Trups Trustee Surprisingly Vocal in Bankruptcy Case

By Barba, Robert | American Banker, February 22, 2011 | Go to article overview

Trups Trustee Surprisingly Vocal in Bankruptcy Case


Barba, Robert, American Banker


Byline: Robert Barba

As a key trustee for pooled trust-preferred securities, Bank of New York Mellon Corp. has often been accused of inaction.

That has not been the case for Builders Financial Corp.'s bankruptcy proceeding. Last summer the struggling Chicago bank holding company filed for bankruptcy protection with the intention of reducing the debt on its $40 million of trust-preferred securities to $4.5 million, which would be paid over the next 10 years. The plan would preserve the equity of Mitchell Saywitz, the company's chief executive and sole shareholder. No immediate plans are in the offing for more capital to flow into the company.

Bank of New York Mellon, the trustee for half of the securities, voted against the reorganization plan. Then last week, after the $337 million-asset company Builders attempted to invalidate the trustee's vote as a creditor, Bank of New York Mellon filed an objection. On Thursday, Bruce Black, a judge for the U.S. Bankruptcy Court for the Northern District of Illinois, continued the case to March 17.

Several lawyers said Builders Financial's bankruptcy plan is thin and that getting it completed would be very difficult.

"I think it is interesting what they are trying to do, but it doesn't appear to make good economic sense except for the equity holder," said Chip MacDonald, a partner at Jones Day in Atlanta. "For the creditors, there is hardly any reason for them to take this. It doesn't guarantee any new capital."

Bank holding company bankruptcies have had a lot of buzz since December, when the $1.5 billion-asset AmericanWest Bancorp of Spokane, Wash., successfully navigated the process, saving its bank from seizure by selling it in a court auction. Builders Financial's bankruptcy plan does not call for such an auction.

In recapitalizations, trustees of pooled trust-preferred securities have been a powerful blockade, as they have asserted that their role is merely administrative. The allure of bankruptcy, lawyers said, is that it compels the trustee to act.

"Trust-preferreds remain a huge obstacle to the recapitalization of distressed banks. The holders have a habit of just saying 'no' and sometimes you can't even identify who is holding the debt," said Van Durrer, a partner at Skadden Arps, which represented SKBHC Holdings LLC , the bank holding company that successfully bid on AmericanWest's bank.

"Like it or not, bankruptcy forces the issue, and allows a sale and recapitalization transaction to proceed provided it is supported by business judgment and presented in good faith," Durrer said.

Bankruptcy lawyers said that in the Builders Financial case, it appears the company wants relief from its trust-preferred debt, but was hoping the trustees would not show up.

Builders Financial and Bank of New York Mellon declined to comment. In an objection filed Feb. 14, Bank of New York Mellon claimed the bankruptcy was filed in bad faith. The trustee claimed that, on the eve of the bankruptcy filing, Builders Financial borrowed $40,000 from three creditors, with Saywitz personally guaranteeing the loans.

In court documents, Builders Financial said the $40,000 is being used to fund operations, such as financing the bankruptcy. Bankruptcy lawyers said the amount is possibly enough for a retainer. …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Trups Trustee Surprisingly Vocal in Bankruptcy Case
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.