Bombardier Hires Cravath, Seeks to Dismiss Bond Default Lawsuit

Esteban Duarte, Bloomberg News

A Bombardier logo on the window of a Stuttgart S-Bahn passenger train on the assembly line at the Bombardier Inc. factory in Hennigsdorf, Germany, on Wednesday, Nov. 18, 2020. Bombardier announced a deal earlier this year to divest its train unit to Alstom SA for $8.4 billion. , Bloomberg

(Bloomberg) -- Bombardier Inc. hired Cravath, Swaine & Moore LLP to defend in court its sale of additional notes of a bond issue just as some existing investors were alleging the Canadian jet maker had ran afoul of protections on the debt.

Hedge funds Antara Capital Master Fund LP, Corbin ERISA Opportunity Fund Ltd and Corbin Opportunity Fund LP sued Bombardier in January, claiming the company triggered a default on the bonds by selling some business units.

Cravath lawyers led by Michael A. Paskin urged a New York state judge to throw out the lawsuit in a March 28 filing.

“This litigation is brought by minority noteholders seeking to profit by challenging the propriety of a series of Bombardier’s strategic business transactions that have stabilized and improved its business for the benefit of all stakeholders,” the lawyers wrote in the filing.

Last year, Montreal-based Bombardier sold an additional $260 million of its 7.45% bonds due in 2034 to an unidentified institutional investor. The buyer in turn got a majority of the issue, which after the increase reached $510 million of notes outstanding. Shortly thereafter, Bombardier successfully secured consent from a majority of bondholders to amend the deal covenants, shunning the default challenge.

The hedge funds, which collectively own almost $130 million of the notes, argued at that time that Bombardier’s sales of assets including its transportation business, regional jet program and aerostructures division constituted a breach of certain covenants. In their lawsuit, the hedge funds allege that the issuance of the additional 2034 notes was not allowed so the waiver was ineffective and the notes should be repaid in full including the present value of the future coupons.

“In our view it is questionable that Bombardier should be allowed to use the additional 2034s to circumvent covenant enforcement in this fashion,” Alexander Diaz-Matos, an analyst at Covenant Review, said in a Feb. 3 note. “It is an extremely dangerous precedent to allow an issuer to resolve a pending default claim by disenfranchising existing bondholders in this way. But it is a policy argument, which is difficult to find textual support for in the contract.”