Wesco Aircraft Holdings, Inc, et al v. SSD Investments Ltd, et

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UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
WESCO AIRCRAFT HOLDINGS, INC, ET
AL,
Plaintiff,
VS.
§
§
§
§
§
§
§
§
§
§
CIVIL ACTION NO. 4:25-CV-202
SSD INVESTMENTS LTD, ET, et al.,
Defendants.
MEMORANDUM ORDER REGARDING THE 2024/2026 NOTEHOLDERS’ BREACH-
OF-CONTRACT CLAIMS
This case arises from the bankruptcy of Wesco Aircraft Holdings, Inc. (“Wesco”), the
largest independent distribution and supply-chain services provider in the civilian and military
aerospace industry. On the same day that it filed its bankruptcy petition, Wesco initiated an
adversary proceeding asking the bankruptcy court to decide whether Wesco breached its 2024 and
2026 Indentures by entering into a series of transactions on March 28, 2022 (the “2022
Transactions”) that provided Wesco $250 million in new investment in an effort to resolve its
urgent liquidity problems.1 The 2024/2026 Noteholders filed counterclaims seeking, among other
things, a declaration that Wesco had breached the 2024 and 2026 Indentures. On January 17, 2025,
the bankruptcy court issued a report and recommendation (the “January 17 R&R”), recommending
that this Court conclude that the 2022 Transactions complied with the 2024 Indenture but breached
the 2026 Indenture, and that as a remedy this Court should “[e]nter a declaration finding that the
rights, liens, and interests that were for the benefit of all of the holders of 2026 Notes as they
existed on March 27, 2022, remained in full force and effect on March 29, 2022.” ECF 3 at 36.
1 Unless otherwise defined, capitalized terms in this memorandum order have the same
meaning as in the bankruptcy court’s January 17 R&R. See ECF 3.
United States District Court
Southern District of Texas
ENTERED
December 08, 2025
Nathan Ochsner, Clerk
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The parties that provided Wesco with $250 million in new investment in the 2022
Transactions (the “First Lien Noteholders”) filed an objection to the January 17 R&R, ECF 32,
which Wesco joined, ECF 33. Platinum, Wesco’s equity sponsor, also filed an objection to the
January 17 R&R, ECF 34. The 2026 Noteholders also filed a limited objection, which asserted
alternative grounds for finding a breach of the 2026 Indenture and sought to preserve objections
to various interlocutory rulings by the bankruptcy court. ECF 35.
The Court has considered those objections, as well as the responses and replies thereto, see
ECF 49, 50, 51, 52, 74, 75, 76, and has conducted a de novo review of the extensive record and
the issues raised in the parties’ objections. See 28 U.S.C. §157(c)(1). For the reasons that follow,
the Court SUSTAINS the First Lien Noteholders’ objection, OVERRULES the 2026 Noteholders’
objection, DECLARES that the 2022 Transactions did not breach Wesco’s obligations under its
indentures, DISMISSES the 2024/2026 Noteholders’ breach-of-contract claims, and DISMISSES
the 2024/2024 Noteholders’ good-faith-and-fair-dealing, equitable lien, equitable subordination,
and conversion claims.
FINDINGS OF FACT
A. Wesco’s Indentures.
In early 2020, Wesco acquired Pattonair, Ltd, a leading aerospace services provider based
in the United Kingdom. To finance that transaction, Wesco raised over $2 billion by selling bonds
through three indenture agreements: one governing $650 million in senior secured bonds maturing
in 2024 and paying 8.5% (the “2024 Notes”); one governing $900 million in senior secured bonds
maturing in 2026 and paying 9% (the “2026 Notes”); and one governing $525 million in unsecured
bonds maturing in 2027 and paying 13.125% (the “2027 Notes”). See Adv.Dkt.601-20 (2024
Indenture); Adv.Dkt.601-8 (2026 Indenture); Adv.Dkt.601-7 (2027 Indenture).2
2 References to “Adv.Dkt.” correspond to docket entries filed in the adversary proceeding, No.
4:23-ap-3091 (Bankr. S.D. Tex.). References to “Bankr.Dkt.” correspond to docket entries filed
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Section 2.01(e) of each indenture explicitly allowed Wesco to issue additional secured
notes without consent from the existing bondholders. Adv.Dkt.601-7 at 44-45; Adv.Dkt.601-8 at
54; Adv.Dkt.601-20 at 48. But because Wesco’s ability to issue new secured notes was “subject
to the Issuer’s compliance” with the debt and lien baskets, Adv.Dkt.601-8 at 54; accord
Adv.Dkt.601-20 at 48; Adv.Dkt.601-7 at 45, issuing additional secured notes in excess of those
limitations required amending the indentures under §9.02, which provided, as relevant here:
Except as provided below … the Issuer … may amend or supplement this Indenture
… with the consent of the Holders of at least a majority in aggregate principal
amount of the then outstanding 2026 Secured Notes other than the 2026 Secured
Notes beneficially owned by the Issuer or its Affiliates … voting as a single class[.]
Adv.Dkt.601-8 at 130; accord Adv.Dkt.601-20 at 122-23; Adv.Dkt.601-7 at 110. The indentures
provided that additional secured notes “shall be consolidated with and form a single class with the
Initial Secured Notes,” Adv.Dkt.601-8 at 54; accord Adv.Dkt.601-20 at 48; Adv.Dkt.601-7 at 44,
and shall count towards relevant voting thresholds, Adv.Dkt.601-7 at 44; Adv.Dkt.601-8 at 54;
Adv.Dkt.601-20 at 48.
Both the 2024 and 2026 Indentures also required two-thirds of the existing bondholders in
each issuance to agree before Wesco could release the liens on the collateral:
[W]ithout the consent of the Holders of at least 66⅔% in aggregate principal
amount of the 2026 Secured Notes then outstanding (including, without limitation,
consents obtained in connection with a purchase of, or tender offer or exchange
offer for, the 2026 Secured Notes), no amendment, supplement or waiver may (1)
have the effect of releasing all or substantially all of the Collateral from the Liens
created pursuant to the Security Documents (except as permitted by the terms of
this Indenture, the Security Documents or the Intercreditor Agreements) or
changing or altering the priority of the security interests of the Holders of the 2026
Secured Notes in the Collateral[.]
Adv.Dkt.601-8 at 131; accord Adv.Dkt.601-20 at 124.
in the related bankruptcy proceeding, 4:23-bk-90611 (Bankr. S.D. Tex.). This order refers to
specific pages in cited docket entries by using native pagination where available (and, where
unavailable, by using the pagination generated by the automatic ECF header).
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These provisions were drafted and agreed to by sophisticated parties who expressly made
it possible for Wesco to issue new bonds in excess of the then-existing debt and lien baskets in
each series with consent from a majority of the existing bondholders, and to release the liens
securing the 2024 and 2026 Notes with consent from only two-thirds of the existing bondholders,
even though doing so might be against the interests of any dissenting bondholders. That structure
ensured that Wesco would have flexibility to raise capital in the future by issuing new notes in
each series and by creating new security interests senior to the 2024 and 2026 Notes without
requiring unanimous consent from those noteholders. See ECF 3 at 2-3 (recognizing that the 2024
and 2026 Indentures “were drafted by brilliant financers and lawyers who contemplated the
potential benefits that a non-pro rata future transaction could offer”); Adv.Dkt.1474 at 4-5
(recognizing the potential need for Wesco to “raise additional capital” by “issu[ing] new debt that
is senior in priority and lien rights to existing debt”).
B. Wesco’s Financial Distress.
Just weeks after Wesco acquired Pattonair, the COVID-19 pandemic ripped through the
global economy, with a particularly devastating effect on the aerospace industry. Even as other
sectors began to rebound, “aircraft weren’t flying at the rate that they were prior to COVID,” an
economic drag that “just continued to linger on” for “much longer than anyone had anticipated.”
Adv.Dkt.664 at 34-35. For Wesco—a company whose business model was tied to the production
of new airplanes, see Adv.Dkt.700-35 at 3—the swift decline in demand for aerospace services in
combination with supply chain disruptions led to decreased revenue and cash flows, causing a
massive liquidity shortfall. Platinum injected an additional $50 million into the company in an
attempt to resolve Wesco’s liquidity problems, but those additional funds were not enough to
prevent the crisis that Wesco faced. By the fourth quarter of 2021, Wesco’s liquidity crunch had
significantly worsened, and the company estimated that it might miss the interest payment on its
outstanding notes due in November 2021, which would have allowed “the debt [to] be called” at a
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time when Wesco “didn’t have the funds to pay [it] back.” Adv.Dkt.664 at 43-44. Wesco barely
made that interest payment, see Adv.Dkt.630 at 148, but its cash situation “continued to get tighter
and tighter,” Adv.Dkt.664 at 47, with advisors scrambling to figure out how to “stretch out …
payments” to their vendors and landlords in order to “continue to have cash to operate,”
Adv.Dkt.664 at 38, 44-45, 47-48.
By early 2022, Wesco’s serious financial pressures threatened a negative result on its
upcoming statutory audit in the United Kingdom, which would have put Wesco into default on its
asset-based lending agreement. Adv.Dkt.664 at 50-55. Based on their review, Wesco’s auditors
indicated that a cash injection of $150 million to $200 million would be required to obtain a clean
audit opinion. Id. at 125. Wesco sought to delay filing its next round of financial statements with
its auditors in order to give it time to obtain the necessary liquidity, but the auditors informed
Wesco that they would “strike off” the company if they did not receive the statements, which
would make it illegal for Wesco to do business in the United Kingdom. Adv.Dkt.630 at 189;
Adv.Dkt.664 at 56. In short, by early 2022, Wesco faced a genuine liquidity crisis and an urgent,
imminent need to generate liquidity.
