Glass & Goldberg | Financing, Property & Bankruptcy Law

Both the Dodd-Frank Act supervisory stress tests and the Comprehensive Capital Analysis and Review (CCAR) supervisory post-stress capital analysis utilize similar projections of total assets, risk-weighted assets, and net income. However, both use different capital action inferences to project post-stress capital levels and ratios. How are they different?

The Federal Reserve incorporates a standardized set of capital action assumptions delineated by Dodd-Frank’s stress test rules to project post-stress capital ratios. To wit:

• Common stock dividend payments are assumed to continue at the same level as the year before.
• Scheduled dividend, interest, or principal payments on any other capital instrument eligible for inclusion in the numerator of a regulatory capital ratio are assumed to be paid.
• Repurchases of capital instruments are assumed to be zero.

Except for common stock issuance associated with employee compensation expense or related to a planned merger or acquisition, these assumptions do not include issuances of new common stock or preferred stock. Any projection of post-stress capital ratios includes capital actions and other changes related to business plan changes in a specific scenario.

In comparison, the Federal Reserve uses a company’s planned capital actions under its Bank Holding Company (BHC) baseline scenario. This includes both capital issuances and capital distributions as proposed and assimilates interconnected business plan changes for the CCAR post-stress capital analysis.

Because of these dissimilarities, post-stress capital ratios projected by one of these analyses may substantially differ from the other. As an example, if a firm increases its dividend or repurchases of common equity in its planned capital actions, post-stress capital ratios projected by the CCAR capital analysis could be lower than those projected for the Dodd-Frank tests.

The attorneys at Glass & Goldberg in California provide high quality, cost-effective legal services, and advice for clients in all aspects of commercial compliance, business litigation, and transactional law. Call us at (818) 888-2220, send an email inquiry to info@glassgoldberg.com or visit us online at glassgoldberg.com to learn more about the firm and to sign up for future newsletters.

The following Glossary of Equipment Leasing Terms should help all business owners, whether a lessor or lessee, to understand key leasing terms when in the market to acquire equipment. Without some basic knowledge of these terms and qualified legal counsel, it may be substantially more difficult to make an educated decision in any leasing transaction. Please see Part One here.

*Lease Line:

This refers to the pre-approved amount of funds, i.e., debt that a lessor will extend to a lessee.

*Lease Purchase:

Lease purchases are typically considered to be capital leases for accounting purposes because of their bargain purchase option and length of lease term. Lease purchases may include a bargain purchase option for the lessee to purchase the equipment for one dollar at the expiration of the lease. These leases are often referred to as nominal, finance, dollar buyout or buck-out leases and the lease purchase is considered the lease’s full payout, the net lease structured with a term equal to the equipment’s estimated useful life.

*Lease Rate:

This is the monthly or quarterly periodic payment made during the lease term.

*Lease Schedule:

This is an addendum or schedule that details particular lease terms of the master lease agreement.

*Lease Term:

The lease term is the fixed term of the lease represented by the number of months.

*Lease Underwriting:

Underwriting in the context of leases refers to the process whereby a broker arranges a lease transaction for the benefit of a prospective lessor and lessee. In contrast to “firm commitment” underwriting, it is usually done on a “best-efforts” basis.

*Leveraged Lease:

A lease is leveraged when part of the acquisition cost of the equipment is financed by a lending institution, and the balance is paid by the lessor. Typically, the debt is non-recourse and the lease payments are sufficient to cover the loan debt service.

*Master Lease:

This type of lease agreement applies to future equipment not within the contemplation of the parties at the time of the lease’s execution. It allows other equipment to be added to the lease at a later date.

*Modified Accelerated Cost Recovery System (MACRS):

The Tax Reform Act of 1986 established a modified accelerated cost recovery system known as MACRS, a tax depreciation system that allows a business to recover the cost of income-producing equipment over a specific recovery period.

*Municipal Lease:

This is a lease that meets the special needs of state and local governments. This type of lease agreement contains a non-appropriation clause which states that the only condition under which the entity may be released from its payment obligation is if the legislative funding authority fails to appropriate funds. A lessee that is a municipality or an organization supporting the government is exempt from the payment of federal income taxes.

*Net Lease:

This refers to a lease agreement in which the lessee is responsible for paying all costs such as maintenance, taxes, and insurance, related to using the leased equipment. A finance lease is a net lease.

*Off Balance Sheet Financing:

Financing that does not appear on the balance sheets of a lessee as a liability or asset but as an expense because of FASB 13.

