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Pine River Master Fund Ltd. v. Amur Finance Co., Inc.

Court of Chancery of Delaware

October 12, 2017

PINE RIVER MASTER FUND LTD. AND PINE RIVER FIXED INCOME MASTER FUND LTD., Plaintiffs,
v.
AMUR FINANCE COMPANY, INC. AND AMUR FINANCE IV LLC, Defendants.

          Submitted: September 12, 2017

          C. Barr Flinn, Esquire, Emily V. Burton, Esquire, Lakshmi A. Muthu, Esquire and Meryem Y. Dede, Esquire of Young Conaway Stargatt & Taylor, LLP, Wilmington, Delaware and Michael M. Krauss, Esquire, Jane E. Maschka, Esquire and Michael F. Doty, Esquire of Faegre Baker Daniels LLP, Minneapolis, Minnesota, Attorneys for Plaintiffs.

          Garrett B. Moritz, Esquire and Nicholas D. Mozal, Esquire of Ross Aronstam & Moritz LLP, Wilmington, Delaware and Christopher D. Kercher, Esquire, Julia M. Beskin, Esquire, Marlo A. Pecora, Esquire, and Thomas A. Bridges, Esquire of Quinn Emanuel Urquhart & Sullivan, LLP, New York, New York, Attorneys for Defendants.

          MEMORANDUM OPINION

          SLIGHTS, VICE CHANCELLOR

         The parties to a collateralized loan transaction, Pine River Master Fund Ltd., Pine River Fixed Income Master Fund and Pine River Credit Relative Value Master Fund Ltd., as lenders, Amur Finance IV LLC ("Amur IV"), as borrower, Amur Finance Company, Inc. ("AFC"), as former administrative agent and Amur IV managing member, and Deutsche Bank Trust Company Americas, as collateral agent, have reached a breaking point in their relationship. The principal antagonists, the borrower and the lender, both maintain that the other is in dire financial straits and that this circumstance is driving the litigation positions being advanced in this Court. From the borrower's perspective, the lender is desperate to declare an Event of Default under the operative Credit Agreement so that it can seize assets pledged as collateral, monetize them and pay off its various investors. From the lender's perspective, the borrower is no longer able to meet its commitments under the Credit Agreement and yet is desperately clinging to the hope that its financial circumstances will improve in time to cure its many breaches before the Court enters a judgment declaring an Event of Default.

         This opinion comprises chapter two of what is shaping up to be a litigation saga.[1] In chapter one, the Court concluded that the borrower had breached the Credit Agreement but that no Event of Default had occurred.[2] In this next chapter, the lender once again argues that the borrower has breached the Credit Agreement and that these breaches constitute Events of Default.[3] The first set of alleged breaches relate to the borrower's failure to pay cash interest in accordance with the Credit Agreement's detailed provisions addressing such payments. After attempting to construe these provisions, I have determined they are ambiguous and that extrinsic evidence is required before the Court can determine whether a breach has occurred. The second breach relates to the borrower's distributions of cash to its parent out of an account created under the Credit Agreement, which the lender alleges has resulted in an unauthorized syphoning of loan collateral. As to this latter claim, I am satisfied that the operative language of the contract is unambiguous, that the borrower is in breach and that the breach constitutes an Event of Default. My reasoning follows.

         I. BACKGROUND

         In accordance with Court of Chancery Rule 56(c), I have drawn the facts from the pleadings, affidavits and documentary evidence appended to the motions. I note that the Court has recited the background facts once before.[4] The facts stated here are those relating to the motions sub judice.

         A. Relevant Parties

         Plaintiffs are two Cayman Island exempted companies, Pine River Master Fund Ltd. and Pine River Fixed Income Master Fund Ltd. (together, "Pine River"). Pine River is the Lender under the Credit Agreement.[5] Defendant, Amur IV, is a Delaware limited liability company with its principal place of business in White Plains, New York. Amur IV is the Borrower under the Credit Agreement. Defendant, AFC, which served as Administrative Agent under the Credit Agreement until late 2016, is a Delaware corporation with its principal place of business in White Plains, New York. AFC is the principal equity owner[6] and exclusive managing member of Amur IV.[7]

          B. Relevant Provisions of the Credit Agreement

         The Secured Revolving Credit Agreement, dated August 5, 2013 (the "Credit Agreement"), provides Amur IV with an aggregate credit facility of $167, 000, 000 to be funded by Pine River (the "Pine River Loan" or the "Loan").[8] Amur IV, in turn, committed to invest the borrowed funds in certain Operating Companies. Pine River has alleged multiple breaches and corresponding Events of Default under the Credit Agreement. At issue here are Amur IV's and AFC's alleged breaches of provisions relating to interest payments as well as Amur IV's alleged breach of provisions restricting borrower distributions. I address the relevant provisions of the Credit Agreement (and a related Security Agreement) and then summarize the allegations of breach.

