Trust Indenture Act - Exemptive Orders
No Action, Interpretive and/or Exemptive Letter:
|Date of Indenture||Description of Issue||Predecessor Trustee||Principal
|Interest Rate||Date Trusteeship Assumed||Maturity Date|
|12/01/84||Nolan County Industrial Development Corporation Industrial Development Revenue Bonds (United States Gypsum Company Project) Series 1984 due 2014||Bank One||$ 1,000,000||7.25%||06/21/01||12/01/2014|
|08/01/97||State of Ohio Solid Waste Disposal Revenue Bonds (USG Corporation Project) Series 1997 due 2032||Bank One||$ 45,000,000||5.60%||06/22/01||08/01/2032|
|03/01/98||State of Ohio Solid Waste Disposal Revenue Bonds (USG Corporation Project) Series 1998 due 2033||Bank One||$ 44,400,000||5.65%||06/22/01||03/01/2033|
|08/01/99||State of Ohio Solid Waste Disposal Revenue Bonds (USG Corporation Project) Series 1999 due 2034||Bank One||$ 9,000,000||6.05%||06/22/01||08/01/2034|
|07/01/99||Pennsylvania Economic Development Financing Authority Solid Waste Disposal Revenue Bonds (USG Corporation Project) Series 1999 due 2031||Chase||$110,000,000||6.00%||07/13/01||06/01/2031|
|09/01/77||Town of Shoals, Indiana Economic Development Revenue Bonds (United States Gypsum Company Project) Series A dated 1977 due 2007||Bank One||$ 1,000,000||5.90%||08/01/01||09/01/2007|
|09/01/77||City of Fort Dodge, Iowa Industrial Development Revenue Bonds (United States Gypsum Company Project) Series A dated 1977 due 2007||Bank One||$ 1,000,000||5.90%||09/18/01||09/01/2007|
|10/01/84||The Trustees of the Blaine County Industrial Authority Industrial Development Revenue Refunding Bonds (United States Gypsum Company Project) Series 1984 due 2010||Bank One||$ 1,000,000||7.25%||Pending||10/01/2010|
|10/01/84||Jacksonville Port Authority Industrial Development Revenue Refunding Bonds (United States Gypsum Company Project) Series 1984 due 2014||Bank One||$ 1,000,000||7.25%||09/06/01||10/01/2014|
|09/01/98||City of East Chicago, Indiana Solid Waste Disposal Revenue Bonds (USG Corporation Project) Series 1998 due 2028||Bank One||$ 10,000,000||5.50%||10/16/01||09/01/2028|
|08/01/99||City of East Chicago, Indiana Solid Waste Disposal Revenue Bonds (USG Corporation Project) Series 1999 due 2029||Bank One||$ 10,000,000||6.375%||10/16/01||08/01/2029|
|12/01/99||State of Oregon Solid Waste Disposal Facilities Economic Development Revenue Bonds Series 192 (USG Corporation Project) Series 1999||Wells Fargo||$ 11,000,000||6.40%||10/01/01||12/01/2029|
Dean H. Goossen
125 South Franklin Street
Chicago, IL 60606-4678
December 12, 2001
David B. H. Martin, Director
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
|Re:||Application for exemption under § 310(b)(1)(ii) of the Trust Indenture Act of 1939, as amended|
Ladies and Gentlemen:
USG Corporation ("USG") hereby applies for an exemption under § 310(b)(1)(ii) of the Trust Indenture Act of 1939, as amended (the "TIA"), permitting National City Bank of Indiana ("National City") to concurrently serve: (i) as successor indenture trustee with respect to a trust indenture qualified under the TIA under which two equal-ranking series of securities are outstanding, and (ii) as successor indenture trustee with respect to twelve outstanding tax-exempt bond issues, each of which was issued pursuant to a trust indenture which was not qualified (nor required to be qualified) under the TIA.
USG, a Delaware corporation, entered into a TIA-qualified Indenture with Harris Trust and Savings Bank1 on October 1, 1986 (the "Qualified Indenture"), a copy of which is attached to this Application as Exhibit A-1. There are currently two outstanding series of securities issued under the Qualified Indenture; namely, (i) $130,790,000 of 9-1/4% Senior Notes due 2001, a copy of the designating resolutions for which are attached as Exhibit A-2, and (ii) $150,000,000 of 8-1/2% Senior Notes due 2005, a copy of the designating resolutions for which are attached as Exhibit A-3 (the "Qualified Securities"). While the Qualified Securities were previously secured under a separate instrument by certain collateral held by Wilmington Trust Company, said collateral was released by Wilmington Trust Company on May 21, 1997 and all of the Qualified Securities are now unsecured and rank pari passu.
