“Commits to Raise” Encompasses Substantial Steps Toward Alternative Financing, but General Indemnity Does Not Shift First-Party Fees

Introduction

Aurelius Capital Master Ltd. v Hertz Intl. Ltd. arose from Hertz’s COVID-19-era financial restructuring. Plaintiffs, holders of unsecured notes issued by Hertz Holdings Netherlands B.V. (HHN), agreed to backstop a proposed €250 million financing by Hertz International Limited (HIL). In return, the Backstop Agreement provided for an Alternative Financing Premium (AFP) if HIL, HHN, or an affiliate “raises, or commits to raise” substitute financing before the agreement expired.

Before the March 31, 2021 expiration date, Hertz’s United States debtors pursued a competing €250 million facility, circulated term sheets, made bankruptcy-court disclosures, and received lender commitment documents. HIL did not execute its own commitment letter until April 3 and did not obtain the funds until April 30. The central question was therefore whether the pre-expiration activity constituted a “commit[ment] to raise” financing even though no final binding agreement had yet been executed by HIL.

The case also presented two secondary issues: whether the failure to obtain a contemplated bankruptcy-court bifurcation order activated a contractual impossibility exception, and whether the Agreement’s indemnification clause entitled the successful noteholders to attorneys’ fees incurred in this direct contract action.

Factual and Procedural Background

• Hertz’s United States parent and affiliates filed for chapter 11 protection in May 2020 after the pandemic severely affected the rental-car business.
• Although HIL and HHN were not debtors, the filing triggered defaults under notes guaranteed by certain U.S. entities and left Hertz’s European operations needing approximately €250 million.
• On November 30, 2020, the parties entered into a Lock-up Agreement (LUA), governed by English law, and a Backstop Agreement, governed by New York law.
• Plaintiffs agreed to purchase any new HIL notes not bought by other noteholders, assuring HIL of the full planned financing.
• Section 3(b) of the Backstop Agreement entitled plaintiffs to an AFP equal to 5% of qualifying alternative financing if defendants “raise[d], or commit[ted] to raise” such financing before expiration.
• On March 29, 2021, the U.S. debtors disclosed two plan-sponsor proposals that contemplated a substitute €250 million HIL facility, while stating that neither sponsor had made a legally binding commitment to a final transaction.
• By March 30, lenders had transmitted executed equity commitment letters to the debtors’ counsel, and defendants’ financial adviser stated that the original LUA was “no longer relevant.”
• HIL executed a commitment letter on April 3 and received financing on April 30.

After a nonjury trial, Supreme Court found that defendants had triggered the AFP before the Backstop Agreement expired and entered judgment for plaintiffs totaling $15,899,653.51. It nevertheless denied plaintiffs’ request for attorneys’ fees. Defendants appealed the AFP award, and plaintiffs cross-appealed the denial of fees.

Summary of the Opinion

The First Department affirmed the judgment. The majority announced three principal holdings:

1. A binding financing contract was not required. In the context of this Backstop Agreement, “commits to raise” included significant, concrete, affirmative steps toward obtaining alternative financing when those steps reflected a defined intent to use that financing instead of issuing the contemplated HIL notes.
2. The contractual impossibility exception did not apply. Although a condition to the original restructuring—the timely procurement of a Bifurcation Order—could no longer be satisfied, defendants also had to prove that this failure made implementation of the Scheme Transaction impossible. The trial court permissibly found that an English scheme remained legally feasible.
3. The indemnity did not authorize first-party attorneys’ fees. Despite referring to losses arising from a breach, the provision’s notice, defense-control, and assumption-of-defense procedures marked it as a conventional third-party indemnification clause.

Justice Friedman dissented from the AFP ruling. He concluded that “commits” naturally means entering into a binding obligation and that, in any event, the inability to obtain the Bifurcation Order made the defined Scheme Transaction impossible. He agreed that plaintiffs were not entitled to attorneys’ fees.

Analysis

1. Meaning of “Raises, or Commits to Raise”

The majority began with ordinary New York contract principles: interpretation of an unambiguous agreement is a question of law reviewed de novo, and the agreement must be enforced according to its text, structure, and commercial context.

