Eaton Vance Management v. Wilmington Savings Fund Society
New York Supreme Court
2018 N.Y. Misc. LEXIS 1488 (2018)
- Written by Steven Pacht, JD
Facts
Eaton Vance Management and certain others (collectively, Eaton) (plaintiffs) owned approximately 12 percent of a term loan made to J. Crew Group, Inc. (J. Crew) (defendant). The majority of the term-loan holders, which included the Wilmington Savings Fund Society (defendants), also owned Senior PIK Toggle Notes (PIK notes) issued by Chinos Intermediate Holdings A, Inc. (Holdings A) (defendant), which was the parent of and controlling shareholder in Chinos Intermediate Holdings B (Holdings B). Holdings B was J. Crew’s parent and controlling shareholder. In 2014, after Holdings A issued the PIK notes, the parties entered into an amended and restated credit agreement for the term loan (2014 agreement), which provided in pertinent part that the loan was secured by J. Crew’s property, including intellectual property owned by certain subsidiaries, and that J. Crew could transfer its property (collateral) only to qualifying subsidiaries. The 2014 agreement referred to the qualifying subsidiaries as the “Restricted Subsidiaries.” The 2014 agreement further provided that most amendments thereto could be made with the written consent of a majority of designated lenders but that the unanimous consent of all lenders was needed for any transaction or series of related transactions that involved the transfer of all or substantially all the collateral. In late 2016, J. Crew undertook a restructuring of its debt, which included transferring the collateral to certain of its subsidiaries. However, several term-loan lenders objected, arguing that the transfers were improper because the recipient subsidiaries were not Restricted Subsidiaries. In June 2017, J. Crew announced, among other things, that it would seek the term lenders’ consent to amend the 2014 agreement to ratify the 2016 collateral transfers. Ultimately, 85 percent of the term lenders provided their consent. However, Eaton, which did not consent, filed suit, alleging that the 2016 and 2017 transactions involved the transfer of all or substantially all the collateral and thus required the consent of all lenders. J. Crew, Holdings A, and Holdings B conceded that the 2017 lender vote could not (and did not) negate the need for lender approval of transfers involving all or substantially all the collateral but argued that the challenged transactions did not, in fact, transfer all or substantially all the collateral and that Eaton thus lacked standing.
Rule of Law
Issue
Holding and Reasoning (Kornreich, J.)
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