*Operating Lease:

A lease which is treated as a true lease, rather than a loan for accounting purposes. Pursuant to FASB 13, an operating lease must meet all of the following requirements: (1) lease term is less than 75% of estimated economic life of the equipment, (2) Present value of lease payments is less than 90% of the equipment’s fair market value, (3) lease cannot contain a bargain purchase option, (4) ownership is retained by the lessor during and after the lease term. The operating lease is not shown as an asset or liability on the balance sheet but as an operating expense.

*Pre-Funding:

This refers to the requirement that payment of at least 50% of the invoice cost must be made to a lessor before it provides equipment to a lessee.

*Primary Lease Term:

This is the same as the base lease term.

*Progress Payments:

Payments toward the purchase price that may be required by an equipment manufacturer or builder during the period of construction are referred to as progress payments. These are typically required for costly equipment used during long construction periods. Such payments are designed to alleviate the need on behalf of a manufacturer or builder to expend working capital during these long periods.

*Purchase Option:

This option involves the contract right to buy agreed upon equipment at the times and the amounts specified by the option. It is typically exercisable at the end of the primary lease term but may be exercised during the primary lease term or at the end of any renewal term.

*Put Option:

A lessor’s right to sell specified leased equipment to the lessee at the end of the initial lease term for a fixed price.

*Renewal Option:

This is a lessee’s option to renew the term of the lease for a specified rental time and period.

*Residual Value:

This is represented by the leased equipment’s value at the end of the lease term.

*Sale Lease-Back:

An agreement whereby an equipment buyer buys equipment to lease it back to a seller.

*Skip Payment Lease:

A payment stream whereby a lessee is required to make payments during certain periods of the lease term.

*Step Up/Down Payments:

Such payments change during the lease term, for example, from lower payment amounts at the beginning of the lease term to higher payments later in the lease’s term period.

*Tax Lease:

Also referred to as operating or true leases, this is an arrangement that qualifies for lease treatment for federal income tax purposes.

*TRAC Lease:

This term refers to a lease, which qualifies as a true lease, of motor vehicles or trailers that contains a Terminal Rental Adjustment Clause (TRAC) that allows or even requires the rent amount be adjusted based on the sale proceeds of the leased equipment.

*True Lease

With a true lease, the lessee may deduct rental payments and the lessor may claim the tax benefits that normally accrue to the owner of equipment.

*Upgrade:

This refers to trading in the originally leased equipment for newer, more advanced equipment during the period of the lease term.

*Use Tax:

The tax charged in lieu of a sales tax for the lease of equipment.

*Useful Life:

An asset’s useful life consists of its economic usable life.

*Vendor:

While a vendor is a seller of property, in the case of leases, it is typically the manufacturer or distributor of equipment.

*Vendor Program:

In this type of program, an equipment lessor provides a lease financing service to an equipment manufacturer’s customers.

*Venture Lease:

A lease backed by a venture capital company for the benefit of start-up businesses.

The attorneys at Glass & Goldberg in California provide high quality, cost-effective legal services, and advice for clients in all aspects of commercial compliance, business litigation, and transactional law. Call us at (818) 888-2220, send an email inquiry to info@glassgoldberg.com or visit us online at glassgoldberg.com to learn more about the firm and to sign up for future newsletters.

 

 

 

In U.S. Bank NA v. The Village of Lakeridge LLC (“U.S. Bank”), the Ninth Circuit Court of Appeals held that for a bankruptcy debtor to confirm a plan using the Bankruptcy Code’s cram-down provisions, unsecured claims held by insiders are not counted for plan voting purposes. However, in the U.S. Bank case, the issue arose in the context of another party acquiring an interest from an insider, presenting the question: When a person acquires a claim from an insider, does this person become an insider?

Under bankruptcy law, an “insider” is defined as someone or the relative of someone who exercises control over the company. Examples of an insider are the director, officer or partner of a corporation or partnership respectively.

In U.S. Bank, the debtor’s general partner, attempt to solve the insider cram-down problem, sold its $2.8 million unsecured claim for $5,000 to a close friend of one of the owners of the general partner. The bankruptcy court held that this close friend who bought the claim, while not a statutory insider, became one upon purchase. The Ninth Circuit stated that, on appeal, this issue regarding insider status is subject to a clearly erroneous standard of review.

