Ronald Gart and Tobi Pinsky Published in BNA's Bankruptcy Law Reporter
"Creditor's Rights: Commercial Lenders Can Breathe Easier After In re Tousa Inc."

Seyfarth Shaw Real Estate partner Ronald Gart and associate Tobi Pinsky wrote an article published in the May 19 BNA Bankruptcy Law Reporter. The article examines the U.S. District Court for the Southern District of Florida's decision in 3V Capital Master Fund Ltc. v. Official Committee of Unsecured Creditors of Tousa, Inc., and how it affects managing risks for commercial lenders.

When Tousa took out a loan intended to develop land and build homes, it ended up going into default, and a settlement agreement was reached. According to the terms, Tousa and its subsidiaries would borrow $500 million from a new lender in order to pay the first one. While Tousa was to pay the old lenders, Tousa's subsidiaries were to pay back the new lender.

In bankruptcy court, Tousa's unsecured creditors were able to invalidate the transactions among the subsidiaries to the new lenders, and the district court later concluded that the bankruptcy court incorrectly lumped the transactions among Tousa subsidiaries and the new lenders, Tousa, and the old lender into one transaction, when in reality there were three separate ones. 

Ron and Tobi state, "While it is likely that the ruling will be appealed…this ruling is instructive on the premium to be paid in conducting due diligence on the sources of repayment and in structuring workouts."