Indentures and credit agreements often contain standard provisions limiting or prohibiting the ability of borrowers and their restricted subsidiaries from transferring “all or substantially all” of their assets. These provisions provide lenders with a valuable defense—ensuring that the entity to which they loaned money remains the entity from which they can expect and seek repayment—even when the debt documents otherwise provide the borrower with the ability to transfer valuable assets away from a lender’s collateral or guarantor pool. Accordingly, it is important for lenders and borrowers alike to understand how courts evaluate whether a transfer violates an “all or substantially all” restriction.
Two Perspectives
Although “all or substantially all” provisions have become ubiquitous, there is a surprising lack of case law analyzing whether transfers may violate those restrictions in debt documents. In the limited circumstances in which these provisions have been addressed, courts have recognized that “to promote market stability,” a uniform interpretation of such provisions is appropriate. See Bank of N.Y. Mellon Trust Co. v. Liberty Media Corp., 29 A.3d 225, 241 (Del. 2011) (applying New York law).
