In a closely watched case of particular importance to bond lawyers, the Delaware Supreme Court has recently provided guidance on questions that often arise in bondholders’ rights cases, including the interpretation of the indenture, an issuer’s repurchase of notes from an affiliate, the ability to repurpose an issuer’s business, the scope of the implied covenant of good faith and fair dealing, and solvency in the context of avoidance claims.
The case addressed several issues arising out of the repurchase of bonds by issuer Athilon Capital Corp. from its controlling affiliate Merced during and after a period of insolvency. Noteholder Quadrant Structured Products Company, Ltd. sued Athilon and Merced asserting, among other claims, that the affiliate transactions violated the terms of the indenture, the implied covenant of good faith and fair dealing, and were fraudulent transfers, and breached fiduciary duties. The Delaware Supreme Court affirmed the post-trial judgment of the Chancery Court in Quadrant Structured Products Company v. Vertin, in a summary order issued on Oct. 31, 2016, “on the basis of and for the reasons assigned” by the Chancery Court. 2016 WL 6438209 (Del. Oct. 31, 2016).