To address its pressing liquidity problems, Wesco began exploring funding options by the
fourth quarter of 2021. In late 2021, a coalition of noteholders (the “Majority Group”), led by
funds managed or advised by PIMCO and Silver Point Capital, L.P.—the two largest sets of
holders of the 2024 and 2026 Notes—reached out to discuss potential rescue financing that would
provide the company with the liquidity that it needed to resolve its immediate crisis, leading to an
initial confidential proposal in December 2021. See Adv.Dkt.639-1; Adv.Dkt.858 at 107-08;
Adv.Dkt.955 at 80. That proposal was motivated by the view that if Wesco could overcome its
immediate liquidity issues, it could “capture the opportunity that was presented by COVID instead
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of suffering from it,” Adv.Dkt.955 at 72, and “emerge as a more valuable franchise than it had
going into the downturn,” Adv.Dkt.858 at 16-19, 86-87; see Adv.Dkt.697 at 229.
Over the next few months, Wesco and the Majority Group engaged in “multiple rounds of
negotiations” and “a lot of back and forth” over the terms of a potential rescue financing deal.
Adv.Dkt.738 at 30-38; see Adv.Dkt.610-11 at 2-5 (documenting at least six counterproposals).
That extended negotiation reflected the fact that each side of the deal held significant leverage. On
the one hand, as Wesco’s board heard from its advisors, the Majority Group’s majority stake gave
it “a power position” that could theoretically be used “to prevent the company from getting
financing in other ways.” Adv.Dkt.697 at 107-08. On the other, the Majority Group understood
that its substantial existing investment in Wesco would be seriously threatened if the company
failed to resolve its liquidity crisis, and worried that Wesco would “pivot” to some other financing
source if the Majority Group refused to agree to Wesco’s terms. Adv.Dkt.705-50 at 2-4.
The parties ultimately agreed on a series of contemplated transactions through which the
Majority Group would provide Wesco $250 million in new money, as well as reducing cash
interest and extending maturities on the Majority Group’s existing debt. As part of those
transactions, the Majority Group would exchange their then-held 2024 Notes and 2026 Notes into
super-senior first-lien notes (the “1L Notes”), which would mature in late 2026. See Adv.Dkt.610-
11 at 7-8. The transactions would also allow certain holders of the 2027 Notes to exchange those
notes into super-senior second-lien notes (the “1.25L Notes”), maturing in 2027. These
transactions would not only provide Wesco with $250 million in rescue financing, but also improve
Wesco’s financial position going forward by extending the maturities on its debt and substantially
decreasing its cash-interest payments.
Upon hearing that Wesco might strike a deal with the Majority Group, a different coalition
representing a minority of the holders of 2024 and 2026 Notes (the “Minority Group”) approached
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Wesco with a proposal to provide roughly $147.5 million in new money. Adv.Dkt.738 at 73. The
Minority Group later sent Wesco a revised proposal that would have provided $173 million in
funding; that proposal also included an “alternative” structure that would instead have provided
$250 million in funding, but that relied on letters of credit that would have to be provided by third
parties and collateralized. See Adv.Dkt.536-22 at 5-8; Adv.Dkt.1007 at 70-72. After reviewing
those proposals, Wesco and its advisors did not believe that the Minority Group’s proposals were
viable; with respect to the main proposal, Wesco did not see the $173 million in financing as
sufficient to satisfy its liquidity concerns, and with respect to the alternative proposal, Wesco
determined that its method of securitizing the facilities with third-party letters of credit was not
feasible. Adv.Dkt.630 at 184-86; Adv.Dkt.738 at 63-64, 74-75, 83-86, 92; Adv.Dkt.1351 at 12,
21, 33. Wesco also concluded that in any event, the Majority Group’s proposal was superior to
the Minority Group’s proposal in terms of maturity extensions, amortization reductions, and cash
interest reductions. See Adv.Dkt.630 at 202-03; Adv.Dkt.1351 at 12, 21-23, 32-33. Wesco’s
board of directors accordingly voted to accept the Majority Group’s offer and reject the Minority
Group’s proposal. Adv.Dkt.630 at 199-203, 209; Adv.Dkt.738 at 112; see Adv.Dkt.536-24 at 2.
C. The 2022 Transactions.
1. Events leading up to the 2022 Transactions.
In the period leading up to the 2022 Transactions, the Majority Group (which already held
two-thirds of the outstanding 2024 Notes) initially sought to acquire—and believed it had
acquired—two-thirds of the outstanding 2026 Notes. In February 2022, however, the Minority
Group announced that it had accumulated more than a third of the outstanding 2026 Notes, in an
attempt to block the Majority Group’s proposal from going forward. See Adv.Dkt.639-4 at 2-3;
Adv.Dkt.738 at 56-57. Wesco and the Majority Group accordingly agreed that Wesco would issue
additional pari passu 2026 Notes to the Majority Group in exchange for the Majority Group’s new
$250 million investment, as the 2026 Indenture permitted Wesco to do with consent from a
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majority of the outstanding 2026 Notes (which the Majority Group held). Adv.Dkt.601-8 at 130.
With those additional 2026 Notes, the Majority Group would then have the two-thirds majority
necessary to consent to the release of the collateral as to the 2026 Notes, allowing Wesco to afford
the new 1L Notes exclusive first-lien status. See id. at 131.
Wesco repeatedly confirmed to the Majority Group its understanding (consistent with the
Majority Group’s own understanding) that this approach complied with Wesco’s contractual
obligations under the 2026 Indenture, and Wesco’s counsel at Milbank LLP, a well-respected
international law firm, issued an opinion to that effect. Adv.Dkt.1150-11 (certificate and opinion
of counsel); see Adv.Dkt.604-19 at 7; Adv.Dkt.710-56; Adv.Dkt.858 at 13-16, 188-89;
Adv.Dkt.955 at 14-16; Adv.Dkt.1013 at 13-14, 51-52. As multiple witnesses later testified, that
approach was consistent with the plain terms of the 2026 Indenture and the parties’ understanding
of those terms. For instance, one of Wesco’s lead negotiators of the 2024 and 2026 Indentures, an
advisor from Platinum, testified that he had reviewed the 2022 Transactions, and concluded that
they “all seemed to work within the four corners of the document[s]” that he had helped to
negotiate. Adv.Dkt.827 at 89-90; see also, e.g., Adv.Dkt.630 at 143; Adv.Dkt.858 at 13-16, 160,
188-89; Adv.Dkt.955 at 14-16.
The evidence at trial also showed that the 2024/2026 Noteholders—sophisticated entities
including BlackRock and JPMorgan—were fully aware that the indentures allowed Wesco to
“dilute [a minority] group’s voting power” by issuing new bonds with majority consent, and then
rely on consent from those additional bonds to issue senior debt over the minority noteholders’
objection. Adv.Dkt.705-58 at 2; see also Adv.Dkt.705-61; Adv.Dkt.705-64 at 2 (describing that
approach as “[n]othing particularly new”); Adv.Dkt.705-65 at 11 (recognizing that Wesco could
“circumvent any block in the [2026 Notes] by upsizing the tranche”); Adv.Dkt.970 at 94, 102. In
fact, potential advisors to the 2024/2026 Noteholders provided them with materials specifically
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informing them that Wesco needed only majority consent to issue additional bonds and thus alter
the voting dynamics of each bond class. Adv.Dkt.970 at 116. And notably, at least one 2024/2026
Noteholder—JPMorgan—knew of these possibilities firsthand, as it had employed a similar
approach in prior transactions where it was the majority noteholder. See Adv.Dkt.970 at 94. That
approach was particularly appropriate for Wesco here, as it allowed the company to obtain its
critically needed rescue financing on favorable terms, under which the Majority Group would
“charge a lower interest rate over all and in particular on new money.” Adv.Dkt.858 at 106-07.
2. Consummation of the 2022 Transactions.
Wesco and the Majority Group carried out their plan to resolve Wesco’s liquidity crisis on
March 28, 2022. On that date, the parties entered into and consummated a series of agreements,
each occurring in a specific order:
First, Wesco adopted the Third Supplemental Indentures to the 2024, 2026, and 2027
Indentures, which amended the indentures to permit the issuance to the Majority Group of $250
million in additional 2026 Notes secured by the existing collateral. See Adv.Dkt.601-30;
Adv.Dkt.601-39; Adv.Dkt.604-18. The Third Supplemental Indentures contained three principal
amendments: (1) adding new definitions of “Additional 2026 Secured Notes” and “Note Purchase
Agreement”; (2) amending the definition of permitted liens to include liens securing the additional
2026 Notes; and (3) allowing the incurrence of the additional 2026 Notes. As required by §9.02
of the Indentures, those amendments were approved by the holders of a majority of the 2024, 2026,
and 2027 Notes—namely, the Majority Group and certain holders of the 2027 Notes, who together
held more than two-thirds of the 2024 Notes, more than 59% of the 2026 Notes, and more than
half of the 2027 Notes.
Second, Wesco and certain members of the Majority Group entered into the Note Purchase
Agreement, under which those members of the Majority Group invested $250 million of new
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money into the company, and Wesco used its authority under the Third Supplemental Indentures
to issue them additional 2026 Notes in exchange. Adv.Dkt.602-24 at 4, 10. That issuance
comported with the 2026 Indenture, which specifically contemplated the issuance of additional
secured notes on a pari passu basis in the form of “Additional Secured Notes,” subject to
limitations on the incurrence of debt and liens. Adv.Dkt.601-8 at 54, 111. After the Note Purchase
Agreement was consummated, the Majority Group’s total share grew from 59% to more than two-
thirds of the then-outstanding 2026 Notes (including the new 2026 Notes that Wesco issued to the
Majority Group in exchange for their $250 million in new investment).
Third, Wesco adopted the Fourth Supplemental Indentures, which released the liens
securing the 2024 Notes and 2026 Notes and removed certain covenants that could prevent
consummating the 2022 Transactions. See Adv.Dkt.601-34; Adv.Dkt.604-4. Because the Fourth
Supplemental Indentures “ha[d] the effect of releasing all or substantially all of” the collateral from
the liens as to the 2024 and 2026 Notes, Adv.Dkt.601-20 at 124; Adv.Dkt.601-8 at 131, they
required the consent of two-thirds of the then-outstanding 2024 and 2026 Notes, which the
Majority Group provided. See Adv.Dkt.602-22; Adv.Dkt.603-8; Adv.Dkt.603-10; Adv.Dkt.603-
17.
