Boston Generating, LLC V CREDIT SUISSE SECURITIES (USA) LLC

Summarized by Bradley Pearce , Pearce Law PLLC
1 year 5 months ago

Case Type:

Business

Case Status:

Affirmed

Citation:

21-2543-bk (2nd Circuit, Sep 19,2024) Not Published

Tag(s):

Ruling:

The safe harbor provision of 11 U.S.C. § 546(e) protects all phases of Complex refinancing and recapitalization transactions in which prior equity owners of the debtor’s parent receive payment for their equity interests, even if (i) the debtor was not a party to the securities contract and (ii) the debtor was not a party to any agreement with a bank or investment bank. In the latter instance, the debtor's equity owners may be financial institutions under 11 U.S.C. § 101(22)(A) if they are parties to a transaction with a bank that acts as an agent for the equity owners.

Procedural context:

The liquidating trustee sued former members of the debtors' parent limited liability company for proceeds that the members received from a leveraged recapitalization transaction. The defendants moved to dismiss the trustee's actual and constructive fraud claims, asserting that the transactions were subject to the safe harbor provisions of 11 U.S.C. § 546(e). The bankruptcy court agreed and dismissed the trustee's complaint (actually, the Third Amended Complaint). The trustee appealed to the United States District Court for the Southern District of New York, which affirmed the bankruptcy court. The trustee timely appealed to the United States Court of Appeals for the Second Circuit.

Facts:

The debtor, Boston Generating LLC ("BosGen"), and its parent, EBG Holdings LLC ("EBG"), entered into a securities transaction whereby EBG's members received cash distributions in exchange for their equity interests in EBG (the "Leveraged Recap Transaction"). The Leveraged Recap Transaction provided credit facilities to EBG, and the proceeds would be used to purchase the equity interests in EBG. A large portion of the proceeds of these credit facilities were transferred to EBG's bank account and used to pay EBG's equity owners a dividend and to pay the equity owners $708 million for their equity interests in EBG. The Tender Offer for the Leveraged Recap Transaction stated that the transaction required $2.1 billion in new financing and stated that BosGen and EBG would pay the Bank of New York for BONY's services as depository and agent for both EBG and BosGen, More than three and a half years after the Leveraged Recap Transaction was consummated, BosGen and certain affiliates filed Chapter 11 bankruptcy petitions. About three months after the petitions were filed, the bankruptcy court entered an order authorizing the sale of essentially all of the debtors' operating assets. The proceeds from the sale were used to fund the debtors' liquidating plan. The bankruptcy court subsequently confirmed the liquidating plan, with all three tranches of lenders voting in favor of confirmation. The liquidating plan assigned avoidance actions to the liquidating trust. The trustee for the liquidating trust then sued EBG's prior equity owners for receipt of proceeds from the Leveraged Recap Transaction.

Judge(s):

SUSAN L. CARNEY, JOSEPH F. BIANCO, ALISON J. NATHAN, Circuit Judges

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