Magazine article The RMA Journal

Credit Agreement Statute Not Applicable to Oral Agreement between Two Creditors of Borrower

Magazine article The RMA Journal

Credit Agreement Statute Not Applicable to Oral Agreement between Two Creditors of Borrower

Article excerpt

To take advantage of economic opportunities that arose when the United Kingdom deregulated its energy markets, Burt Keenan and some associates created Independent Energy UK Limited (IE). Keenan was the largest individual stockholder and chief executive officer. DLJ Bridge Finance Inc. (DLJ) was one of the entities that lent money to IE through its participation in a multibank syndicate.

In late 1999, IE had cash flow problems, and in 2000 it needed additional capital to remain in business. In June 2000, the banking syndicate advised IE and Keenan that IE was in default under its credit facility. Keenan thereupon made a personal, unsecured loan to IE in the amount of 6.6 million pounds sterling.

Keenan made the loan based upon an oral agreement with DLJ representatives that DLJ would waive IE's default, develop a long-term credit facility, and provide additional funding for IE until its liquidity crisis was resolved.

After Keenan made his personal loan and obtained commitments from other investors for more than $64 million in additional financing, the banking syndicate waived the default, but DLJ and other members of the banking syndicate refused to grant additional credit. That forced IE into receivership and liquidation. In the liquidation, the banking syndicate was paid in full but Keenan recovered only 10% of his loan.

Keenan sued DLJ. (1) For reasons not made clear in the court's opinion, the law of Louisiana was controlling.

DLJ took the position that Keenan's lawsuit was barred by the Louisiana Credit Agreements Act. That statute provided that a debtor could not sue on a credit agreement (i.e., an agreement to lend or otherwise extend credit or to make any other financial accommodation) unless there was a writing signed by both parties that set forth consideration and contained the relevant terms and conditions.

Although acknowledging Keenan's status as a creditor of IE, DLJ nonetheless sought to convince the court that, for purposes of the Keenan--DLJ dialogue, Keenan should be classified as a debtor, thereby precluding him from suing DLJ by reason of the Louisiana statute. …

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