legal notes the legal side of aBl
t
he cases we have selected
for this issue address the
applicability of “savings
clauses” in the context
of fraudulent transfers,
interpretation of intercreditor
agreements and transfers of
claims in a Chapter 11 case.
Jonathan helfat
and richard Kohn
cfa co-General counsel
In re Tousa, Inc., 408 B.R. 913 (Bankr.
S.D. Fl. July 9, 2009) (Bankruptcy court
avoids, as fraudulent transfers under
Section 548 of the Bankruptcy Code and
state fraudulent transfer laws, $421
million of pre-petition payments made
to secured lenders).
TOUSA Inc. (“Tousa”) and one of its
subsidiaries, TOUSA Homes LP (“Homes”),
formed a joint venture, called Transeastern, to acquire certain homebuilding
assets in Florida. Tousa and Homes guaranteed the loans obtained by Transeastern to finance the acquisitions. When
Transeastern defaulted on these loans,
litigation ensued between Tousa and
Transeastern’s lenders with respect to the
guarantees. Ultimately, Tousa agreed to
settle the litigation by paying $421 million to the Transeastern lenders.
To finance the settlement with the
Transeastern lenders, Tousa and certain
of its subsidiaries (the “Conveying
Subsidiaries”) entered into new secured
term loan facilities pursuant to which
Tousa borrowed $421 million to fund the
settlement payment due the Transeast-
ern Lenders. Even though they were
not defendants in the litigation with
the Transeastern lenders and were not
obligated to the Transeastern lenders
under the Transeastern loan documents,
the Conveying Subsidiaries guaranteed
repayment of the term loans and granted
liens on all of their assets as security for
repayment of the term loans.
The Bankruptcy Court specifically
rejected the Transeastern lenders’ argument that the Conveying Subsidiaries
received reasonably equivalent value in
the form of an indirect benefit. According
to the Transeastern lenders, the Transactions allowed Tousa to forestall an immediate bankruptcy filing and, therefore,
conferred an indirect benefit on the
Conveying Subsidiaries by preserving the
Conveying Subsidiaries’ access to cash
management and other corporate services provided by Tousa and by avoiding a
bankruptcy default under Tousa’s bonds
(which were guaranteed by the Conveying Subsidiaries).
Noting that “value” is defined in Section 548 of the Bankruptcy Code to mean
property received (or satisfaction of a
debt owed) by a debtor, the Bankruptcy
Court found that the indirect benefits
allegedly received by the Conveying
Subsidiaries did not constitute reasonably equivalent value because such
indirect benefits were not “property.”
In particular, the Bankruptcy Court said
that avoiding a default is not a property
interest and that corporate benefits, even
if they were a property interest, could
not be counted in this instance since the
Conveying Subsidiaries were already
receiving them long before the Transactions. Therefore, the Bankruptcy Court
held that any indirect benefits received
by the Conveying Subsidiaries in the
Transactions did not constitute reasonably equivalent value under Section 548
of the Bankruptcy Code.
The term loan agreements in Tousa
contained language which purported
to automatically reduce the obligations
incurred and liens granted by the Conveying Subsidiaries to the extent necessary
to prevent the Conveying Subsidiaries’
insolvency. While the Bankruptcy Court
specifically rejected the term loan lenders’ argument that this “savings clause”
prevented the Transactions from constituting fraudulent transfers, these types of
