In a recent decision, Senior Transeastern Lenders v. Official Comm. of Unsecured Creditors (In re TOUSA, Inc.), 2012 US App. LEXIS 9796 (11th Cir. May 15, 2012), the 11th Circuit Court of Appeals overturned a district court decision which had forcefully quashed a bankruptcy court decision to avoid, as a fraudulent transfer, a $400 million settlement and loan repayment by a parent company to a group of lenders (the “Transeastern lenders”).
A recent decision of the Delaware bankruptcy court serves as a reminder of a key risk for lenders who finance leveraged transactions—namely, that a bankruptcy court may “collapse” the components of a leveraged transaction in order to avoid the lender’s liens and the debtor’s loan obligations as fraudulent transfers.