In addition to the Qualified Securities, USG is also the obligor, or has assumed the obligations, with respect to certain tax-exempt securities outstanding under indentures which are not qualified under the TIA (the "Non-Qualified Indentures"). These securities were issued by various governmental entities and political subdivisions and are listed on the attached Exhibit B ("Non-Qualified Securities")2. All of the Non-Qualified Securities are also unsecured and rank pari passu with each other and with the Qualified Securities. The Qualified Indenture does not describe any of the Non-Qualified Indentures, and none of the Non-Qualified Indentures describe any other Indenture.
On May 14, 2001, Bank One approached National City about serving as successor indenture trustee under the Qualified Indenture and under each of the Non-Qualified Indentures for which Bank One was serving as Trustee. Bank One is a creditor of USG and wanted to resign to avoid a potential conflict of interest. Subject to the requisite procedures to formalize such appointments, National City agreed to accept such trusteeships. National City has no other business relationship with USG. On June 18, 2001, Bank One's resignation as indenture trustee under the Qualified Indenture and National City's acceptance of appointment as successor trustee became effective.
USG and certain affiliated companies, including United States Gypsum Company, filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code on June 25, 2001. The institution of such Chapter 11 proceedings constituted an event of default as defined under the Indentures (see Exhibits A-4, B & C for information regarding the default provisions of the Non-Qualified Indentures).
The various indenture trustees with respect to the indentures pertaining to the Non-Qualified Securities also resigned to avoid or eliminate conflicts of interest. To facilitate an economical and efficient administration of the Qualified and Non-Qualified Securities, all of which are unsecured and all of which rank pari passu, USG proposed that National City serve as the successor indenture trustee with respect to the Qualified Indenture and all of the Non-Qualified Indentures. National City agreed to accept such appointments (and has accepted such appointments as indicated on Exhibit B), but has requested that USG seek an exemption under § 310(b)(1)(ii) of the TIA. At a meeting of the largest unsecured creditors of USG, which was held in Wilmington, Delaware on July 12, 2001, National City, in its capacity as successor indenture trustee with respect to the Qualified Securities, was appointed by the United States Trustee to serve on the official unsecured creditors committee with respect to the bankruptcy proceedings. In its application for such appointment, National City disclosed that it anticipated serving as successor indenture trustee with respect to the Qualified Indenture and Non-Qualified Indentures.
The Trust Indenture Act of 1939, as amended, imposes certain duties on indenture trustees under TIA qualified indentures upon the ascertainment of a conflict of interest. These duties include the resignation of the indenture trustee and/or the providing of notice to the security holders. Under the TIA, a conflict of interest arises where the indenture securities are in default (as defined in the indenture) and "such trustee is trustee under another indenture under which any other securities ... of an obligor upon the indenture securities are outstanding..." TIA § 310(b)(1), 15 U.S.C. § 77jjj(b)(1) (1997). The TIA also provides, however, that this paragraph (1) shall not apply (through a provision deemed to be contained in the indenture) where:
|(i)||the qualified indenture and all non-qualified indentures are wholly unsecured and rank equally, and each non-qualified indenture is specifically described in the qualified indenture; or|
|(ii)||the issuer shall have sustained the burden of proving, on application to the Commission and after opportunity for hearing thereon, that trusteeship under the indenture to be qualified and such other indenture or under more than one outstanding series under a single indenture is not so likely to involve a material conflict of interest as to make it necessary in the public interest or for the protection of investors to disqualify such trustee from acting as such under one of such indentures or with respect to such series;|
Trust Indenture Act § 310(b)(1)(ii). (The Qualified Indenture does not contain any provision excluding this section.) The Securities and Exchange Commission has delegated authority to issue orders pursuant to § 310(b)(1)(ii) to the Director of the Division of Corporation Finance. 17 CFR § 200.30-1(d)(3) (2001).
The filing by USG of a voluntary petition in bankruptcy on June 25, 2001 constituted an event of default under the Indentures. Accordingly, during the continuance of such default, National City's service as indenture trustee with respect to both the Qualified and Non-Qualified Indentures may be deemed to create a material conflict of interest under § 310(b)(1) of the TIA. Clauses (A), (B), and (C) of § 310(b)(1) appear inapplicable to these facts since all of the securities are unsecured. Clause (i) of the proviso of § 310(b)(1) does not appear to apply because the Qualified Indenture does not specifically describe the Non-Qualified Indentures.
§ 310(b)(1)(ii) of the TIA specifically provides that an issuer may apply to the Commission for an order finding that the trusteeship of multiple indentures is not so likely to cause a material conflict of interest as to make it necessary for the protection of investors or in the public interest to disqualify the trustee. USG submits that the current situation is precisely the fact pattern which is appropriate for such an order. In this situation: (i) all security holders under the Qualified and Non-Qualified Indentures rank pari passu, and (ii) all of such Qualified and Non-Qualified Securities are unsecured. If the Qualified Indenture had described the Non-Qualified Indentures, no conflict of interest would be deemed to exist under § 310(b)(1)(i). Since many of the Non-Qualified Indentures were created subsequent to the Qualified Indenture, such cross-referencing was not possible absent a subsequent supplemental indenture. The absence of such cross-referencing in the Indentures certainly does not create a risk of material conflict between the Qualified and Non-Qualified Securities where none otherwise exists.