Although the Agreement did not define “commits,” the absence of a definition did not itself create ambiguity. The court acknowledged that dictionaries provide both narrow definitions, involving binding obligations, and broader definitions, involving a promise or decision to pursue a course of action. It therefore considered the entire contractual setting rather than selecting a definition in isolation.

The phrase was written disjunctively—“raises, or commits to raise.” The majority reasoned that “raises” refers to obtaining the funds, while “commits to raise” must capture an earlier stage. Requiring an executed, binding financing agreement would, in the majority’s view, collapse the distinction between the two triggers and undercut the parties’ choice of different language.

The majority defined the latter trigger as substantial affirmative steps reflecting a defined decision to pursue substitute financing. The pre-expiration record satisfied that standard because it included:

• circulation of a term sheet for less expensive financing;
• a lender’s agreement to provide the proposed financing;
• bankruptcy-court filings describing the planned €250 million HIL facility;
• specific terms, timing, and repayment mechanics;
• transmission of executed lender commitment letters; and
• internal recognition that plaintiffs’ financing was no longer needed.

The AFP was triggered by the commitment formed before expiration, although payment became due later, when the alternative financing closed.

2. Commercial Purpose

The economic structure reinforced the majority’s reading. Plaintiffs had assumed the risk that they might have to supply the entire €250 million financing. Defendants remained free to obtain less expensive financing, but the AFP compensated plaintiffs if defendants used a substitute financing path after receiving the benefit of their backstop.

A rule requiring defendants to execute the final agreement before March 31 could permit strategic delay and deprive the backstop providers of the bargained-for premium despite substantial pre-expiration work toward the substitute transaction. The majority found that result inconsistent with the parties’ reasonable commercial expectations.

3. The Impossibility Exception

Section 3(b) excused the AFP only if two requirements were met:

1. a condition to the Restructuring Effective Time could no longer be satisfied without fault by defendants; and
2. as a result, it was no longer possible to implement the Scheme Transaction.

Defendants established the first requirement because the Bifurcation Order was not obtained by the contractual milestone. They did not establish the second. Plaintiffs’ English-law expert testified that a scheme could be modified and implemented without that order and that restructuring schemes routinely adapt to changed circumstances. Supreme Court credited that testimony over defendants’ expert.

The majority deferred to this credibility finding. It also relied on the LUA’s flexible definitions: the “Scheme Transaction” could implement “any part” of the restructuring through “one or more” English schemes, while the restructuring needed to follow the specified documents only “substantially.” The Bifurcation Order was not expressly designated as an indispensable, nonwaivable condition.

Thus, the exception required actual impossibility—not merely failure to complete the original transaction exactly as first designed or on its initial timetable.

4. Attorneys’ Fees and the Indemnification Clause

New York follows the American Rule: each side ordinarily bears its own attorneys’ fees unless a statute, court rule, or unmistakably clear contract provides otherwise. Under the demanding rule of Hooper Assoc. v. AGS Computers, a general indemnity will not be construed to cover litigation between the contracting parties unless that intent is unequivocal.

Section 6 referred broadly to losses, costs, and expenses arising from the Agreement, including a breach. Nevertheless, its procedural provisions gave defendants notice rights, control over litigation, and the right to assume the defense of indemnified claims. Those mechanisms are principally useful when an outside party brings a claim against the indemnitee.

The provision therefore bore the hallmarks of third-party indemnification and did not clearly authorize prevailing-party fees in a direct breach action. Plaintiffs recovered the AFP but not their litigation expenses.

Precedents Cited

Majority Authorities

W.W. W. Assoc. v Giancontieri; Duane Reade, Inc. v Cardtronics, LP

Established that contract interpretation presents a question of law subject to de novo appellate review.

Greenfield v Philles Records; Lopez v Fernandito's Antique

Supported enforcement of complete and unambiguous contracts according to their plain terms.

Sutton v East Riv. Sav. Bank; Brown Bros. Elec. Contrs. v Beam Constr. Corp.