After reviewing the case under this standard, the appellate court reversed and held that a third party that is assigned a claim does not assume the insider status of the assigning party. The court also held that the evidence did not show that the alleged insider had a close enough relationship with the member of the board to be considered an insider.

The Supreme Court on March 27, 2017, agreed to consider the issue of whether determining statutory insider status for plan voting purposes is subject on appeal to review under the Third, Seventh and Tenth Circuits’ de novo standard, which, of course, places insignificant or no deference to the decision of the trial court, or the Ninth Circuit’s clearly erroneous standard of review, which places significant deference to the trial court’s decision. The Supreme Court’s will only be considering the standard of review issue rather than the integral issue of insider status.

U.S. Bank’s position is that the Ninth Circuit erred by failing to adopt a de novo standard of review when examining the insider status of an individual creditor. Petitioner’s brief was filed with SCOTUS on June 12, 2017. Further, the appeals court deviated from the appropriate standard of review applied by several other circuits in determining whether a creditor is too close to a “statutory insider” of a debtor to be considered a noninsider.

The bank stated in its brief: “Had the panel majority applied a de novo standard of review, it would have reversed.” At issue in the case is whether the alleged insider has the authority to vote on a Chapter 11 reorganization plan proposed by Village at Lakeridge.

In an amicus curiae brief, the U.S. solicitor general’s office urged SCOTUS to refuse the case, saying that the Ninth Circuit “correctly stated the legal standards for determining whether a creditor is a statutory or nonstatutory insider, and it correctly articulated the applicable standard of appellate review.”

Stay tuned!

The attorneys at Glass & Goldberg in California provide high quality, cost-effective legal services, and advice for clients in all aspects of commercial compliance, business litigation, and transactional law. Call us at (818) 888-2220, send an email inquiry to info@glassgoldberg.com or visit us online at glassgoldberg.com to learn more about the firm and to sign up for future newsletters.

 

The following Glossary of Equipment Leasing Terms should help all business owners, whether a lessor or lessee, to understand key leasing terms when in the market to acquire equipment. Without some basic knowledge of these terms and qualified legal counsel, it may be substantially more difficult to make an educated decision in any leasing transaction.

*Accelerated Depreciation:

This type of depreciation refers to the method that depreciates a fixed asset so that the amount of depreciation taken each year is higher during the earlier years of the life of an asset.

*Add-On:

When a transaction adds related equipment to an existing lease, it is simply referred to as an “add-on.” Usually used when the new equipment is financed using the same lease structure that was used in the original transaction. Typically, the lease term for the add-on expires coterminously with any equipment in the underlying transaction.

*Advance Rental Payments:

These are the payments made by the lessee to the lessor at the inception of the lease transaction, which usually consists of rent payments for the first and last month of the lease term.

*Application Only:

This is a one-page application used to acquire equipment based entirely on the applicant’s credit score.

*Amortization:

Amortization divides periodic loan payments into the portion that is the principle and the portion that is interest.

*Bargain Purchase Option:

A lease provision which grants the lessee the option to purchase leased equipment for a price predetermined at the inception of the lease. This price is typically lower at the date that the lessee may exercise the option than the expected fair market value of the leased equipment.

*Big Ticket aka Large Ticket:

This is a market segment where the equipment financed is over $5 million.

*Capital Lease:

This type of lease is categorized and by a lessee as a purchase and by the lessor as a sale or financing, as long as it meets any one of the following criteria:

• the lease contains an option to purchase the asset at a bargain price;
• the lease term is equal to 75 percent or more of the estimated economic life of the property;
• the lessor transfers ownership to the lessee at the end of the lease term; or
• the present value of minimum lease rental payment is equal to 90 percent or more of the fair market value of the leased asset less applicable investment tax credits held by the lessor.

*Capped Fair Market Value:

A Fair Market Value Lease has a predetermined or “capped” ceiling to limit fair market exposure at the end of the term of the lease.

*Captive Leasing Company:

This refers to a subsidiary leasing division of a manufacturer or dealer.

*Conditional Sales Agreement (CSA):

A CSA is a contract that addresses an asset’s installment financing. For tax and accounting purposes, a lessee is treated as the owner of the equipment while the lessor has a first-position priority security interest in the equipment.

*Coterminous:

This is a term used when two or more leases of equipment are linked so that both will terminate contemporaneously.

*Default:

If a party breaches certain material lease obligations, it may default. After the event of default, the lease company may exercise all its rights and remedies under its lease contract or other applicable agreements to pursue damages and remedies to repossess the collateral.

