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New bonds buy the deciding votes
Wesco Aircraft's bonds sat under an indenture with restrictions on what the company could do. To work within them, the company issued additional bonds to people willing to provide capital. With the larger total of bonds outstanding, the new capital providers held enough weight to reach the two-thirds vote needed to amend the original indenture.
The amendment cost the minority bondholders their liens. This kind of deal is called an uptier, one of the more common flavors of liability management exercises, alongside drop-downs, pari plus, and double dips. Wesco Aircraft is among the few such deals to go to trial and judgment, and the company won on appeal to the district court.
Why does a bond amendment need two-thirds?
A trust indenture sets how many holders must approve a change to its terms. Many indentures require a simple majority for routine amendments and a higher threshold, often 66 2/3% of the principal amount, for steps such as releasing collateral. Certain core terms, such as the payment date and the amount owed, usually need each affected holder's consent. The percentage is counted by principal amount outstanding, not by the number of holders.
How can extra bonds change who wins a vote?
Votes under an indenture follow the principal amount of bonds held, so adding bonds adds voting weight. If the indenture lets the company issue more bonds, the new holders vote alongside the existing ones and dilute the existing holders' share. A minority that once blocked a change can end up too small to stop it. Bonds held by the company or its affiliates are generally excluded from the count.
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