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Seventh Circuit denies fees to breaching DIP lender in re Arlington Hospitality, Inc.

The Seventh Circuit affirmed a district court’s ruling that a debtor-in-possession (“DIP”) lender had breached its financing agreement, barring its claim for commitment and funding fees from the DIP. Arlington LF, LLC v. Arlington Hospitality, Inc., No. 09-3560, 2011 WL 727981, *9 (7th Cir. March 3, 2011), aff’g No. 08 C 5098, 2011 WL 3055350 (N.D. Ill. Sept. 18, 2009). Although the DIP itself had also breached the agreement, that breach was not, in the court’s view, effective until after the lender had already “walked away.” Id. at *6.

USA, Insolvency & Restructuring, Leisure & Tourism, Litigation, Schulte Roth & Zabel LLP, Condition precedent, Debtor, Interim order, Breach of contract, Interest, Investment banking, Default (finance), Line of credit, Subsidiary, United States bankruptcy court, Seventh Circuit
District court reverses bankruptcy court’s controversial fraudulent transfer TOUSA decision

United States District Court Judge Alan S. Gold, on February 11, 2011, reversed a Florida bankruptcy court’s controversial October 2009 fraudulent transfer judgment1 against a group of lenders based on their receipt of a $421 million loan repayment in July 2007. 3V Capital Master Fund, et al., v. Official Committee of Unsecured Creditors of Tousa, Inc., et al, Case No. 10-60017-CIV (S.D. Fla. Feb.

USA, Florida, Corporate Finance/M&A, Insolvency & Restructuring, Litigation, Schulte Roth & Zabel LLP, Bankruptcy, Debtor, Interest, Debt, Joint venture, Duty of care, Subsidiary, United States bankruptcy court
Second Circuit holds that senior creditors’ “gifting” of value to existing shareholder under reorganization plan violates absolute priority rule

The U.S. Court of Appeals for the Second Circuit, on Feb. 7, 2011, held that senior creditors could not “gift” part of their reorganization plan recovery to existing shareholders of the debtor.In re DBSD N. Am., Inc., __ F.3d __, 2011 WL 350480 (2d Cir. Feb. 7, 2011) (2-1) (Lynch, J.) (explainingIn re DBSD N. Am., Inc., 627 F.3d 496 (2d Cir. 2010) (summary opinion)). Its extensive 62-page opinion explained the court’s previous two-page summary ruling of Dec.

USA, Insolvency & Restructuring, Litigation, Schulte Roth & Zabel LLP, Share (finance), Bankruptcy, Shareholder, Debtor, Unsecured debt, Interest, Debt, Standing (law), Unsecured creditor, Sprint Corporation, Second Circuit, United States bankruptcy court, US District Court for the Southern District of New York
Second Circuit affirms designation of secured lender’s vote and effective cram down of its claim

The U.S. Court of Appeals for the Second Circuit, on Dec. 6, 2010, summarily affirmed a bankruptcy court’s designation of a secured lender’s vote on a reorganization plan in a two-page order, effectively enabling the debtor to cram down the lender’s claim. In re DBSD North America, Inc., __ F.3d__, 2010 WL 4925878 (2d Cir. Dec. 6, 2010).1 As a result, the lender who bought all of the debtor’s senior first-lien secured debt at par will be paid only interest over a period of four years before its loan matures. SeeIn re DBSD North America, Inc., 419 B.R. 179, 207-08 (Bankr.