         1. The Waivers/Amendments and Integration Clauses

         To prevent unintended changes to the highly negotiated Credit Agreement, the parties included a waivers and amendments provision in Section 9.02. This provision requires any alterations to the Credit Agreement to be in a writing executed by all parties and further provides that the lender's delay or failure to assert rights under the agreement will not "operate as a waiver thereof."[9] The Credit Agreement also contains an integration provision in Section 9.06 in which the parties agreed that the Credit Agreement is the "entire contract among the parties relating to the subject matter . . . supersed[ing] any and all previous agreements and understandings."[10]

         2. Cash Interest Accrual

         Under the Credit Agreement, the Operating Companies make monthly payments to Amur IV (the "Available Collections") which are then deposited into the Collections Account.[11] Available Collections are defined as:

(i) all monies received, whether for earned interest, principal repayment or other amount, pursuant to the leases, loan agreements or other contracts constituting the Assets; (ii) any proceeds received from the sale of an Asset; (iii) any Default Proceeds, (iv) any earned interest with respect to the Accounts; and (v) any permitted withdrawals from the Accounts, including the positive difference between (a) the amount in the Reserve Account and (b) the Initial Reserve Amount or Required Reserve Amount, as applicable.[12]

         The Credit Agreement, in turn, defines "Assets" (hereinafter, "Credit Agreement Assets") as:

commercial or industrial equipment, capital leases and operating leases, loans, or other financial assets acquired by the Borrower, as initially set forth on Schedule 3 [to the Credit Agreement], as such Schedule may be amended from time to time, and any proceeds thereof.[13]

         Once Available Collections are deposited into the Collections Account, the Administrative Agent is tasked with preparing an Administrator Report that lists the distribution of Available Collections under the prescribed Waterfall as set forth in the Credit Agreement at Section 6.04.[14] The Administrator Report identifies, inter alia, the amount of Cash Interest Accrual, or monthly cash interest, Amur IV is obligated to pay to Pine River for that particular Interest Period, which the Credit Agreement defines as a calendar month. This obligation is listed under the Fifth priority of the Waterfall, a higher priority than distributions Amur IV is permitted to make to its affiliates.[15]

         Amur IV's obligation to pay Cash Interest Accrual implicates several provisions of the Credit Agreement. To begin, Section 2.08 requires Amur IV to pay cash interest to Pine River each month.[16] Section 2.08(a) sets out the formula used to calculate the total interest owed, [17] while Section 2.08(b) requires Amur IV to "immediately pay [] in cash . . . the lesser of (i) the accrual calculated pursuant to [Section 2.08(a)] or (ii) 75% of the aggregate Stated Return Minimum Cash Calculation for all Assets during such Interest Period."

         In order to ascertain which of the amounts set forth in Section 2.08(b) is the "lesser" amount that is immediately due to Pine River, the Administrative Agent must determine the value of the Stated Return Minimum Cash Calculation ("SRMCC"). At Section 1.01, the Credit Agreement defines the SRMCC as "the sum of all amounts of cash required to be paid to [Amur IV] during [the] Interest Period as determined from all Stated Return Schedules related to Assets held during such Interest Period less the Asset Operating Fee."[18] The "Stated Return Schedule, " referenced in the SRMCC definition, is defined under the Credit Agreement as a schedule that is created by the Administrative Agent and disclosed to Pine River when an investment in an Operating Company is proposed.[19] Its purpose is to:

set[] forth for each Interest Period in which the Asset is anticipated to be held [] the amount of cash expected to be returned to the Borrower, including the Net Proceeds for any sale of the proposed Asset . . . [and] disclose Stated Yield, Stated Rate Yield and Stated Spread. The Stated Return Schedule of an Asset shall not be changed absent manifest calculation error. For the avoidance of doubt, the underperformance or over-performance of an Asset shall not permit the Stated Return Schedule to be altered.[20]

