American Roads LLC, et al.,

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
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In re
Chapter 11
American Roads LLC, et al.,1
Case No. 13-12412 (BRL)
Debtors.
Jointly Administered
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CLEARY GOTTLIEB STEEN & HAMILTON LLP
One Liberty Plaza
New York, New York 10006
Telephone: (212) 225-2000
Facsimile: (212) 225-3999
By: 	Sean A. O’Neal
Louis A. Lipner
– and –
CURTIS, MALLET-PREVOST, COLT & MOSLE LLP
101 Park Avenue
New York, New York 10178
Telephone: (212) 696-6065
Facsimile: (212) 697-1559
By: 	Steven J. Reisman
Jason P. Gottlieb
Attorneys for the Debtors and Debtors in Possession
HUNTON & WILLIAMS LLP
200 Park Avenue, 53rd Floor
New York, New York 10166
Telephone: (212) 309-1000
Facsimile: (212) 309-1100
By: 	Peter S. Partee, Sr.
Michael P. Richman
Attorneys for Syncora Guarantee Inc.
1 The Debtors in these chapter 11 cases, along with the last four digits of each Debtor’s tax identification number
are: Alabama Black Warrior Parkway, LLC [2479], Alabama Emerald Mountain Expressway Bridge, LLC [2480],
Alabama Toll Operations, LLC [2483], American Roads Holding LLC [3194], American Roads LLC [3196],
American Roads Technologies, Inc. [2016], Central Alabama River Parkway, LLC [2478], Detroit Windsor Tunnel
LLC [1794], DWT, Inc. [7182] and The Baldwin County Bridge Company L.L.C. [8933]. For the purpose of these
cases, the service address for the Debtors is: 100 East Jefferson Avenue, Detroit, Michigan 48226.
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SIDLEY AUSTIN LLP
One South Dearborn Street
Chicago, Illinois 60603
Telephone: (312) 853-7000
Facsimile: (312) 853-7036
By: 	Larry J. Nyhan
Bojan Guzina
Andrew F. O’Neill
Allison Ross Stromberg
– and –
787 Seventh Avenue
New York, New York 10019
Telephone: (212) 839-5300
Facsimile: (212) 839-5599
By: 	Nicholas K. Lagemann
Attorneys for the Ad Hoc Committee of Bondholders
Before: Hon. Burton R. Lifland
United States Bankruptcy Judge
BENCH MEMORANDUM AND ORDER FINDING THE BONDHOLDERS LACK
STANDING TO PARTICIPATE IN THESE CHAPTER 11 PROCEEDINGS
Before the Court is the threshold issue of whether the ad hoc committee of bondholders
(the “Bondholders”), consisting of the holders of $162.5 million in principal amount of certain
senior secured bonds (the “Bonds”) issued by American Roads LLC (“American Roads”, and
together with its affiliated debtors, the “Debtors”), has standing to participate in these chapter 11
proceedings.
The Court confronts a unique financing structure known as an “insured unitranche.”
Typically, a debtor’s creditors will fall into several tranches, each corresponding to different
liens. Here, however, all of the secured creditors’ claims are secured by the same lien, through
the same trustee and collateral agent, on the terms set forth in prepetition financing contracts.
Those contracts, therefore, are the sole basis of these creditors’ interests and rights, which the
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creditors have curtailed as part of a quid pro quo with Syncora Guarantee Inc. (“Syncora”), the
monoline insurer fully securing all of the creditors’ claims. 	That curtailment of rights and
interests is clearly enunciated in the relevant contracts in several unambiguous, enforceable “no
action” clauses and, therefore, forecloses the Bondholders’ participation in these proceedings.
Accordingly, and for the additional reasons set forth below, the Court finds that the
Bondholders do NOT have standing.
First, the Bondholders suggest that they have standing because nothing in any of the
relevant financing documents constitutes a waiver of the right to appear and be heard in these
proceedings. However, relevant case law and several contractual provisions support finding that
the Bondholders have waived their right to appear and that waiver is enforceable.
In these proceedings, the parties agree that the financing documents are governed by New
York Law. 	See, e.g., Supplemental Declaration of Neal Belitsky in Further Support of
Confirmation of the Debtors’ Joint Prepackaged Chapter 11 Plan (Dkt. No. 113), Ex. I
“Collateral Agency Agreement,” § 11.06.
“No action” clauses are frequently included in indentures to limit suits arising therefrom.
