Justia.com Opinion Summary: This case involved Bancorp's agreement to sell BankAtlantic to BB&T. Plaintiffs, institutional trustees, sued to enforce debt covenants that prohibited Bancorp from selling "all or substantially all" of its assets unless the acquirer assumed the debt. The evidence at trial established that Bancorp was selling substantially all of its assets, and BB&T had not agreed to assume the debt. The ensuing event of default would result in the debt accelerating. Bancorp could not pay the accelerated debt. Because this eventuality would inflict irreparable harm on plaintiffs, the court entered contemporaneously an order permanently enjoining Bancorp from consummating the sale.
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IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN RE BANKATLANTIC BANCORP, INC.
LITIGATION
) Consol. C.A. No. 7068-VCL
)
OPINION
Date Submitted: February 15, 2012
Date Decided: February 27, 2012
Kenneth J. Nachbar, Megan Ward Cascio, Shannon E. German, MORRIS, NICHOLS,
ARSHT & TUNNELL LLP, Wilmington, Delaware; Jonathan E. Pickhardt, Richard I.
Werder, Jr., Rex Lee, Ali M. Arain, QUINN EMANUEL URQUHART & SULLIVAN,
LLP, New York, New York; Attorneys for Plaintiffs Hildene Capital Management, LLC,
Hildene Opportunities Master Fund, Ltd., Brett Jefferson, Alesco Preferred Funding IV,
Ltd., Alesco Preferred Funding XVI, Ltd., Alesco Preferred Funding XVII, Ltd., Trapeza
CDO I, LLC, Trapeza CDO II, LLC, and Trapeza CDO III, LLC.
Gary F. Traynor, Bruce E. Jameson, J. Clayton Athey, PRICKETT, JONES & ELLIOTT,
P.A., Wilmington, Delaware; Mark J. Hyland, Jeffrey M. Dine, Benay L. Josselson,
SEWARD & KISSEL LLP, New York, New York; Attorneys for Plaintiff Wells Fargo
Bank, N. A. in its Capacity as Institutional Trustee for BBC Capital Trust IX and BBC
Capital Trust XII.
Barry M. Klayman, COZEN O‟CONNOR, Wilmington, Delaware; Andrew I. Silfen,
ARENT FOX LLP, New York, New York; Timothy F. Brown, Jeffrey N. Rothleder,
Jackson D. Toof, ARENT FOX LLP, Washington, D.C.; Attorneys for Plaintiff
Wilmington Trust Company in its Capacity as Indenture Trustee for BBC Capital Trust
II, BBC Capital Trust XI, and BBX Capital Trust 2007 II(a).
Collins J. Seitz, Jr., Garrett B. Moritz, S. Michael Sirkin, SEITZ ROSS ARONSTAM &
MORITZ LLP, Wilmington, Delaware; Eugene E. Stearns, Adam M. Schachter, Cecilia
Duran Simmons, Gordon M. Mead, Jr., Geri F. Satin, STEARNS WEAVER MILLER
WEISSLER ALHADEFF & SITTERSON, P.A., Miami, Florida; Attorneys for
Defendant BankAtlantic Bancorp, Inc.
LASTER, Vice Chancellor.
Defendant BankAltantic Bancorp, Inc. (“Bancorp”) is a bank holding company.
Bancorp holds 100% of the equity of BankAtlantic, a federal savings bank, which is
Bancorp‟s only substantial asset. Bancorp has agreed to sell BankAltantic to BB&T
Corporation. As consideration, Bancorp will receive 100% of the equity of a newly
formed entity that will own BankAtlantic‟s “criticized assets,” such as non-performing
loans and foreclosed real estate. After the transaction, Bancorp no longer will own a
bank and no longer will be a federally regulated bank holding company. By the most
conservative measure, Bancorp will convey 85-90% of its assets, and the transaction will
change fundamentally the nature of Bancorp‟s business.
The plaintiffs sued to enforce debt covenants that prohibit Bancorp from selling
“all or substantially all” of its assets unless the acquirer assumes the debt. The evidence
at trial established that Bancorp is selling substantially all of its assets, and BB&T has not
agreed to assume the debt.
The ensuing event of default will result in the debt
accelerating. Bancorp cannot pay the accelerated debt. Because this eventuality will
inflict irreparable harm on the plaintiffs, I have entered contemporaneously an order
permanently enjoining Bancorp from consummating the sale.
I.
FACTUAL BACKGROUND
Trial was held on January 26, 27, and 30, 2012. My factual findings follow.
A.
Bancorp And Its TruPS
Bancorp is a Florida corporation headquartered in Fort Lauderdale. It was formed
in 1994 to serve as a holding company for BankAtlantic, which has existed since 1952.
BankAtlantic is a traditional commercial bank that accepts deposits and makes loans.
1
Bancorp‟s stock trades publicly on the New York Stock Exchange under the
symbol “BBX.” Bancorp‟s Chairman and CEO, Alan Levan, and its Vice Chairman,
John Abdo, own a majority of the voting shares of Bancorp‟s controlling stockholder,
BFC Corporation (“BFC”). Levan‟s son, Jarett Levan, serves as President of Bancorp
and CEO of BankAtlantic.1
Valerie Toalson serves as CFO for both Bancorp and
BankAtlantic.
Between 2002 and 2007, Bancorp raised approximately $285 million using a
structured finance product known as trust preferred securities (“TruPS”). Many bank
holding companies found TruPS attractive because they seemingly combined the best
features of debt and equity: The bank holding company could deduct payments to
investors as interest expense yet treat the security as equity capital under then-applicable
banking regulations. To achieve this favorable duality, the bank holding company does
not issue TruPS directly. Rather, it forms a wholly owned trust subsidiary that issues
preferred equity securities—the TruPS—to investors. The trust subsidiary purchases as
its sole asset junior subordinated notes issued by the bank holding company, and the
terms of the TruPS mirror the terms of the junior subordinated notes. The bank holding
company makes payments of principal and interest on the notes, and the trust uses the
payments to redeem or pay dividends on the TruPS.
1
Because Alan Levan plays the principal role in the case, I refer to him as
“Levan.” I distinguish the son by using his first name or noting the filial relationship.
2
Bancorp followed this recipe. In 2002 and 2003, Bancorp issued eleven series of
TruPS through trust subsidiaries denominated BBC Capital Trust II through XII.2 In
2007, Bancorp issued two additional series of TruPS through trust subsidiaries
denominated BBX Capital Trust 2007 I(a) and II(a). Each trust purchased an issuance of
subordinated notes from Bancorp. Each trust sold TruPS to investors with terms in the
declaration of trust that generally matched the terms of the indenture governing the
subordinated notes. Each series of notes will mature thirty years after issuance, can be
pre-paid approximately five years after issuance, and pays interest quarterly, although
interest can be deferred for up to twenty consecutive quarters. The notes purchased by
BBC Capital Trust II bear interest at a fixed annual rate of 8.5%, and its TruPS trade on
Nasdaq. The notes purchased by the other trusts bear interest at a floating rate indexed to
LIBOR. Their TruPS do not trade publicly, although there is a wafer-thin secondary
market.
Each trust is overseen by an institutional trustee. Plaintiff Wilmington Trust
Company is the trustee for and has sued on behalf of BBC Capital Trust II, BBC Capital
Trust XI, and BBX Capital Trust 2007 II(a). Plaintiff Wells Fargo Bank, N.A., is the
trustee for and has sued on behalf of BBC Capital Trust IX and BBC Capital Trust XII.