Finally, Wesco entered into three additional agreements: (i) a Permitted Additional Pari
Passu Secured Party Joinder with the notes collateral agent (Wilmington Savings Fund Society, or
“WSFS”) securing the 1L Notes with the same collateral as the 2024 and 2026 Notes, see
Adv.Dkt.604-15; (ii) an Exchange Agreement with the Majority Group facilitating the exchange
of participating 2024 Notes, 2026 Notes, and 2027 Notes for 1L Notes and 1.25L Notes, see
Adv.Dkt.604-19; and (iii) an Amended and Restated Notes Security Agreement with WSFS
reflecting the release of the liens as to the 2024 and 2026 Notes pursuant to the Fourth
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Supplemental Indentures and the addition of the 1L Notes to the liens pursuant to the Permitted
Additional Pari Passu Secured Party Joinder, see Adv.Dkt.602-27.
Although they were negotiated at the same time, each of the separate agreements that made
up the 2022 Transactions did not by its terms depend on or require any of the subsequent
transactions. For instance, Wesco’s adoption of the Third Supplemental Indentures (allowing
Wesco to issue additional 2026 Notes) did not mandate—or even mention—Wesco’s subsequent
adoption of the Fourth Supplemental Indentures (releasing the liens as to the 2024 and 2026 Notes).
See generally Adv.Dkt.601-39 (Third Supplemental 2026 Indenture). Likewise, the Note Purchase
Agreement (under which the Majority Group provided Wesco with $250 million in new money in
exchange for the additional 2026 Notes) did not require and was not conditioned in any way on
the subsequent exchange of those notes for the 1L Notes. See generally Adv.Dkt.602-24 (Note
Purchase Agreement).
The agreements closed in a sequence agreed to during an 8:15am call involving Wesco and
the Majority Group on March 28, 2022. In advance of that call, Wesco and counsel for the
Majority Group circulated copies of the transaction documents with signature pages attached
(though not effective). See Adv.Dkt.710-49 at 2; Adv.Dkt.1146-3 at 2. Once each participant
verbally confirmed that it was ready to proceed with the various transactions and authorized release
of its signature pages, the parties agreed on the call that the signature pages for the transactions
would be released in the order described above. Adv.Dkt.1146-5 at 2-3 (closing call agenda); see
Adv.Dkt.1350 at 59 (describing circulating signed transaction documents and authorizing their
release subject to a condition precedent as a “common” closing practice).
The transactions were then consummated in order over the course of the next seven hours.
The Third Supplemental Indentures were delivered to the indenture trustee shortly after the closing
call ended, at 8:27am and 8:30am. See Adv.Dkt.1150-4; Adv.Dkt.1150-5. The wires transmitting
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the $250 million in new investment from the Majority Group to Wesco were completed at
12:54pm. See Adv.Dkt.1150-10. Once Wesco confirmed receipt of funds, at 1:37pm, Wesco
instructed the indenture trustee to authenticate and issue the additional 2026 Notes, which were
then delivered to the Majority Group. See Adv.Dkt.1150-11; Adv.Dkt.1155-1 to -7. About half
an hour later, Wesco delivered the Fourth Supplemental Indentures to the indenture trustee along
with consent letters from two-thirds of the holders of the 2024 and 2026 Notes (including the new
2026 Notes), amending the 2024 and 2026 Indentures to allow for release of the liens as to the
2024 and 2026 Notes. See Adv.Dkt.710-43 at 2; Adv.Dkt.1150-16; Adv.Dkt.1150-18. The
indentures governing the 1L and 1.25L Notes were then delivered to the indenture trustee, followed
by the exchange of the 2024, 2026, and 2027 Notes for the 1L and 1.25L Notes, with the final step
reaching completion around 3:08pm. See Adv.Dkt.1150-19; Adv.Dkt.1150-21; Adv.Dkt.1150-23;
Adv.Dkt.1184 at 139-40.
Closing the 2022 Transactions allowed Wesco to “get the business back on a normal
operating rhythm,” spending roughly $50 million settling with its vendors and $90 million on
certain debt obligations, which resulted in “things really actually simmer[ing] down quite a bit”
for months. Adv.Dkt.664 at 58-59, 65. The company also devoted roughly $70 million to buying
up additional inventory based on “feedback from [its] customers and some outside sources” who
had suggested that “the market [was] coming back.” Id. at 59. Investor confidence likewise
increased; for instance, convinced “that all of the company’s debts would likely … be paid in full
… [a]nd that the company had liquidity to last for years,” Silver Point spent an additional nearly
$40 million buying up Wesco’s unsecured 2027 bonds. Adv.Dkt.858 at 145; see also
Adv.Dkt.925-1 at 1 (PIMCO resolved to “maintain exposure going forward”).
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D. Procedural History.
1. The adversary proceeding and the bankruptcy court’s oral ruling.
In October 2022, seven months after the 2022 Transactions took place, the 2024/2026
Noteholders sued in New York state court, seeking a judgment holding the 2022 Transactions “null
and void and not enforceable” and an order avoiding and unwinding them. Adv.Dkt.201-36 at 71.
Unfortunately, while that litigation was pending, Wesco’s financial situation once again
deteriorated as “[t]he business continued to drag” and its expectations of selling its new inventory
evaporated. Adv.Dkt.664 at 65. Despite the new money, extended maturities, and lower cash-
interest payments provided by the 2022 Transactions, the company continued to face liquidity
problems, exacerbated by the lingering effects of the COVD-19 pandemic, disruptions in the global
supply chain, labor shortages, and other challenges facing the aerospace industry. See id.;
Bankr.Dkt.13 at 5-7. In June 2023, Wesco and its related entities filed voluntary chapter 11
petitions, initiating the bankruptcy proceedings here. The filing of those petitions automatically
stayed the suit brought by the 2024/2026 Noteholders in New York state court. See Adv.Dkt.21.
On the same day that it filed its chapter 11 petition, Wesco initiated this adversary
proceeding seeking a declaration under 28 U.S.C. §2201 confirming that it did not breach its
indentures by entering into the 2022 Transactions. See Adv.Dkt.63 (amended complaint). The
2024/2026 Noteholders counterclaimed, seeking (among other things) a declaration that Wesco
breached the 2024 and 2026 Indentures; the imposition of an equitable lien against Wesco, the
First Lien Noteholders, and others; equitable subordination of claims held by the First Lien
Noteholders and others; and a declaration that the First Lien Noteholders, Platinum, Senator, and
Citadel tortiously interfered with the 2024 and 2026 Indentures. Adv.Dkt.144.
After extensive discovery, the parties proceeded to summary judgment, where the
bankruptcy court dismissed most of the 2024/2026 Noteholders’ counterclaims—including their
claims for an equitable lien or equitable subordination, which the bankruptcy court concluded were
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“disguised avoidance actions” that belonged to Wesco’s estate. Adv.Dkt.508 at 14-16. However,
the bankruptcy court allowed the 2024/2026 Noteholders’ breach-of-contract and tortious-
interference claims to proceed to trial. See id. at 36-58.3
The bankruptcy court held trial on the 2024/2026 Noteholders’ claims over 35 days in a
six-month span from late January to early July 2024, and issued an interlocutory oral ruling on
July 10, 2024. In that oral ruling, the bankruptcy court concluded that Wesco’s participation in
the 2022 Transactions did not breach the 2024 Indenture, but did breach the 2026 Indenture,
because Wesco had consent from two-thirds of the 2024 Notes but not two-thirds of the 2026 Notes
to enter into the Third Supplemental Indentures. Adv.Dkt.1474 at 13-14, 37. As a remedy, the
bankruptcy court recommended reinstating the liens of the 2026 Notes that were released by the
Fourth Supplemental Indentures. See id. at 3 (recommending a declaration that “the rights, liens,
and interests that were for the benefit of all of the holders of the 2026 [N]otes as they existed on
March 27th, 2022, remained in full force and effect on March 29th, 2022”). The court also
concluded that Wesco’s participation in the 2022 Transactions breached the 2027 Indenture, but
declined to award any remedy for that breach. Id. In announcing its oral ruling, the bankruptcy
court advised the parties that its ruling was “interlocutory only” and that “the final ruling will be
done in a written memorandum opinion,” but that in the meantime Wesco and its affiliates should
proceed to develop a plan of reorganization based “on what their capital structure has now been
declared to be.” Id. at 3, 38.
The bankruptcy court’s oral ruling did not explicitly address whether the $250 million in
additional 2026 Notes should be treated as secured pari passu with the original 2026 Notes. The
parties accordingly asked the bankruptcy court to clarify the status of the $250 million in additional
3 The claims asserted against WSFS were dismissed at the summary judgment stage, and WSFS
did not participate as a party in the trial on the remaining claims. Adv.Dkt.509 at 2-3; Adv.Dkt.533
at 3-5; Adv.Dkt.554 at 2.
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2026 Notes, and offered to submit further briefing on the issue if needed. The bankruptcy court
responded that the Majority Group did not receive any secured 2026 Notes in exchange for the
$250 million lifeline that it provided to Wesco, leaving the Majority Group with only an unsecured
claim:
What I intended to say was that because it violated the indenture, that there were
no new 2026 notes issued. Obviously the 250 million was received and it needs to
be dealt with in a plan and I did not intend to dictate how it was dealt with in a plan.
But the 250 million did not ever result in the issuance of additional 2026 notes. I
don’t mean that to be ambiguous or confusing, but that’s what I tried to say.
Bankr.Dkt.2002 at 74.
After the bankruptcy court announced its oral rulings, the parties developed a consensual
plan of reorganization, which the bankruptcy court confirmed on December 27, 2024.
