Supreme Court Declines to Review 2nd Circuit Decision That Syndicated Term Loans Are Not Securities

On February 20, 2024, the U.S. Supreme Court declined to hear an appeal brought by the trustee of the Millennium Lender Claim Trust challenging the U.S. Court of Appeals for the 2nd Circuit’s August 2023 decision, in which the court held that the syndicated term loans at issue were not “securities” for the purposes of the securities laws.¹

The Supreme Court’s decision concludes a lengthy legal saga that began in 2017 when the trustee of the Millennium Lender Claim Trust brought an action in New York state court against a syndicate of lenders alleging that a $1.8 billion syndicated loan transaction violated state securities laws. After the case was removed to federal court, the lenders moved to dismiss on the grounds that syndicated loan notes (the “Notes”) are not securities under the “family resemblance test” articulated by the Supreme Court in Reves v. Ernst & Young, 494 U.S. 56 (1990), which is also applicable for purposes of the federal securities laws. In 2020, Judge Paul G. Gardephe of the U.S. District Court for the Southern District of New York granted the defendants’ motion to dismiss, holding that the Notes were analogous to bank loans—not securities. In August 2023, a three-judge panel of the 2nd Circuit unanimously affirmed the district court’s decision, finding that the plaintiff had failed to adequately allege that the Notes constituted securities under Reves. In December 2023, the plaintiff filed a petition for certiorari asking the Supreme Court to hear the case and reverse the 2nd Circuit’s decision.

The Supreme Court’s denial of certiorari, which was issued without explanation or noted dissent, leaves in place the 2nd Circuit’s decision and should provide further assurances to lenders, borrowers and other market participants that syndicated loans are not securities. The Supreme Court’s decision not to hear the appeal also signifies that the 2nd Circuit’s application of Reves is likely to be the definitive word on this issue for the time being.

^{1 See our prior alerts on this case here and here.}