or as often as company wants?

      • Incomplete parallelism

      • “For one or more periods” doesn’t mean Company can change it as often as it wants

      • Security “at any time and from time to time” = whenever + as often as you want

      • Indenture s.2.02(d) “at any time” = as many as the Co. wants, Company can do it multiple times

        • the clarification “from time to time”, may unclarified other clauses due to this inconsistency: doesn’t say “from time to time” in the indenture different from security may make the indenture clause to mean ‘whenever” but not as often as you want introduces ambiguity

        • Kahan: may be because the drafter added “from time to time” to the security; but forgot to add it to the indenture. Should use the same phrase to make it clear

      • No significance for maturity date of 2034 if company can change more than once

      • Conditions for changing date - How should the Company exercise its options?

        • 2.02(d) “The Stated Maturity Date of the Series 2004 Debentures is March 18,2034. The Stated Maturity Date for the Series 2004 Debentures may be shortened or extended at any time at the election of the Company for one or more periods, but in no event to a date earlier than March 18, 2009 or to a date later than March 18,2053; provided that notice of such election is provided to the Holders and the Trustee by the Company at the Company's expense not less than 30 days prior to

      • (A) the date to which the Stated Maturity Date is to be shortened if the Stated Maturity Date is to be shortened or

      • (B) the previous Stated Maturity Date if the Stated Maturity Date is to be extended, and provided,

      • further, at the time such election is made and at the time of any such shortening or extension

        • (i) an Event of Default described in Section 6.01(a)(l), 6.01(a)(3) or 6.01(a)(4) has not occurred and is continuing and, unless the Debenture Exchange has occurred, an "Event of Default" described in Section 6.01(a)(l), 6.01(a)(3) or 6.01(a)(4) of each of the MECO Indenture and the HELCO Indenture has not occurred and is continuing,

        • (ii)Trust III is not delinquent in payment of distributions on the Trust 111Preferred Securities for more than one full quarterly distribution period,

        • (iii) no deferred distributions on the Trust III Preferred Securities are accumulated, and

        • (iv) the Trust III Preferred Securities, or, if the Debenture Exchange has occurred, the Series 2004 Debentures, are rated not less than BBB- by Standard & Poor's or Baa3 by Moody's Investors Services, Inc. or the equivalent by any other nationally recognized statistical rating organization

          • BBB- and Baa3 are the lowest grade the Company can get

  1. Assume that the Company is concerned that it may soon fail to satisfy the condition in (iv) for changing the maturity date. How may the Company want to deal with this possibility?

    • Assume that

      • Maturity Date can be changed multiple times

      • Company is aware that conditions (i) or (iv) may not be met

    • Conditional on conditions (i) or (iv) not being met, would Company prefer earlier or later Maturity Date?

    • Send a notice to the Holder before it fail to satisfy condition (iv). As long as “at the time such election is made and at the time of any such shortening or extension”, the company still satisfy condition (iv).

  2. What are the Company’s options and constraints with respect to extensions of the interest payment period. How should the Company exercise its options? [30/1]

    • Strategy for changing date:

      • If company knows under certain conditions, it will not be able to change the dates soon what should Company do in anticipation of it?

      • In the future, may not be able to change the maturity date

    • Interest rate changed (went down/ credit rating improved and you want to repay debt earlier so you can refinance it at an earlier date)

    • When company want an earlier maturity date, the bondholders would want a later maturity date, vice versa

    • 2.02(d) conditions “further, at the time such election is made and at the time of any such shortening or extension

      • (i) an Event of Default described in Section 6.01(a)(l), 6.01(a)(3) or 6.01(a)(4) has not occurred and is continuing and, unless the Debenture Exchange has occurred, an "Event of Default" described in Section 6.01(a)(l), 6.01(a)(3) or 6.01(a)(4) of each of the MECO Indenture and the HELCO Indenture has not occurred and is continuing…

        • Signal of bad financial state of Company (though may not be accurate)

        • Event of default has occurred accelerate: bondholders can ask to be paid now = shortened maturity date to now

        • But sometimes circumstances will bondholder not accelerate (when they prefer a later maturity date) (no choice for Co): interest rate is attractive

        • When bondholders want...

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