*Depreciation:

Depreciation is a reasonable allowance for wear and tear, exhaustion, and obsolescence of business equipment. Depreciation allows an equipment’s owner to recover the cost of the equipment over its economic life.

*Delivery and Acceptance Certificate:

This Certificate is a document where a lessee acknowledges that specified, identifiable equipment is acceptable for lease. This document notifies a lessor that the leased equipment has been delivered, inspected and accepted as of a specified date.

*Discount Rate:

This refers to a certain interest rate used to bring a series of future cash flows to their present value.

*Documentation Fee:

This is any fee charged for preparing, distributing and storing transaction documents for a financing transaction.

*Dollar Buy Out:

Also known as a dollar-out lease, this is an option at the end of the lease term to purchase the leased equipment for $1.00.

*Economic Life:

An asset’s economic life refers to the period of time during which an asset has economic value and is capable of use.

*Estimated Useful Life:

This simply refers to the period during which an asset is expected to be useful in trade and business.

*Equipment Finance Agreement (EFA):

An EFA is a loan against the equipment with a fixed monthly payment that does not change monthly with the applicable Prime Rate. The obligor will own the equipment at the end of the finance term when the lender releases its security interest.

*Equipment Schedule:

This document details the leased equipment, the lease’s commencement date, and other lease terms including the lease’s repayment schedule.

*Fair Market Purchase Option:

This is an option to purchase leased property at the end of the lease term at fair market value.

*Fair Market Value (FMV):

Fair Market Value refers to the price for which property may be sold in an “arm’s length” transaction.

*Fair Market Value Lease:

An FMV lease includes an option for the lessee to either renew the lease at Fair Market Value or purchase the equipment for Fair Market Value at the end of the lease’s term.

*FASB 13:

This refers to Financial Accounting Standards No. 13 of the Financial Accounting Standards Board, which establishes standards for lessees’ and lessors’ accounting and reporting for leases. FASB 13 includes the characterization of a lease as an operating lease or capital lease for the lessee’s purposes. The underlying policy behind the provisions of FASB 13 is that a lease that transfers substantially all of the benefits and risks of ownership should be treated for accounting purposes as the acquisition of an asset.

*Finance Lease:

A lease in which the lessor does not select, manufacture, or supply the goods. The lessor acquires the goods or the right to possession and use of the goods in connection with the lease.

*First Amendment Lease:

This type of lease grants a purchase option at one or more defined points in time with the requirement that the lease is renewed or continued the lease if the purchase option is not exercised.

*Fixed Priced Purchase Option:

This is an option on behalf of the lessee to purchase leased equipment from the lessor on the option date for a certain price, which both must be determined at the lease’s inception.

*Full-Payout Lease

A lease from which the lessor can reasonably expect to realize a return of its full investment in the leased property, plus the estimated cost of financing the property over the term of the lease, from rentals, estimated tax benefits, and the estimated residual value of the property at the expiration of the initial term of the lease; provided that no more than 20 percent of the return may be realized from the residual value of the property at the expiration of the initial term of the lease.

*Guaranteed Residual Value:

This refers to an agreement where a manufacturer guarantees that a lessor will receive not less than a certain amount for equipment when disposed of at the end of the term of the lease.

*Hell-or-High-Water Clause:

This type of clause or provision obligates a lessee to pay the rent unconditionally. The lessee waives any right that exists or may arise to withhold any rent from the lessor or any assignee of the lessor for any reason, including any setoff, counterclaim, recoupment, or defense.

The attorneys at Glass & Goldberg in California provide high quality, cost-effective legal services, and advice for clients in all aspects of commercial compliance, business litigation, and transactional law. Call us at (818) 888-2220, send an email inquiry to info@glassgoldberg.com or visit us online at glassgoldberg.com to learn more about the firm and to sign up for future newsletters.

Last month, the Treasury Department issued a 150-page report containing dozens of recommendations related to how Congress and regulatory agencies may streamline its regulation of the banking industry to better promote economic growth.

One such recommendation was that asset thresholds should be better tailored to deal with different business scenarios. Rob Nichols, president of the American Bankers Association (ABA), an organization which was an active participant in the Treasury’s study, stated: “We remain steadfast in our belief that arbitrary asset thresholds should not guide regulation. Rather, regulators should be empowered to ensure that rules are tailored to different risk profiles and business models.”

