When sophisticated parties to a restructuring agreement provide that a fee is triggered if a debtor “raises, or “commits to raise” alternative financing, does the word “commits” require a binding contractual obligation or something less? The First Department addressed this very question in a recent decision entitled Aurelius Capital Master Ltd. v Hertz International Limited, 2026 NY Slip Op 05369 (1st Dept Sept. 22, 2026). The 4-1 decision affirmed a post-trial judgment of approximately $15.9 million in favor of holders of unsecured notes issued by a Hertz affiliate, holding that “commits to raise” encompasses significant affirmative steps toward securing alternative financing, even absent a binding agreement.
The Facts: A Pandemic Restructuring Unravels
Defendants Hertz Holdings Netherlands B.V. (“HHN”) and Hertz International Limited (“HIL”) are European subsidiaries of The Hertz Corporation (“THC”), the global rental car company. In 2016 and 2018, HHN issued unsecured notes in the aggregate principal amount of €725 million, the majority of which were held by the plaintiffs. When THC filed for Chapter 11 bankruptcy in May 2020 amid the COVID-19 pandemic, the guarantors’ bankruptcy constituted an event of default under the HHN Notes. Rather than accelerate the notes, plaintiffs agreed to temporarily waive the default while the parties negotiated a restructuring.
The negotiations produced two agreements executed on November 30, 2020: a Lock-Up Agreement and a Backstop Agreement. Under the Lock-Up Agreement, HIL would issue €250 million in new notes to subscribing holders, with a series of interrelated steps—including a bifurcation order from the U.S. Bankruptcy Court—to be completed by March 31, 2021. Under the Backstop Agreement, plaintiffs agreed to purchase any unsubscribed new notes to ensure HIL received the full €250 million.
Critically, Section 3(b) of the Backstop Agreement provided that if, on or before March 31, 2021, defendants “raise[], or commit[] to raise, any new debt or equity financing from any Alternative Financing Provider in lieu of issuing all or any portion of the New HIL Notes,” plaintiffs would be entitled to an Alternative Financing Premium (“AFP”) equal to 5% of the alternative financing amount. Section 3(b) also contained what the court termed an “impossibility exception”: the AFP would not be payable if a condition to the restructuring could no longer be satisfied (without defendants’ fault), “as a result of which it will no longer be possible to implement the Scheme Transaction.”
The restructuring began to unravel when creditors opposed the bifurcation motion in bankruptcy court, and THC repeatedly postponed the hearing. On March 29, 2021—two days before expiration—THC filed a motion revealing that it was negotiating with two potential plan sponsors, both of whom had proposed funding a €250 million facility for HIL, and that plaintiffs’ financing “likely would not be necessary.” Plaintiffs terminated the Lock-Up Agreement the next day. HIL did not execute a commitment letter for the alternative financing until April 3, 2021, and did not receive funds until April 30.
The Trial Court Decision
After a three-day bench trial, Justice Jennifer Schecter of the Manhattan Commercial Division found that defendants “committed to raise” alternative financing before March 31, 2021, even though the final commitment for the financing was not made until days later. The trial court held that the phrase “commits to raise” did not require entry into a binding contract; rather, based on what it called the plain meaning of the language, the AFP was triggered once defendants committed to “pursuing and using alternative financing.” Justice Schecter also rejected the impossibility defense, holding that defendants had not met their burden of proving it was no longer possible to implement the Scheme Transaction, crediting plaintiffs’ English-law expert over defendants’ expert on that point.
The Appellate Division’s Analysis
Writing for a four-justice majority, First Department Presiding Justice Renwick affirmed on both grounds.
The Meaning of “Commits.” The majority grounded its analysis in the disjunctive structure of Section 3(b). Because the phrase “raises, or commits to raise” uses the word “or,” each component must retain independent meaning. If the word “commits” required a binding agreement, the majority reasoned, then the word “raises”—the actual receipt of funds—would always follow a binding commitment, rendering it surplusage. This would violate the settled principle that contracts must be interpreted to give effect to all terms.