Directed courts to identify the parties’ reasonable expectations and give contractual language its fair meaning in context.

Slattery Skanska Inc. v American Home Assur. Co.; Lend Lease [US] Constr. LMB Inc. v Zurich Am. Ins. Co.

Explained that an undefined term is not necessarily ambiguous and that dictionaries may assist in identifying ordinary meaning without displacing contractual context.

Kass v Kass; W.W.W. Associates, Inc.; Global Reins. Corp. of Am. v Century Indem. Co.

Required language to be read at the sentence level and as part of the integrated agreement rather than in isolation.

Corhill Corp. v S.D. Plants, Inc.; Trump–Equitable Fifth Ave. Co. v HRH Constr. Corp.

Supplied the anti-surplusage principle used to preserve a distinction between “raises” and “commits to raise.”

Nomura Home Equity Loan, Inc., Series 2006-FM2 v Nomura Credit & Capital, Inc.; MAK Tech Holdings Inc. v Anyvision Interactive Tech, LTD; IKB Intl., S.A. v Wells Fargo Bank, N.A.

Reinforced that contracts should be read as harmonious wholes and that every word should receive operative effect whenever possible.

Matter of Town of Southampton v New York State Dept. of Envtl. Conservation; Matter of Mestecky v City of New York

Confirmed that a word’s meaning must be inferred from its setting rather than determined in isolation.

National Auditing Servs. & Consulting, LLC v 511 Prop, LLC; Thoreson v Penthouse Intl.; DeGraw Constr. Group, Inc. v HPDC2 Hous. Dev. Fund Co., Inc.

Required deference to trial-level credibility findings after a nonjury trial when supported by a fair interpretation of the evidence. These cases supported acceptance of plaintiffs’ English-law expert.

Beal Sav. Bank v Sommer; God's Battalion of Prayer Pentecostal Church, Inc. v Miele Assoc., LLP

Supported the conclusion that both prongs of the impossibility exception must retain independent effect.

U.S. Bank N.A. v DLJ Mtge. Capital, Inc.

Prohibited courts from adding, deleting, or distorting contractual terms. The majority invoked it to reject the dissent’s proposed binding-agreement limitation.

Hooper Assoc. v. AGS Computers; Sage Sys., Inc. v Liss; Gotham Partners, L.P. v High Riv. Ltd. Partnership

Imposed the exacting requirement that an indemnity must unmistakably cover first-party litigation before it can shift attorneys’ fees between contracting parties.

Authorities Emphasized by the Dissent

Graff v Billet; Lindenbaum v Royco Prop. Corp.; Real Estate Economic Resources v Armendariz

Were cited for the proposition that “commitment” ordinarily denotes a binding undertaking rather than preliminary pursuit or negotiation.

United States v Agne; United States v Tucker; United States v Stoddart

Provided federal examples defining a commitment as a pledge, promise, or legal obligation.

Quadrant Structured Prods. Co., Ltd. v Vertin

Supported the inference that sophisticated parties intentionally omitted language referring to negotiations or preliminary pursuit where they used such language elsewhere.

U.S. Bank N.A. v Greenpoint Mtge. Funding, Inc.; Nau v Vulcan Rail & Constr. Co.

Supported reading the contemporaneous LUA and Backstop Agreement together as components of one transaction.

67 Wall St. Co. v Franklin Natl. Bank; Matter of Margolin; Costello v O'Kane

Addressed the rule against treating contractual language as meaningless or surplusage.

Hamilton v Erie R.R. Co.; Consolidated Rest. Operations, Inc. v Westport Ins. Corp.; Islamic Republic of Iran v Pahlavi; Gans v Aetna Life Ins. Co. of Hartford, Conn.

Supported the dissent’s reliance on the natural and ordinary meaning of “commits” as requiring a binding obligation.

Muzak Corp. v Hotel Taft Corp.; Two Guys from Harrison-NY v S.F.R. Realty Assoc.; Certain Underwriters at Lloyd's v Itzhak Nissanoff Inc.; 301 E. 60th St. LLC v Competitive Solutions LLC; Black Bull Contr. LLC v Indian Harbor Ins. Co.; Levine v Shell Oil Co.