The remaining plaintiffs hold TruPS issued by and have sued on behalf of BBC Capital
Trust II, BBC Capital Trust V, BBC Capital Trust VI, BBC Capital Trust IX, BBC
2
The inaugural BBC Capital Trust I was formed and issued TruPS in 1997. Its
TruPS were redeemed in 2002 with a portion of the proceeds from that year‟s TruPS
issuances.
3
Capital Trust XII, and BBX Capital Trust 2007 I(a).3 I refer to the wholly owned trust
subsidiaries as the “Trusts.” I refer to the notes they purchased as the “Debt Securities”
and the indentures governing the Debt Securities as the “Indentures.”
Technically, this decision only addresses the rights of the eight Trusts named in
the case. For simplicity, I follow the parties‟ lead and take into account all of the
outstanding Debt Securities when providing financial figures such as the amount of
principal and interest due. To avoid burdening the reader with seriatim descriptions of
eight substantively identical Indentures, I again follow the parties‟ lead and discuss a
single representative Indenture. The pertinent provisions from all of the Indentures
appear in Appendix A.
The Indenture for BBC Capital Trust IX, like all the Indentures, generally
prohibits Bancorp from transferring all or substantially all of its assets. Section 3.07
provides that Bancorp
will not, while any of the Debt Securities remain
outstanding, . . . sell or convey all or substantially all of its
3
A subset of the non-trustee plaintiffs named as defendants BBC Capital Trust II,
BBC Capital Trust IX, and BBC Capital Trust XII, and sought orders compelling the
trustees of those Trusts to enforce the Indentures. Because Wilmington Trust and Wells
Fargo have intervened as the trustees for those trusts and seek the same remedy as the
non-trustee plaintiffs, any dispute over the non-trustee plaintiffs‟ standing to sue is moot.
Another subset of the non-trustee plaintiffs sued to enforce the rights of BBX Capital
Trust 2007 I(a) on the grounds that they own a majority of its TruPS and the trustee
consented to the suit. A third subset of non-trustee plaintiffs sued to enforce the rights of
BBC Capital Trust V and BBC Capital Trust VI on the grounds that they own 100% of
the TruPS and the trustee failed to respond to their demand to sue. The defendants have
not objected to the non-trustee plaintiffs suing on behalf of BBX Capital Trust 2007 I(a),
BBC Capital Trust V, and BBC Capital Trust VI.
4
property to any other Person unless the provisions of Article
XI hereof are complied with.
JX 14 at 21. Section 11.01 qualifies the general prohibition as follows:
Nothing contained in this Indenture or in the Debt
Securities . . . shall prevent any sale, conveyance, transfer or
other disposition of the property or capital stock of the
Company or its successor or successors as an entirety, or
substantially as an entirety, to any other Person (whether or
not affiliated with the Company, or its successor or
successors) authorized to acquire and operate the same;
provided, however, that the Company hereby covenants and
agrees that, upon any such . . . sale, conveyance, transfer or
other disposition, the due and punctual payment of all
payments due on all of the Debt Securities in accordance with
their terms, according to their tenor, and the due and punctual
performance and observance of all the covenants and
conditions of this Indenture to be kept or performed by the
Company, shall be expressly assumed by supplemental
indenture reasonably satisfactory in form to the Trustee
executed and delivered to the Trustee by . . . the entity which
shall have acquired such property or capital stock.
JX 14 at 48-49. I refer to the obligations imposed by Sections 3.07 and 11.01 as the
“Successor Obligor Provision.”
Failing to comply with the Successor Obligor Provision constitutes an “Event of
Default” under the Indenture. Section 5.01 states:
The following events shall be “Events of Default” with
respect to Debt Securities:
…
(c) the Company defaults in the performance of, or breaches,
any of its covenants or agreements in Sections 3.06, 3.07,
3.08 or 3.09 of this Indenture (other than a covenant or
agreement a default in whose performance or whose breach is
elsewhere in this Section specifically dealt with), and
continuance of such default or breach for a period of 90 days
after there has been given, by registered or certified mail, to
5
the Company by the Trustee or to the Company and the
Trustee by the holders of not less than 25% in aggregate
principal amount of the outstanding Debt Securities, a written
notice specifying such default or breach and requiring it to be
remedied and stating that such notice is a “Notice of Default”
hereunder . . . .
JX 14 at 24-25.
The trustee has a range of remedies available following an Event of Default.
Under Section 5.01, the trustee can accelerate the debt and declare that Bancorp‟s
obligations are immediately due and payable:
If an Event of Default occurs and is continuing with respect to
the Debt Securities, then, and in each and every such case, . . .
either the Trustee or the holders of not less than 25% in
aggregate principal amount of the Debt Securities then
outstanding hereunder . . . may declare the entire principal of
the Debt Securities and the interest accrued, but unpaid,
thereon, if any, to be due and payable immediately; and upon
any such declaration the same shall become immediately due
and payable.
JX 14 at 25. Wilmington Trust has represented that it will accelerate the debt if there is
an Event of Default and believes that every trustee would do so.
In addition to acceleration, the trustee can seek legal and equitable remedies under
Section 5.05 of the Indenture, including a decree of specific performance:
In case of an Event of Default hereunder the Trustee may in
its discretion proceed to protect and enforce the rights vested
in it by this Indenture by such appropriate judicial
proceedings as the Trustee shall deem most effectual to
protect and enforce any of such rights, either by suit in equity
or by action at law or by proceeding in bankruptcy or
otherwise, whether for the specific enforcement of any
covenant or agreement contained in this Indenture or in aid of
the exercise of any power granted in this Indenture, or to
6
enforce any other legal or equitable right vested in the Trustee
by this Indenture or by law.
JX 14 at 28. In this case, the plaintiffs seek either a decree of specific performance
mandating that Bancorp comply with the Successor Obligor Provision or the functionally
equivalent remedy of a permanent injunction against the sale of BankAtlantic to BB&T.
B.
Bancorp’s Dependence On BankAtlantic
In 2002 and 2003, when the bulk of the TruPS were issued, Bancorp described
itself in its annual reports on Form 10-K as a “diversified financial services holding
company.” JX 2 at 2; JX 17 at 2. At the time, in addition to BankAtlantic, Bancorp
owned Levitt Corporation, a real estate company, and Ryan Beck & Co., Inc., an
investment bank with approximately forty offices nationwide.
Through these
subsidiaries, Bancorp “provide[d] a full line of products and services encompassing
consumer and commercial banking, real estate development, and brokerage and
investment banking.” JX 17 at 2. Bancorp spun off Levitt Corporation in 2003 and sold
Ryan Beck & Co., Inc. to Stifel Financial Corporation in 2007.
Even when it held other businesses, Bancorp‟s financial health depended on
BankAtlantic, its principal asset. In 2002, Bancorp disclosed that about 69% of its
consolidated revenues came from BankAtlantic, which provided Bancorp‟s “principal
source of liquidity.” JX 17 at 57; JX 1 at S-4. Bancorp further explained that its ability
to repay approximately $246.2 million in debt, the bulk comprising subordinated notes
underlying the TruPS, was “largely dependent on BankAtlantic‟s ability to pay
dividends” to Bancorp. JX 17 at 14.
7
From 2002 to 2007, Bancorp‟s corporate strategy revolved around growing
BankAtlantic.