         Under the Credit Agreement, any failure to pay the Cash Interest Accrual due constitutes an Event of Default upon which Pine River can accelerate the entirety of the Loan.[21] As discussed below, Pine River alleges that Amur IV has failed to pay Cash Interest Accrual as directed by the Administrative Agent and that this failure constitutes an Event of Default.[22]

         3. The Restricted Payments

         The Credit Agreement provides a means to protect Pine River's investment by requiring Amur IV to maintain a prescribed "equity cushion."[23] Specifically, Section 4.02(e) provides:

[a]fter giving effect to the acquisition of the Assets to be acquired on such Drawdown Date, the Borrower shall provide evidence that the amount of equity held by the equity holders of the Borrower complies with the Equity Ratio. If the Borrower will not be in compliance with the Equity Ratio when delivering the Borrowing Notice [five business days prior to an advance], Borrower shall receive from its equity holders an equity investment in cash or in kind (through the contribution of assets or investments of equivalent cash value), in sufficient amount to achieve compliance with the Equity Ratio after giving effect to the acquisition of the Assets to be acquired on such Drawdown Date. The Lenders will not be obligated to make the requested Advance until they is satisfied that (i) Parent has complied with any such request for investment, (ii) the Borrower will be in compliance with the Equity Ratio subsequent to receiving such Advance and acquiring the related Asset and (iii) the form of the equity contributed to the Borrower has been adequately disclosed to the Lenders and any equity contribution made other than in cash has been made in compliance with any transfer restrictions and is fully paid and non-assessable.[24]

         The "Equity Ratio, " in turn, is defined as:

an amount of equity in the Borrower held by its equity holders equal to (i) not less than 7.5% of the Borrower's Total Assets until such time as the Class A members have received any dividends' or distributions upon the Class A Units of the Borrower or from Excess Proceeds (other than any distribution made pursuant to Section Il(a) of the LLC Agreement of the Borrower in the form to which it was amended on December [ ], 2014 (the 'LLC Agreement')), or (ii) from and at all times after such Class A equity holders have received any dividend or distribution upon the Class A Units of the Borrower or from Excess Proceeds (other than any distribution made pursuant to Section l1(a) of the LLC Agreement), 17.5% of Borrower's Total Assets.[25]

         While a breach of Section 4.02(e) alone will not lead to an Event of Default, the prescribed equity cushion in Section 4.02(e) animates certain of the Credit Agreement's restrictions with respect to Loan Collateral. Pine River alleges that Amur IV has breached these restrictions causing an Event of Default. Specifically, Pine River alleges that Amur IV has made certain unauthorized distributions to AFC that have disrupted the equity cushion. In this regard, the Credit Agreement, by its terms, protects the equity cushion from depletion through Section 5.07(d) which imposes restrictions on distributions "in respect of [the borrower's] equity interests" and Section 5.07(f) which imposes restrictions on certain related-party transactions involving the borrower.

         Under Section 5.07(d), Amur IV is restricted from making "distributions in respect of its equity interest . . . other than any . . . payment[s] permitted to be made to [the] Parent in accordance with Section 6.04 [the Waterfall]."[26] Such payments to the Parent are authorized deep into the Waterfall in the Ninth priority.[27] Section 5.07(d) was amended in 2014 to allow Amur IV to make dividend distributions to AFC, but only if Amur IV satisfied four designated conditions:

(i) no Event of Default has occurred and is continuing or may result as a consequence of such dividend being paid, (ii) such dividend is permitted under Section 11 of the LLC Agreement, or in a different or successor provision of such LLC Agreement to which each Lender has furnished its consent; (iii) all Interest which accrued in the most recently completed Interest Period was paid in cash, and (iv) an officer of the Borrower certifies to the Lenders that he or she has reasonably determined that the Borrower will be able to pay in cash all Interest which will accrue in the current and next Interest Periods.[28]

         Section 5.07(f) further limits Amur IV by requiring that a transaction with an Amur IV affiliate be "no less favorable to [Amur IV] than those that would have been obtained by [Amur IV] in . . . an arm'[s]-length [transaction]." Additionally, Amur IV must deliver to Pine River a resolution of its board stating that the transaction does "not adversely affect the interests of [Pine River]."[29]

         Section 7.01(f) provides that a breach of Section 5.07 constitutes an Event of Default.[30] Pine River alleges that Amur IV's breaches of Section 5.07(d) and Section 5.07(f) are separate breaches, either of which should be deemed to have triggered Section 7.01(f).

