Pillsbury
January
14, 2009
UnitedHealth, Indentures/TIA & SEC Reporting
8th Circuit Finds No Affirmative
Reporting Obligation in Standard Indenture Covenant
Failure to Timely File SEC Reports
is Not a Default Under Certain Indenture Reporting Covenants
White
& Case
January
13, 2009
Federal Appeals Court
Jones Day
December
2008
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.
Recent Litigation Regarding
Indenture Reporting Requirements
Haynes Boone
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.”
