New opinion issued today in BOKF, N.A. v. Caesars Entertainment Corporation and UMB Bank, N.A. v. Caesars Entertainment Corporation

A copy of the opinion is embedded below.

Raw text of the opinion:

BOKF, N.A. (“BOKF”), as successor Indenture Trustee, and UMB
Bank, N.A. (“UMB”), as Indenture Trustee, bring these actions to enforce Caesars
Entertainment Corporation’s (“CEC”) guarantees of roughly $7 billion in notes
issued by Caesars Entertainment Operating Company (“CEOC”). Plaintiffs assert
that CEC’s guarantees became due and payable upon CEOC’s filing of a voluntary
petition for relief under chapter 11 of the Bankruptcy Code in the Northern District
of Illinois Bankruptcy Court on January 15, 2015. CEC, however, claims that
certain transactions entered into in May and August 2014 released its obligations
under the guarantees. Plaintiffs now move for partial summary judgment, seeking
a declaration that the purported release of CEC’s guarantees violates section
of the Trust Indenture Act of 1939 (the “TIA”).
For the following
reasons, plaintiffs’ motions are DENIED.
A. The Indentures
BOKF is the successor Indenture Trustee under the Indenture dated
See 15 U.S.C. §§ 77ppp(b) (“section 316(b)”).
See id. §§ 77aaa to 77bbbb.
April 16, 2010 (the “Indenture”), under which CEOC issued the 12.75% Second-
Priority Senior Secured Notes due 2018.
UMB is the Indenture Trustee under four
First Lien Indentures — dated June 10, 2009 (due 2017), February 14, 2012,
August 22, 2012 and February 15, 2013 (all three due in 2020) (together with the
BOKF Indenture, the “Indentures”) — that comprise approximately
$6,345,000,000 of CEOC’s recourse first lien bond debt (together with the 12.75%
Second Priority Senior Secured Notes, the “Notes”).
CEC, the parent company of
CEOC and a signatory to the Indentures as “Parent Guarantor,” irrevocably and
unconditionally guaranteed the obligations arising under the Indentures until
payment in full of all of the guarantee obligations (the “Guarantee”).
Indentures contain a release provision, providing that the Guarantee will terminate
See Plaintiff BOKF N.A.’s Statement of Undisputed Material Facts
Pursuant to Local Civil Rule 56.1 in Support of Its Motion for Partial Summary
Judgment (“BOKF 56.1”) ¶¶ 1, 3.
See Plaintiff UMB Bank, N.A.’s Statement of Undisputed Material
Facts Pursuant to Local Civil Rule 56.1 in Support of Its Motion for Partial
Summary Judgment (“UMB 56.1”) ¶ 1. The provisions of all indentures at issue
are identical in all material respects. I will therefore reference the indentures for
both plaintiffs as simply the “Indentures.” Additionally, most facts are identical in
both plaintiffs’ motions. I will therefore cite only to BOKF’s 56.1 statement unless
otherwise necessary.
See BOKF 56.1 ¶¶ 1, 6–9.
upon the occurrence of certain events.
The Indentures are qualified under and
governed by the TIA, and the Indentures state that if any provision of the
Indentures conflict with the TIA, the TIA controls.
In January 2008, Apollo Global Management, LLC, TPG Global,
LLC, and their respective affiliates and co-investors acquired CEC in a leveraged
buyout transaction for $30.7 billion, funded through the issuance of approximately
$24 billion in debt; approximately $19.7 billion of which was secured by liens on
substantially all of CEOC’s assets.

In its 2013 Annual Report, issued on March 17, 2014, CEC stated that
“[w]e do not expect that cash flow from operations will be sufficient to repay
CEOC’s indebtedness in the long-term and we will have to ultimately seek a
restructuring, amendment or refinancing of our debt, or if necessary, pursue
additional debt or equity offerings.”
Over the past several years, CEOC and CEC
have undertaken numerous transactions, including over forty-five asset sales and
See id. ¶ 14 (citing section 12.02(c) of the Indenture, reproduced in
full at page 19).
See id. ¶¶ 9–11 (citing sections 6.07 and 13.01 of the Indenture).
See id. ¶¶ 17–18.
Id. ¶ 22.
capital market transactions, in order to manage their debt.
These transactions
included moving certain CEOC assets to new affiliates formed in 2013 and early
In March 2014, CEC hired Blackstone Advisory Partners L.P. to
provide advice regarding certain financial and strategic alternatives for the
In an engagement letter dated August 12, 2014, but made effective as
of May 7, 2014, Blackstone agreed to provide financial advisory services to CEC
and its affiliates in connection with a possible restructuring of certain liabilities and
to assist in analyzing, structuring, negotiating, and effecting a restructuring.
C. The Guarantee Transactions
On May 6, 2014, CEC announced that CEOC planned to issue $1.75
billion in new “B-7” term loans (the “B-7 Transaction”) under the first lien credit
agreement and to use the net proceeds to refinance existing indebtedness maturing
in 2015 and existing term loans.
Also on May 6, 2014, CEC announced that in
connection with the B-7 Transaction, CEC sold five percent of CEOC’s common
See id. ¶ 26.
See id. ¶¶ 31–40.
See id. ¶ 29.
See id. ¶ 30.
See id. ¶¶ 42, 51–54.
stock to certain institutional investors (the “5% Stock Sale” and together with the
B-7 Transaction, the “May 2014 Transaction”). According to CEC, because
CEOC was no longer a wholly owned subsidiary, the Guarantee was automatically
terminated under section 12.02(c)(i) of the Indentures.
CEC stated that the B-7
Transaction lenders required the elimination of the Guarantee, and that the
elimination provided enhanced credit support for the B-7 Transaction.

On May 30, 2014, CEC authorized the CEOC Board to adopt a 2014
stock performance incentive plan, which enabled CEOC to grant shares of CEOC
stock to its directors and officers (the “6% Stock Transfer”), which was announced
on June 27, 2014.
Also on June 27, CEC asserted that its Guarantee of the Notes
had been released because CEOC elected to release the Guarantee under a separate
Indenture provision that permits such an election once CEC’s guarantee of all the
“Existing Notes,” as defined in the Indenture, had been released.
On August 12, 2014, CEC announced a private refinancing
transaction with certain holders of CEOC’s 2016 and 2017 Notes, whereby CEOC
See id. ¶ 44.
