Presenting a live 90 ‐ minute webinar with interactive Q&A Fraudulent Conveyance Actions: y TOUSA Revisited Strategies for Lenders in Financing Transactions With Distressed Companies TUES DAY, MAY 3, 2011 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: T d ’ f l f Thomas J. Hall, Partner, Chadbourne & Parke , New Y ork Thomas J. McCormack, Partner, Chadbourne & Parke , New Y ork S even Rivera, Partner, Chadbourne & Parke , New Y ork Jack F . Williams, Professor of Law, Georgia State University College of Law , Atlanta The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .
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FRAUDULENT CONVEYANCE FRAUDULENT CONVEYANCE ACTIONS: TOUSA REVISITED Strafford Webinar Symposium Thomas J. Hall h ll Thomas J. McCormack Seven Rivera Jack F Williams Jack F. Williams May 3, 2011
6 DISCLAIMER The written materials distributed and the presentations made by this panel are intended for educational and discussion purposes only. Our panelists p p y p are involved in the TOUSA litigation. Any views or opinions expressed during the course of this presentation are not intended to be attributable to clients of our panelists, and are not intended to bind any of our panelists or their clients to any positions they may or may not take in the TOUSA their clients to any positions they may or may not take in the TOUSA litigation.
7 The Speakers Thomas J. Hall – Commercial litigation partner with Chadbourne & Parke LLP and • co-head of Chadbourne’s Commercial Litigation Practice. (212) 408-5487, thall@chadbourne.com. Thomas J. McCormack – Commercial litigation partner with Chadbourne & Parke h C k C l l h Ch db P k • LLP with over 25 years of experience. (212) 408-5182, tmccormack@chadbourne.com. Seven Rivera – Bankruptcy and restructuring partner with Chadbourne & Parke LLP • representing secured and unsecured lenders creditors debtors and creditor representing secured and unsecured lenders, creditors, debtors, and creditor committees in Chapter 11 cases. (212) 408-5529, srivera@chadbourne.com. Jack F. Williams – Professor at Georgia State University College of Law and Senior • Managing Director of Mesirow Financial Consulting LLC (404) 413-9149 Managing Director of Mesirow Financial Consulting, LLC. (404) 413-9149, jwilliamsgsu.edu. Chadbourne & Parke LLP represents Citicorp North America, Inc., as Agent for the • $315 million Revolver Loan and $200 million First Lien Term Loan to TOUSA, and $ $ , certain lenders in those syndicates . Jack Williams served as consulting expert. .
8 Recent Appellate Decisions The United States District Court for the Southern District of Florida recently decided two appeals in the TOUSA case: 1 A fraudulent conveyance suit against TOUSA’s Revolver lenders Official 1. A fraudulent conveyance suit against TOUSA s Revolver lenders. Official C’tee of Unsecured Creditors of Tousa, Inc. v. Citigroup North America, Inc., 2011 U.S. Dist. LEXIS 40518 (S.D. Fla. March 4, 2011). 2. A fraudulent conveyance suit against TOUSA’s Term Loan lenders and Transeastern lenders. 3V Capital Master Fund Ltd. v. Official C’tee of Unsecured Creditors of Tousa, Inc., 2011 U.S. Dist. LEXIS 14019 (S.D. Fla. Feb. 11, 2011).
9 Recent Appellate Decisions Recent Appellate Decisions (cont.) The Revolver Appeal : District Court affirms dismissal of claims because, • even though amended and drawn upon during the alleged period of insolvency, the Revolver loan and liens securing it predated the alleged y g p g insolvency. The Transeastern Appeal : District Court rejects finding that TOUSA’s The Transeastern Appeal : District Court rejects finding that TOUSA s • subsidiaries received less than reasonably equivalent value from the settlement of litigation against their parent that had been threatening the entire enterprise. Also rejected finding that the Transeastern lenders who were paid off with the new financing were recipients of a fraudulent conveyance.
6 Outline of Presentation Background g • Bankruptcy Court Rulings • District Court Rulings on Appeal • Key Reasonably Equivalent Value Issues K R bl E i l t V l I • 1. How to define property? 2. Can intangible benefits constitute value? 3. How to quantify value 11 th Circuit Issues • Lender Strategies g • Conclusions • Questions •
7 Background TOUSA, Inc. and its subsidiaries were a residential homebuilding enterprise. • TOUSA, Inc. and subsidiaries allegedly became insolvent in July 2007. • Citi Citicorp is the agent for the first-lien revolving credit facility, originally extended to i th t f th fi t li l i dit f ilit i i ll t d d t • TOUSA in 2006 and amended several times thereafter including on July 31, 2007. Citicorp is also the agent for a syndicated $200 million term loan sharing first-priority • lien status with the Revolver and extended to TOUSA, Inc. and subsidiaries on July 31, , J y , 2007 to finance TOUSA, Inc.’s settlement with the Transeastern lenders. The Transeastern Lenders had extended a loan of over $600 million to a TOUSA, Inc. • joint venture on which TOUSA, Inc. issued guarantees. Following default, those lenders sued TOUSA Inc on its guarantees On July 31 2007 TOUSA Inc settled that lenders sued TOUSA, Inc. on its guarantees. On July 31, 2007, TOUSA, Inc. settled that lawsuit. A judgment against TOUSA, Inc. of $10 million or more would have constituted a • default under its $1.1 billion in bond financings and under its Revolver loan. g
8 Background (cont.) TOUSA, Inc.’s subsidiaries were guarantors of the bond debt and co-borrowers on the • Revolver loan and had pledged their assets as security for the Revolver loan. To finance the settlement, TOUSA, Inc. and subsidiaries borrowed $500 million ($200 To finance the settlement, TOUSA, Inc. and subsidiaries borrowed $500 million ($200 • million first lien and $300 million second lien term loans) and pledged their assets as security. Committee asserted the loan obligations assumed by, and the lien pledges given by, g y p g g y • the subsidiaries were constructive fraudulent conveyances because they were not obligated on the Transeastern loan and therefore did not receive reasonably equivalent value for extinguishing their parent’s obligation on the Transeastern loan. Committee also challenged as a preference the lenders’ security interest, given on July C itt l h ll d f th l d ’ it i t t i J l • 31, 2007, in a 2007 tax refund totaling $207 million and received by TOUSA in March 2008, contending that that security interest did not attach until January 1, 2008, following the close of the tax year, and therefore was a transfer within 90 days of the January 28 2008 bankruptcy filing January 28, 2008 bankruptcy filing.
9 The Parties The Parties The Debtor : TOUSA Inc and subsidiaries involved in the home construction The Debtor : TOUSA, Inc. and subsidiaries involved in the home construction • business. Ch. 11 Bankruptcy Proceedings Plaintiff : Official Committee of Unsecured Creditors of TOUSA representing Pl i tiff Offi i l C itt f U d C dit f TOUSA ti unsecured creditors of TOUSA Owed more than $1 billion in bond debt Defendants : Revolver Lenders ($315 million outstanding) First Lien Term Loan ($200 million) Second Lien Term Loan ($300 million) Transeastern Lenders who were paid off from the Term Loans
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