Under New York law, such clauses are “strictly construed,” and have been “enforced in a variety
of contexts in both federal and state courts.” See McMahan & Co. v. Wherehouse Entm’t, Inc.,
65 F.3d 1044, 1050–51 (2d Cir. 1995) (citation and quotation omitted). 	Courts applying New
York law have repeatedly recognized the importance of enforcing such provisions. See, e.g., SC
Note Acquisitions, LLC v. Wells Fargo Bank, N.A., No. 12-CV-1011, 2013 WL 1233544, at *11
(E.D.N.Y. Mar. 27, 2013) (noting that no-action clauses “protect against the exercise of poor
judgment by a single bondholder or a small group of bondholders, who might otherwise bring a
suit against the issuer that most bondholders would consider not to be in their collective
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economic interest”); Howe v. Bank of New York Mellon, 783 F. Supp.2d 466, 473 (S.D.N.Y.
2011) (“It is well established that a ‘no action’ clause bars claims by an individual bondholder
who fails to comply with the conditions precedent recited therein.”); Friedman v. Chesapeake &
Ohio Ry. Co., 261 F. Supp. 728, 731 n.7 (S.D.N.Y. 1966) (“If . . . every holder of a bond or
bonds were free to sue at will for himself and for others similarly situated, the resulting
harassment and litigation would be not only burdensome but intolerable.”).
Likewise, and notwithstanding the broad standing provisions of Bankruptcy Code section
1109, bankruptcy courts have routinely held that a party lacks standing to take an action in
bankruptcy in violation of a “no action” clause. See, e.g., In re Innkeepers USA Trust, 448 B.R.
131, 144 (Bankr. S.D.N.Y. 2011) (holding plaintiff lacked standing to object to a bid procedure
order as it was “contractually bound by the ‘no action’ clause of the C-6 Servicing Agreement”);
In re Ion Media Networks, Inc., 419 B.R. 585, 597 (Bankr. S.D.N.Y. 2009) (holding that holder
of second lien debt lacked standing to object to plan confirmation because it “agreed to remain
silent in the event of a chapter 11 case”); In re Enron Corp., 302 B.R. 463, 477 (Bankr. S.D.N.Y.
2003) (holding that certain creditors did not have standing to bring an adversary proceeding
against borrower, since the financial agreements provided that only the collateral agent could file
any action or institute any proceeding).
Here, the relevant provisions of the financing documents make clear that the limitations
on the Bondholders’ collective action rights and the delegation of authority to Syncora are
substantial. 	Indeed, in the main, the characterizations by Debtors’ counsel of the relevant
contractual provisions are persuasive.2 The relevant pre-petition contracts provide: (1) Syncora
controls the enforcement of rights and remedies upon an event of default; (2) Syncora has the
2 For ease of reference, those characterizations are included in a chart in the attached exhibit, which Debtors’
counsel prepared and this Court supplemented with the Bondholders’ characterizations of the same provisions. See
attached Exhibit A.
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authority to give all instructions to the Trustee and the Collateral Agent; (3) Bondholders cannot
institute or direct proceedings with respect to the enforcement of the terms of the financing
documents without the consent of Syncora; (4) Syncora has been appointed as the “sole holder”
and 	the 	“sole 	representative” 	for 	all 	purposes 	under 	the 	financing 	documents; 	and
(5) Bondholders are precluded from challenging or enforcing the lien without Syncora’s consent.
As such, “[t]he specific, unambiguous language of several provisions, read in the context of the
agreements as a whole,” convinces this Court that individual bondholders are precluded from
enforcing rights or remedies against the debtor or the collateral. 	Beal Sav. Bank v. Sommer,
8 N.Y.3d 318, 321 (2007).
The Bondholders argue that none of the above-mentioned provisions waived their rights
to participate in these chapter 11 proceedings. 	They argue that “no action” provisions are
narrowly construed and absent express language forbidding them from objecting to a bankruptcy
plan, their actions would fall outside the “no action” provisions. 	While the Bondholders are
correct that “no action” provisions must be clear, the Bondholders are incorrect to suggest that
these provisions must contain specific language barring participation in bankruptcy proceedings.
See In re Innkeepers, 448 B.R. at 144 n.18 (holding that a provision which barred a certificate
holder from “institut[ing] any suit, action or proceeding in equity or at law upon or under or with
respect to this Agreement or any Mortgage Loan” unless certain conditions precedents were
satisfied, prevented a certificate holder from objecting to a bid procedures order in a bankruptcy
case); see also In re Globo Comunicacoes e Participacoes S.A., 317 B.R. 235, 249 (S.D.N.Y.