Bankr.Dkt.2528 (confirmation order); see Bankr.Dkt.2550 (corrected confirmation order). That
plan was premised on the bankruptcy court’s rulings regarding the status of the 1L Notes, the 1.25L
Notes, the 2026 Notes, and the $250 million in new investment by the Majority Group, with all
parties preserving their appellate rights with respect to those rulings. Because these rulings
resulted in the First Lien Noteholders receiving less under the confirmed plan—in particular, under
the court’s rulings that the 1L Notes were not senior to the original 2026 Notes, and that the
Majority Group’s $250 million in new investment resulted in only an unsecured claim rather than
secured 1L Notes—the First Lien Noteholders noticed their appeal of the confirmation order on
January 10, 2025. See Bankr.Dkt.2564. That appeal is currently pending as In re Wesco Aircraft
Holdings, Inc., No. 25-cv-161 (docketed Jan. 14, 2025), and is being held in abeyance pending
this Court’s resolution of this case.
2. The bankruptcy court’s report and recommendation.
The bankruptcy court subsequently issued its January 17 R&R on the 2024/2026
Noteholders’ breach-of-contract claims. ECF 3. As it had in its oral ruling, the bankruptcy court
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concluded in the January 17 R&R that even though, by its terms, the 2026 Indenture permitted the
issuance of additional pari passu notes based on a simple majority vote, Wesco breached the 2026
Indenture by adopting the Third Supplemental Indentures without consent from two-thirds of the
then-outstanding 2026 Notes. Id. at 28-35.
The bankruptcy court recognized that under the 2026 Indenture, “except in certain
enumerated circumstances,” Wesco could adopt “any amendment or supplement” to the 2026
Indenture “with the consent … of at least a majority” of the then-outstanding 2026 Notes. Id. at
19. The bankruptcy court also recognized that more than a simple majority had consented to the
Third Supplemental Indentures, which under the 2026 Indenture was sufficient to approve an
amendment authorizing the issuance of new pari passu notes. Id. at 17, 19-20. But according to
the bankruptcy court, §9.02 of the 2026 Indenture required Wesco to obtain the consent of two-
thirds of the then-outstanding 2026 Notes to adopt the Third Supplemental Indentures, because (in
the bankruptcy court’s view) the Third Supplemental Indentures “ha[d] the effect of releasing all
or substantially all of” the collateral from the liens as to the 2026 Notes. Id. at 29-35. As a remedy,
the bankruptcy court recommended that this Court should conclude that in light of Wesco’s
purported breach, the Third Supplemental Indentures “could not have been effective as to the 2026
Noteholders,” thereby “negat[ing] the effectiveness against the 2026 Noteholders of every
subsequent step” in the 2022 Transactions. Id. at 35. In particular, the bankruptcy court
recommended that this Court should declare that “the rights, liens, and interests that were for the
benefit of all the holders of 2026 Notes … remained in full force and effect” following the 2022
Transactions, ECF 3 at 36, stripping the First Lien Noteholders of the exclusive first-lien status of
their 1L Notes and leaving them with only an unsecured claim for the $250 million that they
provided to Wesco in the 2022 Transactions.
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CONCLUSIONS OF LAW
This Court disagrees as set forth in this order with the bankruptcy court’s recommended
factual findings, and with its recommended finding of breach and its recommended remedy. For
the reasons explained in Part I below, the 2022 Transactions were proper, appropriate, lawful, and
consistent with the terms of the 2024 and 2026 Indentures. Those indentures were negotiated by
sophisticated parties who chose their language carefully; if the parties had wanted to bargain for
additional sacred rights that would have allowed minority holders to prevent the 2022
Transactions, they could have done so, but they did not. This Court refuses to find any implied
sacred rights. The fact that the 2022 Transactions closed and were executed over the course of a
single day is not unusual, and does not make them inconsistent with Wesco’s indentures. The
2022 Transactions accordingly did not breach Wesco’s indentures. In addition, for the reasons
explained in Part II, the proper remedy if Wesco had breached the 2026 Indenture would have been
a declaration that Wesco is liable for money damages for the purported breach, not an order
reinstating the 2026 Noteholders’ liens while stripping the First Lien Noteholders’ $250 million
investment of any security interest at all. Nothing in law or equity supports the bankruptcy court’s
proposed remedy, which would cost Wesco (the purported breaching party) nothing, but would
deprive the First Lien Noteholders (who committed no breach) of their exclusive first-lien status
and would treat their $250 million in rescue financing as an unsecured claim. The Court
accordingly SUSTAINS the First Lien Noteholders’ objection to the bankruptcy court’s January
17 R&R, OVERRULES the 2026 Noteholders’ objection, DECLARES that the 2022 Transactions
did not breach Wesco’s indentures, and DISMISSES the 2026 Noteholders’ breach-of-contract
claims.
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I. Wesco’s Adoption of the Third Supplemental Indentures and the Remaining 2022
Transactions Fully Complied With Wesco’s Obligations Under Its Indentures.
A. Wesco Had the Consent Required by the 2026 Indenture for Each Step in the
2022 Transactions.
Wesco’s adoption of the Third Supplemental Indentures—and all the other steps in the
2022 Transactions—complied with the requirements of the 2026 Indenture (and Wesco’s other
indentures). Under §9.02 of the 2026 Indenture, Wesco was authorized to adopt any amendment
or supplement “with the consent of the Holders of at least a majority” of the then-outstanding 2026
Notes, except for certain enumerated categories of amendments or supplements that the 2026
Indenture made subject to more stringent consent requirements. Adv.Dkt.601-8 at 130. Only one
such enumerated exception is relevant here: the supermajority consent requirement for release of
collateral, under which “without the consent of the Holders of at least 66⅔% in aggregate principal
amount of the 2026 Secured Notes then outstanding … no amendment, supplement or waiver may
… have the effect of releasing all or substantially all of the Collateral from the Liens” securing the
2026 Notes. Adv.Dkt.601-8 at 131. The 2026 Indenture does not impose any similar
supermajority requirement on amendments or supplements that have the effect of authorizing
additional 2026 Notes in excess of the debt and lien baskets; instead, amendments or supplements
that authorize such notes require only simple-majority consent. See Adv.Dkt.601-8 at 130.
In adopting the Third Supplemental Indentures with simple-majority consent, Wesco fully
complied with its obligations under the 2026 Indenture. None of the three principal amendments
made by the Third Supplemental Indentures—adding new definitions of “Additional 2026 Secured
Notes” and “Note Purchase Agreement,” amending the definition of permitted liens to include
liens securing the additional 2026 Notes, and allowing the incurrence of the additional 2026
Notes—had the effect of releasing any collateral, or indeed had any effect on any collateral at all.
Instead, those amendments simply authorized Wesco to issue the additional 2026 Notes in
exchange for $250 million in new money from the Majority Group, providing Wesco with the
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financial lifeline it needed. As such, the Third Supplemental Indentures required only “the consent
of the Holders of at least a majority” of the then-outstanding 2026 Notes. Adv.Dkt.601-8 at 130-
31. It is undisputed that more than a majority of the then-outstanding 2026 Notes consented to the
Third Supplemental Indentures. See Adv.Dkt.604-16. Wesco’s adoption of the Third
Supplemental Indentures accordingly complied with its obligations under the 2026 Indenture.
The remaining steps in the 2022 Transactions likewise complied with the requirements of
the 2026 Indenture. After the adoption of the Third Supplemental Indentures authorized Wesco to
issue additional 2026 Notes, Wesco and the Majority Group entered into the Note Purchase
Agreement, under which the Majority Group provided Wesco with $250 million in new investment
in exchange for additional 2026 Notes. Adv.Dkt.602-24. It is undisputed that the Note Purchase
Agreement did not affect the collateral or require any further consent under the terms of the 2026
Indenture.
After entering into the Note Purchase Agreement, Wesco proceeded to adopt the Fourth
Supplemental Indentures, which provided for the release of the collateral from the liens as to the
2026 Notes. See Adv.Dkt.601-33, 601-34, 604-4. Because the Fourth Supplemental Indentures
did “have the effect of releasing all or substantially all” of the collateral as to the 2026 Notes, they
required the consent of holders of at least two-thirds of all then-outstanding 2026 Notes.
Adv.Dkt.601-8 at 131. That supermajority consent was provided by the Majority Group, who—
after investing an additional $250 million in Wesco through the Note Purchase Agreement—now
held more than two-thirds of the 2026 Notes. The Fourth Supplemental Indentures accordingly
complied with the requirements of the 2026 Indenture as well.
Finally, Wesco entered into (1) the Permitted Additional Pari Passu Secured Party Joinder,
under which WSFS added the new 1L Notes to the liens under the security documents, (2) the
Amended and Restated Notes Security Agreement, which reflected the addition of the 1L Notes to
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the liens and WSFS’ release of the liens as to the 2024 and 2026 Notes pursuant to the Fourth
Supplemental Indentures, and (3) the Exchange Agreement, under which participating Majority
Group members exchanged their 2024 Notes and 2026 Notes for the 1L Notes. Adv.Dkt.602-27,
604-19. Again, it is undisputed that none of these agreements required any further consents under
the 2026 Indenture. The 2022 Transactions thus fully complied with the terms of the 2026
Indenture.
This conclusion is confirmed by the Fifth Circuit’s decision in In re Serta Simmons
Bedding, L.L.C., 125 F.4th 555 (5th Cir. 2025), which underscores the importance of adhering to
the precise language of indenture agreements. In Serta—which involved syndicated loans rather
than secured bonds—the debtor likewise engaged in an “uptier” transaction in which certain
lenders exchanged their existing secured debt for new super-priority debt. Id. at 568-69. A group
of excluded lenders asserted that the uptier transaction breached an express provision in the
debtor’s loan agreement that enshrined a “sacred right of pro-rata sharing,” under which the debtor
was required to allocate any payments of principal or interest and any conversions of its debt pro
rata among its lenders of each class, and which could only be waived with unanimous consent. Id.
at 567. The debtor responded that the unanimous consent requirement did not apply, because
another provision of the loan agreement created an exception to that requirement that allowed the
debtor to repay its loans on a non-pro rata basis through “open market purchases.” Id. at 568. The
Fifth Circuit agreed with the investors, holding that the uptier transaction in Serta was not an “open
market purchase” because, among other things, it did not take place on an open market. Id. at 578-
84.