See id. ¶¶ 45–46.
See id. ¶¶ 56–58.
See id. ¶¶ 15–16, 59–60.
purchased the holders’ notes and the holders agreed to amend the indentures
governing the 2016 and 2017 Notes to include (a) a consent to the removal, and
acknowledgment of the termination, of the CEC guarantee within each indenture
and (b) a modification of the covenant restricting disposition of “substantially all”
of CEOC’s assets to measure future asset sales based on CEOC’s assets as of the
date of the amendment (the “August Unsecured Notes Transaction”).
After the
August Unsecured Notes Transaction closed, CEC announced that CEOC had
provided notice to the Indenture Trustees, as well as other trustees for other
secured notes, reaffirming its contention that CEC’s Guarantee had been released
at CEOC’s election, first announced in June 2014.
None of the noteholders represented by plaintiffs consented, or were
afforded the opportunity to consent, to the May 2014 Transaction, the 6% Stock
Transfer, or the August Unsecured Notes Transaction (collectively, the “Guarantee
In January 2015, CEOC and 172 of its subsidiaries filed voluntary
See id. ¶¶ 62–63.
See id. ¶¶ 64–65.
See id. ¶ 66; UMB 56.1 ¶ 64.
petitions under chapter 11 of the Bankruptcy Code.
Under the terms of CEOC’s
proposed reorganization plan, the noteholders cannot recover the principal and
interest due under the Indentures.
The bankruptcy filing was an immediate Event
of Default under the Indentures, and as a result, CEOC’s and CEC’s obligations
under the Notes became due and owing.
BOKF served CEC with a demand for
payment on February 18, 2015, and CEC responded that it was not subject to the
Summary judgment is appropriate “only where, construing all the
evidence in the light most favorable to the non-movant and drawing all reasonable
inferences in that party’s favor, there is ‘no genuine issue as to any material fact
and . . . the movant is entitled to judgment as a matter of law.’”
“A fact is
material if it might affect the outcome of the suit under the governing law, and an
See BOKF 56.1 ¶ 70.
See id. ¶¶ 79–80; UMB 56.1 ¶ 74.
See BOKF 56.1 ¶¶ 74–75; UMB 56.1 ¶¶ 70–71. CEC disputes that it
has any obligations under these Notes, as it asserts that the Guarantees have been
See BOKF 56.1 ¶¶ 76–77.
Rivera v. Rochester Genesee Reg’l Transp. Auth., 743 F.3d 11, 19 (2d
Cir. 2014) (quoting Fed. R. Civ. P. 56(c)) (some quotation marks omitted).
issue of fact is genuine if the evidence is such that a reasonable jury could return a
verdict for the nonmoving party.”
“[T]he moving party has the burden of showing that no genuine issue
of material fact exists and that the undisputed facts entitle [it] to judgment as a
matter of law.”
To defeat a motion for summary judgment, the non-moving party
must “do more than simply show that there is some metaphysical doubt as to the
material facts,”
and “may not rely on conclusory allegations or unsubstantiated
In deciding a motion for summary judgment, “[t]he role of the court is
not to resolve disputed issues of fact but to assess whether there are any factual
issues to be tried.”
“‘Credibility determinations, the weighing of the evidence,
and the drawing of legitimate inferences from the facts are jury functions, not those
Windsor v. United States, 699 F.3d 169, 192 (2d Cir. 2012), aff’d, 133
S. Ct. 2675 (2013) (quotations and alterations omitted).
Coollick v. Hughes, 699 F.3d 211, 219 (2d Cir. 2012) (citations
Brown v. Eli Lilly & Co., 654 F.3d 347, 358 (2d Cir. 2011) (quotation
marks and citations omitted).
Id. (quotation marks and citations omitted).
Cuff ex rel. B.C. v. Valley Cent. Sch. Dist., 677 F.3d 109, 119 (2d Cir.
of a judge.’”
A. The Trust Indenture Act
The TIA provides that instruments to which it applies must be issued
under an indenture that has been qualified by the Securities and Exchange
Commission (“SEC”).
The requirements of such indentures are “designed to
vindicate a federal policy of protecting investors.”
Section 316 of the TIA relates to collective action clauses. For
example, it is permissible for a majority of noteholders to direct the trustee to
exercise its powers under the indenture or for not less than seventy-five percent of
noteholders “to consent on behalf of the holders of all such indenture securities to
Barrows v. Seneca Foods Corp., 512 Fed. App’x 115, 117 (2d Cir.
2013) (quoting Redd v. New York Div. of Parole, 678 F.3d 166, 174 (2d Cir.
See generally 15 U.S.C. §§ 77eee-77ggg. “A ‘trust indenture’ is a
contract entered into between a corporation issuing bonds or debentures and a
trustee for the holders of the bonds or debentures, which, in general, delineates the
rights of the holders and the issuer.” Upic & Co. v. Kinder-Care Learning Ctrs.,
Inc., 793 F. Supp. 448, 450 (S.D.N.Y. 1992).
Bluebird Partners, L.P. v. First Fidelity Bank, N.A., 85 F.3d 970, 974
(2d Cir. 1996) (explaining that the law was “enacted because previous abuses by
indenture trustees had adversely affected ‘the national public interest and the
interest of investors in notes, bonds[, and] debentures . . . .’”) (quoting 15 U.S.C. §
the postponement of any interest payment for a period not exceeding three years
from its due date.”
Section 316(a)’s terms are permissive — meaning an
indenture can expressly exclude such majority action.
However, section 316(b) is mandatory. It states that:
Notwithstanding any other provision of the indenture to be
qualified, the right of any holder of any indenture security to
receive payment of the principal of and interest on such indenture
security, on or after the respective due dates expressed in such
indenture security, or to institute suit for the enforcement of any
such payment on or after such respective dates, shall not be
impaired or affected without the consent of such holder, except as
to a postponement of an interest payment consented to as provided
in paragraph (2) of subsection (a) of this section, and except that
such indenture may contain provisions limiting or denying the
right of any such holder to institute any such suit, if and to the
extent that the institution or prosecution thereof or the entry of
judgment therein would, under applicable law, result in the
surrender, impairment, waiver, or loss of the lien of such
indenture upon any property subject to such lien.
