Delaware Supreme Court Provides Guidance On Interpretation Of 'Boilerplate' Indenture Provisions

Proposed corporate splitoff not sufficiently tied to previous transactions to require aggregation under bond indenture's "successor obligor provision"

In Bank of New York Mellon Trust Company, N.A. v. Liberty Media Corp.,1 the Delaware Supreme Court recently considered whether the Court of Chancery properly determined that a series of four divestitures – taking place over the course of seven years along with various asset acquisitions and swaps – should be aggregated for purposes of determining whether a corporation had sold "substantially all of its assets" under a bond indenture's successor obligor provision.2 While affirming the Court of Chancery's conclusion that the four divestitures were not sufficiently connected to warrant aggregation, the Supreme Court also found that the Court of Chancery's adoption of the "step-transaction doctrine" as an analytical tool for determining whether a series of transactions should be aggregated for purposes of a bond indenture's successor obligor provision was not necessary, limiting the precedential impact of the Court of Chancery's decision. The Supreme Court also took the opportunity to provide some useful guidance concerning the interpretation of so-called "boilerplate" language when used in a bond indenture.


Liberty Media Corporation, led by cable TV giant John Malone, is a major distributor of entertainment, sports and other television programming. Liberty was created in 1991 by Tele-Communications, Inc. in reaction to a threat by federal regulators to separate its programming assets from its cable systems. After a series of corporate transactions engineered by Malone, Liberty emerged in August 2001 as an independent, publicly-traded corporation.

At that time, Liberty held assets characterized by the Court of Chancery as "a 'fruit salad' of assets, consisting mainly of minority equity positions in public and private entities." In addition, Liberty was party to an indenture for outstanding bonds containing a "successor obligor provision." This provision prohibited Liberty "from selling, transferring, or otherwise disposing of 'substantially all' of its assets unless the entity to which the assets are transferred assumes Liberty's obligations under the indenture...." Notably, the bond indenture, which is governed by New York law, does not define the term "substantially all."

Because many of Liberty's assets were minority investments that did not generate cash flow, Liberty management sought to acquire controlling interests in those businesses. If the path to control was blocked, management would "evaluate[ ] all possible alternatives for the asset." In furtherance of this strategy, Liberty "engaged regularly in acquisitions, dispositions, [and] complex swaps," as well as the following dispositive transactions:

  1. LMI: In 2004, management engineered the spinoff to Liberty stockholders of a subsidiary, Liberty Media International, Inc., which removed $11.79 billion in assets from Liberty's balance sheet, representing 19% of Liberty's book value as of March 31, 2004.

  2. Discovery: In 2005, Liberty dividended to stockholders its minority interest in the joint venture that owns the Discovery cable channel, removing $5.825 billion in assets from its balance sheet, or 10% of Liberty's book value, as of March 31, 2004.

  3. LEI: In 2009, Liberty split off its interest in DirectTV (as well as certain other businesses) into a new entity called Liberty Entertainment, Inc. ("LEI"), removing...

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