CITIBANK, NA v. Singer Co.
| Decision Date | 20 April 1988 |
| Docket Number | No. 88 Civ. 2600 (RWS).,88 Civ. 2600 (RWS). |
| Citation | 684 F. Supp. 382 |
| Parties | CITIBANK, N.A., Plaintiff, v. The SINGER COMPANY, Defendant. |
| Court | U.S. District Court — Southern District of New York |
Shearman & Sterling, New York City, for plaintiff; Mark P. Zimmett, Kenneth A. Freeling, of counsel.
Fried, Frank, Harris, Shriver & Jacobson, New York City, for defendant; Terrence A. Corrigan, Cory Mitchell Gray, Jeanine Jiganti, of counsel.
Plaintiff Citibank, N.A. ("Citibank") has moved by order to show cause for mandatory preliminary injunctive relief pursuant to Rule 65, Fed.R.Civ.P., against defendant The Singer Company ("Singer"). Citibank seeks to require Singer to deposit additional collateral in the amount of $10 million. Upon the findings and conclusions set forth below, the requested injunction will issue.
The motion for preliminary injunctive relief was brought on by order to show cause issued on April 13, 1988 and made returnable on April 15, 1988. On the return date Singer proposed to offer later that day a commitment letter from the Bank of Nova Scotia ("Scotia Bank") to the effect that upon the completion of certain merger transactions on April 18, Scotia Bank would supply Citibank with a $10 million letter of credit in form satisfactory to constitute the requested additional collateral.
Singer was unable to produce the proposed letter, representing that the production of such a letter outside the proposed financing and merger contemplated for April 18 presented time consuming administrative complications. Upon the representation by Singer that the proposed refinancing and merger would take place on April 18, the Citibank motion was adjourned to the late afternoon of that date.
On April 18 the proposed refinancing and merger did not close as anticipated for complex reasons known only to the corporate wizards enmeshed in the complicated closing. It was again represented that the closing was expected to be completed on the following day, or at the latest, on Wednesday. No additional facts, other than the obvious passage of time, having been presented by Citibank, the motion was again adjourned to the late afternoon of April 20 with the provision that no further adjournments would be granted.
On this date, Singer advised that the proposed refinancing and merger had not been completed, no additional collateral was presented to Citibank, and this opinion was issued.
At Singer's request, in the period from May through December 1987 Citibank approved the issuance of the following outstanding irrevocable letters of credit to secure the performance of Singer's obligations under certain contracts (the "Letters of Credit"):
Citibank is entitled to a thirty day notice of an intention to draw down these Letters of Credit and as far as this record establishes, no such notice has been given.
Citibank's approval of the Letters of Credit was based upon a number of factors. Citibank was familiar with the Singer senior management team, and Singer had an established track record as a responsible borrower that not only possessed the ability, but also the willingness, to pay its obligations in a timely manner. Singer's net worth was substantial, with a debt to equity ratio of approximately .87 to 1 as of December 31, 1987, its cash flow and working capital seemed satisfactory, and its financial trends had been positive.
Each Letter of Credit application and agreement contains the following provision:
If at any time and from time to time ... Citibank requires collateral (or additional collateral), ... Singer will, on demand, assign and deliver to ... Citibank as security for any and all obligations of ... Singer now or hereafter existing under this Agreement, collateral of a type and value satisfactory to ... Citibank or make such cash payment as ... Citibank may require.
In February 1988, Paul Bilzerian ("Bilzerian") acquired Singer by means of a tender offer which contemplated the merger of Bilzerian's acquisition vehicle, Singer Acquisition Co., into Singer on April 18, 1988. As of December 31, 1987, Singer had shareholders equity of approximately $633 million. As a consequence of the merger, Singer will assume substantial debt incurred by Singer Acquisition Co. in the tender offer, approximately $1 billion.
Bilzerian has announced plans to sell Singer's aerospace/defense electronics division, the division which accounts for up to 80 percent of Singer's revenues and the performance of which is secured by four of the six Letters of Credit. The sale of these divisions has raised a doubt on Citibank's part as to whether the remaining cash flow will be sufficient to service the remaining debt obligations as well as to cover the cost of ongoing operations and whether as a consequence Singer's inability to perform could lead to drawings under the Letters of Credit and an inability or unwillingness to perform the underlying contracts to reimburse any Citibank's payments under the Letters of Credit. Singer notes that Bilzerian and Citicorp have been previously involved in heated litigation. See Bilzerian Partners Series A v. Pay 'n Pak, et al., C.A. No. 87-1093R (W.D.Wash.); Pay 'n Pak v. Bilzerian, et al., C.A. No. 87-925C (W.D.Wash.).
In light of these considerations, Citibank advised Singer that it desired to be repaid under the existing credit facilities that it had provided to Singer. Thus, in February 1988, Citibank, together with a group of other lender banks, unanimously elected to be paid out by Singer under an existing $300 million revolving credit facility. Also in February 1988, Citibank demanded to be paid out by Singer under a $20.4 million sale-leaseback credit agreement. These demands were met by Singer.
On February 12, 1988 Citibank requested cash collateral from Singer in accordance with its rights under the Letter of Credit provision cited above. Singer responded by letter dated February 26, 1988, stating that it would not provide the cash collateral Citibank requested. Similar requests were refused on March 3, 1988 and on March 11, 1988. On March 14, 1988 Citibank formally demanded cash collateral under the Letters of Credit agreements. To date the demand for additional collateral has been rejected by Singer.
In view of this rejection, the failure to present additional collateral, and the changed circumstances, Citibank's demand appears prima facie to have been made in good faith. Singer's pre-merger payments, and Citibank's prior exercise of its rights involving Bilzerian, fail to constitute a preponderance of evidence to the contrary.
The standard for a preliminary injunction under Fed.R.Civ.P. 65 in this Circuit...
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