Thus, section 316(b) acts to protect a bondholder’s right to receive payment of
both principal and interest.
Section 316(b) addressed earlier practices whereby majority
bondholders — often controlled by insiders — used collective or majority action
clauses to change the terms of an indenture, to the detriment of minority
15 U.S.C. § 77ppp(a).
Id. § 77ppp(b).
As a result of section 316(b), an issuer cannot — outside of
— alter its obligation to pay bonds without the consent of each
In this way, section “316(b) was designed to provide judicial
scrutiny of debt readjustment plans to ensure their equity.”
See MeehanCombs Global Credit Opportunities Funds, LP v. Caesars
Entertainment Corp. (“MeehanCombs”), Nos. 14 Civ. 7091, 14 Civ. 7937, 2015
WL 221055, at *3 n.31 (S.D.N.Y. Jan. 15 2015) (collecting cases).
See, e.g., In re Board of Directors of Telecom Argentina, S.A., 528
F.3d 162, 172 (2d Cir. 2008) (“‘[I]t is self-evident that Section 316(b) could not
have been intended to impair the capacity of a debtor and its creditors to restructure
debt in the context of bankruptcy,’ and ‘[t]he cases have uniformly recognized that
reorganization proceedings in Chapter 11 are not within the purview of TIA
Section 316(b).’”) (quoting In re Delta Air Lines, Inc., 370 B.R. 537, 550 (Bankr.
S.D.N.Y. 2007), aff’d, 374 B.R. 516 (S.D.N.Y. 2007)).
See In re Board of Directors of Multicanal S.A., 307 B.R. 384, 388-89
(Bankr. S.D.N.Y. 2004); Mark J. Roe, The Voting Prohibition in Bond Workouts,
97 Yale L.J. 232, 251 (1987) (“Only two events should change a company’s
obligation to pay its bonds. Either each affected bondholder would consent to the
alteration of the bond’s terms, or a judge would value the company to determine
that the firm was insolvent, eliminate the stockholders, and then reduce the express
obligation to the bondholders.”) (emphasis in original).
Brady v. UBS Financial Services, Inc., 538 F.3d 1319, 1325 (10th Cir.
2008) (citing S. Rep. No. 76-248, at 26 (1939)); see also id. (“In practice, the
provision tends to force recapitalizations into bankruptcy court because of the
difficulty of completing a consensual workout.”); George W. Shuster, Jr., The
Trust Indenture Act and International Debt Restructurings, 14 Am. Bankr. Inst. L.
Rev. 431, 433-37 (2006) (“Section 316(b) was adopted with a specific purpose in
mind — to prevent out-of-court debt restructurings from being forced upon
minority bondholders.”); Roe, The Voting Prohibition, 97 Yale L.J. at 251
(“Congress and the SEC were aware that the holdout problem would frustrate some
workouts, but the regulators wanted to impede workouts that took place outside of
B. Contract Interpretation
Under New York law, “[t]he court’s function in interpreting a contract
is to apply the meaning intended by the parties, as derived from the language of the
contract in question.”
“[T]he best evidence of what parties to a written agreement
intend is what they say in their writing. Thus, a written agreement that is complete,
clear and unambiguous on its face must be enforced according to the plain meaning
of its terms.”

“The question of whether a written contract is ambiguous is a question
of law for the court.”
“Contract language is unambiguous when it has a definite
and precise meaning, unattended by danger of misconception in the purport of the
contract itself, and concerning which there is no reasonable basis for a difference
of opinion.”
However, contract language is ambiguous if “the terms of the
contract could suggest more than one meaning when viewed objectively by a
regulatory and judicial control. The SEC wanted trust indenture legislation that
would bring contractual recapitalizations under the jurisdiction of the federal
bankruptcy court.”) (emphasis in original).
Marin v. Constitution Realty, LLC, 11 N.Y.S.3d 550, 558–59 (1st
Dep’t 2015) (internal citations, quotations, and alterations omitted).
Greenfield v. Philles Records, Inc., 98 N.Y.2d 562, 569 (2002)
(internal citations and quotations omitted).
JA Apparel Corp. v. Abboud, 568 F.3d 390, 396 (2d Cir. 2009).
Revson v. Cinque & Cinque, P.C., 221 F.3d 59, 66 (2d Cir. 2000).
reasonably intelligent person who has examined the context of the entire integrated
agreement and who is cognizant of the customs, practices, usages and terminology
as generally understood in the particular trade or business.”
“Evidence outside
the four corners of the document as to what was really intended but unstated or
misstated is generally inadmissible to add to or vary the writing; evidence as to
custom and usage is considered, as needed, to show what the parties’ specialized
language is fairly presumed to have meant.”

A. Impairment Under the TIA
In MeehanCombs, I rejected CEC’s arguments that section 316(b)
protected only a noteholder’s legal right to receive payment when due. Rather, I
agreed with two other courts in this district that “when a company takes steps to
preclude any recovery by noteholders for payment of principal coupled with the
elimination of the guarantors for its debt, . . . such action . . . constitute[s] an
‘impairment’ . . . .”
I continue to adhere to the view that section 316(b) protects a
Law Debenture Trust Co. of New York v. Maverick Tube Corp., 595
F.3d 458, 466 (2d Cir. 2010).
Id. at 466–67.
Federated Strategic Income Fund v. Mechala Grp. Jamaica Ltd., No.
99 Civ. 10517, 1999 WL 993648, at *7 (S.D.N.Y. Nov. 2, 1999).
noteholder’s practical ability, as well as the legal right, to receive payment when
Specifically, I concluded, following the reasoning of two decisions from
this District, that section 316(b) protects more than simply “formal, explicit
modification of the legal right to receive payment” which would allow “a
sufficiently clever issuer to gut the Act’s protections.”
As explained in Federated
Strategic Income Fund:
By defendant’s elimination of the guarantors and the simultaneous
disposition of all meaningful assets, defendant will effectively
eliminate plaintiffs’ ability to recover and will remove a holder’s
“safety net” of a guarantor, which was obviously an investment
consideration from the outset. Taken together, these proposed
amendments could materially impair or affect a holder’s right to
sue. A holder who chooses to sue for payment at the date of
maturity will no longer, as a practical matter, be able to seek
recourse from either the assetless defendant or from the
discharged guarantors. It is beyond peradventure that when a
company takes steps to preclude any recovery by noteholders for
payment of principal coupled with the elimination of the
guarantors for its debt, that such action . . . constitute[s] an
“impairment” . . . [of] the right to sue for payment.
