Pine River Master Fund Ltd. and Pine River Fixed Income Master Fund Ltd. v. Amur Finance Company, Inc. and Amur Finance IV LLC
CA 2017-0145-JRS
| Del. Ch. | Sep 13, 2017Background
- Pine River (lender) extended a revolving credit facility to Amur Finance IV LLC (borrower); AFC served as Administrative Agent. The loan funds were used by Amur IV to invest in Operating Companies; collections flow into a Collections Account and are distributed per a waterfall in Section 6.04.
- Interest under the Credit Agreement is split between cash interest (due monthly) and PIK (pay-in-kind) interest, which if unpaid is capitalized into principal and becomes payable at maturity.
- Section 9.03(b)(B) obligates the Borrower to pay "reasonable fees and expenses" incurred by the Administrative Agent, Collateral Agent, or Lenders in connection with enforcement or protection of “its rights” under the Operative Agreements; Section 9.03(c) separately indemnifies indemnitees for other liabilities/defenses.
- Amur caused or defended litigation by Amur-related Operating Companies (the Operating Company Lawsuits). AFC (as Administrative Agent) caused approximately $3.1 million in legal fees for those suits to be paid from the Collections Account under the Waterfall’s Second priority, reducing PIK distributions (Eighth priority) and increasing principal.
- Pine River removed AFC as Administrative Agent; Lighthouse was named successor but failed to timely issue an Administrator Report, so AFC prepared the February report and directed distributions. Pine River sued seeking declaration of breach, damages, and a finding of Event of Default for nonpayment of Interest.
- The Court addressed cross-motions for partial summary judgment on (1) whether the indemnity payments breached the Credit Agreement and (2) whether the misdirected payments created an Event of Default under Sections 7.01(a) or (b).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Section 9.03(b)(B) authorizes indemnification from the Collections Account for legal fees incurred prosecuting/defending Operating Company lawsuits | Pine River: "its" refers to the Administrative Agent/Collateral Agent/Lenders; fees to protect/enforce their rights are payable under the Second priority — not fees for Borrower-related litigation | Amur: "its" refers to the Borrower; Administrative Agent may be indemnified for fees incurred in protecting/enforcing Borrower rights (including Operating Company suits) | Court: Breach — Section 9.03(b)(B) construed in context; "its" refers to Administrative Agent/Collateral Agent/Lenders, not Borrower; payments for Operating Company Lawsuits were not authorized and thus breached Section 6.04 |
| Whether payments to Amur entities under the Second priority (reducing PIK distributions) caused an Event of Default under §7.01(a) (failure to pay Interest uncured for 60 days) | Pine River: Misallocated funds should have been paid as PIK (Interest) under Eighth priority; failure to pay PIK on two occasions and uncured 60-day lapse triggered Event of Default | Amur: PIK Accruals are not "due and payable" monthly (they are capitalized into principal when not paid); only cash interest is immediately "due and payable" | Court: No Event of Default — PIK not "due and payable" once capitalized; nonpayment converted to principal, so §7.01(a) and (b) not triggered |
| Whether Section 9.03(c) makes §9.03(b) superfluous under plaintiff’s reading | Pine River: §9.03(c) covers defensive indemnities; §9.03(b) covers offensive enforcement expenses of Admin Agent/Lenders — consistent, not redundant | Amur: Plaintiff’s reading makes §9.03(c) redundant | Court: §9.03(c) addresses defensive third-party claims against indemnitees; §9.03(b) addresses enforcement/protection of Administrative Agent/Lenders’ rights — no impermissible redundancy |
| Appropriate equitable relief | Pine River: Injunction to prevent further misdistributions and interference with Collections Account distributions | Amur: Did not adequately oppose injunctive request in briefing | Court: Granted injunction restraining Amur from further distributions or from reducing Operating Companies’ required distributions to the Collections Account; parties to submit implementing order |
Key Cases Cited
- Senior Tour Players 207 Mgmt. Co. LLC v. Golftown 207 Hldg. Co., 853 A.2d 124 (Del. Ch.) (summary judgment standard)
- United Rentals, Inc. v. RAM Holdings, Inc., 937 A.2d 810 (Del. Ch.) (contract ambiguity and summary judgment principles)
- Vitullo v. New York Cent. Mut. Fire Ins. Co., 51 N.Y.S.3d 768 (N.Y. App. Div.) (use of contract language and ambiguity rules)
- Banos v. Rhea, 25 N.Y.3d 266 (N.Y.) (contracts must be read as a whole)
- Salamone v. Gorman, 106 A.3d 354 (Del.) (contract construction principles)
- Riverside South Planning Corp. v. CRP/Extell Riverside, L.P., 13 N.Y.3d 398 (N.Y.) (contextual contract interpretation)
- Greenwich Capital Fin. Prods., Inc. v. Negrin, 903 N.Y.S.2d 346 (N.Y. App. Div.) (rejecting absurd contract interpretations)
- Cheese Shop Int’l Inc. v. Steele, 311 A.2d 870 (Del.) (equitable relief where multiplicity of actions renders legal remedies inadequate)