This website uses cookies to ensure you get the best experience on our website. Learn more

LLM Law Outlines Corporate Bonds and Credit Agreement Outlines

Covenants Change Of Control Outline

Updated Covenants Change Of Control 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:

H. Change of Control

Freeport-McMoran Indenture, Section 4.08

BMS Indenture, Section 13.01-13.05

Petrohawk Indenture, Section 4.11

FMC Credit Agreement, Section 7.01(k)

McMahan v. Wherehouse Entertainment, 900 F.2d 576 (1990) (P. #1)

San Antonio Fire & Police Pension Fund v. Amylin, (P. #1)

Change of Control Covenants [Class 25]

  • Structure: Put right upon defined “change of control” trigger

    • Similar to Asset Sale (also put right/Offer)

    • Similar to Merger and Asset Sale (overlapping triggers)

  • Definition to trigger varies among indentures

    • Convertible versus regular

    • Base trigger

    • Rating Decline trigger

  • Trigger

    • Cash Merger

      • Is this a functional change in control?

      • Why do bondholder care?

      • Is it a trigger? BMS, FM

    • Stock Merger

      • Same Questions

      • What if merger structured as triangular merger with Subsidiary of Company merging with XYZ?

    • Change in Board/Management

  • Case Law: McMahan

    • Literal accuracy can be misleading

    • Makes life hard for lawyers

  • Note the term “change of control” doesn’t necessarily mean actual change of control

  • But would give Bondholder a put right

  • Rationale: company can do what it wants but bondholders are protected by the put right

BMS 4.05 Control by Majority

  • “Holders of a majority in Principal Amount of the outstanding Securities may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on it…”

  • Non-convertible bond: effect of the change on the credit volume

  • A “Fundamental Change” means

    • (ii) any transaction with all Common Stock is exchanged into something other than listed stock bondholder would get put right

      • Rationale: BMS’s stock is volatile and liquid good for bondholder

    • Important event that may have no/ positive/ negative effect

      • bondholders get option to exercise put right (need not exercise when event has no or positive effect; can exercise if there is a negative effect)

    • (i) Change of controlling shareholder

      • E.g. if bond traded 90% of par as a result of change of control increased to 95% good effect won’t exercise put right

      • (or e.g. if big increase between pre-fundamental change on bond value and par bondholder wants to get out they can still exercise put right)

Freeport 4.08 Change of Control

  • Convertible bond: effect of transaction on conversion right

  • If bondholder is convertible to stock good to be able to convert into something volatile (bad to convert into sth less volatile, e.g. cash)

  • Change of Control means

    • (a) any Person, other than the Company or a Sub, becomes the “beneficial owner” of more than 50% of total Voting Stock

      • Issue: may be triggered because entity of the company may be changed, but provision didn’t provide for stock purchase

    • (b) change of board: during any period of 2 consecutive year, individuals who at the beginning of such period constituted the board of directors cease to constitute a majority of the board

      • Prof: seems overly encumbrance, unclear why such events are harmful to bondholders, some similar events are treated differently

    • (c) adoption of plan relating to liquidation of the Co; or

    • (d) merger/ sale of substantial assets of the Company to another person

      • Merger to 2 companies If securities outstanding prior to merger are changed into cash, securities, or property unless the old shareholders have majority of stock in the new company

      • Always triggered if under cash merger

      • If A and B wish to merge

        1. A can be merged into B’s sub give A’s stockholders B’s stocks A would be B’s sub and B holds more than 50% of A trigger change of control under (a) and (b)

        2. Merge B into A’s sub give B’s stockholder A’s stock if B’s stockholders get minority/ majority stocks no problem as there is no merger or consolidation of A

        3. Direct merger of A and B

          • If B is surviving company, A may have majority of B

          • But don’t need to worry if A is surviving corporation

      • “The merger or consolidation of the Company with or into another Person or the merger of another Person with or into the Company, or the sale of all or substantially all the assets of the Company to another Person,

      • and, in the case of any such merger or consolidation, Company’s securities outstanding immediately prior to and represent 100% of the aggregate voting power of the Voting Stock of the Company are changed into or exchanged for the securities of the Company that are outstanding immediately prior to such transaction and which represent 100% of the aggregate voting power of the Voting Stock of the Company are changed into or exchanged for cash, securities or property,

      • unless pursuant to such transaction such securities are changed into or exchanged for, in addition to any other consideration, securities of the surviving Person or transferee that represent, immediately after such transaction, at least a majority of the aggregate voting power of the Voting Stock of the surviving Person or transferee.”

Problem Set # 16

1. Which of the following transactions results in a Change of Control or a Fundamental Change under the Freeport-McMoran, Petrohawk and BMS indentures? Which of the transactions have adverse economic effects on the bondholders? What kind of adverse effects?

  1. Company merges with XYZ. In...

Buy the full version of these notes or essay plans and more in our Corporate Bonds and Credit Agreement Outlines.