         C. The Security Agreement

         The Security Agreement was executed by the parties alongside the Credit Agreement. The two agreements advance the joint goal of securing Pine River's investment.[31] Under Section 2.02 of the Credit Agreement, Amur IV grants Pine

          River a security interest in the Loan Collateral as defined in the Security Agreement.[32] Thus, under Section 2.01 of the Security Agreement, which defines Collateral, Pine River holds a security interest in:

(a) all right of the Grantor in and to the Interest Reserve Account, the Collections Account and each other Account established under the Credit Agreement, (b) all cash, investment property, investments, securities, instruments, investment property or other property (including all 'financial assets' within the meaning of Section 8-102(a)(9) of the UCC) at any time or from time to time on deposit in or credited to any such Account, (c) all of the Assets and all rights to payment and other Proceeds from time to time received, receivable or otherwise distributed in respect of such Assets, (d) all income, payments and proceeds of any and all of the foregoing, and (e) all other Assets of the Grantor, wherever located and whether now owned or hereafter acquired or arising, and all proceeds thereof, in each case for the benefit of the Secured Parties (the 'Collateral').[33]

         Assets (hereinafter, "Security Agreement Assets"), as defined in the Security Agreement, are:

all right, title and interest of Grantor in and to the following property with each term having the definition provided in Article 9 of the UCC: accounts, chattel paper, commercial tort claims, consumer goods, deposit accounts, documents, equipment, farm products, general intangibles, instruments, inventory, investment property, letter of credit rights, letters of credit and money, whether now owned or hereafter acquired (including without limitation the Assets set forth on Schedule 3 to the Credit Agreement).[34]

         Thus, any Amur IV Assets, and "all proceeds thereof, " as set forth in the Security Agreement, are "Collateral" which Amur IV pledged to Pine River under Section 2.02 of the Credit Agreement to secure the Pine River Loan.

         D. The Alleged Breaches of the Credit Agreement

         On February 23, 2017, Pine River filed a Verified Complaint (the "Original Complaint") in which it seeks declaratory judgments with respect to various breaches of the Credit Agreement as well as relief from future breaches and money damages. As noted, in its latest motion for partial summary judgment, Pine River seeks declarations from the Court that Amur IV or AFC breached the Credit Agreement in two respects: (1) Amur IV breached Section 2.08 by failing to pay accrued interest when due and AFC breached Section 6.04 by failing to direct such payments as Administrative Agent; and (2) Amur IV breached Section 5.07 by making unauthorized distributions of roughly $94, 000 to AFC out of the Collections Account on a near monthly basis since the inception of the parties' relationship.

          1. The Alleged Underpayment of Cash Interest

         The dispute over cash interest payments was apparently sparked by the parties' Stipulation and Order Resolving Pine River's Anticipated Motion for Preliminary Injunction entered by the Court on April 25, 2017 (the "April 25 Order").[35] The April 25 Order, which resolved a motion for preliminary injunction filed by Pine River, required Lighthouse Management Group, Inc. ("Lighthouse"), in its role as Administrative Agent, [36] to prepare the Administrator Reports according to the Credit Agreement (with certain agreed upon modifications pending resolution of this dispute). In generating the June 2017 Administrator Report, Lighthouse took a fresh look at the Cash Interest Accrual calculation and concluded that AFC, during its time as Administrative Agent, had been calculating it incorrectly, in particular with respect to its calculation of the SRMCC.

         According to Lighthouse, the Credit Agreement requires the Administrative Agent to determine the SRMCC by combining "all amounts" owed to Amur IV in the Interest Period.[37] "All amounts, " according to Lighthouse's interpretation, includes all principal and interest, whether due or past due, that the Operating Companies owe to Amur IV.[38] Thus, to calculate the SRMCC, Lighthouse determined that it must identify and total all outstanding and due payments reflected on the Stated Return Schedule with respect to each Asset.[39] This marked a departure from how AFC, as Administrative Agent, had been calculating SRMCC from the outset of the parties' relationship. Specifically, AFC had calculated SRMCC by referring to projected returns as set forth in the Stated Return Schedules. This approach yielded a steady, predictable SRMCC for each loan program.