The conditions of the automatic exception in § 310(b)(1)(i) require, inter alia, that separate indentures or separate series under one indenture are unsecured and rank equally. This evidences a presumption in the statute that, where indenture security holders under separate indentures of one obligor are unsecured and rank equally, one trustee may serve under both indentures without a conflict being deemed to exist. See, e.g., Texas Commerce Bank National Association, October 9, 1985, where the Staff discusses modified indenture language intended to address potential conflicts under the TIA among series issued under a single indenture, and states, "where the series are all unsecured and rank equally, no conflict typically exists, and the trustee may represent all series... ." Indeed, as a practical matter, it is unlikely that the interests of the Qualified and Non-Qualified Security holders will materially diverge in the bankruptcy proceeding, given their pari passu and unsecured status.
This view is supported by analysis of the default and remedial provisions of the Indentures, which are compared in Exhibits A-4, B and C, and which generally allow a standard form with immaterial variations. Such variations include, for example, minor differences in grace periods. USG is in default under all of the Indentures. While differences may exist in the language of the various default provisions, none of these differences appears material, particularly in view of the fact that the filing for bankruptcy protection caused a default under each Indenture. Any differences in the remedy provisions are similarly not material. Notably, some of the Indentures immediately accelerate the principal and interest upon bankruptcy, under other Indentures the Trustee has the discretion to accelerate. This disparity is meaningless in the bankruptcy context because the bankruptcy filing prevents the immediate acceleration of the total amounts due, regardless how acceleration is to be effected. Therefore, no material differences exist in the default and remedy provisions of the Indentures. Since the Indentures all are unsecured and rank pari passu, their priority for payment will be the same under the bankruptcy proceedings and their interests should not materially diverge.
Moreover, there is no likelihood that a future series of securities that may be issued, if any, under the Qualified Indenture would be other than unsecured and equal in rank with the Qualified Securities. Notably, the Qualified Indenture defines "securities" to be issued in the first recital (p. 1) as "evidencing unsecured indebtedness." Accordingly, such a hypothecated future series would not be secured and would not rank senior to the outstanding Qualified Securities. While the Qualified Indenture does not expressly authorize a subordinated series, it does not appear to forbid them. However, if such an issuance occurred after the Indentures were no longer in default, such an issuance would not appear to create a conflict under § 310(b). In any event, albeit highly unlikely, if an issuance was proposed by USG creating Qualified Securities which were not pari passu and National City concluded at the time that such proposed issuance would create a material conflict of interest, National City has indicated that it would request that USG appoint a successor indenture trustee under the Qualified Indenture, at least for such series.
Finally, no useful purpose would appear to be served by requiring separate trustees on the Qualified Indenture and the Non-Qualified Indentures. Under the circumstances, the interest and protection of investors under the indentures would be best served by allowing a single trustee, because this will reduce expense -- conserving assets of the bankruptcy estate -- and should facilitate more efficient administration of claims in the bankruptcy proceeding.
Based on the foregoing, USG believes that National City's trusteeship for the Qualified and Non-Qualified Securities is not so likely to involve a material conflict of interest as to require National City's disqualification for the protection of investors or in the public interest. Accordingly, USG respectfully requests that it be granted exemption under § 310(b)(1)(ii) of the Trust Indenture Act of 1939, as amended, permitting National City to concurrently serve as indenture trustee under the Qualified Indenture and each of the Non-Qualified Indentures.
USG hereby waives notice and hearing with respect to this application.
Please feel free to contact USG, or Eric R. Moy, of Barnes & Thornburg, counsel for National City, if you need additional information concerning this application. Mr. Moy's telephone number is (317) 231-7298.
By: /s/ Dean H. Goossen
Title: Corporate Secretary
|cc:||Catherine S. Krug, National City Bank of Indiana|
Eric R. Moy, Barnes & Thornburg
|1||Harris Trust and Savings Bank was succeeded by The Bank of New York as successor indenture trustee under the Qualified Indenture, and The Bank of New York was later succeeded by Bank One Trust Company, National Association ("Bank One").|
|2||In addition, United States Gypsum Company, a wholly owned subsidiary of USG, is obligor with respect to certain tax-exempt bonds under other non-qualified, unsecured indentures listed on Exhibit C. USG has neither guaranteed nor assumed these securities. National City has assumed or proposes to assume trusteeship under all of these indentures as well. For purposes of § 310(b) of the TIA, United States Gypsum Company is deemed a separate obligor so that National City's service in this capacity should not be deemed to raise a material conflict of interest under the TIA. See Trust Indenture Act Release No. 39-16, November 14, 1941. See also Division of Corporation Finance Manual of Publicly Available Telephone Interpretations (July 1997) No. T - 21.|
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