Accord Marblegate Asset Mgmt., LLC v. Education Mgmt. Corp.
(“Marblegate II”), No. 14 Civ. 8584, 2015 WL 3867643 (S.D.N.Y. June 23, 2015)
(reviewing legislative history to conclude that section 316(b) protects against
nonconsensual debt restructuring to protect a noteholder’s right to receive
Marblegate Asset Mgmt. v. Education Mgmt. Corp. (“Marblegate I”),
75 F. Supp. 3d 592, 613 (S.D.N.Y. 2014)
Federated Strategic Income Fund, 1999 WL 993648, at *7.
In MeehanCombs, I stated that “the Complaint’s plausible allegations
that the August 2014 Transaction stripped plaintiffs of the valuable CEC
Guarantees leaving them with an empty right to assert a payment default from an
insolvent issuer are sufficient to state a claim under section 316(b).”
however, I must decide several questions left open by MeehanCombs. Namely,
what must plaintiffs prove to demonstrate an impairment that violates section
316(b)? Plaintiffs contend that there are only two elements: “(i) an impairment of
a security holder’s right to receive payment (ii) without the holder’s consent.”

Thus, they assert that because the Guarantees were purportedly stripped without
their consent, CEC’s actions violated section 316(b).
CEC responds with several arguments. First, CEC contends that, in
order to violate section 316(b), the alleged impairment must be either: (1) an
amendment of a core term of the debt instrument or (2) a restructuring of the
noteholders’ debt. Second, CEC asserts that the impairment should be evaluated as
of the time of each transaction — that is, plaintiffs must prove that CEOC was
insolvent at the time the Guarantees were terminated, leaving the noteholders with
no ability to recover as of the time of the transaction. Related to this argument,
MeehanCombs, 2015 WL 221055, at *5.
Plaintiff BOKF N.A.’s Memorandum of Law in Support of Its Motion
for Partial Summary Judgment (“BOKF Mem.”) at 16–17.
CEC asserts that the Guarantees were never intended to provide credit support, and
therefore the release of a Guarantee that provided no real value to noteholders
cannot be an impairment. Finally, CEC argues that there are genuine disputes of
material fact as to whether the challenged transactions were, either individually or
collectively, a restructuring of the noteholders’ debt, and that CEC has been
prevented from pursuing discovery essential to its opposition.
As described more fully below, I conclude that in order to prove an
impairment under section 316(b), plaintiffs must prove either an amendment to a
core term of the debt instrument, or an out-of-court debt reorganization.
alleged impairment, however, must be evaluated as of the date that payment
becomes due, because it is only then that the bondholders’ right to payment has
been affected by certain actions and/or transactions undertaken by issuers or
1. The Nature of the Guarantee
I begin by addressing the nature of the Guarantee. CEC asserts that
The term “reorganization” has been defined as follows: “A process
designed to revive a financially troubled or bankrupt firm. A reorganization
involves the restatements of assets and liabilities, as well as holding talks with
creditors in order to make arrangements for maintaining repayments.
Reorganization is an attempt to extend the life of a company facing bankruptcy
through special arrangements and restructuring in order to minimize the possibility
of past situations reoccurring.” Reorganization Definition,, (last visited Aug. 26, 2015).
the noteholders cannot have been practically impaired by the release of the
Guarantee because the Guarantee was never intended to provide credit support for
the Notes. Rather, CEC contends that the Guarantee was included in the Indenture
only as a regulatory device to comply with Rule 3-10 of SEC Regulation S-X.
This regulation would allow CEOC to rely on CEC’s audited financials rather than
preparing and filing its own audited financial statements.
Plaintiffs respond that
the Guarantee language in the Indenture is unambiguous: it provides for an
unequivocal guarantee by CEC. Thus, any extrinsic evidence regarding the
purported intent of the Guarantee is inadmissable under New York law.
Section 12.01(a) of the Indenture spells out the terms of the
Each Guarantor hereby jointly and severably, irrevocably and
unconditionally guarantees . . . the full and punctual payment
when due, whether at Stated Maturity, by acceleration, by
redemption or otherwise, of all obligations of the Issuer under this
Indenture (including obligations to the Trustee) and the Notes,
whether for payment of principal of, premium, if any, or interest
on in respect of the Notes and all other monetary obligations of
the Issuer under this Indenture and the Notes . . . .
See Memorandum of Law of Caesars Entertainment Corporation in
Opposition to BOKF, N.A.’s Motion for Partial Summary Judgment (“Opp.
Mem.”) at 9–10 (citing 17 C.F.R. Part 210.3-10).
BOKF 56.1 ¶ 6 (emphasis added). The language in the UMB
Indenture is substantively identical. See UMB 56.1 ¶ 8.
Additionally, section 12.01(g) provides that “[e]ach Guarantor agrees that its Note
Guarantee shall remain in full force and effect until payment in full of all the
Guaranteed Obligations.”
The release of the Guarantee is governed by section
12.02(c) of the Indenture, which provides that CEC
shall be deemed to be released from all obligations . . . upon:
(i) the Issuer ceasing to be a Wholly Owned Subsidiary of
Harrah’s Entertainment;
(ii) the Issuer’s transfer of all or substantially all of its
assets to, or merger with, an entity that is not a Wholly Owned
Subsidiary of Harrah’s Entertainment in accordance with Section
5.01 and such transferee entity assumes the Issuer’s obligations
under this Indenture; and
(iii) the Issuer’s exercise of its legal defeasance option or
covenant defeasance option under Article VIII or if the Issuer’s
obligations under this Indenture are discharged in accordance with
the terms of this Indenture.
Finally, the Indenture provides that the TIA governs the Indenture and
controls in the event of an inconsistency between the TIA and the Indenture: “If
and to the extent that any provision of this Indenture limits, qualifies or conflicts
with the duties imposed by . . . Sections 310 to 318 of the TIA, inclusive, such
imposed duties . . . shall control.”
CEC contends that several provisions of the Indenture indicate that the
BOKF 56.1 ¶ 6; UMB 56.1 ¶ 10.
