## Facts

- Tyco International Group, S.A. (TIGSA) was a subsidiary and holding company within the Tyco International Ltd. (Tyco) corporate group.
- TIGSA owned four business segments, which together made up substantially all of TIGSA’s and Tyco’s assets.
- In 1998 and 2003, TIGSA issued multiple series of notes under New York-law indentures; Tyco guaranteed the notes.
- The Bank of New York (BNY) served as indenture trustee.
- The indentures contained successor-obligor clauses barring TIGSA from transferring “all or substantially all” of its assets unless the transferee assumed TIGSA’s note obligations through a supplemental indenture with BNY.
- In 2007, TIGSA transferred its four business segments to Tyco and a newly created holding company as part of a corporate restructuring.
- After the transfers, Tyco spun off two of the business segments to Tyco shareholders and retained the other two segments.
- Tyco proposed executing a supplemental indenture under which Tyco would assume TIGSA’s obligations on the notes.
- BNY refused to execute the proposed supplemental indenture and sued TIGSA and Tyco, alleging the restructuring violated the successor-obligor clauses because Tyco would not keep ownership of all the assets after the spin-offs.
- BNY relied heavily on Sharon Steel Corp. v. Chase Manhattan Bank, N.A., where the Second Circuit, in a liquidation setting, rejected a debtor’s attempt to assign indenture obligations to an entity that did not receive all or substantially all assets.
- TIGSA and Tyco disputed BNY’s reading of the indentures and Sharon Steel, and argued that BNY lacked standing because it had given notice of resignation as trustee; BNY contended it remained trustee until a successor was appointed.

## Issues

1. Did TIGSA’s transfer of its business segments to Tyco (followed by Tyco’s spin-off of two segments) breach the indentures’ successor-obligor clauses and trigger an event of default?
2. Did Sharon Steel require, as a matter of law, that a single successor entity both receive and retain all or substantially all of TIGSA’s assets for the debt assumption to be valid?
3. Did BNY have standing to sue as indenture trustee despite having delivered a notice of resignation, where the indentures stated a resigning trustee remains trustee until a successor is appointed?

## Decision

- The court denied BNY’s motion for summary judgment.
- The court denied TIGSA and Tyco’s cross-motion for summary judgment.
- The court held BNY had standing because, under the indentures, a trustee that gives notice of resignation remains trustee until a new trustee is appointed, and no successor had been appointed.
- The court concluded that the meaning and application of the successor-obligor clauses to this multi-step restructuring could not be resolved as a matter of law on the summary-judgment record.
- The court determined that Sharon Steel did not conclusively control the outcome at summary judgment, given differences between a liquidation sale and a corporate separation involving transfers and spin-offs, and given unresolved questions about how to evaluate “all or substantially all” in this setting.

## Legal Principles

- Summary judgment is improper where the movant is not entitled to judgment as a matter of law and disputes remain about how the contract language applies to the transaction.
- A successor-obligor clause is interpreted in light of its text and commercial purpose: protecting noteholders against an issuer’s disposition of the enterprise without a responsible obligor and supporting assets.
- The “all or substantially all” inquiry is fact-sensitive and depends on how the transaction affects the issuer’s enterprise and the assets supporting repayment, rather than a single mechanical percentage.
- Sharon Steel’s treatment of successor-obligor clauses arose in a liquidation context and does not automatically decide disputes involving corporate reorganizations with multiple steps and post-transfer distributions.
- Where an indenture provides that a resigning trustee “remains trustee until a new trustee is appointed,” the resigning trustee retains authority (and standing) to bring suit until the successor trustee is in place.

## Conclusion

The court denied both sides’ summary-judgment motions because the successor-obligor dispute turned on unresolved questions about how the indentures and Sharon Steel applied to Tyco’s multi-step restructuring and subsequent spin-offs, while also holding that BNY retained standing to sue as trustee until a successor trustee was appointed under the indentures’ resignation provisions.


Bank of New York v. Tyco International Group, S.A., 545 F. Supp. 2d 312 (2008)