January 14, 2009
UnitedHealth, Indentures/TIA & SEC Reporting
This Commentary reviews the Eighth Circuit’s holding (in UnitedHealth Group Inc. v. Wilmington Trust Co.) that an issuer had not defaulted under a bond indenture reporting covenant by failing to timely file a 10-Q with the SEC. In so holding, the Eighth Circuit aligned itself with several other federal courts that viewed similar reporting covenants as "impos[ing] nothing more than the ministerial duty to forward copies of certain reports, identified by reference to the Exchange Act, within fifteen days of actually filing the reports with the SEC" and against the decision of a New York State trial court (in Bank of New York v. BearingPoint, Inc.).
The Commentary also (very usefully) looks at a number of common variations of reporting covenants and we thought (reading between the lines) seemed to offer a subtle warning to issuers about vulture funds when it noted that the plaintiffs were a “group of investors, which had purchased a substantial number of the bonds in the open market at a discount.”
Please see our Hot Topics for more on this subject.
January 5, 2009
This Alert reviews the recent decision of the Eight Circuit (in UnitedHealth Group Inc. v. Wilmington Trust Co.) that a publicly held issuer of notes had no independent obligation under either the indenture governing the relevant notes or the Trust Indenture Act of 1939 (the “TIA”) to timely file reports with the Securities and Exchange Commission (“SEC”). In this instance the defendant issuer failed to file a second quarter report on Form 10-Q on time as required under US securities law. As a result, the issuer’s noteholders declared the issuer in default (and sought to accelerate the notes) based on a clause in the indenture requiring that [summarized and cited from the Alert] “the Company shall cause copies of . . . financial reports . . . which the Company is then required to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act to be filed with the Trustee . . . within fifteen days of filing with the Commission.” The court, however, disagreed with plaintiff's interpretation of this fairly boilerplate clause, holding that the clause imposes [citing the Alert] “only a ministerial duty to deliver its SEC reports to the trustee after it has filed the reports with the SEC and to make such delivery within the time period prescribed by the indenture.”
At a time when creditors are looking for almost any excuse to exert influence over debtors (historically noteholders would have probably yawned, assuming the financial health of the issuer and its notes, at this sort of transgression), this interpretation [citing the Alert] “should give issuers and their trustees some comfort that the failure by the issuer to timely file its SEC reports is neither a default under their indentures nor a violation of Section 314(a) of the TIA.”Please see our Hot Topics for more on this subject.