BOKF 56.1 ¶ 14; UMB 56.1 ¶ 15.
See BOKF 56.1 ¶ 11 (quoting section 13.01 of the Indenture).
Guarantee was not intended to provide credit support. First, it asserts that the
Guarantee could be released under any one of the three conditions listed above —
that is, CEC reads the release provisions disjunctively, rather than conjunctively, as
the “and” would suggest. As such, the Guarantee could be easily terminated by
unilateral action on CEC’s part. Relying on the release provisions of the Indenture
— as well as extrinsic evidence of third-party analyses of the release provisions —
CEC contends that the Guarantee was intended to be nothing more than a
“guarantee of convenience” to facilitate regulatory filings. Second, CEC argues
that it has been prevented from obtaining discovery as to, inter alia, whether the
noteholders believed the Guarantee provided genuine credit support. Thus, CEC
argues that there is a genuine dispute of material fact as to whether the release of
the Guarantee impaired the noteholders’ right to payment.
These arguments fail under the most basic rule of contract
construction — where the language of an agreement is unambiguous, courts must
enforce the agreement according to the agreement’s plain language: “‘[I]f the
agreement on its face is reasonably susceptible of only one meaning, a court is not
free to alter the contract to reflect its personal notions of fairness and equity.’”

Here, the language of the Guarantee is “clear, unequivocal and unambiguous” and
Law Debenture Trust Co., 595 F.3d at 468 (quoting Greenfield, 98
N.Y.2d at 569–70).
therefore must be “enforced according to its terms.”
The Indenture states that
CEC “irrevocably and unconditionally guarantees . . . the full and punctual
payment when due.”
Nothing in the remaining language of section 12.01(a) casts
any ambiguity upon the clear language indicating that the Guarantee is indeed one
that provides a promise of full payment in the event that CEOC was unable to
fulfill its payment obligations. Further, there is no indication from any other
section of the Indenture that the Guarantee was put in place merely to facilitate
regulatory filings. Thus, the plain language of the Guarantee section indicates that
it provided credit support.
Additionally, nothing in the release provisions creates an ambiguity.
Whether or not the release provisions are read conjunctively or disjunctively,
mere fact that CEC could be released from the Guarantee under certain
circumstances says little about the nature of the Guarantee itself. That is, simply
because a Guarantee may be easily terminated — assuming that CEC could
terminate it by unilateral action and by causing any one of three conditions to occur
— does not indicate that the Guarantee was something other than an
Bailey v. Fish & Neave, 8 N.Y.3d 523, 528 (2007).
BOKF 56.1 ¶ 6; UMB 56.1 ¶ 8.
The parties have not briefed this issue, and I need not decide the issue
“unconditional[] guarantee[] [of] . . . full and punctual payment when due.”
Finally, the Indenture also included a provision stating that any
obligations that arise under the TIA control in the event that any provision conflicts
with the TIA. Though I do not today decide this issue, there is no dispute that,
whatever the release provision allowed, it cannot provide CEC with a path to
impair noteholders’ rights under section 316(b). In other words, if, in taking
actions allowed under the release provision of the Indenture, CEC violated
noteholders’ rights to payment under section 316(b), then the release was invalid as
a matter of law. Moreover, the fact that plaintiffs consented to the provision by
agreeing to the Indenture is of no moment. Though all parties to the Indenture are
sophisticated — and no doubt were represented by sophisticated attorneys —
signatories to a contract cannot consent to violate the law.
That is, it is
undisputed that plaintiffs consented to a release provision, which is not, in and of
itself, a violation of the TIA. But plaintiffs could not have known, ex ante, the
transactions that would occur or whether those transactions would, in fact, violate
the TIA. If the transactions that triggered the release of the Guarantee — even
See, e.g., Kaiser-Frazer Corp. v. Otis & Co., 195 F.2d 838, 843 (2d
Cir. 1952) (“[I]t is clear that a contract which violates the laws of the United States
and contravenes the public policy as expressed in those laws is unenforceable.”).
assuming that they did not violate the terms of the Indenture — violate the TIA,
then plaintiffs’ consent to the release provision cannot be a consent to the
Guarantee Transactions.
CEC supports its argument with third-party analyst reports and expert
declarations that understand the Guarantee to merely facilitate financial reporting
obligations, and not to provide credit support. But in the face of an unambiguous
contract, this evidence is inadmissible. A court may only consider evidence of
custom and usage where “parties have used contract terms which are in common
use in a business or art and have a definite meaning understood by those who use
them, but which convey no meaning to those who are not initiated into the
mysteries of the craft . . . . Proof of custom and usage does not mean proof of the
parties’ subjective intent . . . .”
But there are no specialized terms used in the
Guarantee provision that would necessitate looking to extrinsic evidence of custom
and usage. Rather, CEC appears to argue that, while the language of the Indenture
unambiguously spells out a guarantee of credit support, the parties all understood
that the Guarantee was essentially meaningless. This is exactly the type of
extrinsic evidence of subjective intent that is inadmissible under New York law:
“‘[e]vidence outside the four corners of the document as to what was really
Law Debenture Trust Co., 595 F.3d at 466 (internal quotations
intended but unstated or misstated is generally inadmissible to add to or vary the
Finally, further discovery would not lead to admissible evidence that
could create a genuine issue of material fact. CEC seeks discovery relating to the
noteholders’ understanding of the Guarantee. As discussed above, such evidence
is inadmissable where the language of the contract is unambiguous.
2. Plaintiffs Must Prove Either an Amendment of a Core
Term of the Debt Instrument or an Out-of-Court Debt
Although I conclude that the Guarantee unambiguously provided
credit support, the mere release of the Guarantee, standing alone, does not prove an
impairment under section 316(b). Plaintiffs argue that the release of the Guarantee
without their consent is “the kind of transaction that Section 316(b) was designed
to prohibit.”
But this proposition sweeps too broadly. The case on which
plaintiffs rely for this proposition recognizes that a guarantee release clause could,
in some contexts, be invoked without violating section 316(b).
Although the
plain language of the TIA prohibits any impairment to a noteholder’s right to
Id. (quoting W.W.W. Assocs., Inc. v. Giancontieri, 77 N.Y.2d 157, 162
BOKF Mem. at 20.
