Today, the FDIC announced the next steps in further developing the government's Legacy Loan Program (LLP), by testing the LLP program's funding mechanism through the sale of a portfolio of residential mortgage loan receivership assets to a limited liability company (LLC) in exchange for an ownership interest in the LLC.

Introduction

On August 11, 2009, in one of the most significant rulings to date in the GGP bankruptcy proceeding, the Bankruptcy Court denied motions to dismiss as bad faith filings the bankruptcy cases of 20 GGP property-level subsidiaries. In denying the motions, the court stated that the fundamental creditor protections negotiated in the special purpose entity structures at the property level are in place and will remain in place during the pendency of the chapter 11 cases.

Summary

In the past two days, AIG has announced the sale of its Hong Kong Financial branch and the sale of additional energy and infrastructure investment assets.

Opinion Serves to Remind Lenders That “Bankruptcy Remote” Does Not Mean “Bankruptcy Proof”

Judge Allan L. Gropper of the Bankruptcy Court for the Southern District of New York issued a much-anticipated order on August 11, 2009, in the challenge to the bankruptcy filings by certain special-purpose-entity (“SPE”) affiliates of General Growth Properties, Inc. (“GGP”).

By some accounts, there is over $300 billion of commercial real estate debt set to mature over each of the next four years. As a result of a lack of demand, a lack of liquidity and lackluster valuations, a significant portion of this debt will go into default. In many cases, bankruptcies will ensue for both the projects and their owners.

In Greene v. Mullarkey, Case No. 07-30561-HJB, Adversary Proceeding No. 08-03009, 2009 Bankr. LEXIS 2191 (Bankr. D. Mass. Aug. 13, 2009), Christine Greene, her brother Matthew Mullarkey, and his wife Nicole Mullarkey were entangled in what the Bankruptcy Court described as an intra-family feud. The feud related to ownership of a two-family residential property and "played out on or in the property's porch, attic, basement, garage, yard and in-ground pool," prompting the Court to pay its "respect and admiration for the work done by the Massachusetts Probate and Family Court."

Although courts are generally reluctant to equitably subordinate claims of non-insiders, the United States Bankruptcy Court for the District of Montana recently did just that to the claims of a non-insider lender based on overreaching and self-serving conduct in Credit Suisse v. Official Committee of Unsecured Creditors (In Re Yellowstone Mt. Club, LLC), Case No. 08-61570-11, Adv. No. 09-00014 (Bankr. D. Mont. May 13, 2009).

During the bankruptcy cycle following the recession of 2001, numerous debtors – notably airlines such as US Airways and United Air Lines, Inc. – undertook “distress terminations” of their ERISA-qualified defined benefit pension plans, which are insured by the Pension Benefit Guaranty Corporation (PBGC). The PBGC found itself holding large general unsecured claims arising from significant underfunding of pension plans insured by the PBGC as a result of these terminations. Efforts by the PBGC to obtain either administrative priority or secured status for these claims invariably failed.1