Update courtesy of Rita Liu (ArentFox Schiff)
CPPIB Credit Investments II Inc. v. Deutsche Bank Trust Co. Americas, 2026 N.Y. Misc. LEXIS 2490 (Sup. Ct., N.Y. County Mar. 17, 2026)
In April 2021, Lions Gate Entertainment Corp. (“Legacy Lions Gate”), issued approximately $1 billion of its 5.500% Senior Notes due April 2029 under an Indenture with Deutsche Bank Trust Company Americas as trustee, which contained a customary “sacred rights” provisions that could only be modified with the consent of “each affected Holder.” After its $4.4 billion acquisition of the Starz business proved unsuccessful, Legacy Lions Gate resolved to separate its lucrative Studio Business from the struggling Starz Business via a SPAC transaction. Because the existing Indenture covenants presented obstacles to closing, Legacy Lions Gate persuaded a majority of noteholders (the “Participating Noteholders”) to consent to sweeping amendments memorialized in Supplemental Indenture No. 10. In exchange, the Participating Noteholders received new notes with longer terms, higher interest rates, and the backing of the valuable Studio Business. The Supplemental Indenture deleted thirteen protective covenants, struck three events of default, and added a new trigger for the automatic release of Studio Business guarantors, leaving minority noteholders (including Plaintiffs CPPIB and Thebes) backed only by the struggling Starz Business.
The court addressed several threshold and substantive issues:
No-Action Clause. The court held that the Indenture’s no-action clause did not bar Plaintiffs’ claims to enforce their individual consent rights under the “sacred rights” provisions of the Indenture, but did bar contractual claims falling outside those provisions. The court recognized the inherent tension in applying a no-action clause that requires majority support to block claims by a minority exercising veto rights specifically designed to protect them against majority action.
Modifying Notes Guarantee. The court found that Plaintiffs stated a viable claim that Legacy Lions Gate breached Section 9.02(e)(8) of the Indenture, which prohibits, without each affected Holder’s consent, any amendment that would “modify the form of the Notes Guarantee in any manner adverse to the Holders” or “release the Guarantors constituting all or substantially all of the value of the Notes Guarantees.” The court rejected Legacy Lions Gate’s narrow reading that “form of the Notes Guarantee” referred only to the unchanged text of Section 10.01 of the Indenture, holding instead that it could reasonably be read to encompass the basic structure and scope of the entire Article 10 of the Indenture, including the grounds for guarantor release under Section 10.06(a) of the Indenture, which was amended by the Supplemental Indenture. The court also found that Plaintiffs adequately alleged that the release of 230 of 243 guarantor entities constituting roughly $1.19 billion of $1.41 billion in market capitalization constituted “all or substantially all” of the value of the Notes Guarantees.
Other Sacred Rights Provisions. The court dismissed Plaintiffs’ claims under three other sacred rights provisions. The claim under Section 9.02(e)(4) (preferential redemption or repurchase) failed because no actual amendment was made to Section 3.07 of the Indenture, and the exchange offer was distinct from a redemption authorized under the Indenture. The claim under Section 9.02(e)(6) of the Indenture (right to sue for payment enforcement) failed because there was no actual textual amendment to Section 6.07 of the Indenture. The claim under Section 9.02(e)(3) of the Indenture (reduction of principal or extension of maturity) failed because the changes to the Participating Noteholders’ Notes were made via the Exchange Agreement, not an Indenture amendment requiring Plaintiffs’ consent.
The court also addressed several other equitable and breach of contract claims. On April 17, 2026, the case was appealed and will be heard by the New York Supreme Court’s First Department Appellate Division.
This decision underscores that “sacred rights” provisions remain a meaningful check on liability management transactions, providing minority noteholders with a viable path to challenge guarantor releases and structural modifications that strip credit support without unanimous consent.