Another recommendation of the report was the simplification of the capital regime for community banks by exempting banks with less than $10 billion from Basel III. Further, the dubiously, problematic treatment of mortgage servicing assets and commercial real estate loans was also covered by the report. The report focused on several mortgage rules that the CFPB could address independently.

Another proposal was that all banks with less than $10 billion in assets should be exempt from the Volcker Rule, as the report attempted to tailor and limit the compliance impact for all banks.

Secretary of the Treasury, Steven Mnuchin, estimated that “70 to 80 percent” of the recommendations could be implemented by regulators immediately through their independent rulemaking authority. Other recommendations would require congressional action. Here is a list of some of the other recommendations:

• streamlining the FDIC de novo application process,
• easing appraisal requirements in rural areas,
• increasing the threshold for small creditor Qualified Mortgage loans,
• revisiting the volume and nature of supervisory Matters Requiring Attention,
• running the living will process on a two-year cycle,
• more clearly defining the Consumer Financial Protection Bureau’s UDAAP standard,
• making the CFPB “no-action” letter policy more useful, and
• revisiting the 2013 interagency leveraged lending guidance.

The attorneys at Glass & Goldberg in California provide high quality, cost-effective legal services, and advice for clients in all aspects of commercial compliance, business litigation, and transactional law. Call us at (818) 888-2220, send an email inquiry to info@glassgoldberg.com or visit us online at glassgoldberg.com to learn more about the firm and to sign up for future newsletters.

In early June, the Treasury Department issued a 150-page report that included more than several, in fact, dozens of proposals and suggestions related to how the federal government through its regulatory agencies, with Congress leading the way, may better regulate the banking industry so that such governance and supervision promotes economic growth.

After President Trump issued an executive order detailing his administration’s core principles of financial regulation and requesting a complete review of the federal government’s current regulatory structure, the Treasury Department went to work and issued the report in June.

Included in the report was a focus on the better tailoring of regulatory requirements to banks based on the size and complexity of the depository institutions’ business models. The report stated that one reason for depressed loan and economic growth was the volume and structure of current regulations.

Rob Nichols, president of the American Bankers Association (ABA), an organization which had urged reforms in the regulations and was an active participant in the Treasury’s study, stated “Today’s Treasury report is an important step to refine financial regulations to ensure that they are supporting — not inhibiting — economic expansion…we need regulatory reform to boost economic growth, and we expect this report will serve as a catalyst in that effort.”

Delegations of bankers representing all bank sizes also provided feedback, yet the report’s proposals are primarily consistent with the ABA’s recommendations. As a means to regulations that are better tailored to the needs of the depositary institutions, the report recommended significantly streamlining the stress test process and raising the stress test asset threshold from $10 billion to $50 billion, while allowing exemptions for some banks with over $50 billion in assets.

The attorneys at Glass & Goldberg in California provide high quality, cost-effective legal services, and advice for clients in all aspects of commercial compliance, business litigation, and transactional law. Call us at (818) 888-2220, send an email inquiry to info@glassgoldberg.com or visit us online at glassgoldberg.com to learn more about the firm and to sign up for future newsletters.

 

 

 

The Federal Reserve promotes a stable banking and financial system that supports the growth and stability of the U.S. economy. To this end, the Federal Reserve supervises bank holding companies (BHCs), U.S. intermediate holding companies (IHCs), savings and loan holding companies, state member banks, and any nonbank financial institutions that the Financial Stability Oversight Council deems worthy of oversight.

At the end of June, the Federal Reserve published its annual Comprehensive Capital Analysis and Review (CCAR). The Federal Reserve’s annual CCAR exercise is a thorough and comprehensive assessment of the capital adequacy and capital planning practices of the larger financial institutions in the United States. These supervisory actions of the Federal Reserve are intended to facilitate the larger financial institutions achieving their supervisory objectives while using the knowledge and lessons learned from the financial crisis of the last decade.

The 34 bank holding companies in this year’s examination and review have increased common equity capital by more than $750 billion since early 2009. In the 2017 CCAR, the Federal Reserve approved the capital plans of 34 participating banks.

As part of CCAR’s quantitative assessment, firms are required to demonstrate an ability to meet their minimum capital requirements under stress. The fact that all institutions were found to meet minimum capital requirements even under severely adverse conditions was unprecedented in 2017. Factors such as a firm’s projected capital ratios under a hypothetical scenario of severe stress and the strength of the firm’s capital planning processes are considered in this analysis.