In 2002, Bancorp sought to increase BankAtlantic‟s core deposits
(generally demand deposit accounts, negotiable order of withdrawal (NOW) checking
accounts, and savings accounts) by marketing BankAtlantic as “Florida‟s Most
Convenient Bank.” Bancorp spent upwards of $100 million on the campaign and created
a highly valuable brand.
BankAtlantic‟s core deposits increased from approximately
$600 million at the end of 2001 to $2.8 billion at the end of 2010.
Since 2007, Bancorp has described itself in its public filings as a “unitary savings
bank holding company” whose “principal asset” is its investment in BankAtlantic. JX
154 at 8. Bancorp currently has few assets and no meaningful operations other than
BankAtlantic. Bancorp‟s only other business is a workout subsidiary formed in 2008 to
move non-performing loans off BankAtlantic‟s balance sheet. As of December 31, 2010,
BankAtlantic had 1,202 full-time employees; Bancorp employed eight. During the first
nine months of 2011, BankAtlantic generated $110 million in interest income; Bancorp
generated $196,000.
C.
Bancorp Suffers From The Downturn In The Florida Real Estate Market.
BankAtlantic‟s loan portfolio is concentrated in the Florida real estate market.
Since 2007, BankAtlantic‟s results have suffered with that market. In 2008, 2009, and
2010, Bancorp reported losses of $202.6 million, $185.8 million, and $145.5 million,
respectively. BankAtlantic has not paid dividends to Bancorp since 2008, and Bancorp
does not expect to receive dividends in the foreseeable future. Over the same period,
Bancorp‟s stock price declined from $142.42 at the beginning of 2007 to a low of $1.39
8
in March 2009. On October 31, 2011, the day before the sale to BB&T was announced,
Bancorp‟s stock closed at $2.37.
In the first quarter of 2009, Bancorp began deferring interest payments on the Debt
Securities, forcing the Trusts to defer dividend payments on the TruPS. As of December
31, 2010, Bancorp owed $322 million on the Debt Securities, including $28.2 million in
deferred interest. Assuming flat interest rates and the continuing deferral of interest
payments, Bancorp estimates that it will owe $367.8 million, including $74 million in
deferred interest, by December 31, 2013. Bancorp would be obligated to bring the
interest portion current in the first half of 2014.
D.
Bancorp Tries To Raise Capital.
In 2009, with losses mounting, Bancorp realized that it needed to raise capital.
Management hired an investment bank and went on a road show to raise $75 million. No
one was interested. Investors feared that Bancorp would not be able to put new money to
work; instead it would hold the funds to meet capital requirements or use them to pay
down debt.
After failing to find new investors, Bancorp turned to its existing stockholders. In
September 2009, Bancorp sought $100 million in a rights offering but raised only $75
million. In July 2010, Bancorp sought another $25 million in a rights offering but raised
only $20 million. In June 2011, Bancorp sought another $30 million in a rights offering
but raised just $11 million.
9
E.
Bancorp Tries To Sell Its Tampa Branches And Deposits.
With its capital-raising strategy played out, Bancorp began selling assets. In 2010,
BankAtlantic offered to sell its Tampa branches and approximately $350 million in
deposits.
Ten parties signed nondisclosure agreements, and four completed due
diligence.
Bancorp received two bids offering deposit premiums of 2% and 4%.
Bancorp rejected the offers as inadequate.
The concept of a “deposit premium” reflects the unique role that deposits play in a
bank. Technically, deposits are liabilities, and customers can withdraw them at any time.
Before the advent of federal deposit insurance, banks faced a real risk of a run like the
one dramatized in Frank Capra‟s 1946 film, “It‟s a Wonderful Life.” But in a world with
federal deposit insurance and where transferring an account to a new institution carries
exit fees and forces the customer to re-establish a host of convenient features (such as
direct deposit, automatic payments, and electronic bill-pay), deposits are sticky. As a
practical matter, core deposits provide banks with stable, low-cost financing. As such,
core deposits contribute significantly to bank profitability by lessening or eliminating the
need for higher-cost financing and enabling banks to earn a wider spread when making
longer-term, higher-interest-rate investments, such as real estate loans.
Banks also
generate fee income from deposit accounts and can leverage their customer relationships
to sell other products. Federal regulators view core deposits favorably and believe that
“generally, banks‟ increasing reliance on core deposits reduces the chance of failure and
reduces the [Deposit Insurance Fund‟s] losses when banks do fail.” Federal Deposit
Insurance Corporation, Study on Core Deposits and Brokered Deposits 3 (July 8, 2011),
10
available at http://www.fdic.gov/regulations/reform/coredeposit-study.pdf (last visited
February 27, 2012). For all of these reasons, banks willingly pay a premium for deposits,
typically structured by having the acquiring institution assume a larger quantum of
deposits than the assets transferred.
As of December 31, 2010, BankAtlantic held approximately $2.8 billion in core
deposits. Bancorp had invested significantly to build that deposit base. Levan testified
BankAtlantic‟s “deposit base is recognized not only in Florida but nationally as being one
of the best deposit bases.” Tr. 750.
F.
Bancorp Tries To Sell Itself.
Several of the potential bidders in the Tampa process expressed interest in a
whole-company acquisition. Encouraged by the overtures, Bancorp embarked on a sale
process in fall 2010. Bancorp entered into nondisclosure agreements with at least fifteen
parties and had serious discussions with at least four.
Throughout the sale process, one item of concern for all potential bidders was a
securities class action pending in the United States District Court for the Southern
District of Florida (the “Florida Securities Action”). The plaintiffs in that action alleged
that Bancorp and certain of its officers made false and misleading statements about
BankAtlantic‟s loan portfolio and related loss allowances. After the Florida Securities
Action was filed, the SEC opened an investigation into the same issues. The SEC later
filed a complaint seeking to impose fines on Levan and Bancorp and bar Levan from
serving as an officer or director of a public company.
11
Bancorp management was and remains convinced that the claims advanced by the
securities plaintiffs and the SEC are “bogus.” Tr. 758. Management expressed this view
to bidders and assured them that the litigation posed no risk. Despite management‟s
confidence, in August 2010, the District Court issued a lengthy opinion which, among
other rulings, held that Levan made objectively false statements to investors regarding
BankAtlantic‟s loan portfolio and granted partial summary judgment in favor of the
plaintiffs. See In re BankAtlantic Bancorp, Inc. Sec. Litig., 2010 WL 6397500, at *26-31
(S.D. Fla. Aug. 18, 2010), recons. denied, 2010 WL 6352664 (S.D. Fla. Sept. 9, 2010).
During trial in this case, Bancorp‟s witnesses and its counsel vigorously disputed that
ruling. I simply note its occurrence.
With trial in the Florida Securities Action set to begin in October 2010, three of
the four remaining bidders declined to submit indications of interest. The fourth bidder
(“Bidder 1”) expressed interest in purchasing Bancorp for $158.3 million.
On November 18, 2010, the jury in the Florida Securities Action returned a verdict
against Bancorp. At that point, “having difficulty getting a handle on the litigation,”
Bidder 1 indicated that it would reduce its bid to the $50 million range. JX 94 at 11. On
November 30, Bidder 1 sent Bancorp a non-binding indication of interest in a transaction
at approximately $50 million, representing $.80 per common share (the “Bid Letter”).
At trial in this action, Levan derided the Bid Letter as “a bedbug letter” that was
“not a serious overture.” Tr. 761, 841. According to him,
Bidder 1 threw out a number, and then about a week later or
two weeks later reduced that number in half. Then they
reduced it again. Then they increased it a little bit. And we
12
finally just got frustrated and said, “This is not going
anywhere,” and we terminated that process.