Unlike the loan agreement in Serta, the 2026 Indenture does not include any provision
requiring Wesco to obtain unanimous consent from its existing noteholders in order to engage in
an uptier transaction. Instead, the 2026 Indenture explicitly requires only majority consent to
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authorize the issuance of new notes, and requires only a two-thirds supermajority to authorize the
release of collateral. Adv.Dkt.601-8 at 130-31. As recounted above, the evidence at trial showed
that the parties understood that the 2026 Indenture did not require unanimous consent for an uptier
transaction, that it allowed Wesco to dilute a minority group’s voting power by issuing new bonds
with majority consent and to then rely on consent from those additional bonds to issue senior debt
over the minority noteholders’ objection, and that those provisions ensured that Wesco would have
additional flexibility to raise new capital in the future. See supra pp.3-4, 8-9. In short, the
provisions of the 2026 Indenture are materially different from the provisions of the loan agreement
at issue in Serta, and Wesco fully complied with the conditions that the 2026 Indenture imposes
in entering into the 2022 Transactions.
B. The 2026 Noteholders’ Contrary Arguments Are Unpersuasive.
The 2026 Noteholders raise various contrary arguments, but none is persuasive. As their
primary argument, the 2026 Noteholders argue that the Third Supplemental Indentures required
supermajority consent because they “ha[d] the effect of releasing all or substantially all” of the
collateral, Adv.Dkt.601-8 at 131—because they allowed Wesco to issue additional 2026 Notes,
which Wesco then issued to the Majority Group in exchange for $250 million in new investment,
and which the Majority Group then used to consent to the Fourth Supplemental Indentures and
release the collateral from the liens as to the 2026 Notes. Although none of those steps in the 2022
Transactions individually violated the 2026 Indenture, the 2026 Noteholders argue that Wesco
breached the 2026 Indenture by combining those non-breaching steps, because in that
“environment” the Third Supplemental Indentures “had the effect of releasing collateral.” ECF 3
at 31.
The 2026 Noteholders are incorrect. Under the plain language of the 2026 Indenture,
Wesco needed to obtain supermajority consent for the Third Supplemental Indentures only if the
Third Supplemental Indentures themselves “ha[d] the effect of releasing all or substantially all” of
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the liens securing the 2026 Notes. Adv.Dkt.601-8 at 131. The 2026 Noteholders’ contrary reading
of that language—as reaching not only amendments that themselves have the effect of releasing
collateral, but any amendment that eventually leads (after multiple intervening steps, including the
necessary subsequent supermajority consent) to further amendments that have the effect of
releasing collateral, would flout the ordinary meaning of “effect” and invite significant practical
difficulties by making it all but impossible to know in advance when supermajority consent is
required.
In the context of a legal instrument, the term “effect” means “[t]he result that an instrument
between parties will produce on their relative rights.” Effect (n.), Black’s Law Dictionary (12th
ed. 2024). An “amendment, supplement or waiver” accordingly only “ha[s] the effect of releasing
all or substantially all of the Collateral,” Adv.Dkt.601-8 at 131, if “the result that [the] instrument
… will produce on [the parties’] relative rights” is itself to release that collateral—not just to
initiate a chain of events, including subsequent amendments, that may eventually lead to releasing
the collateral. That makes particular sense in the context of a legal instrument like the 2026
Indenture that requires majority votes for some actions and supermajority votes for others. In that
context, the focus must be on the immediate effect of the amendment itself—without regard to
subsequent actions that may follow—in order to determine in real time whether a supermajority
vote is required. Here, the only “result” that the Third Supplemental Indentures themselves
“produce[d] on [the parties’] relative rights” was to enable Wesco to issue additional 2026 Notes—
an effect that did not require supermajority consent under the express terms of the 2026 Indenture.
As a result, under the plain language of the 2026 Indenture, the Third Supplemental Indentures did
not require supermajority consent.
That conclusion not only is required by the plain language of the 2026 Indenture, but this
Court also finds as a factual matter that it accords with the parties’ intent and the 2026 Indenture’s
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general purpose. See, e.g., In re Westmoreland Coal Co. v. Entech, Inc., 794 N.E.2d 667, 670
(N.Y. 2003) (under New York law, a contract must be interpreted “to give effect to its general
purpose”); Greenfield v. Philles Recs., 780 N.E.2d 166, 170 (N.Y. 2002) (under New York law,
“agreements are construed in accord with the parties’ intent”); Adv.Dkt.1474 at 4-6; see also supra
pp.3-4, 8-9. By requiring supermajority consent for any amendments or supplements that “have
the effect of releasing all or substantially all of” the collateral, Adv.Dkt.601-8 at 131, the 2026
Indenture ensures that the liens securing the 2026 Notes will only be released if doing so is in the
economic interests of holders of at least two-thirds of the outstanding notes. But nothing about
that supermajority-consent provision prevents majority holders from investing additional funds in
Wesco to acquire that level of economic interest, or gives minority holders a veto right over
whether Wesco may issue additional notes. In fact, as discussed above, it is undisputed that the
2026 Indenture does not impose any supermajority consent requirement on issuing additional 2026
Notes. The evidence shows that the 2024/2026 Noteholders were sophisticated parties who fully
understood that the 2026 Indenture did not impose any such supermajority requirement on the
issuance of additional 2026 Notes, even if those additional notes were then voted in favor of
releasing the collateral in a subsequent transaction.
Adopting the 2026 Noteholders’ interpretation, and construing “effect” to expand the 2026
Indenture’s supermajority consent provision to any amendment or supplement whose downstream
consequences may include the release of collateral, would also raise difficult line-drawing
problems. Once the inquiry moves beyond the immediate effect of an amendment, there is no
logical stopping point. If an amendment enables the issuance of additional notes, and those
additional notes then provide the necessary votes two weeks later to release collateral, is the
amendment retroactively subject to the two-thirds supermajority provision? What if the vote to
release the collateral comes two months later or two years later? Does it matter whether the later
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vote to release the collateral was foreseeable (or foreseen)? None of those questions has any clear
textual answer—because the plain meaning of the text looks only to the effect of the amendment
or supplement itself, not any potential downstream consequences.
And while those questions may be hypothetical in this case, similar questions arise all the
time in complex financial transactions, where the need for clarity is paramount and interlocking
agreements are commonplace. That is precisely why other courts have recognized a need to “hew[]
strictly to the chronology required by the contracts” in determining the rights of the parties at a
particular moment in a multi-transaction sequence. Audax Credit Opportunities Offshore Ltd. v.
TMK Hawk Parent Corp. (“TriMark”), 2021 WL 3671541, at *8 (N.Y. Sup. Ct. Aug. 16, 2021)
(collecting cases and noting “that the order of operations matters”). A contrary result would
threaten serious uncertainty for the indentures here and for countless others that may use similar
language, in an area where clarity and predictability are necessary to ensure that lenders and
borrowers can price their bonds on a common understanding of their terms and avoid expensive
litigation over future amendments.
The 2026 Noteholders also argue that the Third Supplemental Indentures “ha[d] the effect
of releasing all or substantially all” of the collateral, Adv.Dkt.601-8 at 131, because (they say) the
bankruptcy court correctly concluded that Wesco’s adoption of the Third Supplemental Indentures
made the subsequent release of the liens “automatic” and “inevitable,” ECF 3 at 31-35. On de
novo review of the record, see 28 U.S.C. §157(c)(1), this Court finds that as a factual matter, the
evidence does not support that conclusion.
Nothing about the adoption of the Third Supplemental Indentures compelled the parties to
proceed with the Note Purchase Agreement, the Fourth Supplemental Indenture, the release of the
liens, or any of the other parts of the 2022 Transactions. The fact that the parties agreed to the
seriatim closing of each transaction during a single closing call on the morning of March 28,
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2022—which the evidence showed is a common closing practice, see Adv.Dkt.1350 at 59—does
not mean that each transaction was automatic or inevitable as soon as the closing call was
completed. On the contrary, after the closing call ended, it took more than four hours for the wire
transfers by which the Majority Group paid Wesco $250 million in new investment under the Note
Purchase Agreement to be processed. See Adv.Dkt.1150-10. If those funds had not arrived, the
additional 2026 Notes would never have been issued, the Fourth Supplemental Indentures would
never have received the necessary consents, and the liens would never have been released. More
broadly, at any point after the adoption of the Third Supplemental Indentures but before the liens
were released—i.e., between about 8:30am and 2:15pm on March 28, 2022, see Adv.Dkt.710-43
at 2; Adv.Dkt.1150-4; Adv.Dkt.1150-5; Adv.Dkt.1150-16; Adv.Dkt.1150-18—any party could
have rescinded its release of its signature pages and refused to carry out the remaining 2022
Transactions. That might well have triggered litigation, but it would also unquestionably have
prevented the release of the liens. Wesco’s entry into the Third Supplemental Indentures
accordingly did not make the rest of the 2022 Transactions, including the release of the collateral
as to the 2026 Notes, “automatic” or “inevitable.” Contra ECF 3 at 31-35.4 For that reason as
4 The 2026 Noteholders attempt to bolster their assertion that the Third Supplemental
Indentures made release of the collateral “automatic” and “inevitable,” ECF 3 at 31-35, by relying
on New York escrow and agency law. That reliance is misplaced. Even if New York law gave
the Majority Group the right (though not the obligation) to enforce completion of the subsequent
steps in the 2022 Transactions, it does not follow that the Third Supplemental Indentures made the
subsequent release of the collateral automatic or inevitable, much less that the Third Supplemental
Indentures themselves “ha[d] the effect of releasing” that collateral. Adv.Dkt.601-8 at 131; see
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well, the 2026 Noteholders’ contention that the Third Supplemental Indentures “ha[d] the effect
of releasing all or substantially all” of the collateral, Adv.Dkt.601-8 at 131, is unpersuasive.
C. The 2026 Noteholders’ Alternative Arguments for Finding a Breach of the
2026 Indenture Are Likewise Unpersuasive.
In their own objection to the January 17 R&R, the 2026 Noteholders raise seven alternative
arguments—none of which was accepted by the bankruptcy court—for finding that Wesco
breached the 2026 Indenture by entering into the 2022 Transactions. Those alternative arguments
are likewise unpersuasive.5
First, the 2026 Noteholders contend that the Third Supplemental Indentures required
supermajority consent because the 2026 Indenture requires supermajority consent for any
amendment that will “modify the Security Documents or the provisions of this Indenture dealing
with Collateral in any manner adverse … in any material respect” to the holders of the 2026 Notes.
