Federal District Judge Randy Crane recently issued a written decision in Wesco Aircraft Holdings, Inc. v. SSD Invs. Ltd.,[1] validating Wesco’s 2022 uptier exchange transactions and reversing a ruling by Bankruptcy Judge Marvin Isgur.
Background: The 2022 Uptier Transactions
An uptier transaction (also known as an uptier exchange or uptiering) is a type of liability management exercise (LME) commonly used by distressed borrowers in the leveraged loan or bond market to raise new capital and restructure their debt outside of bankruptcy. In a typical uptier, the borrower works with a coalition of creditors holding sufficient voting power – often a simple majority – to amend the existing financing documents. Those amendments permit the issuance of new, senior-secured debt that effectively primes the existing secured debt held by non-participating creditors.
Wesco’s capital structure included senior secured notes issued under three Indentures:
- 2024 Notes: $650 million in senior secured bonds maturing in 2024, paying 8.5%;
- 2026 Notes: $900 million in senior secured bonds maturing in 2026, paying 9%; and
- 2027 Notes: $525 million in unsecured bonds maturing in 2027, paying 13.125%.
Each Indenture permitted Wesco to issue additional secured notes without the consent of the existing bondholders.[2] Both the 2024 and 2026 Indentures also required two-thirds of the existing bondholders to approve any release of liens securing the collateral.[3]
In March 2022, facing a liquidity crisis, Wesco and a majority group of bondholders executed a multi-step uptier transaction (the “2022 Transactions”). Before then, the majority group—already holding two-thirds of the outstanding 2024 Notes—sought to acquire a similar supermajority of the 2026 Notes and believed it had done so. But in February 2022, a minority group announced that it had accumulated more than one-third of the outstanding 2026 Notes, positioning itself to block the proposed transaction.
Wesco and the majority group then agreed that Wesco would issue additional pari passu 2026 Notes to the majority group in exchange for the majority group’s $250 million new-money investment. The 2026 Indenture permitted Wesco to issue such additional notes with the consent of a simple majority of the outstanding 2026 Notes—a threshold the majority group already satisfied. Those additional 2026 Notes would give the majority group the two-thirds supermajority required to the release the collateral securing the 2026 Notes, thereby enabling Wesco to grant the new first-lien notes exclusive first-lien status.
The 2022 Transactions were implemented through the following steps:
- Third Supplemental Indentures: Authorized the issuance of $250 million of additional 2026 Notes secured by the existing collateral package on a pari passu basis, approved by a simple majority consent.
- New Money Injection: Participating lenders advanced $250 million of new money in exchange for these newly authorized notes, increasing the majority group’s ownership of the 2026 Notes from approximately 59% to more than two-thirds.
- Fourth Supplemental Indentures: 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.
- Note Exchange: Participating noteholders exchanged their old notes for new super-priority 1L and 1.25L notes, leaving non-consenting holders structurally subordinated.
The non-participating noteholders sued Wesco in the New York State Supreme Court, seeking a declaration that the 2022 Transactions were “null and void and not enforceable” and an order avoiding and unwinding them.
According to the non-participating noteholders, the uptier transaction could not be parsed into isolated steps. Each component was part of a single, integrated transaction designed to strip liens from the non-participating holders and transfer the collateral to the majority group. They asserted that even if the issuance of additional notes could, in some circumstances, be approved by a simple majority, Wesco could not validly issue the new 2026 Notes to the majority group as part of the uptier transaction without supermajority consent. The function and effect of those notes, they argued, was to impair the non-participating holders’ lien interests in the collateral.
The non-participating noteholders relied on a provision of the Indenture requiring supermajority consent for any amendment, supplement, or waiver that “may … have the effect of releasing all or substantially all of the collateral from the liens created pursuant to the Security Documents."[4]
The Prior Ruling and the Reversal
In June 2023, Westco and related entities filed chapter 11. The bankruptcy filing automatically stayed the lawsuit in New York. Westco also filed an adversary proceeding in the Bankruptcy Court, seeking a declaration that the 2022 Transactions did not breach the Indentures. The 2024/2026 Noteholders counterclaimed, and the parties engaged in discovery. The Bankruptcy Court held a trial on 35 days over five months.
In July 2024, in an 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. 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. As a remedy, Judge Isgur recommended reinstating the liens of the 2026 Notes that were released by the Fourth Supplemental Indentures.
Judge Isgur emphasized that the deal was a single “domino agreement.” Authorizing the issuance of the additional 2026 Notes to create a supermajority voting bloc was the first domino. The amendments that stripped the 2026 liens occurred virtually simultaneously and were inseparable from the initial step, which enabled the majority group to obtain the required voting threshold.
Thus, although the 2026 Indenture did not contain explicit “sacred rights” requiring supermajority consent for the issuance of new notes, the court held that the issuance of the additional 2026 Notes nonetheless “had the effect of” releasing the liens. When viewed as part of an integrated, multi-step transaction aimed at reallocating collateral, the amendment authorizing the new 2026 Notes was intended to create the supermajority necessary to approve the subsequent lien release.
Judge Crane’s decision reversed this ruling and upheld the transactions, noting that “the 2022 Transactions were proper, appropriate, lawful, and consistent with the terms of the 2024 and 2026 Indentures,” and that the “the Court refuses to find any implied sacred rights.”
In Judge Crane’s view, the 2026 Indenture does not impose any 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. Judge Crane concluded that in adopting the Third Supplemental Indentures with simple-majority consent, Wesco fully complied with its obligations under the 2026 Indenture.
Key rulings in Judge Crane’s decision include:
- The initial majority-consent supplemental 2026 Indenture did not release, or have the effect of releasing, any collateral. It merely authorized the issuance of additional pari passu 2026 Notes in exchange for new money, expressly permitted under the Indenture.
- The Wesco 2024 and 2026 Indentures contained no implied or explicit “sacred right” requiring unanimous or supermajority consent for the uptier transactions.
- The 2026 Indenture required only: (i) majority consent (simple-majority) to incur additional pari passu debt, and (ii) two-thirds consent (super-majority) to release liens. Wesco obtained the required consents at each step.
- Imposing a supermajority requirement on the debt-incurrence clause would inject uncertainty into countless indentures with similar language, undermining the predictability critical to bond pricing and capital markets.
The Wesco decision confirms that—absent clear contractual prohibitions (e.g., pro-rata, anti-subordination, or explicit sacred-rights provisions)—majority noteholders and issuers may structure uptier exchanges through sequential, contractually compliant steps, even when the ultimate economic effect is to prime non-participating lenders.
[1] In re Wesco Aircraft Holdings, Inc. v SSD Invs. Ltd., No. 4:25-CV-202, 2025 U.S. Dist. LEXIS 252576 (S.D. Tex. Dec. 8, 2025).
[2] 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[.]”
[3] 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[.]”
[4] “[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[.]” See Wesco Aircraft Holdings, Inc. v SSD Invs. Ltd., 2025 U.S. Dist. LEXIS 252576 at *7.