Tr. 756. In presentations to the Bancorp board, Levan described the letter in similar
terms and concluded that Bidder 1 “no longer had any intention to buy.” Tr. 761. He did
not provide the directors with an actual copy of the letter. According to the minutes of a
board meeting on December 1, 2010, Levan
summarized the provisions in the letter including the
reduction of the price to 80¢ per share and noted that it
remained subject to substantial additional due diligence, the
elimination of pre-closing capital from the [Bid Letter] and
the absence of severance provisions . . . . It was noted that
due to the content of the [Bid Letter] it did not seem realistic
to continue discussions relating to a transaction. Chairman
Levan believed that it was time to bring this ongoing process
to closure.
JX 94 at 13.
Nothing on the face of the Bid Letter or otherwise in the record indicates that
Bidder 1 was not serious. To the contrary, Bidder 1 is a well-known national financial
institution with over $100 billion in assets. The Bid Letter was in customary form. It
represented that Bidder 1 had never failed to execute on an announced transaction, and no
one has suggested that its claim was incorrect. The due diligence requests that Levan
found so troubling asked for additional information about the Florida Securities Action,
the SEC investigation, and other ongoing litigation, including easily obtainable materials
such as the trial transcripts. Given the risks facing BankAtlantic, the recent adverse jury
verdict, and the sharp contrast between the verdict and management‟s long-standing
bullishness on the litigation, these were reasonable requests.
13
Moreover, contrary to Levan‟s representation to the board, the Bid Letter
contemplated that Bidder 1 would contribute interim capital to Bancorp, and Bidder 1
made clear that it “anticipate[d] that any such capital infusion by [Bidder 1] would be
infused between signing and closing of the merger transaction . . . .” JX 369 at 2-3. Also
contrary to what Levan told the board, the Bid Letter addressed severance and
contemplated “a severance package consistent with the terms and conditions of [Bidder
1‟s] own severance plans (which recognize credit for years of service) . . . .” JX 369 at 2.
Quite reasonably, Bidder 1 only contemplated paying severance to those executives who
did not continue their employment, i.e., those actually severed. Id. Levan, by contrast,
demanded that the full executive team receive severance and bonuses “regardless of
employment.” JX 94 at 3 (minutes of November 13, 2010 board meeting). During a
November 15, 2010 meeting, Levan took the position that “management should be
compensated [with severance] whether they are retained or not,” even after Bidder 1
made clear that it would “reduce the [transaction] price by that difference if [the
additional severance] is paid.” Id. at 5-6. At a November 23, 2010 meeting, Levan
advised the board in his capacity as a principal of BFC, the controlling stockholder of
Bancorp, that he might consider moving forward at a $115-125 million price, but
otherwise he would recommend that BFC veto any transaction.
Id. at 11.
Levan
regarded a $50-60 million purchase price as inadequate for Bancorp‟s equity.
During the December 1 meeting, based on Levan‟s description of the Bid Letter
and his interpretation of Bidder 1‟s seriousness, the board agreed to terminate
negotiations with Bidder 1.
14
G.
BankAtlantic Sells The Tampa Branches And Deposits.
Shortly after Bancorp terminated the whole-company sale process, PNC Bank
contacted Bancorp about purchasing BankAtlantic‟s Tampa branches and deposits.
Levan described his response:
I was pretty frustrated and pretty disgusted. And I, in a—in a
moment of probably part stupidity, part ego, I said, “Well, I‟ll
sell it to you at 10 percent premium.” And nobody had gotten
a 10 percent premium in this country for deposits in four
years, and our other two bids were 2 percent and 4 percent.
Tr. 766. PNC accepted, and on January 28, 2011, Bancorp agreed to sell nineteen
branches and $350 million in deposits to PNC. On a book value basis, BankAtlantic
transferred approximately $35 million less in cash than the book value of the transferred
deposits, generating the 10% premium.
H.
Levan Devises A New Sale Structure.
The sale of the Tampa branches and deposits temporarily buoyed Bancorp‟s
financial results, but not enough to satisfy bank regulators. On February 23, 2011, the
Office of Thrift Supervision4 required that Bancorp and BankAtlantic enter into Cease
and Desist Orders in light of their losses over the past three years, their inadequate capital
relative to their risk profile, and BankAtlantic‟s high levels of classified assets (discussed
in greater detail below). Among other things, the Cease and Desist Orders prevented
BankAtlantic from paying dividends or transferring any assets to Bancorp without
4
The regulatory scene has since changed. Bancorp is now regulated by the
Federal Reserve. BankAtlantic is now regulated by the Office of the Comptroller of the
Currency and the Federal Deposit Insurance Corporation.
15
regulatory approval.
BankAtlantic was required to increase its capital, meet higher
capital ratios than other thrifts, and stop originating commercial real estate loans.
The implicit message of the Cease and Desist Orders seems clear: regulators
wanted BankAtlantic to become part of a stronger, better-capitalized franchise. For
Levan, however, selling was not attractive.
He had just completed a process that
generated a single offer of $50 million, which he told his board BFC would block as
inadequate. Despite having advised his fellow directors that the offer was “not serious,”
Levan‟s intuition told him it was pretty close to market. As Levan explained at trial, “[i]n
the best of times you get the two times book value but, clearly, we were not in the best of
times, nor were we the best candidate.” Tr. 791. A book value metric suggested a sale
price of $7-14 million. As an alternative measure, Levan understood that historically
buyers would pay up to a 30% premium to market. In the second quarter of 2011,
Bancorp‟s trading price implied a range of $45-79 million. At the time, Levan thought
Bancorp realistically could expect $14-48 million for the whole company. Tr. 792-97.
In July 2011, inspired by the deposit premium he had obtained in the Tampa
branch transaction, Levan devised a new structure. Bancorp would sell BankAtlantic as a
“clean” franchise without any criticized assets and without the Debt Securities.
In
Levan‟s words, the pitch would be: “Deposits and performing loans only. No Trups. No
classifieds. No non performing.” JX 119. As sold, BankAltantic would be in “pristine
condition.” JX 121. Bancorp would keep and manage the remaining assets through an
entity called “Retained Assets LLC.” In essence, Levan was proposing a “good bank/bad
16
bank” structure, a standard technique used by regulators when resolving troubled banks
and thrifts.5
After Levan decided on this route, Bancorp engaged two financial advisors,
Sandler O‟Neill & Partners and Cantor Fitzgerald & Co., to contact potential bidders.
The “pitch book” outlining the transaction stated that Bancorp was “pursuing the
monetization of it‟s [sic] core banking franchise” and that “existing criticized assets will
not be included in the sale.” JX 139 at 5. The pitch book advised potential bidders that
Bancorp “will only consider a transaction with an „effective deposit premium‟ in excess
of 10%.” Id. at 7. As the pitch book explained, the deposit premium would not be paid
in cash, but rather would be conveyed through the exclusion from the sale of criticized
assets with a book value of approximately $600 million (the “Retained Assets”). At
closing, BankAtlantic would transfer the Retained Assets to Retained Assets LLC, and
“Retained Assets LLC will be distributed to Bancorp simultaneously with the Buyer‟s
purchase of 100% of Bank stock from Bancorp.”
Id. at 6.