See Marblegate I, 75 F. Supp. 3d at 615–16.
payment, plaintiffs’ broad reading of the statute would allow “untrammeled
judicial intrusion into ordinary business practice.”
Thus the question remains as
to what plaintiffs must prove to establish an impairment.
The issue before Judge Failla in Marblegate II was whether a debt
restructuring violated section 316(b) when it did not modify any indenture term
explicitly governing the right to receive interest or principal on a certain date, yet
left bondholders no choice but to accept a modification of the terms of their
That is, if bondholders did not accept a modification, there would be no
formal alteration of the dissenting noteholders’ right to payment; however, the
transaction at issue was “unequivocally designed to ensure that they would receive
no payment if they dissented from the debt restructuring.”
Judge Failla
exhaustively reviewed the legislative history of section 316(b) to conclude that it
was designed to prevent a “nonconsensual majoritarian debt restructuring.”

Notably, Judge Failla did not need to go beyond that conclusion, because the facts
Id. at 614.
See Marblegate II, 2015 WL 3867643, at *3.
Id. at *2. Importantly, the transaction effected a restructuring of only
the debt of consenting noteholders. Dissenting noteholders retained their right to
payment under their indentures, but were left with no practical ability to receive
Id. at *11.
of that case left “little question that [the transaction at issue was] precisely the type
of debt reorganization that the Trust Indenture Act is designed to preclude.”
Here, all parties agree that no term of the Indenture was amended. It
is indisputable that if CEOC had unilaterally adjusted the amount of principal or
interest it would pay on a note, that would be an impairment under section 316(b).
Similarly, renegotiating a debt obligation with a majority of noteholders to the
detriment of a nonconsenting minority under the same indenture would be an
impairment. Here, however, neither of those straightforward violations of section
316(b) have occurred. Rather, plaintiffs argue that by allegedly exercising its
rights under the release provisions contained in the Indenture, CEC impaired
plaintiffs’ rights as prohibited by the TIA because it affected their practical ability
to receive payment on the Notes. By contrast, CEC argues that its actions were
permitted by the Indenture and did not violate the TIA, even if plaintiffs’ ability to
receive payment was indirectly affected. Therefore, this Court must interpret
section 316(b) to determine what actions, beyond the detrimental amendment of
core terms of an indenture, constitute an impairment under the TIA.
I begin with the plain language of section 316(b), which states that
“the right of any holder of any indenture security to receive payment of the
Id. at *12.
principal of and interest on such indenture security, on or after the respective due
dates . . . , or to institute suit for the enforcement of any such payment on or after
such respective dates, shall not be impaired or affected without the consent of such
holder . . . .”
The use of the disjunctive “or” lends support to the conclusion that
section 316(b) protects both the right to sue for payment as well as the substantive
right to receive such payment.
The legislative history of the section confirms this reading, and also
illuminates the broader purpose of section 316(b). A 1936 SEC report provided
the impetus for the TIA.
This report discussed the problems minority
bondholders faced, including reorganizations conducted outside the supervision of
a judicial or administrative process.
The TIA went through several iterations,
15 U.S.C.§ 77ppp(b) (emphasis added).
See Loughrin v. United States, 134 S. Ct. 2384, 2390 (2014) (“To read
the next clause, following the word ‘or,’ as somehow repeating that requirement,
even while using different words, is to disregard what ‘or’ customarily means. As
we have recognized, that term’s ordinary use is almost always disjunctive, that is,
the words it connects are to be given separate meanings.”) (internal quotations
See 15 U.S.C. § 77bbb(a).
See Securities and Exchange Commission, Report on the Study and
Investigation of the Work, Activities, Personnel and Functions of Protective and
Reorganization Committees, Part VI: Trustees Under Indentures 63–64, 150
accompanied by testimony and debate in the Senate and House. This testimony
indicated a concern with protecting minority bondholders’ rights against a majority
forcing a non-assenting minority into a debt-readjustment plan. The Senate’s
report in 1938, which largely reiterated the testimony of then-SEC Chairman
William O. Douglas, stated that the predecessor provision to section 316(b) would
prohibit provisions authorizing . . . a majority to force a non-
assenting security holder to accept a reduction or postponement of
his claim for principal . . . . Evasion of judicial scrutiny of the
fairness of debt-readjustment plans is prevented by this
prohibition . . . . This prohibition does not prevent the majority
from binding dissenters by other changes in the indenture or by a
waiver of other defaults, and the majority may of course consent
to alterations of its own rights.
The final version of the text of section 316(b) was significantly revised from
previous versions. The significant differences were (1) instead of providing
discretion to the SEC, the TIA set out mandatory indenture provisions; and (2) the
addition of the language providing for a right to receive payment in addition to the
right to institute suit.
However, the understanding of section 316(b) remained the
same: “Evasion of judicial scrutiny of the fairness of debt-readjustment plans is
prevented by this prohibition.”
S. Rep. No. 75-1619, at 19 (1938).
See Marblegate II, 2015 WL 3867643, at *9.
Id. (quoting 1939 House Hearings at 31).
Thus, the legislative history makes clear the purpose of the right
enunciated in section 316(b): to protect minority bondholders against debt
reorganizations resulting from a majority vote, outside of judicial supervision.
This reading tracks the plain language of the statute, giving effect to both clauses
— the right to institute suit, as well as the right to receive payment. It also
provides an important limitation on the right. Broadly understood, as plaintiffs
urge, the right enumerated in section 316(b) would prevent any corporate action
that had any effect on a noteholder’s ability to receive payment. An interpretation
of section 316(b) that requires plaintiffs to prove either an amendment to a core
term of the debt instrument or an out-of-court debt reorganization — in keeping
with the purpose underlying the provision — allows for corporate flexibility while
protecting minority bondholders against being “forced to relinquish claims outside
the formal mechanisms of debt restructuring.”
Taking this purpose into account, as well as the plain language of the
statute, I reject CEC’s contention that plaintiffs must establish a restructuring of
their particular debt. There is no question that, had CEC attempted to restructure
the plaintiffs’ debt by amending a core term of the Indenture without their consent,
that action would violate the TIA. But, as in Marblegate, an impairment may also
See id. at 12.
occur where a company restructures debt arising under other notes, in the context
of an out-of-court reorganization, leaving some noteholders with an unaltered
formal right to payment, but no practical ability to receive payment. For example,
it might be that taking on new debt, where the new investors require as a condition
of their investment that the rights of existing bondholders be altered — in other
words, the terms of the B-7 Transaction — constitutes an out-of-court
reorganization that impairs bondholders’ rights under the TIA.
