Opinion ID: 2998766
Heading Depth: 2
Heading Rank: 1

Heading: The Bond Agreements

Text: The 1997 and 2001 bond agreements share the same basic structure and are governed by California law. A trust agreement and a payment agreement underlie both bonds. The Authority first sold the bonds and deposited their proceeds into construction funds. The money in these funds is pledged for the repayment of principal and interest on the bonds and is held in trust for the bondholders. United is obligated to make these payments. The construction funds themselves, however, were designed to reimburse United for construction costs it incurred on the LAX project. Although the structure of the funds is similar, we discuss each in turn for clarity. On November 1, 1997, the Authority entered into a trust agreement (the 1997 Trust Agreement) with Chase, which HSBC succeeded in 2003. Under the 1997 Trust Agreement, the Authority issued bonds in the aggregate sum of $190,240,000. On the same day, United and the Authority entered into the 1997 Payment Agreement governing the bonds. This Agreement requires that United make periodic payments to HSBC to cover principal and interest due on the bonds. Unless United is in default in its payment obligations, HSBC is to pay the costs of projects upon United’s written request. Any money remaining in the funds is to be used to pay bondholders after United completed the LAX cargo terminal. The bonds are secured by a pledge and assignment of the Authority’s interests to HSBC, the details of which were not presented to this Court. A pledge and assignment also secure payment of the 4 Nos. 05-1752 & 05-1814 principal and interest on the bonds. HSBC holds a lien on the funds it holds, perfected by possession, to secure payment of the bonds under the 1997 Trust Agreement. Likewise, on April 1, 2001, the Authority issued $34,590,000 in revenue bonds. The 2001 Payment Agreement requires that United make payments of principal and interest on these bonds, and the 2001 Trust Agreement requires U.S. Bank as trustee to reimburse United for construction costs upon its written request. The 2001 Trust Agreement expressly provides that U.S. Bank may rely on a written request as sufficient evidence that United incurred the costs stated, that they are properly payable out of the 2001 construction fund and that there are no liens on the money to be paid. U.S. Bank is to make payments to United “upon receipt” of a written request.