As of that instant,
BankAtlantic would have approximately $3.4 billion in liabilities and $3.1 billion in
assets. By purchasing the stock of BankAtlantic, the acquirer would receive an entity
5
Interested readers can find extensive commentary on the “good bank/bad bank”
concept. See, e.g., James B. Thomson, Cleaning Up the Refuse From a Financial Crisis:
The Case for a Resolution Management Corporation, 10 Fla. St. U. Bus. Rev. 1, 3-12
(2011); Douglas Faucette et al., Good Bank/Bad Bank, 126 Banking L.J. 291, 292 (2009);
Thomas H. Stanton, The Failure of Fannie Mae and Freddie Mac and the Future of
Government Support for the Housing Finance System, 18 J.L. & Pol‟y 217, 244 (2009).
17
with approximately $300 million more in liabilities than assets, resulting in an effective
premium of 10%. Id. at 7.
The pitch book accurately described the Retained Assets as the consideration for
the sale. Levan likewise described the “classified loans to Bancorp” as the “[p]urchase
price consideration” paid by the acquirer. JX 120. He explained that the “winning bidder
would be the one that allows the most assets to be retained by [Retained Assets LLC].”
JX 124.
Beginning in September 2011, Sandler O‟Neill and Cantor Fitzgerald contacted
twenty-four companies. Nine expressed interest and executed nondisclosure agreements.
Three others expressed interest but said they were preoccupied and could not consider a
transaction for two or three months. One of the three was Bidder 1. Bancorp did not
adjust its timeline to allow any of the three to participate. Bancorp also signaled its
unwillingness to consider alternative structures, such as a whole-company sale or a
transaction in which the acquirer would assume the Debt Securities.6 At least two
6
See, e.g., JX 119 at 2 (outlining structure and noting that “it may take a while” to
close a deal but that Bancorp “might as well set forth the opportunity and wait for
someone to hit the bid”); JX 139 at 7 (sale process summary stating that Bancorp “will
only consider a transaction with an „effective deposit premium‟ in excess of 10%”)
(emphasis added); JX 254 (“Bancorp instructed its investment bankers to advise bidders
that a bid which did not include at least the amount of the required purchase premium for
BankAtlantic and provisions for the distribution to Bancorp of all criticized and other
identified assets would not be considered.”); Tr. 176-77 (Sandler O‟Neill lead banker
testifying that Bancorp never offered another structure and consistently took the position
that it would not consider any offer with a deposit premium under 10%).
18
potential bidders could have benefited from the TruPS, but Bancorp only was interested
in a “good bank/bad bank” transaction.
I.
The Sale To BB&T
Only BB&T met Bancorp‟s demand for a 10% deposit premium. On September
30, 2011, BB&T submitted an indication of interest on that basis. JX 155. On November
1, 2011, BB&T and Bancorp entered into a definitive stock purchase agreement (the
“Stock Purchase Agreement” or “SPA”). Bancorp and BB&T never explored any other
structures that might have involved assuming the Debt Securities.
Pursuant to the Stock Purchase Agreement, BB&T will acquire all of
BankAtlantic‟s stock (the “Sale Transaction”).
At closing, during the mystical
singularity of the effective time, BankAtlantic will first transfer assets with a book value
of $623.6 million to Retained Assets LLC, then distribute the membership interests in
Retained Assets LLC to Bancorp. At that point, Bancorp will transfer the stock of
BankAtlantic to BB&T. See SPA § 2.3; see also Tr. 173, 460-461. As the defendants
concede, “[t]he ownership of Retained Assets LLC cannot be divested by BankAtlantic
nor owned directly by [Bancorp] until regulatory approval of the Sale Transaction is
obtained.” Bancorp‟s Post-Trial Br. (“BPTB”) 1 n.2. Regulators only will approve the
transfer of the Retained Assets from BankAtlantic to Bancorp because BB&T has agreed
to recapitalize BankAtlantic to fill the resulting capital hole. See SPA § 5.10.
Through the Sale Transaction, BB&T will gain sole ownership of an entity with
approximately $3.4 billion of liabilities and approximately $3.1 billion of assets. The
liabilities consist almost entirely of deposits. The assets include approximately $2.1
19
billion in performing loans, BankAtlantic‟s network of 78 branches, and Bancorp‟s
180,000 square foot corporate headquarters building. Post-closing, Bancorp will rent up
to 20,000 square feet of office space in its former headquarters from BB&T. Through
BankAtlantic, BB&T will own 400,000 customer deposit relationships and all rights to
BankAtlantic intellectual property, including the slogan “Florida‟s Most Convenient
Bank.” Almost 950 of BankAtlantic‟s 1,000 full time employees will join BB&T or be
severed. Confirming that Bancorp will not be continuing in the traditional banking
business, Levan and several other Bancorp executive officers will enter into three-year
non-competition agreements prohibiting them from engaging in bank depository
activities.
BB&T will not pay Bancorp any cash for BankAtlantic. Rather, the consideration
will take the form of the Retained Assets. These consist largely of “criticized assets,”
meaning those assets that BankAtlantic has categorized as having enhanced credit risk
based on regulatory guidelines. The Retained Assets include all of BankAtlantic‟s loans
graded “Special Mention,” defined by Bancorp as loans that have “potential weaknesses
[which] may result in deterioration of the repayment prospects for the asset” and “deserve
management‟s close attention,” but “do not expose the bank to sufficient risk to warrant
adverse classification.” JX 136 at 10. The Retained Assets also include BankAtlantic‟s
“classified” assets, such as all of BankAtlantic‟s loans and tax certificates that were either
“non-performing” or performing but graded as “substandard.” According to Bancorp,
“substandard” loans are “inadequately protected,” have “weaknesses that jeopardize the
liquidation of the debt,” and “are characterized by the distinct possibility that the bank
20
will sustain loss if the deficiencies are not corrected.” Id. at 9. The Retained Assets also
include all other BankAtlantic-owned real estate, i.e., foreclosed properties.
Retained Assets LLC will have liabilities of $16.7 million and assets with a net
book value of $623.6 million. As of September 30, 2011, the Retained Assets consisted
of “approximately $271.3 million of performing loans, $315.2 million of non-performing
loans, of which $96.5 million were paying as agreed, $18.7 million in tax certificates,
$83.4 million of real estate owned, and reserves related to these assets totaling $81.9
million.” JX 205 at Ex. 99.1 at 1. Bancorp expects to “earn about $14 million a year on
interest” from the Retained Assets. Tr. 62; JX 178. By contrast, BankAtlantic generated
$110 million in interest income during the first nine months of 2011. Toalson projects
annual post-transaction expenses for Bancorp, including interest on the Debt Securities,
of nearly $30 million per year.
J.
The Reaction To The Sale Transaction
Bancorp announced the Sale Transaction on November 1, 2011. Its common stock
closed that day at $5.00 per share, an increase of 111% over the prior day‟s closing price.
Under the Stock Purchase Agreement, Bancorp agreed to bring current the $39 million in
deferred interest owed on the Debt Securities. SPA § 5.18. Not surprisingly, the market
price of the TruPS issued by BBC Capital Trust II, the only publicly traded series,
increased significantly as well, rising by 99.5% from $11.00 to $21.95. After deducting
the anticipated payment of $6.51 in deferred interest per share, the TruPS still traded at
only 62% of par value.
21
Despite the market reaction, many TruPS holders were not happy with the deal.