Adv.Dkt.601-8 at 131. But the Third Supplemental Indentures did not “modify the Security
Documents,” id.; they amended only the 2026 Indenture, which is not one of the “Security
Documents.” Adv.Dkt.601-8 at 45 (defining “Security Documents”). The fact that the Notes
Security Agreement (which is one of the “Security Documents,” id.) cross-references the 2026
Indenture does not transform an amendment to the latter into an amendment to the former. The
Third Supplemental Indentures also did not modify “the provisions of [the 2026 Indenture] dealing
with Collateral,” Adv.Dkt.601-8 at 131, by amending the definition of “Permitted Lien,” which is
TriMark, 2021 WL 3671541, at *8 (recognizing that “committing to do something is not, of course,
the same thing as doing it” (brackets omitted)).
5 The 2026 Noteholders also object to the bankruptcy court’s proposed findings that Wesco
believed the 2022 Transactions were in its best interest and that those transactions were superior
to the Minority Group’s proposal. ECF 35 at 28-32. As detailed in this Court’s findings of fact
above, this Court agrees with the bankruptcy court’s proposed findings on those issues. See supra
pp.5-7.
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not a provision dealing with collateral (as demonstrated by the fact that it also appears in the 2027
Indenture governing unsecured notes, see Adv.Dkt.601-7 at 28). Finally, as a factual matter, even
if the Third Supplemental Indentures had modified either the “Security Documents” or any
provision of the 2026 Indenture “dealing with Collateral,” they were not “adverse … in any
material respect” to the holders of the 2026 Notes. Adv.Dkt.601-8 at 131. Instead, the Third
Supplemental Indentures enabled an infusion of $250 million in new money (in other words,
additional collateral) that Wesco needed to address its liquidity issues, improving the likelihood
that Wesco would be able to pay off its obligations. See supra pp.4-7, 13. What is more, because
the new $250 million became part of the collateral package securing the 2026 Notes, the Third
Supplemental Indentures did not even dilute the 2026 Noteholders’ liens. See Adv.Dkt.601-24 at
1-2 (Notes Security Agreement defining collateral to include “all cash”).
Second, the 2026 Noteholders contend that the 2022 Transactions violated §4.12(a) of the
2026 Indenture, which provided (until it was deleted by the Fourth Supplemental Indentures) that
Wesco could not “directly or indirectly, create, incur, assume, or suffer to exist any Lien of any
kind (other than Permitted Liens)” on its assets. Adv.Dkt.601-8 at 100. None of the steps in the
2022 Transactions, however, created any such impermissible new lien. The fact that the Third
Supplemental Indentures allowed Wesco to issue new 2026 Notes that subsequently voted in favor
of releasing the collateral as to the 2026 Notes, which then allowed the liens as to the 1L Notes,
does not mean that the Third Supplemental Indentures themselves “directly or indirectly” created
the liens as to the 1L Notes. Id. Once again, the 2026 Noteholders’ contrary interpretation
conflicts with the plain contractual text and would raise severe practical problems, including by
making it impossible to know in advance whether any contemplated transaction would breach
§4.12(a) by eventually leading to an impermissible lien.
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Third, the 2026 Noteholders cite §1.03(7) of the 2026 Indenture, which provides that
“[u]nless the context otherwise requires,” provisions in the 2026 Indenture “apply to successive
events and transactions.” Adv.Dkt.601-8 at 50-51. But that rule of construction just makes clear
that the requirements in the 2026 Indenture apply to each one of a series of successive events and
transactions; it does not collapse the entire series into a single transaction. See Revised Model
Simplified Indenture, 55 Bus. Law. 1115, 1126, 1176 (2000) (“successive events and transactions”
language merely “underscore[s] the intended application and re-application” of indenture
provisions to “successive obligors, fiduciaries, mergers, conversion adjustments, etc.”). The 2026
Noteholders also cite Sharon Steel Corp. v. Chase Manhattan Bank, N.A., 691 F.2d 1039 (2d Cir.
1982), but this case is nothing like Sharon Steel. In that case, the indentures included a “successor
obligor” provision that allowed the issuer to assign its debt to any corporate successor that
purchased “all or substantially all” of its assets. 691 F.2d at 1044-45. The issuer proceeded to sell
off its assets in three different transactions to three different buyers—and then purported to assign
its debt to only the last buyer, on the theory that it had sold all its (remaining) assets to that buyer.
Id. at 1046. The Second Circuit rejected that argument, holding that an issuer cannot engage in a
“plan of piecemeal liquidation” and then invoke a successor obligor provision to assign its debt to
only “the buyer last in time.” Id. at 1050-51. But this case does not involve an issuer engaging in
a series of similar transactions, like selling off all its assets piecemeal, and then arguing that all but
the last transaction should be ignored. Just the opposite: It involves an issuer engaging in a series
of different amendments and transactions, with widely varying terms and effects, and arguing that
the deliberate structure and timing of those transactions should be respected.
Fourth, the 2026 Noteholders make a similar argument under New York law, claiming that
it requires collapsing the entire sequence of distinct transactions in the 2022 Transactions into a
single transaction. That argument misreads New York law. New York recognizes a canon of
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contract interpretation under which courts “read together as one” documents that are “executed at
substantially the same time” and “related to the same subject-matter,” so that those agreements are
construed consistently and in accordance with the parties’ intent. Nau v. Vulcan Rail & Constr.
Co., 286 N.Y. 188, 197 (1941); see, e.g., BWA Corp. v. Alltrans Express U.S.A., Inc., 493 N.Y.S.2d
1, 3 (App. Div. 1985) (instruments executed together “will be read and interpreted together”). But
that is an interpretive canon, not a substantive doctrine that would collapse multiple separate
agreements into a single instrument when that was decidedly not what the parties intended. See,
e.g., Kent v. Universal Film Mfg. Co., 193 N.Y.S. 838, 846-47 (App. Div. 1922) (related contracts
“are, of course, to be construed together,” but that rule “does not require that the two separate
instruments must be deemed consolidated and one for all purposes”); see also CooperVision, Inc.
v. Intek Integration Techs., 794 N.Y.S.2d 812, 818 (Sup. Ct. 2005) (same). Here, the parties clearly
intended the separate steps of the 2022 Transactions to be treated as distinct transactions, and New
York law gives effect to that intent. See, e.g., TriMark, 2021 WL 3671541, at *8; MeehanCombs
Glob. Credit Opportunities Funds v. Caesars Ent. Corp., 80 F.Supp.3d 507, 516-17 (S.D.N.Y.
2015).
Fifth, the 2026 Noteholders contend that the additional 2026 Notes were never properly
“authenticated” by a “manual signature” from the indenture trustee. Adv.Dkt.601-8 at 54. But
nothing in the 2026 Indenture prohibited the indenture trustee from using multiple copies of the
same manual signature to sign multiple notes, and the indenture trustee’s signature on the notes is
“conclusive evidence” that the notes “ha[ve] been duly authenticated.” Id. In any event, the 2026
Noteholders are only third-party beneficiaries of the 2026 Indenture, and cannot assert
authentication requirements that were “not made for [their] benefit,” BNP Paribas Mortg. Corp.
v. Bank of Am., N.A., 778 F.Supp.2d 375, 415 (S.D.N.Y. 2011); any such technical defect would
not invalidate the notes regardless, see, e.g., Danco Elec. Contractors, Inc. v. Dormitory Auth. of
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N.Y., 75 N.Y.S.3d 28, 28-29 (App. Div. 2018); the notes were ratified by performance (including
their sale and purchase for $250 million), rendering any defect inconsequential, see, e.g., Feinstein
v. Levy, 503 N.Y.S.2d 821, 822 (App. Div. 1986) (per curiam); and the notes could always be
retroactively reformed in light of the parties’ mutual understanding of their validity, see, e.g., In
re Snide, 418 N.E.2d 656 (N.Y. 1981) (reforming wills signed by opposite spouses).
Sixth, the 2026 Noteholders assert that the 2022 Transactions breached §3.02 and §3.07(h)
of the 2026 Indenture, which govern redemptions and purchases. Under §3.02, “[i]f less than all
of the 2026 Secured Notes are to be redeemed pursuant to the provisions of Section 3.07 hereof,
the Trustee will select 2026 Secured Notes for redemption or purchase pro rata, by lot or by such
method as it shall deem fair and appropriate.” Adv.Dkt.601-8 at 66. By its plain terms, that
provision does not apply here, because no 2026 Notes were “redeemed pursuant to the provisions
of Section 3.07” in the 2022 Transactions; instead, Wesco exchanged new 1L Notes for the 2026
Notes held by the First Lien Noteholders. Id. As for §3.07(h), it authorizes Wesco to “at any time
and from time to time purchase 2026 Secured Notes,” and provides that “[a]ny such purchases
may be made through open market or privately negotiated transactions with third parties … or
otherwise, upon such terms and at such prices as well as with such consideration as [Wesco] may
determine.” Id. at 69. Even assuming that the exchange of the 2026 Notes for 1L Notes in the
2022 Transactions constituted a “purchase” under §3.07(h), that section explicitly authorizes
purchases through “privately negotiated transactions with third parties,” including the First Lien
Noteholders here. Id.; cf. supra pp.20-22 (discussing Serta). In all events, even if the 2022
Transactions were somehow contrary to §3.02 or §3.07(h), a majority of the 2026 Notes properly
waived compliance with those provisions under §9.02 of the 2026 Indenture. Adv.Dkt.1446 at
335-36; see Adv.Dkt.601-8 at 130 (allowing “a majority … of the 2026 Secured Notes” to “waive
compliance in a particular instance … with any provision of this Indenture”).