USA, Insolvency & Restructuring, Litigation, Schulte Roth & Zabel LLP, Bankruptcy, Debtor, Interest, Federal Reporter, Debt, Good faith, Voting, Bad faith, Convertible bonds, Secured loan, Second Circuit, United States bankruptcy court, Third Circuit, US District Court for the Southern District of New York
Fifth Circuit corrects undervaluation of secured lender’s priority claim more than two years after consummation of reorganization plan

The U.S. Court of Appeals for the Fifth Circuit, on Oct. 19, 2010, corrected a bankruptcy court’s calculation of a secured lender group’s superpriority administrative claim more than two years after consummation of the debtor’s Chapter 11 reorganization plan. In re SCOPAC et al., F.3d__, 2010 WL 4069525, at *2-3, *5-6 (5th Cir. Oct. 19, 2010) (Jones, Ch.J.) [“Pacific Lumber II”]; see alsoIn re Pacific Lumber Co., 584 F.3d 229, 242 (5th Cir. 2009) [“Pacific Lumber I”] (plan “substantially consummated within weeks of confirmation”).

USA, Insolvency & Restructuring, Litigation, Schulte Roth & Zabel LLP, Debtor, Collateral (finance), Federal Reporter, Foreclosure, Secured creditor, Valuation (finance), United States bankruptcy court, Fifth Circuit
Court approves $125 million New Century settlement

Yesterday, a federal judge preliminary approved a $125 million cash settlement for former shareholders of New Century Financial Corp. (“New Century”). New Century was the second largest subprime mortgage originator before it filed for bankruptcy in April 2007. In February 2008, Michael J.

USA, California, Capital Markets, Insolvency & Restructuring, Alston & Bird LLP, Bankruptcy, Shareholder, Board of directors, Subprime lending, General counsel, Underwriting, Preferred stock, Securities fraud, KPMG, Securities Act 1933 (USA), Chief executive officer, Chief financial officer, US District Court for Central District of California
Spanish FROB approves CajaSur restructuring plan

Late last week, the Governing Committee of the Fund for Orderly Bank Restructuring (FROB) met to discuss the restructuring of Caja de Ahorros y Monte de Piedad de Cordoba (CajaSur).

Spain, Banking, Insolvency & Restructuring, Alston & Bird LLP, Liability (financial accounting), Portfolio (finance), Euribor, European Commission, US Environmental Protection Agency
East West Bank, Pasadena, California, assumes all of the deposits of Washington First International Bank

On Friday, the Washington Department of Financial Institutions closed Washington First International Bank, headquartered in Seattle, Washington, and appointed the FDIC as receiver. As receiver, the FDIC entered into a purchase and assumption agreement with East West Bank, Pasadena, California, to assume all of the deposits of the failed bank.

USA, Washington, Banking, Insolvency & Restructuring, Alston & Bird LLP, US Federal Government, Federal Deposit Insurance Corporation (USA)
Third Circuit upholds denial of secured creditors’ right to credit bid under reorganization plan

The U.S. Court of Appeals for the Third Circuit held, in a split decision, on March 22, 2010, that secured creditors do not have a statutory right to credit bid1 their debt at an asset sale conducted under a “cramdown” reorganization plan. In re Philadelphia Newspapers, LLC, et al., --- F.3d ----, 2010 WL 1006647 (3d Cir. March 22, 2010) (2-1).

USA, Insolvency & Restructuring, Litigation, Schulte Roth & Zabel LLP, Bankruptcy, Debtor, Collateral (finance), Statutory interpretation, Federal Reporter, Limited liability company, Debt, Liability (financial accounting), Fair market value, Secured creditor, Secured loan, United States bankruptcy court, Third Circuit
Lehman Brothers seeks approval of claims resolution procedures

On March 15, 2010 Lehman Brothers Holdings, Inc. and its affiliated debtors (the “Debtors”) filed a motion (the “Motion”) with the Bankruptcy Court overseeing the Debtors’ Chapter 11 cases (the “Court”) seeking authorization to establish certain claims and alternative dispute resolution procedures designed to expedite the process of reconciling claims filed against the Debtors’ estates.

The procedures, set forth in detail in an exhibit to the proposed order filed with the Motion, are summarized as follows:

USA, Insolvency & Restructuring, Schulte Roth & Zabel LLP, Bankruptcy, Injunction, Mediation, Liquidation, Lehman Brothers, United States bankruptcy court