Related document:
Complaint
Lions Gate bondholder CPP Investments has filed a lawsuit in the New York Supreme Court, asserting that Lions Gate Entertainment violated the terms of its note indentures during a $383mn debt exchange in May 2024. The lawsuit, led by Latham & Watkins, seeks a declaratory judgment that the company’s actions infringed upon the “sacred rights” of the noteholders.
The dispute centers on Lions Gate’s decision to swap $383mn of its $715mn 5.5% senior unsecured notes due 2029, issued under the struggling STARZ business, into new 6% notes due 2030, issued under the more profitable Lions Gate studio business. According to the complaint, favored noteholders selected for the debt exchange were offered new notes with significantly better terms in exchange for their old ones, contingent upon their consent to amend the indenture. These amendments, formalized through Supplemental Indenture No. 10, effectively stripped the indenture of critical rights and protections for other noteholders.
In the complaint, CPP Investments states: “Specifically, Lions Gate offered to redeem the Notes held by these favored noteholders in return for new notes that were superior in all material respects. The New Notes would be issued to these favored noteholders at par and in the same face amount as their old Notes, despite the fact that those existing Notes were trading well below par in the secondary market at that time. The New Notes would ultimately have a 6.0% coupon, while the existing Notes had a coupon of 5.5%. The New Notes did not mature until April 2030, while the existing Notes were set to mature in 2029. And, most importantly, all or substantially all of the credit backing the existing Notes would be gutted from those Notes and transferred to the New Notes.”
CPP Investments argues that the amendments made through Supplemental Indenture No. 10 are void as a matter of law, particularly violating the “sacred rights” of noteholders outlined in Section 9.02(e) of the indenture. These sacred rights, which cannot be amended without the consent of each affected noteholder, include protections against modifying the notes guarantee, releasing guarantors, changing redemption terms and restricting the right to sue for payment recovery.
The economic impact on the excluded noteholders has been severe, according to court filings. The value of the original notes has plummeted to 68 cents on the dollar from 77 cents, representing a decline of 12%, while the new notes are trading at a 32% premium, at 90 cents on the dollar. The 5.5% senior unsecured notes due 2029 that participated in the exchange last traded at 90.277, whereas the 5.5% notes left at the STARZ business recently traded at 67.075, trade data show.
In its lawsuit, CPP Investments seeks several remedies: invalidation of the amendments, restoration of the original covenants, acceleration of the notes’ maturity, and payment of all amounts owed under the notes, including principal, premium and default interest.
CPP Investments, a Canadian Crown fund, manages the pensions of more than 22mn Canadians. According to the filings, it holds more than 28% of the currently outstanding notes.
Jennifer Lappe, JD
jennifer.lappe@levfininsights.com
+1 346 256 1345