         Lighthouse's approach to calculating SRMCC resulted in substantially higher Cash Interest Accrual numbers.[40] Specifically, after applying its calculation of SRMCC, Lighthouse determined that the amount calculated under Section 2.08(b)(ii) (75% of the SRMCC) would exceed the interest owed under Section 2.08(a) (the total interest owed).[41] Accordingly, Lighthouse concluded that the cash interest due from Amur IV was the interest as calculated under Section 2.08(a).[42]

         Amur IV disagreed with Lighthouse's calculation, performed its own calculation under Section 2.08(b)(ii), and distributed $635, 717.30 in June 2017. According to Amur IV, its calculation for June 2017 was consistent with calculations performed by AFC and accepted by Pine River since the inception of their relationship.[43] The July and August Administrator Reports sparked similar disputes: in July, Lighthouse requested payment of $1, 960, 109.97 under Section 2.08(a) and Amur IV distributed $375, 412.95;[44] in August, Lighthouse directed payment of $1, 980, 157.57[45] and Amur distributed $635, 717.30.[46]

         2. The $94k Distributions

         Starting in 2013, Amur Equipment Finance, Inc. ("Axis") paid out a dividend (the "Dividends" or the "Axis Dividends") to Amur IV on roughly a monthly basis by depositing $94, 327.75 into the Collections Account established by the Credit Agreement.[47] These deposits were quickly followed by a withdrawal (the "$94k distributions") in roughly the same amount out of the Collections Account by Amur IV and a corresponding distribution to AFC. This, according to Pine River, occurred in 44 months since the parties entered into the Credit Agreement, [48] and amounted to deposits of $4, 430, 076.50 and withdrawals of $4, 241, 421.00.[49]

         Lighthouse noticed the $94k distributions out of the Collections Account when it began to compile and review records supplied by AFC during the transition from AFC to Lighthouse as Administrative Agent.[50] Lighthouse asked AFC and Amur IV to explain these monthly transactions.[51] In response, Amur IV explained that the $94k distributions were dividends on Axis preferred stock (the "Axis Preferred Stock") owned by Amur IV.[52] It further explained that while Amur IV owned the Axis Preferred Stock, the Dividends flowed to AFC in accordance with an agreement between AFC and Amur IV that had been blessed by Pine River. Specifically, the parties had agreed that AFC would contribute the Axis Preferred Stock to Amur IV so Amur IV could reach the Equity Ratio required by the Credit Agreement while AFC would retain the right to receive any dividends declared by Axis on its preferred stock.[53]

         According to Amur IV and AFC, the parties' agreement with regard to the treatment of the Dividends and the $94k distributions is entirely consistent with the Credit Agreement.[54] In this regard, Amur IV points out that Credit Agreement Assets are only those assets "acquired by" Amur IV.[55] Since Amur IV did not acquire the Dividends, but instead held them for AFC, the rightful owner, they were not Credit Agreement Assets. As such, the Dividends cannot be deemed "Available Collections" that would be subject to distribution out of the Collections Account in accordance with Section 6.04's Waterfall and, accordingly, they are not subject to the provisions of the Credit Agreement.[56] Additionally, Amur IV argues that the Dividends are not part of the Loan Collateral as defined by Section 2.01 of the Security Agreement since they are not "owned" by Amur IV.[57] For the same reason, Amur IV asserts that the Dividends are not a Security Agreement Asset securing the Loan since Amur IV does not have "all right, title and interest" in the Dividends.[58]

         Pine River maintains that Amur IV's characterization of the $94k distributions collides with the clear terms of the Credit Agreement and Security Agreement at every turn. First, the notion that Amur IV can simply transfer to AFC dividends earned on preferred equity that AFC and Amur IV have committed to meet the Equity Ratio (required by the Credit Agreement to secure the Pine River Loan) finds no support in the language or spirit of Section 4.02(e).[59] In this regard, Pine River argues that Amur IV's reliance upon the definition of Credit Agreement Assets as justification for the $94k distributions is misplaced. According to Pine River, it is not arguing that the Dividends are a Credit Agreement Asset and, thus, must be distributed as part of Available Collections under Section 6.04's Waterfall.[60] Rather, Pine River is simply arguing that the Dividends are part of the Loan Collateral and, accordingly, Amur IV is prohibited from making the $94k distributions to AFC under Sections 5.07(d) and (f).[61] According to Pine River, the Axis Preferred Stock is a Security Agreement Asset and, under Section 2.01 of the Security Agreement defining Collateral, is part of the Collateral for the Loan.[62] The Dividends, as "proceeds" of the Axis Preferred Stock, even if not a Security Agreement Asset, still remain a key component of that Collateral.[63] Since Sections 5.07(d) and 5.07(f) of the Credit Agreement are meant to prevent Amur IV from depleting the Collateral, these sections must be read to prevent the $94k distributions.

