Governors of three New England states have vowed to monitor Chapter 11 proceedings launched on Monday by Fairpoint Communications, which paid $2.3 billion last year to acquire New England fixed line telephone infrastructure owned previously by Verizon Communications.
A Florida bankruptcy court, on Oct. 13, 2009, issued a 182-page decision after a 13-day trial, among other things, avoiding on fraudulent transfer grounds (a) secured subsidiary guarantees of $500 million and (b) $420 million pre-bankruptcy payments. In re Tousa, Inc., et al., Case No. 08-10928; Adv. P. 08-1435 (S.D. Fla. Oct. 13, 2009). The decision is on appeal to the district court.
Relevance
On October 25, commercial real estate financing company Capmark Financial Group Inc., together with over 40 of its affiliates, filed a voluntary petition for chapter 11 bankruptcy protection in the U.S. Bankruptcy Court for the District of Delaware. The debtors cite among the reasons for their filing the declined values of their loan portfolio, tightening of credit markets and a heavy debt burden. Capmark, formerly a part of GMAC's residential mortgage business until 2006, listed $20.1 billion in assets and $21 billion in liabilities on its petition.
363 Asset Sales: The Latest Restructuring Tool
Introduction
The dearth of credit available for companies in financial distress means an asset sale may be the only way to save the business and jobs. It also presents unusually attractive investment opportunities for public and private companies, private equity and hedge funds, and other investors with capital and an ability to move expeditiously.
A recent decision in the U.S. Bankruptcy Court for the Southern District of Florida, In re Tousa,[1] has received widespread attention for its near wholesale rejection of insolvency “savings clauses,” and the resulting order requiring lenders to disgorge hundreds of millions of dollars. The decision raises numerous practical problems for participants in the secondary loan and derivatives markets, and more generally for commercial lenders and borrowers.
Background
In an October 13, 2009 decision involving bankrupt homebuilder TOUSA, Inc. (“TOUSA”), the United States Bankruptcy Court for the Southern District of Florida (the “Court”) avoided as fraudulent transfers certain liens given and debt obligations incurred by several of TOUSA’s subsidiaries to a syndicate of lenders who provided $500 million of new loans to TOUSA. In addition, the Court ordered those lenders, and others that received the proceeds of the new loans, to repay hundreds of millions of dollars to the bankrupt estates of these subsidiaries.
The following is a list of some recent larger U.S. bankruptcy filings in various industries. To the extent you are a creditor to any of these debtors, or other entities which may have filed for bankruptcy protection, you as a creditor are entitled to certain protections under the Bankruptcy Code.
AUTOMOTIVE
Holley Performance Products, four affiliates file for Chapter 11 protection for the second time.
AUTOMOTIVE COMPONENTS
United States Supreme Court
Washington, D.C.
November 3, 2009
The bankruptcy court's opinion exemplifies the second guessing that can confront solvency opinion providers and highlights issues that providers should carefully vet with experienced legal counsel.
Lenders are often counseled about fraudulent conveyance risks when they engage in financing transactions. It is usual, customary and the norm for steps to be taken to attempt to reduce such risks, including obtaining solvency and fairness opinions and using so-called savings clauses in loan documents. These undertakings and features notwithstanding, when a borrower or guarantor files a chapter 11 petition, often fraudulent conveyance claims are threatened, used as leverage, and settled within the context of a plan of reorganization.