2004) (intimating that a “no action” provision barring a noteholder from “bring[ing] any action
arising out of or relating to [the issuers] obligations to [noteholders]” would suffice to prohibit a
noteholder from filing an involuntary petition against the issuer) (quotation omitted). 	Here,
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while the “no action” clauses do not specifically mention bankruptcy plans, the provisions
unambiguously prevent bondholders from asserting any claims to collateral or enforcing any
rights against the Debtors, whether or not the Debtors are in insolvency proceedings. 	Thus, no
matter how the Bondholders characterize their actions and position to avoid falling within the
“no action” clauses, they seek to enforce individual rights, remedies and actions, which is
directly contrary to their bargained-for contractual agreements delegating and waiving such
rights in favor of Syncora and the collateral agent.
Second, with respect to whether the instant proceedings involve a “Bondholder Reserve
Action,” the Bondholders have also asserted that the discharge of the Bonds under the Debtors’
proposed chapter 11 plan and Syncora’s vote in favor of the plan are prohibited without the
consent of all bondholders. 	Specifically, they argue that the discharge and the vote each
constitute a “Bondholder Reserved Action” as defined in section 1002 of the base indenture.
Therefore, Syncora must obtain consent of the Bondholders in order to discharge the Bonds and
vote on the plan. Thus, the Bondholders assert Syncora has not met this obligation, and cannot
do so because the Bondholders will not accede to the discharge or Syncora’s vote.
However, this argument is unpersuasive. 	The base indenture provides for “Bondholder
Reserved Actions” under section 1002, which is titled “Supplemental Indentures Requiring
Consent of Bondholders.” 	That section indicates which “supplemental indentures” constitute
those “Bondholder Reserved Actions” that require the approval of all bondholders. 	These
actions are designed to prevent Syncora from unilaterally amending the financing documents in a
way specified in the definition, such as by reducing the principal or rate of interest on a bond.
Here, neither the discharge of the Bonds under the plan nor Syncora’s vote in favor of the
plan is a supplemental indenture requiring bondholder consent. 	Indeed, neither constitute an
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amendment to the financing documents or bear on the principal or interest rate of the bonds.
Accordingly, the “Bondholder Reserved Action” section, which is intended to prevent such
unilateral amendments, is not applicable.
Finally, with respect to the permissibility of subordination agreements limiting the
participation of potential parties to a bankruptcy, the Bondholders argue that even if the Court
determines that the financing documents delegate to Syncora the rights to which the Bondholders
are 	entitled 	under 	the 	Bankruptcy 	Code, 	courts 	have 	refused 	to 	enforce 	the 	terms 	of
subordination agreements that are inconsistent with the provisions of the Bankruptcy Code, other
than terms affecting the priority of distributions.
Courts, however, have upheld pre-petition inter-creditor agreements waiving a creditor’s
bankruptcy rights where the creditors are sophisticated parties fully aware of the implications of
such a waiver. See In re Ion Media Networks, 419 B.R. at 593–97 (upholding a pre-bankruptcy
inter-creditor agreement in which a junior lender agreed to waive its right to dispute the validity
of the lien where the parties were sophisticated parties who entered into the inter-creditor
agreement aware of the implications of that waiver); see also In re GSC, Inc., 453 B.R. 132,
164 n.47 (Bankr. S.D.N.Y. 2011) (finding that in certain circumstances courts have upheld a
creditor’s prepetition waiver of bankruptcy rights); In re Erickson Retirement Cmtys, LLC,
425 B.R. 309, 314–16 (Bankr. N.D. Tex. 2010) (finding that sophisticated commercial lenders
which, pursuant to terms of subordination agreements that barred them from filing any actions or
pursuing any remedies to collect on their claims or enforce their rights until senior indebtedness
had been paid in full, had knowingly and intelligently waived standing to file motion for
appointment of examiner in jointly administered chapter 11 cases); In re Aerosol Packaging
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LLC, 362 B.R. 43, 47 (Bankr. N.D. Ga. 2006) (upholding the assignment of voting rights from a
junior lienholder to a senior lienholder in a prepetition inter-creditor agreement).
Here, 	the parties 	are 	clearly sophisticated 	and 	acknowledged 	this 	on 	the record.
Moreover, these proceedings do not involve an ordinary multi-tranche financing where secured
creditors with different liens on the same property have entered into a subordination agreement
to order the priority of their respective property interests. Rather, there is only one lien securing
the financing documents. As such, the Bondholders are part of an “insured unitranche,” and any
rights they may have to monetize or exert control over the collateral are undergirded only by
contractual entitlements, not separate property interests.
CONCLUSION
For the reasons set forth above, the Court finds that the Bondholders do NOT have
standing to participate in these Chapter 11 proceedings. 	The Court, accordingly, DENIES the
Bondholders’ motion to adjourn the confirmation hearing and OVERRULES the Bondholders’
objections to the disclosure statement and confirmation.
IT IS SO ORDERED.
Dated: New York, New York
August 28, 2013
/s/ Burton R. Lifland 	0
United States Bankruptcy Judge
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