On November 22, 2011, Wilmington Trust issued notices of default as Indenture Trustee
for BBC Capital Trust II, BBC Capital Trust XI, and BBX Capital Trust 2007 II(a). On
November 28, 2011, the non-trustee plaintiffs filed this litigation. On January 6, 2012,
Wells Fargo issued notices of default for BBC Capital Trust IX and BBC Capital Trust
XII. Both Wilmington Trust and Wells Fargo intervened as additional plaintiffs.
II.
LEGAL ANALYSIS
This case poses two questions:
whether the Sale Transaction violates the
Successor Obligor Provision, and if so, what is the appropriate remedy. Because of my
answers to these questions, I do not reach other issues that the parties have presented,
such as the plaintiffs‟ claim for breach of the implied covenant of good faith and fair
dealing or the trustees‟ proposed alternative forms of relief.
A.
The Successor Obligor Provision
Whether the Sale Transaction complies with the Successor Obligor Provision
presents a question of contract law. Seven of the Indentures select New York law to
govern their terms. The eighth selects Florida law. The parties have not identified any
material difference between New York and Florida law. Because New York law is far
more developed, I rely on authorities applying New York law to analyze the case.
1.
The Interpretation Of A Successor Obligor Provision
“Successor obligor provisions in bond indentures consist of market-facilitating
boilerplate language.” Bank of N.Y. Mellon Trust Co. v. Liberty Media Corp., 29 A.3d
225, 241 (Del. 2011) (applying New York law). Boilerplate terms in indentures are “not
22
the consequence of the relationship of particular borrowers and lenders and do not
depend upon particularized intentions of the parties to an indenture.” Sharon Steel Corp.
v. Chase Manhattan Bank, N.A., 691 F.2d 1039, 1048 (2d Cir. 1982). “Therefore, in
interpreting boilerplate indenture provisions, courts will not look to the intent of the
parties, but rather the accepted common purpose of such provisions.” Liberty Media, 29
A.3d at 241 (internal quotation omitted). “Courts strive to give indenture provisions a
consistent and uniform meaning because uniformity in interpretation is important to the
efficiency of capital markets.” Concord Real Estate CDO 2006-1, Ltd. v. Bank of Am.
N.A., 996 A.2d 324, 331 (Del. Ch. 2010) (internal quotation omitted), aff’d, 15 A.3d 216
(Del. 2011) (TABLE).
“Courts enhance stability and uniformity of interpretation by looking to the multidecade efforts of leading practitioners to develop model indenture provisions.” Id. The
authoritative commentary on indenture provisions begins with a 1971 volume, published
by the American Bar Foundation, entitled Commentaries on Model Debenture Indenture
Provisions 1965, Model Debenture Indenture Provisions All Registered Issues 1967, and
Certain Negotiable Provisions [hereinafter the Commentaries].
The Commentaries
“provide powerful evidence of the established commercial expectations of practitioners
and market participants.” Concord Real Estate, 996 A.2d at 331.
Article Eight of the Commentaries addresses successor obligor provisions and sets
out a model provision comparable in all material respects to those in the Indentures. It
states:
“The Company shall not . . . convey or transfer its properties and assets
substantially as an entirety to any Person . . . .”
23
Commentaries at 292.
The
Commentaries explain that a covenant of this type is necessary because, if the issuer
transferred substantially all of its assets, then “the obligor named in the indenture would
cease to operate the business to which, in practical effect, the debentureholders have
looked for payment of the debentures.” Id. at 423.
Courts have described successor obligor provisions in similar terms.
In the
seminal Sharon Steel case, the United States Court of Appeals for the Second Circuit
explained that the provisions “protect lenders . . . by assuring a degree of continuity of
assets.” Sharon Steel, 691 F.2d at 1050.
The decision to invest in the debt obligations of a corporation
is based on the repayment potential of a business enterprise
possessing specific financial characteristics. . . . Obviously, if
the enterprise is changed through . . . disposition of assets, the
financial characteristics and repayment potential on which the
lender relied may be altered adversely.
Id. (quoting Commentaries at 290). “[A] borrower which sells all its assets does not have
an option to continue holding the debt. It must either assign the debt or pay it off.” Id.
At the same time, successor obligor provisions ensure that borrowers have the flexibility
to “to sell entire businesses and liquidate, . . . or to liquidate their operating assets and
enter a new field free of the public debt,” so long as the debt is transferred along with
substantially all of the assets or is otherwise paid. Id. at 1051.
New York law teaches that when determining whether a transaction conveys
“substantially all” of a company‟s assets for purposes of a successor obligor provision,
courts consider both quantitative and qualitative factors. HFTP Invs., L.L.C. v. Grupo
TMM, S.A., 2004 WL 5641710, at *2 (N.Y. Sup. Ct. June 4, 2004), aff’d, 795 N.Y.S.2d
24
555 (N.Y. App. Div. 2005). At times, the quantitative percentage of assets sold may be
so low that examining the qualitative factors is unnecessary. See, e.g., Sharon Steel, 691
F.2d at 1051. In the typical case involving a significant sale, however, a court will need
to weigh both quantitative and qualitative factors as a totality. Qualitative factors include
whether the transaction results in a fundamental change in the nature or character of the
entity, involves the entity‟s primary operating assets, or is out of the ordinary course of
business. See HFTP, 2004 WL 5641710, at *4.
2.
Quantitative Factors
As reported in its annual report on Form 10-K for the year ended December 31,
2010, the most recent annual filing before the announcement of the Sale Transaction,
Bancorp‟s assets as of that date had a book value of $338.8 million. Bancorp‟s 100%
ownership of the stock of BankAtlantic had a book value of $286.6 million. Using these
figures, Bancorp will convey 85% of its assets in the Sale Transaction. As reported in its
annual report on Form 10-Q for the quarter ended September 30, 2011, the most recent
quarterly filing before the Sale Transaction, the corresponding book value for all of
Bancorp‟s assets was $341.4 million. The book value for all of Bancorp‟s BankAtlantic
stock was $306 million. Using these figures, Bancorp will convey 90% of its assets in
the Sale Transaction.
Measuring Bancorp‟s ownership of BankAtlantic on a book value basis applies a
conservative metric by ignoring BankAtlantic‟s value as a going concern. Nothing in
New York law suggests that a court is limited to book value when evaluating a parent
corporation‟s 100% equity interest in an operating subsidiary. A court readily could
25
value a 100% equity interest using other methodologies, such as a discounted cash flow
analysis, comparable transactions analysis, or comparable company analysis. A court
could take into account factors such as earnings potential and goodwill. Yet even under
the conservative book value metric, Bancorp will transfer 85-90% of its assets.
Bancorp objects to these calculations because they use figures for BankAtlantic
that include the value of the Retained Assets. Bancorp points out that in the Sale
Transaction, it will sell BankAtlantic but keep the Retained Assets. Having structured
the Sale Transaction in this manner, Bancorp takes the view that BankAtlantic‟s stock has
negative value at the time of the Sale Transaction and that BB&T is paying zero for
BankAtlantic. This theory forms the centerpiece of Bancorp‟s case.7
To get this result, Bancorp starts with a pre-closing book value for BankAtlantic‟s
stock of $306 million. Bancorp then subtracts the $606.9 million net book value of the
Retained Assets that will leave BankAtlantic an instant before BB&T acquires its shares,
causing BankAtlantic‟s equity at that climactic moment to have a book value of negative
7
See, e.g., BPTB 1-2 (“BB&T will acquire the thrift stock and pay nothing for it
other than its willingness to acquire capital stock in an entity with $300 million more in
liabilities than assets. Thus, the net market value of the thrift‟s stock, including the
deposit premium, is zero.”); id. at 2 (“A sale of an asset with a market value of zero and a
negative book value of $300 million, while retaining an asset with a book value of
approximately $600 million is not, as a matter of fact, a sale of all or substantially all of
the assets of [Bancorp].”); id. at 19 (“[T]he effective purchase price for the equity in
BankAtlantic is zero . . . .”); id. at 33-34 (“Because the corporate stock being transferred
to BB&T will have a net book value of approximately negative $301 million and a
market value of zero . . . the Sale Transaction is not a sale of all or substantially all of
[Bancorp‟s] assets . . . .”); id. at 36-37 (“[Bancorp] is selling the stock of the thrift in a
market value transaction in which it will receive nothing . . . .”).
