Tag Archives: Court Decisions

A $1.8 million Drafting Lesson

In a typical case of distressed borrower where the lender was left holding the unpaid debt bag,  the Fifth Circuit Court of Appeals chimed in on the hotly debated and litigated prepayment premiums litigation. In re Denver Merchandise Mart, 740 F.3d 1052 (5th Cir. 2014).  The lender was secured, with the accelerated $24 million note … Continue Reading

Questioning the form: Moayedi v. Interstate 35

“Never blindly rely on forms and boilerplate terms – negotiating contracts is much more than just defending forms, even if you’re dealing with a “repeat” transaction“. In my few months as a secondee with Reed Smith’s Houston office, this is some of the best advise I’ve received from the partners with whom I work. The … Continue Reading

Avoiding the Unintended Tax Consequences of Foreign Subsidiary Pledges and Guarantees: A Look at Deemed Dividends in U.S. Loan Transactions

This post was also written with assistance from Abbey Mansfield . Overseas Shipping Group (“Overseas”) recently sued its former attorneys, a prominent New York-based law firm, for legal malpractice in drafting credit agreements that resulted in the company incurring an estimated $463 million in tax liability. The suit alleges that the tax liability arises from the fact … Continue Reading

The TOUSA Two-Step: Who Gets to Dance in Bankruptcy?

We've reported on the TOUSA case before (the first step of the two-step). This time, on appeal, the outcome is much less attractive to lenders. It seems that helping a company to avoid bankruptcy temporarily might not be enough "value" to merit requiring the company and its subsidiaries to grant new liens. Have we gone one step forward and two steps back?… Continue Reading

The TOUSA Case – Not a Fraudulent Conveyance

If a subsidiary of the borrower guarantees your loan (and/or provides a lien or other support), do you have to show that the subsidiary received some of the proceeds of the loan in order to demonstrate that the subsidiary received "reasonably equivalent value" in the deal -- and that the deal wasn't a fraudulent conveyance? The TOUSA case give us an answer to this question.… Continue Reading

What is a Fraudulent Conveyance?

A fraudulent conveyance, despite its name, doesn't necessarily involve "fraud," and it certainly doesn't involve driving goods across the state in a wagon with a team of horses. OK, now that we have that out of the way . . . With all the news last week about the TOUSA case (reversing a prior decision that said $420 million paid to lenders was a fraudulent conveyance), I thought I'd first take a moment to talk about fraudulent conveyances more generally.… Continue Reading

Jury Trial Waivers – California is Just Different

I live in California, which (among many other things) is a state known for having some unusual laws. One oddity that comes up from time to time when negotiating loans is the fact that jury trial waivers - which are standard in most corporate loan agreements - are generally unenforceable in California. Thankfully, there are other means to get to a similar result. "Judicial reference" is one of them.… Continue Reading

False Financial Statements — Can You Rely on Representations from Your Borrower?

When you want to make a loan, you probably get copies of the borrower's recent financial statements, and you probably take a pretty close look at them as part of your credit process. You might even ask for more information about certain items that you see on the financial statements. But how often do you dig deeply behind the financial statements and conduct your own audit? Probably never, right? So what happens if the financial statements later turn out to be false?… Continue Reading

Can We Credit Bid Or Not?

Credit bidding has become a really hot issue recently.   For those of us who don’t normally work on bankruptcy matters, the right to credit bid is an important right that secured lenders usually have in a bankruptcy proceeding.  If you’re the senior secured lender and you want to buy the company’s assets in a bankruptcy sale, you can show up at the … Continue Reading

Second Liens Really are Second

With the increase in corporate bankruptcy filings over the past year, there have been some interesting bankruptcy court decisions that affect those of us on the front end in corporate lending. One recent case took up the question of whether a second lien is truly second -- and whether it is safe to expect the terms of your intercreditor agreement to be enforced.… Continue Reading

And Now, Loan Participations from a UK Perspective

In response to my post yesterday on a recent New York case prohibiting a loan participation without borrower consent, my partner Lucy Newcomb from Reed Smith's London office provides a UK-law perspective on the case. It is interesting to note that there is no such thing as the doctrine of good faith and fair dealing in the UK, so we could expect a similar case to have a different outcome in a UK court.… Continue Reading

Loan Participations – To Consent or Not To Consent?

Here's an easy one for you: How many of you (lenders) think that you should have to get consent from the borrower to sell a participation in a loan? I'll take the safe bet and guess "none" -- since it's such standard practice for lenders to sell participations without borrower consent. Really, you'd be hard pressed to find a credit agreement that said otherwise. With that in mind, let's take a quick look at a recent case from a federal court in New York that said just the opposite.… Continue Reading

Good News for Buyers in the Secondary Market

The New York Court of Appeals has decided that under New York law, buyers of debt in the secondary market can also assert claims related to the loans they purchase. As you might imagine, it's important that lenders who acquire loans know that they will not just be passive holders of the loans, but that they also will be able to take steps to enforce those loans if necessary.… Continue Reading

Protecting LBO Payments Under the Bankruptcy Code

When closing a leveraged buyout, if the buyer makes its payments to the company’s shareholders through a financial institution – even in an acquisition of a privately held company – those payments may be protected from being clawed back in a bankruptcy. The Quality Stores Case A recent federal case involving Quality Stores Inc. was decided … Continue Reading
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