Metropolitan Life Insurance Company v. RJR Nabisco, Inc.
United States District Court for the Southern District of New York
716 F.Supp. 1504 (S.D.N.Y. 1989)
Metropolitan Life Insurance Company and Jefferson-Pilot Life Insurance Co. (plaintiffs), both sophisticated institutional investors, owned bonds issued by RJR Nabisco, Inc. (defendant). The bond indentures expressly allowed RJR to merge, sell assets, and take on additional debt, and contained no provision restricting new debt or requiring a payout to bondholders in the event of a leveraged buyout. Internal MetLife memos showed the company already understood, from past experience with leveraged buyouts, that it could not force a payout without an explicit indenture provision protecting it. RJR nonetheless accepted a leveraged buyout that loaded the company with new debt and sharply reduced the value of the plaintiffs' bonds. The plaintiffs sued, claiming RJR breached an implied covenant of good faith and fair dealing by taking on debt that devalued their bonds. RJR moved for summary judgment.
Whether a covenant of good faith and fair dealing restricting a borrower's ability to incur additional debt can be implied into a bond indenture that contains no such express restriction.