         Second, as for Amur IV's argument that a side agreement between the parties authorized the $94k distributions, Pine Rive contends that Amur IV has conveniently overlooked Sections 9.02 and 9.06 of the Credit Agreement.[64] Section 9.06's integration clause does not allow for side agreements;[65] and Section 9.02's waiver and amendments clause requires all agreements that would amend the Credit Agreement to be in writing and prohibits either party from arguing that the other has waived rights under the Credit Agreement by not previously asserting them.[66]

         E. Procedural Posture

         Pine River's Original Complaint contained seven counts in which it sought various declaratory, injunctive, and monetary relief. The Court entered the April 25 Order, on the stipulation of the parties, to resolve Pine River's applications for preliminary injunctive relief.[67] The April 25 Order required Lighthouse to prepare the monthly Administrator Report and Amur IV to follow the directions in those reports. When the parties disagreed as to the cash interest due to Pine River as calculated in the June Administrator Report, on July 26, 2017, Amur filed a motion to enforce the April 25 Order.[68] On August 18, 2017, Pine River filed a cross-motion to enforce the April 25 Order and a motion for partial summary judgment on Count VIII (relating to Cash Interest Accrual) and Count IX (relating to the $94k distributions) of its Verified Amended Complaint which was e-filed on August 21, 2017.[69] The Court heard the cross-motions to enforce and Pine River's motion for partial summary judgment on September 12, 2017.

         II. ANALYSIS

         Pine River's motion seeks a summary declaration that Amur IV and AFC have breached the Credit Agreement by failing to pay interest when due and that Amur IV is in breach for making the unauthorized $94k distributions. It also seeks declarations that these breaches constitute Events of Default. I address the merits of the motion below after briefly reciting the well-settled standards by which the Court must review a motion for summary judgment in which the movant seeks a declaration of rights under a contract.

         A. Standard of Review

         Pursuant to Court of Chancery Rule 56(c), the Court will grant summary judgment when "there are no questions of material fact and the moving party is entitled to judgment as a matter of law."[70] When considering a motion for summary judgment in the context of contract construction, the threshold question is whether the contract is ambiguous.[71] This is a question of law the answer to which may not be reached through the consideration of extrinsic evidence.[72]

         "A contract is ambiguous if the language used lacks a definite and precise meaning, and there is a reasonable basis for a difference of opinion."[73] "Where a contract is ambiguous, the interpreting court must look beyond the language of the contract to ascertain the parties' intentions."[74] Thus, if the court finds a contract term ambiguous, "its construction presents a question of fact that may not be resolved by the court on a motion for summary judgment."[75]

         Finally, since "[t]here is no 'right' to summary judgment, "[76] the court may deny summary judgment in its discretion "if it decides upon a preliminary examination of the facts presented that it is desirable to inquire into and develop the facts more thoroughly at trial."[77] As it relates to contract construction, the "more thorough development" of the facts necessarily translates into the development and presentation of extrinsic evidence.[78]

         B. Cash Interest Accrual

         The construction exercise required to determine whether Amur IV has breached Section 2.08 by failing to pay cash interest, and whether AFC has breached Section 6.04 by directing that payments be made inconsistently with the prescribed Waterfall, begins, of course, with Section 2.08. According to Section 2.08(b), "[t]he amount . . . which is immediately payable in cash as Interest [each month] upon the Loans, " defined as "Cash Interest Accrual, " is the lesser of the Interest as calculated under Section 2.08(a) or "75% of aggregate Stated Return Minimum Cash Calculation for all Assets during such Interest Period."[79] The interest as calculated under Section 2.08(a) is the total interest owed.[80] To ascertain which is the "lesser" amount as between accrued Interest in Section 2.08(a) and 75% of the SRMCC, one must calculate the accrued Interest and compare that to the calculated SRMCC for all Assets during any given month (the "Interest Period").