3. There Is a Genuine Dispute of Material Fact as to Whether
the Guarantee Transactions Were an Out-of-Court
The remaining question is whether the Guarantee transactions were an
out-of-court reorganization. CEC asserts that plaintiffs must establish CEOC’s
insolvency at the time of each challenged transaction — that is, the transaction
must involve a termination of the Guarantee in the context of an insolvent issuer,
which would have the effect of a complete impairment of the noteholders’ right to
receive payment at the time of the transaction. The plain language of section
316(b) does not support CEC’s argument: “the right of any holder . . . to receive
payment . . . on or after the respective due dates . . . shall not be impaired . . . .”
Thus the statute measures impairment as of the date payment is due — the
language necessarily requires a court to examine whether, as of the due date, a
noteholder’s right to payment has been impaired.
Further, using CEC’s narrow
reading, a company could too easily skirt the requirements of section 316(b) by
stripping a guarantee in one transaction and then, in separate but related
transactions, effect a company-wide debt restructuring, leaving noteholders with
“an empty right to assert a payment default from an insolvent issuer.”

CEC notes that without a requirement that an issuer be insolvent at the
time of the transaction, ordinary corporate activities would potentially violate the
TIA. That is, if an issuer became insolvent at any point, earlier corporate activities
could support a claim under section 316(b) so long as the plaintiff alleges that
those earlier activities impaired the noteholders’ rights to receive payment. This
would expose “countless routine transactions that companies undertake without the
unanimous consent of their creditors — such as raising senior debt or other new
funds; exchange offers for existing debt; ordinary sales of assets; or new
investments — as potential violations of the TIA . . . .”
But examining the
transactions as a whole to determine whether they collectively constitute an
Of course, nothing would prevent a plaintiff seeking prospective,
declaratory relief from bringing an action and proving an impairment as of the time
of the transaction.
MeehanCombs, 2015 WL 221055, at *5.
Opp. Mem. at 26.
impermissible out-of-court reorganization in violation of the noteholders’ rights
under section 316(b) allows the Court to avoid defendants’ parade of horribles. A
routine transaction that, after examination with a full record, is unrelated to a a
reorganization but nevertheless resulted in a noteholder receiving a reduced
payment would not violate section 316(b).
To make the point crystal clear, I explain this reasoning in the context
of the instant lawsuits. At the time that CEC was released from the Guarantee —
and for the purposes of this motion only plaintiffs concede that the Guarantee has
been stripped – CEOC (the issuer) was not yet insolvent and was not yet unable to
pay on notes which (by the way) were not yet due to be paid. At that moment, it
cannot be said the plaintiffs rights were impaired because they could not know
whether CEOC would be in a stronger position to ultimately meet its obligations
under the Indentures as a result of the Guarantee Transactions than it would have
been otherwise. It is only at the time that payment was required — here CEOC’s
chapter 11 filing and its proposed reorganization plan — that plaintiffs’ rights
became impaired as a result of the stripping of the Guarantee. Thus, it is only as of
that moment in time that a court can evaluate whether the Guarantee stripping
violated the TIA because the action was taken as part of an out-of-court
reorganization without the consent of the plaintiff bondholders.
Nonetheless, under this standard, plaintiffs have not met their burden
of demonstrating that there is no genuine dispute of material fact as to whether the
Guarantee Transactions effected a nonconsensual debt restructuring. As discussed
above, the purported termination of the Guarantees must be in the context of a debt
reorganization. Thus, the transactions must be analyzed as a whole to determine if
the overall effect was to achieve a debt restructuring that impaired plaintiffs’ right
to payment.
In light of this, summary judgment is inappropriate at this stage
where, as here, there is a genuine dispute as to whether the challenged transactions,
either individually or collectively, were an out-of-court reorganization and the
record has not yet been fully developed. CEC raises questions as to whether the
transactions were “routine corporate transaction[s] . . . undertaken in an effort to
improve CEOC’s financial condition”
or whether the transactions were
undertaken as part of a plan to accomplish an out-of-court restructuring of all
CEOC debt.
With the benefit of full discovery, the factfinder may examine all
evidence related to these transactions to determine whether a restructuring occurred
Id. at 22.
To be clear, the Court is not importing an intent requirement into
section 316(b) where none exists. Rather, the evidence related to the transactions
must be examined to determine what the overall effect of the transactions was — a
debt restructuring or a series of routine corporate transactions.
— i.e., did the transactions involve the restatement of assets and liabilities, did
CEOC hold talks with creditors in order to make arrangements for maintaining
repayments, and did the transactions attempt to extend the life of a company facing
bankruptcy through special arrangements and resturucturing?
Nevertheless, only limited discovery is permitted to allow the parties
to develop the record with regard to these transactions. Defendants have requested
discovery related to (1) whether the challenged transactions were a restructuring;
(2) whether the noteholders’ prospects for recovery were adversely affected by the
challenged transactions; and (3) “whether the [noteholders] believed the Guarantee
provided genuine credit support.”
Defendants may pursue only the first and
second avenues of the requested discovery. As discussed above, the parties’
subjective intent or understanding of the Guarantee is irrelevant and inadmissible
in the face of unambiguous contractual language.
B. Certification Under 28 U.S.C. § 1292(b)
I am keenly aware that this Order addresses several questions of
unresolved law, and may have serious implications for corporate entities. I
therefore sua sponte certify this Order for an interlocutory appeal pursuant to 28
Id. at 34. I have reworded the requests articulated by CEC in their
Memorandum of Law because those requests are broader than the discovery I am
permitting, as stated above.
U.S.C. § 1292(b).
The Second Circuit has yet to address three threshold issues
that would be decisive for this litigation: First, what rights does section 316(b) of
the TIA protect? Does it protect noteholders’ practical rights to principal and
interest, as this Court and several others have held, or only their legal rights, as
other courts have concluded? Second, assuming that section 316(b) protects more
than a bare legal right, what is the appropriate standard to assess impairment?
