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June 14, 1991


The opinion of the court was delivered by: Goettel, District Judge:


In what has unfortunately become an all too common situation for defendant Trans World Airlines, Inc. ("TWA"), this action presents an attempt by yet another group of its creditors to force TWA's compliance with its financial obligations. See infra note 1. Once again, success by the plaintiff on the ultimate merits of this action will imperil TWA's already precarious viability.


Plaintiff Fleet National Bank ("Fleet") is trustee for two sets of senior unsecured notes issued by TWA. One set of notes matures in 1992 and carries a 16% interest rate (the "16% notes"), while the other matures in 1993 and has an interest rate of 17 3/4% (the "17 3/4% notes"). Indentures between TWA and Fleet spell out the respective obligations of the two parties (the "Senior Indentures"). As of the close of calendar year 1990, $70 million of the 16% notes and $276 million of the 17 3/4% notes remained outstanding.

The indentures clearly articulate those incidents that will constitute an "Event of Default," which in turn trigger certain rights and obligations for the parties. Among these events of default are defaults on the 16% and 17 3/4% notes in issue, as well as defaults on any other indebtedness exceeding $5 million causing an acceleration of such indebtedness. Senior Indentures § 6.01. In this case, there is no dispute that there have been numerous events of default. In the first place, TWA failed to make interest payments on the senior unsecured notes in March (17 3/4% notes) and April (16% notes) of this year. Moreover, TWA failed to make payments on equipment trust certificates valued at over $5 million, which caused an acceleration of such obligations.*fn1 Finally, in February 1991, TWA failed to pay interest due on 15% senior secured notes due in 1994 that were issued pursuant to an indenture with Shawmut Bank, N.A. These notes also are valued at over $5 million and were accelerated.

Although these defaults are uncontroverted, the actual impetus behind this action is not simply TWA's failure to make interest payments on the senior notes (although litigation surely would have commenced at some point). Rather, this action was instigated by TWA's attempt to forestall bankruptcy by announcing a highly publicized offer to purchase a vast portion of its outstanding debt, which is estimated at $1.37 billion. This tender offer, which is set to expire at 7:00 p.m. on June 14, 1991, offers significantly less than face value for various debt instruments issued by TWA. TWA has offered 73 cents on the dollar for the 1991 and 1996 equipment trust certificates, 65 cents on the dollar for the 15% senior secured notes, 35 cents on the dollar for the 16% and 17 3/4% senior notes, and 17.5 cents on the dollar for certain Junior Subordinated Debentures due in 2001 and 2008 with a 12% interest rate (the "Junior Debentures"). These junior debentures represent some $670 million of TWA's total outstanding debt and it is TWA's proposal with respect to these debentures that provoked this suit.*fn2

The junior indentures between TWA and National Westminster Bank, USA, as trustee, pursuant to which the junior debentures issued, provide that:

  the indebtedness evidenced by the Securities is
  subordinated in right of payment, to the extent
  and in the manner provided in this Article, to the
  prior payments in full of all Senior Indebtedness,
  that these provisions are for the benefit of the
  holders of Senior Indebtedness, and that each
  holder of Senior Indebtedness whether now
  outstanding or hereafter created, incurred,
  assumed or guaranteed shall be deemed to have
  acquired Senior Indebtedness in reliance upon the
  covenants and provisions contained in this
  Indenture and the Securities.

Junior Indentures § 10.01. Furthermore, the junior indentures specifically state that if there has been a default on any senior indebtedness, TWA is prohibited from making any payment with respect to the junior debentures or from acquiring any junior debentures with cash or property. Junior Indentures § 10.03. In light of these provisions, TWA's tender offer is expressly conditioned on its ability to amend the indentures to permit payment to the junior debentureholders even in the presence of defaults on senior indebtedness. An additional condition of the tender offer is that the 15% senior secured notes, which specifically state that there can be no payment to junior debentureholders if there has been a default on the 15% notes, must be amended to permit such payments. The 16% and 17 3/4% indentures contain no similar specific prohibition from paying the junior debentureholders and, thus, do not require amending. TWA proposes to amend the junior indentures by obtaining approval from their debentureholders, but without consulting the holders of the 16% and 17 3/4% notes.

Thereafter this action was started. Plaintiff's complaint seeks damages for failure to pay interest on the 16% and 17 3/4% notes, as well as a preliminary and permanent injunction prohibiting TWA from amending the subordination provisions of the 12% Junior Subordinated Indentures in the manner contemplated. Presently before us is plaintiff's application for a preliminary injunction, which was brought on by order to show cause and argued on May 31, 1991. Since that time, the parties have engaged in limited discovery with respect to the issue of whether the trustee, Fleet, or the senior noteholders themselves are responsible for and controlling this action. We note that while the complaint only addresses the amendment of the junior indentures, the application for the preliminary injunction seeks to enjoin both the amendment and the actual purchase by TWA of any of the 12% debentures. Of course, one is a condition precedent to the other and the discrepancy may be of no significance.


A. Procedural Arguments

TWA initially raises numerous procedural objections to the bringing of this action and, specifically, the application for a preliminary injunction. We will address these issues before turning ...

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