         To calculate the SRMCC, one must look to "the sum of all amounts of cash required to be paid to the Borrower during such Interest Period as determined from all Stated Return Schedules related to Assets held during such Interest Period."[81] The Stated Return Schedule is defined as:

a schedule reasonably prepared by the Administrative Agent for a proposed Asset, and disclosed to the Lenders in the related Borrowing Notice, which sets forth for each Interest Period in which the Asset is anticipated to be held and the amount of cash expected to be returned to the Borrower, including the Net Proceeds for any sale of the proposed Asset. Such cash flows shall be divided between the cash required to be paid to the Borrower pursuant to the contractual terms of the Asset, and all other cash flows, including cash flows to be realized upon the sale of the proposed Asset. The Stated Return Schedule shall also disclose Stated Yield, Stated Rate Yield and Stated Spread. The Stated Return Schedule of an Asset shall not be changed absent manifest calculation error. For the avoidance of doubt, the underperformance or over- performance of an Asset shall not permit the Stated Return Schedule to be altered.[82]

         An exemplar "Borrowing Notice, " referenced in the definition of Stated Return Schedule, is attached to the Credit Agreement as Exhibit A. On its face, it is clear that this notice is intended to be delivered to Pine River at the time of a "Proposed Borrowing" under the Credit Agreement.[83] The intended timing of the delivery of the Borrowing Notice and accompanying Stated Return Schedule, in turn, suggests that the purpose of the Stated Return Schedule is to project the performance of an Asset at the outset of a "Proposed Borrowing" rather than to track the performance of the Asset as an evolving document during the course of the borrowing. This construction is consistent with the references within the definition of Stated Return Schedule to the effect that its purpose is to provide the Lender with a schedule of "the amount of cash expected to be returned to the Borrower" during the timeframe in which the Asset is "anticipated to be held" by the Borrower.[84]

         The definition of Stated Return Schedule goes on to provide that the schedule "shall not be changed absent manifest error" and further states, "[f]or the avoidance of doubt, the underperformance or over-performance of an Asset shall not permit the Stated Return Schedule to be altered."[85] Together, this language appears to reflect an intent that the Stated Return Schedule is to be a one-time projection of sorts prepared by the Administrative Agent at the front-end of a Proposed Borrowing. Under this construction, AFC's reliance upon the projected returns of an Asset to calculate SRMCC would appear to be reasonable.

         The parties have provided several exemplar Stated Return Schedules in the summary judgment record.[86] Each of these schedules contains a column designated "Stated Min Cash" which, according to Amur IV, is shorthand for SRMCC.[87] The amounts reflected in this column appear to reflect steady, consistent projections of performance throughout the anticipated life of the loan.[88] Amur maintains that it is from these projected SRMCC numbers that the Administrative Agent must determine the Cash Interest Accrual to be paid every month, just as AFC has done (without objection from Pine River) throughout the parties' relationship.[89]

         Pine River offers a different construction. It contends that the Stated Return Schedules, on their face, reflect the parties' intent to create an evolving document that tracks the performance of the Assets and reveals, in actual (not projected) terms, "the sum of all amounts of cash required to be paid to the Borrower during such Interest Period."[90] By doing so, the Stated Return Schedules allow an actual, not projected, calculation of SRMCC. Specifically, according to Pine River, the Stated Return Schedules permit the Administrative Agent to calculate in real time the principal and interest payments due from the Operating Companies to the Borrower.[91] This, according to Pine River, is consistent with the definition of SRMCC, which requires the calculation to account for "all amounts of cash required to be paid to the Borrower . . . ."[92]

         Amur's construction of the SRMCC and Stated Return Schedule definitions is reasonable. There is no clear indication in either definition that the parties intended SRMCC to be determined based on the actual performance of an Asset. The definition of Stated Return Schedule, as noted above, can be read to suggest that the schedule is to provide a projection of performance which, in turn, suggests that the SRMCC, "determined from the Stated Return Schedule, " is likewise intended to be based on projected, not actual, performance.

         Pine River's interpretation of the definition of SRMCC is also reasonable and supported by the Stated Return Schedules submitted with the parties' motion papers. These schedules appear to reflect the actual "sum of all amounts of cash required to be paid to the Borrower during [any given] Interest Period."[93] The Stated Return Schedules are expressly incorporated within the definition of SRMCC. The schedules themselves, therefore, are not extrinsic to the Credit Agreement.[94] ...


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