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Finally, the 2026 Noteholders contend that the 2022 Transaction breached the “sacred
rights” provision in §9.02(10) of the 2026 Indenture, which requires unanimous consent from each
affected holder for any amendment that would “make any change to, or modify, the ranking of the
2026 Secured Notes in respect of right of payment that would adversely affect the Holders of the
2026 Secured Notes.” Adv.Dkt.601-8 at 131. But §9.02(10) by its terms applies only to changes
in “ranking … in respect of right of payment,” or payment priority, which asks whether one note
must be paid in full before another receives any payment; that subsection does not apply to changes
in relative maturity or lien priority. Id.; see In re MPM Silicones, LLC, 531 B.R. 321, 328
(S.D.N.Y. 2015) (explaining that “[t]he words ‘in right of payment’ clearly refer only to payment
subordination,” not “lien subordination”), aff’d in relevant part and rev’d on other grounds, 874
F.3d 787 (2d Cir. 2017); Diversified Realty Servs., Inc. v. Meyers Law Grp., P.C., 2014 WL
547034, at *3 (N.D. Cal. Feb. 7, 2014) (distinguishing payment subordination and lien
subordination), aff’d, 647 F.App’x 736 (9th Cir. 2016). The 2026 Noteholders’ contrary
interpretation of §9.02(10) conflicts with the supermajority provision of §9.02, which requires only
a two-thirds majority of the 2026 Notes (not unanimous consent) to release collateral.
Adv.Dkt.601-8 at 131. Their interpretation also flatly conflicts with §4.09(c), which expressly
distinguishes priority “in right of payment” from secured status. See id. at 93 (“[N]o Indebtedness
will be deemed to be contractually subordinated in right of payment … solely by virtue of being
unsecured or by virtue of being secured on a junior priority basis.”).
In sum, none of the 2026 Noteholders’ seven alternative arguments provides any persuasive
basis for concluding that the 2022 Transactions breached Wesco’s obligations under the 2026
Indenture.6
6 No party has objected to the bankruptcy court’s recommendation that this Court should find
that Wesco did not breach its obligations under the 2024 Indenture by entering into the 2022
Transactions. ECF 3 at 2. This Court has independently reviewed the record and agrees that
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II. Even If Adopting The Third Supplemental Indentures Breached The 2026 Indenture,
The Proper Remedy Would Have Been A Damages Claim Against Wesco.
For all of the foregoing reasons, this Court concludes that Wesco did not violate its
obligations under its indentures by entering into the 2022 Transactions. But even if Wesco had
breached the 2026 Indenture in adopting the Third Supplemental Indentures, this Court would still
conclude that the bankruptcy court’s recommended remedy for any such breach was inappropriate.
Instead, the proper remedy for any such breach would simply be to allow the 2026 Noteholders to
seek monetary damages from Wesco, which was the breaching party.
Under both New York and Texas law, as under the common law generally, it is well
established that the ordinary remedy for a breach of contract is monetary damages for the breach.
See, e.g., Aquaplex, Inc. v. Rancho La Valencia, Inc., 297 S.W.3d 768, 774 (Tex. 2009) (per
curiam); Buckley & Co v. City of New York, 121 A.D.2d 933, 936 (N.Y. App. Div. 1986); see also
United States v. Winstar Corp., 518 U.S. 839, 885 (1996) (plurality opinion); Restatement
(Second) of Contracts §346 & cmt.a (Oct. 2024); 24 Williston on Contracts §64:1 (4th ed. 2025).7
And under both New York and Texas law, as under the common law generally, equitable remedies
for a breach of contract are only available if the plaintiff makes an additional showing that the
standard remedy of monetary damages is inadequate. See, e.g., Credit Suisse AG v. Claymore
Holdings, LLC, 610 S.W.3d 808, 819 (Tex. 2020) (applying New York law); Orix Cap. Mkts.,
LLC v. La Villita Motor Inns, J.V., 329 S.W.3d 30, 45 (Tex. App. 2010); Burke v. Bowen, 353
N.E.2d 567, 569 (N.Y. 1976); see also 25 Williston on Contracts §67:8.
Wesco did not breach the 2024 Indenture by entering into the 2022 Transactions, for all of the
reasons given above (which apply with equal force to the 2024 Indenture) and because in any event
Wesco had two-thirds supermajority consent from the 2024 Notes for all of the 2022 Transactions.
7 Because the relevant principles of New York law (the law governing the 2026 Indenture) and
Texas law (the law of the forum here) do not meaningfully differ, this Court need not decide which
state’s law controls. See, e.g., Torrey v. Infectious Diseases Soc’y of Am., 86 F.4th 701, 704 (5th
Cir. 2023).
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Bankruptcy does not alter those basic principles of contract law, and does not afford
plaintiffs who sue bankrupt defendants additional remedies that would otherwise be unavailable.
Cf. Butner v. United States, 440 U.S. 48, 55 (1979). In other words, the fact that the breaching
party’s bankruptcy and applicable bankruptcy-law principles may mean that judgment creditors
will not be able to recover the full amount of their damages award does not render damages an
inadequate remedy. See, e.g., Dresser-Rand Co. v. Virtual Automation Inc., 361 F.3d 831, 848-49
(5th Cir. 2004); see also In re First Cent. Fin. Corp., 377 F.3d 209, 216 (2d Cir. 2004). On the
contrary, if insolvency were always sufficient to make an award of damages against a defendant
legally inadequate, then any plaintiff with a breach-of-contract claim against a bankrupt defendant
would always be able to seek specific performance or other equitable remedies as a matter of
course. That plainly is not the law. See First Cent., 377 F.3d at 216; Dresser-Rand, 361 F.3d at
848-49; In re Robertshaw US Holding Corp., 2024 WL 4369717, at *1-2 (S.D. Tex. Oct. 1, 2024);
In re Robertshaw US Holding Corp., 662 B.R. 146, 161-62 (Bankr. S.D. Tex. 2024); In re Provider
Meds, LP, 2014 WL 4162870, at *12 (Bankr. N.D. Tex. Aug. 20, 2014).
Rather than recommending that this Court hold Wesco liable for damages, the bankruptcy
court recommended that this Court declare that “the rights, liens, and interests that were for the
benefit of [the 2026 Noteholders] … remained in full force and effect” without regard to the 2022
Transactions. ECF 3 at 36. That is, rather than recommending that this Court hold Wesco liable
for any damages caused by its purported breach of the 2026 Indenture, the bankruptcy court instead
recommended that this Court should partially unwind the 2022 Transactions—including multiple
agreements that Wesco did not breach—by “negat[ing] the effectiveness against the 2026
Noteholders” of the 2022 Transactions, and thereby reinstating the liens securing the 2026 Notes
(which were released by the Fourth Supplemental Indenture). Id. at 35.
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Even if Wesco had breached its obligations under the 2026 Indenture, the remedy that the
bankruptcy court recommended would be inappropriate. As noted above, the traditional remedy
for a breach of contract is an award of damages against the breaching party, and the fact that Wesco
is bankrupt does not make that award legally inadequate here. The proper remedy for any breach
here would accordingly be a damages award against Wesco. But even if equitable relief were
available here (which it is not), this Court finds as a matter of its discretion and based on the facts
of this case that it would not award an equitable remedy and would instead award money damages,
even if a finding of breach were found.8
The remedy that the bankruptcy court recommended would not rescind or reform the
purportedly breached 2026 Indenture at all. Instead, that remedy would target an entirely different
set of contracts (the 2022 Transactions) among different parties, partially negating a series of
agreements that were never themselves breached. The bankruptcy court cited no authority, and
this Court is aware of none, that would justify remedying a purported breach of one contract (the
2026 Indenture) by partially unwinding a completely different set of contracts among different
parties (the 2022 Transactions). Still worse, adopting that proposed remedy would cost Wesco
(the purported breaching party) nothing, but would cost the First Lien Noteholders (who
committed no breach) the entire benefit of the bargain for which they paid $250 million, stripping
them of their exclusive first-lien status and depriving them of any security interest at all for their
$250 million in rescue financing. Especially under the circumstances of this case, where the parties
entered into the 2022 Transactions believing that they would not breach Wesco’s obligations under
its indentures and where the 2022 Transactions provided Wesco with $250 million in much-needed
8 The bankruptcy court suggested that its recommended remedy was legal rather than equitable.
Adv.Dkt.1447 at 7, 19, 21. A remedy that would void (in part) a prior transaction, however, is
properly understood as equitable. See, e.g., Reg’l Props., Inc. v. Fin. & Real Est. Consulting Co.,
678 F.2d 552, 562 (5th Cir. 1982) (recognizing that “historically, a suit to void a contract sounded
in equity”).
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rescue financing, extended the maturities on its debt, and substantially decreased its cash-interest
payments, see supra pp.4-9, penalizing the non-breaching First Lien Noteholders for any purported
breach by Wesco in entering into the 2022 Transactions would be plainly inequitable.9 As a result,
even if there were a finding of breach, the appropriate remedy (if any) would be money damages.
The 2026 Noteholders attempt to justify the bankruptcy court’s proposed remedy by
relying on the Declaratory Judgment Act, but that statute cannot provide the necessary support.
The Declaratory Judgment Act authorizes federal courts to “declare the rights and other legal
relations of any interested party seeking such declaration, whether or not further relief is or could
be sought.” 28 U.S.C. §2201. The statute “is procedural only,” Skelly Oil Co. v. Phillips
Petroleum Co., 339 U.S. 667, 671 (1950); it creates an exception to the “traditional and
conventional” rule that courts “may act only when a complainant is entitled to a coercive remedy,
such as a judgment for damages or an injunction,” but it does not afford courts the power to remedy
a past breach or alter existing legal rights. Wright & Miller, Federal Practice & Procedure §2751
(4th ed. 2025); see, e.g., Evanston Ins. Co. v. Byassee, 2025 WL 951945, at *3 (W.D. Ky. Mar.
28, 2025) (“A declaration merely states the legal rights and obligations of parties; it doesn’t alter
those rights.”); Allied World Surplus Lines Ins. Co. v. Elamex USA Corp., 2024 WL 2212948, at
*7 (S.D.N.Y. May 16, 2024) (similar). The Declaratory Judgment Act accordingly cannot
authorize a substantive remedy that would not merely declare the existing “rights and other legal
relations” of the parties, 28 U.S.C. §2201, but would affirmatively alter those rights by stripping
the (non-breaching) First Lien Noteholders of their exclusive first-lien status and even the pari
passu secured status of their additional 2026 Notes.