26
$301 million. Because no cash or other asset will come directly from BB&T‟s balance
sheet, Bancorp argues that BB&T will not pay anything.
Consequently, Bancorp
concludes it must be conveying zero percent of its assets.
As a threshold matter, Bancorp‟s position rests on the illogical and counter-factual
premise that BankAtlantic (the “good bank”) is worth nothing, while Retained Assets
LLC (the “bad bank”) is worth $606.9 million. Bancorp has it precisely backwards.
Buyers actually wanted and were willing to pay a premium for BankAtlantic. Buyers
were scared away from and did not want to purchase the Retained Assets. The idea that
BankAtlantic will be made less valuable, rather than more valuable, by shedding the
Retained Assets is counterintuitive and inherently suspect.
In reality, the Retained Assets constitute the consideration for the Sale
Transaction. The evidence at trial established this point. Levan, the architect of the
transaction, explained in a July 7, 2011, email to his son Jarett and CFO Toalson that the
transfer of the “[c]lassified loans to Bancorp” would be the “[p]urchase price
consideration.” JX 119. In a July 13, 2011, memorandum explaining the structure in
greater detail, Levan again stated that “Bancorp would retain all the classified loans as
part of the purchase consideration.” JX 121. At trial, Levan testified that the “purchase
price consideration that BB&T was paying [was] the retained assets that they were
allowing Bancorp to obtain at the same time that the deal closed.” Tr. 852. Jarett Levan
testified that the transfer of Retained Assets LLC was “the purchase price that‟s being
paid by BB&T.” Tr. 35. He elaborated: “[T]hey‟re not paying cash; they‟re paying with
27
retained assets . . . . They‟re just transferring the retained assets as the effective purchase
price.” Id. at 36.
Bancorp‟s financial advisors understood this fact as well.
Cantor Fitzgerald
rendered an opinion on the financial fairness of the transaction to Bancorp‟s stockholders.
Its underlying analyses “confirm[ed] the fairness of the consideration to be received
across a variety of metrics,” and Cantor Fitzgerald concluded that the consideration
reflected a “[h]igh premium to book value.” JX 186 at 9. Cantor Fitzgerald calculated
the premium by dividing the net book value of the Retained Assets (computed to be $607
million) by the $306 million book value of Bancorp‟s investment in BankAtlantic,
yielding a Price/Book ratio of 198% ($607 million/$306 million). According to Cantor
Fitzgerald, the Sale Transaction favored Bancorp because, in exchange for selling a
subsidiary with a positive book value of $306 million, Bancorp received assets with a
value that implied an above-market premium based on comparable companies and
precedent transactions. Cantor Fitzgerald did not think that Bancorp was getting zero for
BankAtlantic.
Sandler O‟Neill also rendered an opinion on the financial fairness of the
transaction to Bancorp‟s stockholders. It too understood that Bancorp was receiving
positive value from BB&T. When describing the transaction, Sandler O‟Neill noted that
BB&T “bears the cost of filling the negative asset value of ($300.9) million plus the cost
to recapitalize the balance sheet of $224.3 million (assuming a [Tangible Common
Equity/Tangible Assets] ratio of 6.84%) or a total of $538.8 million.” JX 194. Sandler
28
O‟Neill treated the $538.8 million as an alternative measure of the purchase price that
Bancorp received.
I therefore find as a factual matter that the Retained Assets represent the
consideration paid by BB&T, just as Levan and his advisors understood it. I would reach
the same conclusion as a matter of economic substance. The Sale Transaction is a single,
integrated transaction, as Bancorp finally conceded in its post-trial brief. See BPTB 1 n.2
(“this is an integrated transaction”). At the effective time, during the lifespan of a
decaying muon, three interrelated transactions will happen sequentially:
first,
BankAtlantic will transfer the Retained Assets to Retained Assets LLC; second,
BankAtlantic will distribute membership interests in Retained Assets LLC to Bancorp;
and third, Bancorp will transfer shares of stock in BankAtlantic to BB&T. Contractually
under the Stock Purchase Agreement and legally under the Cease and Desist Orders, none
of the transactions can take place unless all three take place.
In this integrated
transaction, Bancorp gives the stock of BankAtlantic and gets membership interests in
Retained Assets LLC. One is consideration for the other.
To make this fact plainer, assume that in lieu of criticized assets with a book value
of $606 million, the Retained Assets will consist of $606 million in cash. In other words,
at closing BankAtlantic would transfer $606 million in cash to Retained Assets LLC, then
distribute the equity of Retained Assets LLC to Bancorp an instant before Bancorp would
transfer the stock of BankAtlantic to BB&T.
Compare this scenario with a sale
transaction in which the only events to take place at closing would be the transfer of
BankAtlantic stock to BB&T in return for the transfer of $606 million in cash from
29
BB&T to Bancorp. No one would be fooled into thinking there was any difference in the
economic substance of these transactions. Everyone would see that cash was exchanged
for stock with the only differences being timing and route. In the first scenario, the cash
transfer would occur just before stock transfer, come from BankAtlantic‟s balance sheet,
and be replaced by BB&T post-closing. In the second scenario, the cash transfer would
occur just after stock transfer and come directly from BB&T‟s balance sheet. The same
$606 million would change hands in each case.
In the Sale Transaction as actually structured, Retained Assets LLC will own
criticized assets with a book value of $606 million rather than $606 million of cash.
Reasonable minds can debate whether the Retained Assets are worth $606 million, but no
one can legitimately dispute that the Retained Assets are the consideration for the sale of
BankAtlantic, just as Levan envisioned and the financial advisors understood. But see
BPTB 2 (asserting that treating the Retained Assets as consideration “has no factual
foundation”).
With the Retained Assets properly recognized as consideration for the sale of
BankAtlantic‟s stock, it becomes clear that the percentage of assets sold on a book value
basis must be calculated by comparing the book value of Bancorp‟s BankAtlantic stock
including the Retained Assets with the book value of all of Bancorp‟s assets. To use the
book value of BankAtlantic‟s stock without the Retained Assets would incorporate into
the calculation the consideration that Bancorp received. Under New York law, a court
cannot count the consideration the seller received when determining whether a
transaction constitutes a sale of substantially all of the seller‟s assets. “Indeed, if the
30
percentage of assets sold were to be calculated as the difference between the value of presale assets, on the one hand, and the value of post-sale assets plus sale proceeds, on the
other, an entity would almost never be deemed to have sold substantially all of its assets .
. . .” HFTP, 2004 WL 5641710, at *3; accord Sharon Steel, 691 F.2d at 1049 (rejecting
“literalist” interpretation that proceeds from sale of assets are “assets” such that after a
transaction a company would “continue[] to own „all‟ its „assets‟ . . . since the proceeds . .
