Morgan Stanley & Co. v. Archer Daniels Midland Company
United States District Court for the Southern District of New York
570 F.Supp. 1529 (S.D.N.Y. 1983)
Archer Daniels Midland (ADM) (defendant) sold debentures to Morgan Stanley (plaintiff) under an indenture barring redemption "from the proceeds, or in anticipation, of" any new debt carrying an interest rate under 16.08%; shortly after Morgan Stanley's purchase, ADM redeemed the debentures using proceeds from two common stock offerings, even though it had also separately borrowed significant capital around the same time at rates below 16.08%. Morgan Stanley sued, arguing the redemption was at least indirectly funded from those low-interest loans in violation of the indenture, and both parties moved for summary judgment on the ambiguous boilerplate indenture language.
Whether an early redemption of debentures is lawful when it is funded directly from the proceeds of a common stock offering.