A “roll-up” is a form of postpetition financing which has the effect of elevating the priority of prepetition debt. In a roll-up, the prepetition debt of the postpetition, new money lenders is rolled into the debtor in possession financing, thus affording the prepetition debt superpriority status and, in many circumstances, ensuring the rolled-up debt is paid in full on the effective date of the plan of reorganization, (unless the lender consents to different treatment under the plan).1
In a May 23, 2008 decision, the United States Bankruptcy Court for the District of Delaware ruled that BBB-rated mortgage-backed notes are eligible for the Bankruptcy Code's repurchase agreement safe harbor as “interests in mortgage loans”. The court also held that a repurchase agreement constituted a sale, as opposed to a financing governed by UCC Article 9 -- the first decision on this topic since the financial contract safe harbors were expanded under the 2005 amendments to the Bankruptcy Code.
The United States District Court for the Southern District of New York recently addressed an objection to the debtor-in-possession financing approved by the United States Bankruptcy Court for the Southern District of New York in the bankruptcy of General Growth Properties.1 The District Court’s decision, which holds that reversal on appeal of an order approving DIP financing does not invalidate the financing or liens granted by the postpetition lenders, if provided in good faith also addresses both the timeliness of the appeal and the merits of the arguments raised therein, provides a detai
In UPS Capital Business Credit v. Gencarelli (In re Gencarelli),1 the First Circuit Court of Appeals addressed the issue of whether a secured creditor is entitled to collect a prepayment penalty from a solvent debtor. The Court found that the secured creditor could collect the penalty, whether or not it is reasonable, so long as the penalty is enforceable under state law. The Court reasoned that any other holding would leave open the possibility that an unsecured creditor could recover more from a solvent estate than a secured creditor.
Background
The United States Court of Appeals for the Third Circuit recently issued an important decision on the valuation of collateral of secured creditors and “lien-stripping” in Chapter 11 cases. In In re Heritage Highgate, Inc.,1 the court held that in a Chapter 11 case, the value of a secured creditor’s collateral under §506(a) of the Bankruptcy Code2 was the fair market value of the property as established by expert testimony and it was permissible to “strip the lien” of the creditor where it was unsupported by collateral value.
The Bankruptcy Appellate Panel for the Sixth Circuit (BAP) recently held that a mortgagee that held a collateral assignment of rents on property in which the debtor had no equity was not adequately protected by cash collateral orders entered by the bankruptcy court that granted the lender a "replacement lien" on post-petition rents.
Ring v. First Niagara Bank, N.A. (In re Sterling United, Inc.), 519 B.R. 586 (Bankr. W.D.N.Y. 2014) –
A chapter 7 trustee sought to recover as preferences payments made by the debtor to a lender and proceeds of collateral liquidation received by the lender based on arguments regarding whether UCC financing statements adequately perfected the lender’s security interests.
Secured transactions typically include two key documents, which are often executed simultaneously: a promissory note memorializing loan and repayment terms executed by the borrower in favor of the lender and a security agreement granting the lender an interest in collateral securing the borrower’s debt owed to the bank. If a borrower ends up filing for bankruptcy, the bank likely will seek to enforce the security agreement against the borrower and recover the collateral. However, as made clear by the U.S.