Update courtesy of Stephen McNamara (Bracewell)
Wesco Aircraft Holdings, Inc. v. SSD Investments Ltd. (S.D. Texas – December 8, 2025)
This case arises out of minority noteholders’ opposition to a multi-step liability management exercise (the “LME”) carried out by Wesco Aircraft Holdings, Inc. (“Wesco”). The U.S. District Court for the Southern District of Texas found that Wesco did not breach certain indentures by carrying out the LME.
In early 2020, Wesco issued three series of secured notes, each under a separate indenture: the 2024 Notes, the 2026 Notes and the 2027 Notes.[1] The indentures permitted Wesco to issue additional Notes of the applicable series without the consent of existing holders. The indentures did, however, (i) limit the amount of debt that Wesco could incur and (ii) prohibit the release of the lien securing the Notes of the applicable series. Each indenture provided that, in general, the indenture could be amended with the consent of a majority in aggregate principal amount of the Notes of the applicable series. As an exception to that general rule, each indenture provided that release of the lien securing the Notes of the applicable series could only be effected with the consent of the holders of two-thirds in aggregate principal amount of the Notes of the applicable series.
As a result of the COVID-19 pandemic, Wesco faced a liquidity crunch. In March 2022, Wesco and certain holders of its 2024 and 2026 Notes (the “Majority Group”) engaged in the LME. On the eve of the LME, the Majority Group held (i) more than two-thirds of the 2024 Notes and (ii) more than half, but less than two-thirds, of the 2026 Notes. Pursuant to the LME,
- Wesco and the Majority Group amended the indentures to permit issuance to the Majority Group of $250 million in additional 2026 Notes (the “Third Supplemental Indentures”).
- Wesco issued to the Majority Group the additional 2026 Notes. As a result of this issuance, the Majority Group held more than two-thirds of the 2026 Notes.
- Wesco and the Majority Group amended the indentures to release the liens securing the Notes (the “Fourth Supplemental Indentures”).
- The Majority Group exchanged their notes for new super-senior first-lien notes.
Despite the LME, Wesco and related affiliates later filed a voluntary Chapter 11 petition. Wesco sought a declaration that the LME did not breach the indentures, and a minority of the holders of the 2024 and 2026 Notes (the “Minority Group”) sought, among other things, a declaration that Wesco did breach the 2024 and 2026 indentures.
The Bankruptcy Court recommended that the District Court find that the LME did not breach the 2024 indenture, but did breach the 2026 indenture. The Bankruptcy Court reasoned that the Third Supplemental Indentures had the effect of releasing the liens securing the 2024 and 2026 Notes, and therefore required the consent of holders of two-thirds of the Notes of the applicable series. Specifically, the Bankruptcy Court contended that as a result of the Third Supplemental Indentures, the release of the liens was automatic and inevitable.
The District Court disagreed with the Bankruptcy Court, and declared that the LME was proper, appropriate, lawful, and consistent with the terms of the 2024 and 2026 indentures. The District Court held that the Third Supplemental Indentures did not have the effect of releasing the liens securing the 2024 and 2026 Notes. Specifically, the District Court noted that the Third Supplemental Indentures did not relate to the release of the liens and that the Third Supplemental Indentures were merely part of the chain of events that led to the release. The District Court emphasized that courts ought to “adhere to the precise language” of indentures, and noted that the Wesco indentures did not expressly require unanimous consent to effect LME transactions of this type. The District Court observed that the two-thirds threshold for the release of the liens ensures that the liens will only be released if doing so is in the economic interest of holders of at least two-thirds of the Notes, and that the supermajority consent provision did not prohibit majority holders from investing additional funds to acquire that level of economic interest. Finally, the District Court explained that the entrance into the Third Supplemental Indentures did not render the lien release automatic or inevitable, since adoption of these supplemental indentures did not necessarily compel the parties thereto to carry out the other steps of the LME transaction.
[1]The case relates to objections raised by holders of the 2024 and 2026 Notes. This note therefore discusses only relevant features of the LME.