Participating companies are also subject to regular supervisory assessments that review and examine their capital planning practices, including payment of dividends, share buybacks, and share issuances. An objection to a capital plan may be raised based on qualitative or quantitative questions. This year, one bank won a conditional “non-objection” which requires it to submit a new capital plan that resolves certain issues in its capital planning.

The attorneys at Glass & Goldberg in California provide high quality, cost-effective legal services, and advice for clients in all aspects of commercial compliance, business litigation, and transactional law. Call us at (818) 888-2220, send an email inquiry to info@glassgoldberg.com or visit us online at glassgoldberg.com to learn more about the firm and to sign up for future newsletters.

 

Puerto Rico, a U.S. territory, filed for the equivalent of bankruptcy to relieve $74 billion dollars in debts to local and U.S. based creditors, as well as $49 billion in pension obligations. The appointed oversight board stated in a court filing that Puerto Rico is “unable to provide its citizens effective services.” As this unfolds, it is certain to have many far-reaching effects across the continental United States.

Part of the reason for Puerto Rico’s economic downfall is the recent 10% reduction in population. With these current financial problems, exodus from the island is expected to continue to the mainland United States. Sources indicate that one million native Puerto Ricans now live in Florida.

The following is one example of the expected effects of this filing. Puerto Rico’s bonds have been tax exempt for 100 years, thus attracting many investors and mutual funds. However, now these funds may collapse and lose billions of dollars in value thus affecting countless public sector retirees and employees from the states that invested in them.

Also, any default by Puerto Rico on any loan obligation may cause some investment companies with a substantial investment in Puerto Rico to collapse if not repaid, thus causing a scenario similar to the subprime mortgage crisis of ten years ago. All of the business entities with the highest levels of exposure to risk from Puerto Rico’s action are expected to contest the filing with all available resources.

Another U.S. territory, the U.S. Virgin Islands, with a population of just over 100,000, has a debt of $2 billion dollars. It’s certain that the territory will monitor the process and the results in Puerto Rico’s case to determine the viability of Congressional action. Also, states with high debt and/or pension obligations are also expected to closely monitor Puerto Rico’s “filing” under Title III.

The attorneys at Glass & Goldberg in California provide high quality, cost-effective legal services, and advice for clients in all aspects of commercial compliance, business litigation, and transactional law. Call us at (818) 888-2220, send an email inquiry to info@glassgoldberg.com or visit us online at glassgoldberg.com to learn more about the firm and to sign up for future newsletters.

In First S. Nat’l Bank v. Sunnyslope Hous. Ltd. P’ship (In re Sunnyslope Hous. Ltd. P’ship), 2017 U.S. App. LEXIS 9198 (9^th Cir., 5/27/2017), the Ninth Circuit Court of Appeals permitted a bankruptcy debtor to cram down a first-position deed of trust because of restrictive covenants in junior position deeds of trust. The lender, in this case, First Southern National Bank (“First Southern”) argued that the court’s ruling would discourage future lending in similar circumstances.

The Ninth Circuit disagreed that future lending would be discouraged for like projects, noting “… in this case, First Southern bought the Sunnyslope loan at a substantial discount, knowing of the risk that the property would remain subject to the low‑income housing requirements. Valuing First Southern’s collateral with those restrictions in mind subjects the lender to no more risk that it consciously undertook.”

First Southern Bank, which was not the original lender, had knowledge of the restrictive covenants in the junior position deeds of trust when it purchased the loan based on the fact that the Loan Sale Agreement indicated that the property was subject to “other covenants, conditions, and restrictions.”

But the lesson from all of this is that secured lenders must be proactive and propose their own Chapter 11 plans. Simply objecting to plan confirmation as a method of protecting their interests is not always the best strategy. First Southern Bank could have better protected its interests and proposed a plan of reorganization which effectively:

• eliminated all of the low-income housing provisions in the junior position deeds of trust, and then distributed a portion of this added value to the case’s other creditors and junior lienholders;
• allowed it to foreclose on the property and then shared a portion of the profits with junior position creditors;
• voided the junior position deeds of trust entirely. This is effectively what the debtor did as it actually extinguished the deeds of trust at the end of a 40 year period. It is likely creditors would have favored such a plan over the Debtor’s plan.

The attorneys at Glass & Goldberg in California provide high quality, cost-effective legal services, and advice for clients in all aspects of commercial compliance, business litigation, and transactional law. Call us at (818) 888-2220, send an email inquiry to info@glassgoldberg.com or visit us online at glassgoldberg.com to learn more about the firm and to sign up for future newsletters.