9 The bankruptcy court’s proposed remedy is also contrary to the Bankruptcy Code, which
requires that claims should be resolved in the bankruptcy process, see 11 U.S.C. §§101(5)(B),
502(c)(2); Rederford v. U.S. Airways, Inc., 589 F.3d 30, 36 (1st Cir. 2009), and with the bankruptcy
court’s prior ruling that the 2026 Noteholders were not entitled to seek an equitable lien or
equitable subordination, see Adv.Dkt.508 at 14-16.
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The 2026 Noteholders also cite §6.09 of the 2026 Indenture, but they never raised that
provision in the bankruptcy court, making their reliance on it here forfeited. See Finley v. Johnson,
243 F.3d 215, 219 n.3 (5th Cir. 2001) (“[I]ssues raised for the first time in objections to the report
of a magistrate judge are not properly before the district judge.”); Lone Star State Bank of W. Tex.
v. Rabo Agrifinance, LLC, 644 B.R. 505, 511 (N.D. Tex. 2022) (district court reviews bankruptcy
court report and recommendation “as it would … recommendations of a magistrate judge”). In
any event, §6.09 simply ensures that a proceeding to enforce the 2026 Indenture will not alter the
parties’ rights unless and until that proceeding results in a determination altering those rights; it
does not afford this Court unlimited equitable authority to take whatever steps it deems necessary
to undo a purported breach of the 2026 Indenture. Contra ECF 50 at 26.10
Remarkably, the 2026 Noteholders assert for the first time in this Court that the bankruptcy
court’s remedy did not go far enough, and that this Court should also invalidate the First Lien
Noteholders’ exchange of their 2024 Notes for new 1L Notes and strip those 1L Notes of their
perfected security interests. That argument is not only forfeited by the 2026 Noteholders’ failure
to raise it in the bankruptcy court, see Finley, 243 F.3d at 219 n.3; Lone Star, 644 B.R. at 511, but
is also wrong at every turn. As already explained, Wesco did not breach the 2026 Indenture (let
alone the 2024 Indenture) by entering into the 2022 Transactions, and even if it had, the proper
remedy for any such breach would be damages against Wesco, not a partial unwinding of the 2022
Transactions to the detriment of the First Lien Noteholders. A fortiori, it would be beyond
inappropriate to partially unwind the 2022 Transactions even further than the bankruptcy court
10 The Court notes that §6.09 follows the American Bar Foundation’s model indenture
provisions, but contains a scrivener’s error that accidentally replaced “discontinued” with
“determined” from the following clause. Compare Am. Bar Found., Model Debenture Indenture
Provisions §509 (1967) (“has been discontinued or abandoned for any reason, or has been
determined adversely” (emphasis added)), with Adv.Dkt.601-8 at 118 (“has been determined or
abandoned for any reason, or has been determined adversely” (emphasis added)); see also
Adv.Dkt.601-24 at 18 (tracking the model indenture language).
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recommended by invalidating the First Lien Noteholders’ exchange of their 2024 Notes for 1L
Notes or the secured status of those 1L Notes, which would leave the 2026 Noteholders even better
off than if the 2022 Transactions had never happened at all.
Finally, this Court also disagrees with the bankruptcy court’s recommendation that this
Court should deprive the First Lien Noteholders of the pari passu status of the additional 2026
Notes that they acquired in exchange for their $250 million in new investment. Again, Wesco did
not breach the 2026 Indenture (or any of its other indentures) by issuing those additional 2026
Notes. See supra pp.18-22. Even if Wesco had breached the 2026 Indenture, the proper remedy
would be damages against Wesco. See supra pp.33-35. And even if this Court were free to adopt
an equitable remedy here, the Court finds that it would be clearly inappropriate to grant any
equitable relief and would award money damages.
III. The 2026 Noteholders’ Objections To The Bankruptcy Court’s Interlocutory
Rulings Are Meritless.
The 2026 Noteholders also challenge several of the bankruptcy court’s interlocutory
rulings, including the bankruptcy court’s recommended dismissal of the 2024/2026 Noteholders’
good-faith-and-fair-dealing, equitable lien and equitable subordination claims. The Court has
conducted a de novo review of those challenges and the record supporting the bankruptcy court’s
rulings, and determines that the bankruptcy court correctly concluded that the 2024/2026
Noteholders’ good-faith-and-fair-dealing, equitable lien, equitable subordination, and conversion
claims should be dismissed.11
11 The 2024 Noteholders have not objected to the bankruptcy court’s recommended dismissal of
their claims, and the 2026 Noteholders have not objected to the bankruptcy court’s recommended
dismissal of their conversion claim. Although the parties agreed in their prior briefing that the
Court was not required to address the 2026 Noteholders’ objections to the bankruptcy court’s
interlocutory rulings at this time, the 2026 Noteholders have asked this Court to address those
objections now. See D.Ct.Dkt.112 at 11-13.
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First, the 2026 Noteholders assert that the bankruptcy court erred in dismissing their
equitable lien and equitable subordination claims for lack of direct standing. D.Ct.Dkt.35 at 36-
37. But as the bankruptcy court explained, those claims are simply “disguised avoidance actions
belonging to Wesco’s estate,” not to the 2026 Noteholders. Adv.Dkt.508 at 14. Although framed
in equitable terms, those claims are “founded on a fraudulent conveyance theory” and “cannot
exist outside of the fraudulent conveyance context.” Id.; see id. at 15-16 (explaining that those
claims seek “the same relief for the same injury” as an avoidance action, by attempting to avoid
the entirety of the 2022 Transactions). Any harm to the 2026 Noteholders here was derivative, not
direct. Id. at 14-15; see, e.g., In re Buccaneer Res., L.L.C., 912 F.3d 291, 294 (5th Cir. 2019)
(“only the estate” owns a claim for “encumber[ing] the debtor’s assets with new liens”). The
bankruptcy court therefore correctly concluded that those claims are merely “artfully pled
disguised avoidance claims” that “belong to Wesco’s estate.” Adv.Dkt.508 at 16.
Second, the 2026 Noteholders assert that the bankruptcy court erred in recommending
dismissal of their breach-of-contract claim against WSFS. But as the bankruptcy court correctly
found, the 2026 Noteholders’ breach-of-contract claim against WSFS is precluded by §§7.01(b)(2)
and 9.06 of the 2026 Indenture, which allowed WSFS to “conclusively rely … upon certificates or
opinions furnished to [it]” absent “bad faith on its part.” Adv.Dkt.601-8 at 120; see Adv.Dkt.508
at 45-46; Adv.Dkt.553 at 3-5. The 2026 Noteholders assert that WSFS could be held liable for its
“own negligent action” or “negligent failure to act,” D.Ct.Dkt.35 at 38, but they never asserted
negligence in opposing summary judgment for WSFS on their breach-of-contract-claim, see
Adv.Dkt.291 at 47-48; Adv.Dkt.571 at 150-52, and so forfeited any such argument. The 2026
Noteholders also contend that WSFS’s actions breached “independent, threshold obligations under
the Indenture” regardless of WSFS’s reliance on certificates and opinions. D.Ct.Dkt.35 at 38. But
as the bankruptcy court explained, the provisions of the 2026 Indenture on which the 2026
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Noteholders rely “apply only to actions of [Wesco],” not WSFS. Adv.Dkt.553 at 3-4. The
bankruptcy court likewise correctly rejected the 2026 Noteholders’ argument that they “raised a
disputed issue of fact” on whether WSFS acted in bad faith, D.Ct.Dkt.35 at 38-39, as the evidence
came nowhere near showing the kind of “conduct rising to the level of fraud or collusion” that
would be required to demonstrate bad faith, Adv.Dkt.553 at 4-5.
Third, the 2026 Noteholders contend that the bankruptcy court erred by dismissing their
good-faith-and-fair-dealing claims against WSFS and Wesco.12 The 2026 Noteholders are
incorrect. As to WSFS, the parties explicitly “disclaimed the implied covenant of good faith and
fair dealing as to WSFS” in §7.01(b)(1) of the 2026 Indenture. Adv.Dkt.508 at 50; see
Adv.Dkt.601-8 at 120. In any event, as to both WSFS and Wesco, the 2026 Noteholders’ good-
faith-and-fair-dealing claim was duplicative of their breach-of-contract claim and so properly
dismissed. Adv.Dkt.508 at 50-52.
Fourth, the 2026 Noteholders briefly contend that Platinum waived attorney-client
privilege when its head of debt capital markets, Kevin Smith, testified to “his commercial
understanding of certain sections of Wesco’s indentures.” Adv.Dkt.1269 at 3; see D.Ct.Dkt.35 at
32, 39-40. But as the bankruptcy court explained, Smith’s testimony “does not indicate reliance
on the advice of counsel.” Adv.Dkt.1269 at 2-4; see D.Ct.Dkt.35 at 32 n.90. That leaves “no basis
for finding a waiver of the attorney-client privilege.” Adv.Dkt.1269 at 4; In re Itron, Inc., 883
F.3d 553, 561 (5th Cir. 2018) (waiver requires that the client “rely on privileged advice from his
counsel to make his claim or defense”).
CONCLUSION
For the reasons explained above, the Court SUSTAINS the First Lien Noteholders’
12 The 2026 Noteholders do not object to the dismissal of their good-faith-and-fair-dealing claims
against the other Defendants.
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objection to the January 17 R&R, OVERRULES the 2026 Noteholders’ objection, DECLARES
that the 2022 Transactions did not breach Wesco’s obligations under its indentures, DISMISSES
the 2024/2026 Noteholders’ breach-of-contract claims, and DISMISSES the 2024/2024
Noteholders’ good-faith-and-fair-dealing, equitable lien, equitable subordination, and conversion
claims.
SO ORDERED December 8, 2025, at McAllen, Texas.
______________________________
Randy Crane
Chief United States District Judge
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