Were used to argue that the majority’s broad conception of a modifiable Scheme Transaction rendered the impossibility exception ineffective.

The Partial Dissent

Justice Friedman would have dismissed the complaint. His disagreement rested on two grounds.

First, he viewed “commits” as a settled term denoting a binding obligation. He stressed that section 2(a) of the same Agreement used “commitment” to describe plaintiffs’ irrevocable purchase obligation, while the LUA separately used explicit words such as “supporting,” “negotiating,” “preparing,” “approach,” and “discuss.” In his view, the omission of those preliminary-action terms from section 3(b) demonstrated that negotiations and term sheets were insufficient.

The dissent also warned that the majority’s “substantial affirmative steps” standard lacks a clear boundary. The Agreement does not specify whether preliminary calls, draft exchanges, term sheets, lender proposals, or some later point trigger a multimillion-dollar premium.

Second, Justice Friedman concluded that the Bifurcation Order was central to the contractually defined restructuring. A hypothetical modified transaction requiring amendments, renewed creditor consent, and a rerun of the English scheme process was not, in his view, the same “Scheme Transaction.” Treating any theoretically possible alternative restructuring as sufficient would make the impossibility exception nearly impossible to invoke.

Complex Concepts Simplified

Backstop agreement

A promise to buy securities that other investors do not purchase, ensuring that the issuer receives a targeted amount of financing.

Alternative Financing Premium

A fee compensating the backstop providers if the borrower replaces the promised financing with money from another source.

Scheme of arrangement

An English court-supervised process through which a company restructures obligations with approval from the required creditor classes.

Bifurcation Order

A bankruptcy-court order that would separate guarantee claims from the underlying notes so the claims could be sold independently.

Disjunctive language

Terms connected by “or.” Each listed event ordinarily supplies an independent contractual trigger.

Surplusage

Language that would have no separate function under a proposed interpretation. Courts generally avoid readings that make words redundant.

De novo review

Independent appellate review without deference to the trial court’s legal interpretation.

Contractual impossibility exception

Here, a negotiated excuse from paying the AFP—not merely the general common-law impossibility defense. Its specific contractual requirements had to be proven.

Third-party indemnity

A promise to protect a contracting party against claims brought by outsiders.

First-party fee shifting

A promise requiring one contracting party to pay the other’s attorneys’ fees in litigation between them. New York requires especially clear language for this result.

Potential Impact

The decision is significant for sophisticated financing and restructuring agreements. Unless the contract expressly requires an executed and binding instrument, language such as “commits to raise” may be triggered before formal closing by coordinated, concrete steps demonstrating adoption of an alternative financing path.

Transactional parties seeking certainty should define the trigger objectively—for example, by referring to execution of a definitive credit agreement, acceptance of a commitment letter, board approval, delivery of funds, or specified preliminary actions. The opinion also shows that bankruptcy filings, term sheets, adviser communications, and lender correspondence may establish a contractual commitment even where the parties publicly acknowledge that no final deal is yet binding.

The ruling further narrows the practical reach of impossibility provisions that require both failure of a condition and resulting impossibility. A missed milestone or departure from the original structure will not suffice when the transaction remains substantially achievable through permissible modification.

Finally, the attorneys’ fee ruling reinforces the need for an express first-party fee clause. General language covering losses arising from breach may remain insufficient if the surrounding procedures resemble a conventional third-party indemnity.

Conclusion

Aurelius Capital Master Ltd. v Hertz Intl. Ltd. holds that, in the context of this sophisticated restructuring agreement, substantial and concrete steps toward substitute financing constituted a “commit[ment] to raise” even before HIL executed a final binding commitment. The decision also requires genuine transactional impossibility—not merely failure of an original milestone—and preserves New York’s strict rule against implying first-party attorneys’ fees from a standard indemnity.

The judgment awarding plaintiffs $15,899,653.51 was affirmed without costs, while the denial of attorneys’ fees was also upheld.