On May 19, 2025, Justice Masley of the New York County Commercial Division issued a decision in Matter of Bank of N.Y. Mellon, 2025 NY Slip Op 31952(U), enforcing an indenture’s write-up provisions notwithstanding past practice and arguments about waterfall logic.
Justice Masley summarized the question presented in the proceeding as “the order of allocation of subsequent recoveries to the senior note classes A-3, A-2, and A-1. Despite the Indenture’s direction that any subsequent recoveries be allocated in the reverse order of seniority, ‘first to increase the Note Principal Balances of the Class A-3, Class A-2 and Class A-1 Notes, sequentially, in that order’, since the Trust’s inception, the Trustee has been allocating subsequent recoveries in the order of seniority, i.e., to note classes A-1, A-2, and A-3.”
The trustee argued that the indenture’s “prescribed method of allocation of subsequent recoveries to the senior note classes in the reverse order of seniority is a drafting error. The Trustee seeks a judicial instruction that it should continue to use its current method of allocation of subsequent recoveries to the senior note classes in the order of seniority.”
Justice Masley analyzed the trustee’s arguments but ultimately concluded that the indenture must be enforced as written, notwithstanding the points raised by the trustee regarding how the indenture’s allocation scheme was inconsistent with the overall structure of the trust and the trust’s waterfall.
Ultimately, I see this as a decision where a judge declined the invitation to interpret an indenture in a way that might seem more logical and instead enforced the New York contract interpretation rule that an unambiguous contract means what it says.