Holders of Canadian Pacific Railway Co. bonds sued the railroad company, demanding it repay their debt early and at a premium after they say the company missed a deadline tied to its acquisition of Kansas City Southern.
(Bloomberg) — Holders of Canadian Pacific Railway Co. bonds sued the railroad company, demanding it repay their debt early and at a premium after they say the company missed a deadline tied to its acquisition of Kansas City Southern.
The bonds in question — $1 billion of Canadian Pacific notes due 2041 — included a provision requiring the company to repay early if it failed to get federal approval to buy Kansas City Southern by March 25.
US authorities said on March 15 that they had approved the acquisition, but the decision didn’t take effect until April 14 — a lag that bondholders argue trips their repayment provision.
Canadian Pacific reiterated a previous statement, that the regulatory approval it received met the terms of its bondholder agreements. The company isn’t obligated to redeem the bonds that are subject to the repayment provision, the earlier statement said.
A separate bond, $1.4 billion of notes due 2031, also include the repayment provision. A group of holders of both the 2041 and 2031 notes tapped law firm Paul Hastings to enforce early repayment of their $2.4 billion in total holdings, Bloomberg previously reported. Holders of a majority of the 2031 notes could still opt to join the lawsuit, according to people familiar with the matter who asked not to be identified.
A representative for the law firm wasn’t immediately available for comment.
If the noteholders are successful, they stand to earn big gains. Canadian Pacific’s notes with a 2.45% coupon due 2031 traded at around 86 cents on the dollar on Wednesday, and its 3% notes due 2041 traded around 80 cents. The company would have to buy back the securities at 101 cents on the dollar plus accrued, unpaid interest.
The company can reap significant benefits from not redeeming the bonds, because rates have risen so much since the investment-grade securities were originally sold 2021, according to the suit. The approval process was delayed by Canadian Pacific having filed inconsistent data with regulators, according to the suit.
Wilmington Savings Fund Society, the trustee for Canadian Pacific’s notes due 2041, filed the suit on Wednesday in a New York federal court. The group of creditors that directed the trustee to sue holds more than half of the 2041 notes, according to the complaint. A representative for Wilmington Savings declined to comment.
The bondholders appointed Wilmington Savings as their trustee after removing the prior trustee, Computershare Trust Company, which had informed them it was not going to assert that the repayment provision had been triggered, the court document shows. A representative for Computershare Trust wasn’t immediately available for comment.
Canadian Pacific acquired Kansas City Southern for more than $30 billion in December 2021. It funded the deal in part by selling $8.45 billion in investment grade bonds, denominated in both Canadian and US dollars.
The sale featured $6.7 billion of US dollar bonds in five parts, including the 2031 and 2041 notes.
The case is Wilmington Savings Fund Society, FSB v. Canadian Pacific Railway Limited et al, 23-cv-06787, U.S. District Court, Southern District of New York (Foley Square).
(Updates with information about 2031 securities in fifth paragraph.)
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