Question
From:(redacted)
Sent: Thursday, March 05, 2009 8:27 AM
To: Ferkingstad. James H.
Subject: 802.63exemption question
Hi James,
I would like yourconfirmation of our conclusion and analysis that an acquisition is exempt fromfiling under 802.63, which allows a creditor to foreclose on collateral ornegotiate the acquisition of receivables or other assets of a debtor inconnection with a bona fide debt work-out without a filing. I would greatlyappreciate hearing from you today due to the time sensitivity of the bankruptcycourt's bid process. I will follow up with a call later this morning if I havenot heard back from you by email.
Our client, BankA, made a loan to debtor, Company B, to construct a plant. Company B gave BankA a security interest in the plant. Bank A then participated the loan and nowother banks hold participations in the loan and the lien. Company Bsubsequently filed bankruptcy and now the debtor in possession is selling theplant in a transaction covered by 11 U.S.C. 363(b) of the bankruptcycode. Bank A is going to make a credit bid to purchase the plant based upon itsdebt. The purchase price that Bank A would pay for the plant (approximately $88million) is the amount necessary to satisfy or discharge the debt owed byCompany B to Bank A (and its participants), which is secured by the plant.Following the purchase of the plant, the debt owed by Company B to Bank A (andits participants) will be satisfied (up to the amount of the credit bid) anddischarged and the plant will be transferred to Bank A (or its assignee).
Based on thesefacts, Bank A would be allowed to rely on the 802.63 exemption to acquire theplant without a filing because:
1.Bank A and Company B previously entered into a"bona fide credit transaction": Bank A made the original loan to thedebtor and received a lien on the asset (the plant) that it hopes to acquire.(And did NOT acquire the obligations of the debtor or other creditor claimsafter an intention to initiate bankruptcy proceedings by or against the debtorwas publicly announced).
2.Bank A entered into this transaction in the ordinarycourse of its business.
3.It does not effect our analysis that Bank Aparticipated this loan and now various other creditor/banks hold an interest inthe loan and the lien on the asset.
4.The acquisition of the plant is being done in lieu offoreclosure and will satisfy or discharge the debt obligation in whole or inpart (i.e., the debtor will take any potential proceeds and pay off thecreditors.)
We understand thatonly the acquisition by Bank A of the plant from Company B, and not anysubsequent disposition by Bank A of the plant, would be exempt by Rule 802.63.