Must plaintiffs show that a nonconsensual out-of-court restructuring occurred? If
so, must there be an amendment to the debt instrument itself? Third, as of when
(and how) should the impairment be evaluated? Must a court evaluate each
transaction separately at the time it was undertaken? Or is the impairment to be
evaluated as of the date for demand of payment? May a court consider multiple
transactions collectively?
It is a “basic tenet of federal law to delay appellate review until a final
judgment has been entered.”
However, a court, in its discretion, may certify an
interlocutory order for appeal if the order “[1] involves a controlling question of
law [2] as to which there is substantial ground for difference of opinion and [3] that
See Aurora Maritime Co. v. Abdullah Mohamed Fahem & Co., 85
F.3d 44 (2d Cir. 1996) (accepting interlocutory appeal certified by district court
sua sponte); Wisdom v. Intrepid Sea-Air Space Museum, 993 F.2d 5, 6–7 (2d Cir.
1993) (same).
Koehler v. Bank of Bermuda, Ltd., 101 F.3d 863, 865 (2d Cir. 1996).
an immediate appeal from the order may materially advance the ultimate
termination of the litigation.”
Interlocutory appeals are presumptively
disfavored, and are only warranted in “extraordinary cases where appellate review
might avoid protracted and expensive litigation . . . .”
This is the unusual case in which certification is appropriate. An
interlocutory appeal is in the interests of all parties, and will ensure judicial
economy. There are billions of dollars riding on this decision — BOKF and UMB
together seek more than $7 billion, which is “far in excess of CEC’s market
CEOC has already filed for bankruptcy, and — given the amount
at stake — a decision in plaintiffs’ favor would likely open the door to a
bankruptcy filing by CEC.
The question of the correct interpretation of section 316(b) is a
controlling issue of law. It is a “‘pure’ question of law that the reviewing court
could decide quickly and cleanly without having to study the record.”
28 U.S.C. § 1292(b).
Consub Delaware LLC v. Schahin Engenharia Limitada, 476 F. Supp.
2d 305, 309 (S.D.N.Y. 2007).
Opp. Mem. at 6.
In re Worldcom, Inc., No. M-47, 2003 WL 21498904, at *10
(S.D.N.Y. June 30, 2003).
controlling issue of law for the purposes of section 1292(b) includes not only those
issues that will resolve the action in its entirety, but those that are dispositive in
other respects, such as whether a claim exists as a matter of law.
The correct
construction of section 316(b) is dispositive in this respect, and is therefore a
controlling issue of law. Moreover, it will materially advance the ultimate
termination of the litigation. Understanding whether plaintiffs may assert a claim
under section 316(b) — and if so, what the correct standard for assessing an
impairment is — will enable the parties either to avoid a protracted and most likely
exorbitantly expensive trial entirely, or to avoid trying the same claim twice under
different standards.
Finally, the brewing circuit split and the range of views expressed by
district and bankruptcy courts indicate that there is substantial ground for
difference of opinion on the correct interpretation of section 316(b). As noted
above, three courts in this district have concluded that section 316(b) protects
noteholders’ practical right to payment.
Another court in this district, as well as
See 19 Moore’s Federal Practice § 203.31 (Matthew Bender 3d ed.
2013) (collecting Second Circuit cases).
See MeehanCombs, 2015 WL 221055, at *4–5; Marblegate I, 75 F.
Supp. 3d at 611–15; Federated Strategic Income Fund, 1999 WL 993648, at *7. A
notice of appeal has been filed in Marblegate II. As that case involves some of the
same legal issues, an appellate court may wish to consolidate the appeals. See
Notice of Appeal, Dkt. No. 80 in Marblegate Asset Management, LLC v.
courts elsewhere, have concluded that section 316(b) protects only noteholders’
legal rights.
Further, whether an impairment requires a nonconsenual out-of-
court restructuring, and the standard under which to evaluate the challenged
transaction, are questions that only this Court and Judge Failla have addressed.
These issues are almost certain to arise again, and without guidance from an
appellate court, the divide in the correct interpretation of section 316(b) will likely
only deepen. These issues are therefore appropriate for certification.
Nevertheless, I do not certify this Order for appeal as an alternative to
proceeding. The parties are expected to remain on schedule, and the Court is ready
to proceed, at the conclusion of discovery on September 30, with full summary
judgment or a bench trial. It may be that the contract interpretation issue related to
the release provision — which the parties have not briefed for this motion — will
be dispositive.
Education Mgmt. Corp., No. 14 Civ. 8584.
See In re Northwestern Corp., 313 B.R. 595, 600 (Bankr. D. Del.
2004) (“[Section 316(b)] applies to the holder’s legal rights and not the holder’s
practical rights to the principal and interest itself.”) (emphasis in original); Brady
v. UBS Financial Services, Inc., 538 F.3d 1319, 1326 n.9 (10th Cir. 2008) (quoting
Northwestern); YRC Worldwide Inc. v. Deutsche Bank Trust Co. Americas, No. 10
Civ. 2106, 2010 WL 2680336, at *7 (D. Kan. July 1, 2010) (following
Northwestern). See also UPIC & Co., 793 F. Supp. at 456 (noting that while
section 316(b) guarantees a “procedural” right to commence an action for
nonpayment, it does not “[a]ffect or alter the substance of a noteholder’s right to
– Appearances –
For Plaintiff BOKF, N.A.:
Mark Joachim, Esq.
Andrew Silfen, Esq.
Michael S. Cryan, Esq.
Arent Fox LLP (New York)
1675 Broadway
New York, NY 10019
(212) 484-3929
For Plaintiff UMB Bank, N.A.:
David A. Chrichlow, Sr., Esq.
Rebecca Kinburn, Esq.
Karen B. Dine, Esq.
Katten Muchin Rosenman, LLP
575 Madison Avenue
New York, NY 10022
For Defendant Caesars Entertainment Corporation:
Lewis R. Clayton, Esq.
Michael E. Gertzman, Esq.
Jonathan H. Hurwitz, Esq.
Ankush Khardori, Esq.
Paul, Weiss, Rifkind, Wharton & Garrison LLP
1285 Avenue of the Americas
New York, NY 10019
(212) 373-3000
Eric Seiler, Esq.
Philippe Adler, Esq.
Jason Rubinstein, Esq.
Friedman Kaplan Seiler & Adelman LLP
7 Times Square
New York, NY 10036
(212) 833-1100

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