Realogy's planned debt exchange violates credit agreement, court rules

By Jennifer Lanning Drey

Portland, Ore., Dec. 18 - Realogy Corp.'s planned debt exchange cannot proceed without the company obtaining agreements from a required number of its bank lenders to amend or waive provisions of the credit agreement related to its outstanding 11%-11¾% senior toggle notes due 2014, the Delaware Court of Chancery ruled Thursday.

The ruling came in response to a lawsuit filed by Bank of New York Mellon, the indenture trustee for the notes, and High River LP, which is controlled by investor Carl Icahn, and the beneficial owner of an unspecified amount of the senior toggle notes.

As previously reported, on Nov. 13 Realogy announced an offer to exchange some of its outstanding notes at a discount for up to $500 million principal amount of new second-lien incremental term loans.

In the lawsuit the Bank of New York and High River said the proposed transaction was not permitted under the credit agreement because it would give the holders of the new term loans an effectively higher priority in any potential bankruptcy proceeding than any of the senior notes or senior subordinated notes.

The parties also argued that because the proposed second-lien term loans are to be funded with tendered notes instead of cash, the second-lien term loans couldn't qualify as loans under the credit agreement.

Bank of New York and High River also asked the court to declare any consummation of the transaction to be fraudulent, but the court has not yet ruled on that portion of the lawsuit.

Following the lawsuit, Realogy terminated the exchange offer and said it would return all notes tendered to their holders (for details, see story elsewhere in this issue).

Realogy is a Parsippany, N.J.-based provider of real estate and relocation services.

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