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GREYLOCK GLOBAL OPPORTUNITY MASTER v. PROVINCE OF MENDOZA

February 8, 2005.

GREYLOCK GLOBAL OPPORTUNITY MASTER FUND LTD. and GREYLOCK GLOBAL DISTRESSED DEBT MASTER FUND LTD., Plaintiff,
v.
PROVINCE OF MENDOZA, Defendant.



The opinion of the court was delivered by: HAROLD BAER, JR., District Judge

OPINION & ORDER

Plaintiff, Greylock Global Opportunity Master Fund Ltd., and Greylock Global Distressed Debt Master Fund Ltd. (collectively, "Greylock"),*fn1 filed an action for declaratory and injunctive relief against Defendant, Province of Mendoza ("Province"), seeking to prevent the Province from amending a bond indenture. Greylock moves and Province cross moves, pursuant to Fed.R.Civ.P. 56, for summary judgment. For the following reasons, Defendant's motion for summary judgment is GRANTED and Plaintiffs' motion for summary judgment is DENIED.

I. BACKGROUND

  A. Factual Background

  1. Issuance

  In September 1997, Province issued $250 million in bonds ("Existing Bonds") due in 2007. (Compl. ¶ 13, Answer ¶ 13). The Existing Bonds are governed by the September 4, 1997 Indenture, among the Province, as issuer, the Bank of New York ("BONY"), as trustee, paying agent, and transfer agent, and Kredietbank S.A. Luxembourgeoise and the Bank of New York S.A., each as paying agent and transfer agent ("Indenture"). The Indenture and affixed bond terms ("Bond Terms") are governed by, and construed in accordance with, New York law. Under the terms of the Indenture, the Existing Bonds had an annual interest rate of 10%, payable on March 4 and September 4 of each year (Declaration of Christopher P. Moore, dated December Page 2 9, 2004 ("Moore Decl.") Ex. A (Bond Terms) at ¶¶ 1(a), 2), and scheduled to be amortized in a single `bullet' payment of principal on September 4, 2007. (Compl. ¶ 13, Answer ¶ 13). It is uncontested that Greylock is a beneficial holder of the Existing Bonds. (Declaration of Thomas Elwood, dated December 9, 2004 ("Elwood Decl.") at ¶ 6).

  2. Indenture & Bond Terms

  The terms and conditions of the Indenture and Bond Terms govern the Existing Bonds. These terms include that, inter alia, each Bondholder has the right to receive payment; Existing Bondholders can enforce their rights in cases of default or other contingencies under New York law; the Province "irrevocably waives" Sovereign Immunity ("Sovereign Immunity Clause"); the Province guarantees that Existing Bondholders will not be subordinate to other creditors; and, that the Existing Bonds "will rank pari passu among themselves and at least pari passu in priority of payment with all other present and future unsecured and unsubordinated Indebtedness . . . of the Province." (Ford Decl. Ex. A (Indenture) at 13-28) (Ford. Decl. Ex. A (Bond Terms) at ¶ 1(c)-17(d)).

  3. Exchange Offer & Consent Solicitation

  On June 30, 2004, the Province proposed that the Existing Bonds, due in 2007 with a 10% interest rate, be exchanged for new bonds ("New Bonds") due in 2018 with a 5½% interest rate (the "Exchange Offer"). (Am. Compl. ¶ 24; Answer ¶ 24). The June 30, 2004 Explanatory Memorandum ("Explanatory Memorandum") set forth in detail the terms and conditions of the Exchange Offer. (Ford Decl. Ex. B) The Explanatory Memorandum was thereafter amended by the Supplement to the Explanatory Memorandum dated August 23, 2004 (the "First Supplement") (Ford Decl. Ex. C), the Supplement to the Explanatory Memorandum dated October 14, 2004 (the "Second Supplement") (Ford Decl. Ex. D), the Supplement to the Explanatory Memorandum dated October 21, 2004 (the "Third Supplement") (Ford Decl. Ex. E), and the final Supplement to the Explanatory Memorandum dated October 28, 2004. (the "Final Supplement") (Ford Decl. Ex. H)

  Pursuant to the terms of the Exchange Offer, the Province would "accept all Existing Bonds validly tendered prior to the Expiration Date and not properly withdrawn, . . . deliver New Bonds[,] and make the Accrued Interest Payment in exchange for Existing Bonds pursuant to the Exchange Offer on the Settlement Date." (Ford Decl. Ex. B (Explanatory Memorandum) Page 3 at 33). The Explanatory Memorandum also established the method by which Existing Bondholders would consent (the "Consent Solicitation") to the proposed amendments to the Indenture and the Bond Terms:
Effect of tender:
By tendering Existing Bonds in the Exchange Offer prior to the Expiration Date, holders of Existing Bonds will be deemed to have delivered their consent to the Proposed Amendments. Holders of Existing Bonds may not tender Existing Bonds without consenting to the Proposed Amendments and may not consent to the Proposed Amendments without tendering Existing Bonds.
(Ford Decl. Ex. B (Explanatory Memorandum) at 28). While the Consent Solicitation expressly conditioned the right to exchange Existing Bonds for New Bonds, the terms of the Indenture demanded that amendments "be approved by holders of not less than a majority of the aggregate principal amount of the Existing Bonds outstanding." (Ford Decl. Ex. B (Explanatory Memorandum) at 55). If the amendments were approved by a majority of the bondholders, the Province would "execute the 2007 Supplemental Indenture that will effect the amendments to (i) the 2007 Terms of the Existing Bonds and (ii) the 2007 Indenture." (Ford Decl. Ex. B (Explanatory Memorandum) at 55).

  The Consent Solicitation included proposed amendments that would eliminate, inter alia, the Negative Pledge Clause ("Negative Pledge"), Interest Coverage Clause ("Interest Coverage"), Covenant Compliance Certificate ("Covenant Compliance"), Maintenance of Listings Clause ("Maintenance of Listings"), and "Events of Default Clause (other than a default in the payment of principal, interest, additional amounts, if any, on the Existing Bonds)." (Ford Decl. Ex. B (Explanatory Memorandum) at 57-58). The Consent Solicitation also included an amendment to the Bond Term and Indenture's waiver of sovereign immunity ("Sovereign Immunity Amendment"). (Ford Decl. Ex. B (Explanatory Memorandum) at 57-58).

  On August 23, 2004, in the First Supplement, the Province announced that, because of the Exchange Offer, the Province would not make the scheduled interest payments on September 4, 2004 (Ford Decl. Ex. C (First Supplement) at 3) but, rather, compensate the ...


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