The majority concluded that “commits to raise” encompasses “significant affirmative steps toward securing alternative financing—even if not yet reduced to a binding agreement—so long as those steps reflect a defined intent to pursue the financing in lieu of the HIL notes.” This reading, the court held, aligned with the Backstop Agreement’s commercial purpose: defendants could pursue cheaper financing, but plaintiffs were entitled to the AFP for assuming substantial backstop risk. If the parties had intended to require a binding obligation, they “could have said so expressly, as they did in section 2(a),” where the word “commitment” denotes an irrevocable obligation to purchase notes.
On the facts, the majority found the record replete with evidence of commitment before March 31: circulation of term sheets to prospective lenders, one lender’s agreement to finance, a disclosure statement filed in the bankruptcy court attaching the term sheets, and the receipt of executed equity commitment letters on March 30.
The Impossibility Exception. The majority also affirmed the trial court’s rejection of the impossibility defense. Even assuming the Bifurcation Order could no longer be obtained—the first element of the exception—defendants failed to prove the second: that it was “no longer possible to implement the Scheme Transaction.” The trial court had credited plaintiffs’ English-law expert, who testified that a scheme could proceed without the Bifurcation Order and that restructurings routinely adapt. The majority deferred to that credibility determination and rejected what it characterized as the dissent’s “unduly rigid” reading of the defined term “Scheme Transaction,” which the Lock-Up Agreement defined to encompass implementation of “the Restructuring or any part thereof” on “substantially” the agreed terms.
The Dissent
The First Department’s Justice Friedman filed a vigorous dissent. He marshaled an extensive catalog of legal and general dictionaries—from Black’s Law Dictionary to Merriam-Webster—that, in his view, consistently define the word “commit” as an action that binds or obligates a party. He argued that the parties themselves used the word “commitment” in Section 2(a) of the same agreement to denote an irrevocable obligation, making it “implausible” that they intended a different meaning two pages later. The dissent also contended that the Lock-Up Agreement, a contemporaneous agreement, used explicit language—”supporting, negotiating, or preparing”—when the parties wished to prohibit the mere pursuit of alternative transactions, and the absence of such language from Section 3(b) was telling.
On surplusage, Justice Friedman countered that the word “raises” retains independent meaning under his reading: one can enter a binding commitment to obtain financing (April 3) without yet having received the funds (April 30), giving each word distinct temporal significance. He also argued that the majority’s reading creates its own surplusage problem, because discussions and negotiations will always precede the actual raising of funds. On the impossibility exception, the dissent argued that the defined term “Scheme Transaction” required restructuring on “substantially the terms” of the parties’ actual deal documents—including the Bifurcation Order—and that a hypothetical alternative restructuring on different terms could never satisfy that definition.
Takeaway
For contract drafters and commercial litigators, Aurelius v Hertz offers important lessons.
First, the decision is a cautionary tale about the word “commits.” The majority construed it as something less than a binding obligation, holding that in a disjunctive phrase like “raises, or commits to raise,” the word must be given independent content that does not collapse into the adjoining term. Drafters who intend the word “commits” to mean a binding contractual obligation should say so explicitly—using language such as “enters into a binding agreement to raise” or “executes a commitment letter for”—rather than relying on what a four-justice majority found to be only one of multiple plausible dictionary meanings.
Second, the decision underscores the power of disjunctive drafting. Because Section 3(b) used the word “or” to separate “raises” from “commits to raise,” the court required each term to do independent work. The surplusage analysis drove the outcome: if “commits” required a binding agreement, “raises” would have no independent function, a result the majority refused to accept.
Finally, the treatment of the impossibility exception is a reminder that contractual carve-outs with conjunctive requirements—here, both the failure of a condition and the resulting impossibility of the transaction—will be read to require proof of each element independently. A party invoking such an exception must do more than point to an unmet milestone; it must establish that the underlying transaction could no longer be implemented at all.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
[View Source]