Several recent legal developments will likely impact acquisition finance.
When structuring a complex debt financing, financiers need to consider whether unsecured and structurally subordinated “mezzanine” debt ought to be replaced in the capital hierarchy with secured second lien credit. The relatively lower financing cost for second lien credit is based on the assumption that the second lien lenders might obtain some equity value from the liens on the residual collateral which would not otherwise be available with such “mezzanine” debt.
On February 14, the OCC issued Bulletin 2014-02, which clarifies supervisory expectations for national banks and federal savings associations regarding secured consumer debt discharged in Chapter 7 bankruptcy proceedings.
The U.S. Court of Appeals for the Fifth Circuit held on Jan. 27, 2014 that a lender’s acceleration due to a borrower’s payment default did not trigger a prepayment premium. In re Denver Merchandise Mart, Inc., 2014 WL 291920, *1 (5th Cir. Jan. 27, 2014) (“Denver Merchandise”). Affirming the lower courts’ application of state law, the court held that “the plain language of the contract does not require the payment of the Prepayment Consideration in the event of mere acceleration.” Id. at *5.
Relevance
In In re B.R. Brookfield Commons No. 1 LLC, 735 F.3d 596 (7th Cir. 2013) (No.
On March 12, 2009, Gerald Rote and Annalisa Rote loaned $38,000 to their daughter and son-in-law to buy a home. The Rotes took a mortgage on the home but, to avoid the expense of publicly recording the mortgage, they did not immediately record it. Rather, they waited two years, until May 4, 2011, to record the mortgage. Seven months later, however, the daughter and son-inlaw filed a bankruptcy petition.
Security has many advantages for creditors. Four important advantages are listed below, followed by a discussion of the results of a recent empirical study showing that creditors recognize the benefits of obtaining security from their borrowers.
Advantage 1: A Secured Creditor Will Rarely Walk Away Empty-Handed
The US Court of Appeals for the Eleventh Circuit recently issued the first appellate decision holding that, in actions brought by the Federal Deposit Insurance Corporation (FDIC), the officers and directors of failed banking institutions can assert affirmative defenses relating to the FDIC’s post-receivership conduct.
Does a lender have a duty to act in good faith when negotiating with a borrower during a commercial loan modification? In an order issued recently by the United States Bankruptcy Court for the Eastern District of North Carolina, in In re: Burcam Capital II, LLC, the court denied a lender’s motion to dismiss a borrower’s claims against the lender. The Borrower alleged that the lender’s failure to modify the terms of the loan constituted a breach of the lender’s obligation to deal with the borrower in good faith, as well as an unfair or deceptive trade practice.&nbs
Recently, the United States Court of Appeals for the Seventh Circuit held that Illinois mortgages entered prior to the amendment of 765 ILCS 5/11 need not strictly conform to the form presented in the statute. In re Crane, --- F.3d ---, 2013 WL 6731850 (7th Cir. Dec. 23, 2013). However, the court’s decision in Crane, considered as a whole, serves as a reminder to secured lenders to closely examine the contents of their mortgages and the requirements of applicable state law.