. went into the [company] treasury”). That the currency for the transaction took a form
other than cash (viz., ownership interest in Retained Assets LLC) does not change this
principle.
If accepted, Bancorp‟s “zero consideration” argument would pave an easily
traveled superhighway around the substantially all test. Bancorp has conceded that if it
sold BankAtlantic to BB&T for $606 million in cash, the transaction would constitute a
sale of substantially all its assets.
As previously explained, there is no economic
difference between a direct stock-for-cash transfer and the Sale Transaction. If routing
the consideration through the subsidiary enabled a seller to circumvent a successor
obligor provision, future transaction planners could sidestep the restriction whenever a
subsidiary had sufficient assets to distribute consideration to the parent. Moreover,
transaction planners could create a gift subsidiary with sufficient assets for distribution
through the simple expedient of having the subsidiary borrow funds. The subsidiary then
would have cash to transfer to “Retained Cash LLC,” and the subsidiary could distribute
the equity in “Retained Cash LLC” to its parent just before the parent transferred the
31
stock of the subsidiary to the acquirer. At the moment of transfer, by dint of the
outstanding loan, the subsidiary conveniently would have negative book value.
Channeling the consideration through a subsidiary does not change the nature of
the deal. From a quantitative standpoint, Bancorp is selling 85-90% of its assets in the
Sale Transaction.
3.
Qualitative Factors
BankAtlantic always has been Bancorp‟s principal asset and, since February 2007,
has been Bancorp‟s only operating asset. Bancorp was created to hold BankAtlantic, and
Bancorp has presented itself to investors on a consolidated basis with BankAltantic.
Although Bancorp previously held Levitt Corporation and Ryan Beck, those entities
constituted only a small portion of Bancorp‟s total assets and were divested before the
issuance of the last two series of TruPS. Bancorp has relied at all times on BankAtlantic
to service the Debt Securities. As a practical result, “substantially all of [Bancorp‟s]
property,” as set forth in Indentures, is synonymous with BankAtlantic.
The Sale Transaction will change fundamentally the nature of Bancorp‟s business.
According to the first page of Bancorp‟s most recent annual report on Form 10-K,
Bancorp is “a Florida-based bank holding company and own[s] BankAtlantic and its
subsidiaries.”
JX 96 at 1.
The Form 10-K describes BankAtlantic as Bancorp‟s
“principal asset[].” Id. The annual report focuses overwhelmingly on the assets and
operations of BankAtlantic and minimally on Bancorp‟s other assets. Through the Sale
Transaction, Bancorp will exit the banking business, lose its status as a federally
regulated bank holding company, and divest itself of BankAtlantic and its subsidiaries.
32
Bancorp currently owns 100% of an entity with the following characteristics:
a valuable brand that is widely recognized as “Florida‟s Most Convenient
Bank”;
“the best [banking] franchise in Florida” (Tr. 749);
$3.3 billion in deposits that are recognized as “one of the best deposit bases” in
the nation (Tr. 750);
$2.1 billion in performing loans;
over 1,000 employees;
78 physical branches;
a 180,000 square foot corporate headquarters.
After the Sale Transaction, Bancorp will own 100% of an entity with no brand, no
banking franchise, no deposit base, no branches, eight current employees, and a portfolio
of criticized assets. It is difficult to imagine a transaction that would have a greater
qualitative impact on Bancorp.
Despite this overwhelming evidence, Bancorp contends that it “will maintain a
degree of continuity of assets, as . . . Retained Assets LLC will continue to hold, invest
in, and actively manage a commercial real estate portfolio, wholesale residential loans,
and investments including tax certificates.” BPTB 25. As a result, Bancorp claims,
“Retained Assets LLC will continue most of the lines of business that [Bancorp‟s]
subsidiaries have historically engaged in.” Id. at 39.
Admittedly there are high-level similarities between the lines of business that
BankAtlantic currently conducts and the lines of business in which Retained Assets LLC
will engage. That is necessarily true, because the purpose of the Sale Transaction is to
33
strip out the bad assets that BankAtlantic‟s business has generated and leave them with
Retained Assets LLC. But a continuing conceptual resemblance is not sufficient.
The guiding inquiry when evaluating a transaction qualitatively is whether the
debtor “would cease to operate the business to which, in practical effect, the
debentureholders have looked for payment of the debentures.” Commentaries at 423.
Institutions can share similarities yet have fundamental differences. The Cunard Line
and the Cape May-Lewes Ferry both operate ships. Le Bec Fin and Lucky‟s Coffee Shop
both serve dinner.
The Massachusetts Institute of Technology and Mt. Pleasant
Elementary School both teach students.
A regulated commercial bank and an unregulated investment management
company may both be financial institutions, but a lender would not lump them together
when evaluating their creditworthiness.
In this case, after the Sale Transaction,
Bancorp‟s will have a radically altered risk profile, a transformed asset portfolio, and no
regulatory restrictions. It will cease to operate the business to which, in practical effect,
the holders of Debt Securities looked for payment. Although Bancorp‟s attorneys did
their best to argue the contrary, Levan pulled back the curtain at trial. He testified that he
had “spent [his] entire life working at [BankAtlantic] to make it successful,” thought of
BankAtlantic as “a Levan family enterprise,” and hoped it would remain so for
generations. Tr. 731. If Bancorp‟s business amounted to holding a real estate portfolio,
purchasing residential loans, and managing tax certificates, then selling BankAtlantic
would be of no moment. Instead, Levan found it “incredibly distressing.” Tr. 821.
34
4.
The Sale Transaction Will Breach The Successor Obilgor
Provision.
From a quantitative perspective, using a conservative book value metric, the Sale
Transaction will convey 85-90% of Bancorp‟s assets. From a qualitative perspective, the
Sale Transaction will transform completely the nature of Bancorp‟s operations. The Sale
Transaction is far outside the ordinary course of Bancorp‟s business. Taken as a whole,
the evidence at trial establishes that the Sale Transaction will constitute a transfer of
substantially all of Bancorp‟s assets. Because BB&T is not assuming the Debt Securities,
the Sale Transaction will breach the Successor Obligor Provision.
B.
The Remedy
The plaintiffs seek a decree of specific performance enforcing the Successor
Obligor Provision and a permanent injunction against the Sale Transaction. In this case,
the two remedies are equivalent. Citing Delaware law, the parties agree that the plaintiffs
are entitled to a permanent injunction if they have prevailed on the merits, shown that
they will suffer irreparable harm if injunctive relief is not granted, and demonstrated that
the balance of hardships favors injunctive relief. See BPTB 42-43 (citing Sierra Club v.
DNREC, 2006 WL 1716913, at *3 (Del. Ch. June 19, 2006), aff’d, 919 A.2d 547 (Del.
2007)); accord Pls.‟ Post-Trial Br. 40 (citing Sierra Club). The parties join issue over
whether a court can issue a decree of specific performance under New York law upon a
lesser showing. Because the plaintiffs have earned a permanent injunction under the
agreed-upon Delaware standard, I need not address this aspect of specific performance
jurisprudence.
35
1.
Success On The Merits
The plaintiffs have established that the Sale Transaction will breach the Successor
Obligor Provision and constitute an Event of Default under the Indentures. They have
satisfied the requirement of “success on the merits.”
2.
Irreparable Harm
The plaintiffs have demonstrated that they will suffer irreparable harm without an
injunction. The Sale Transaction will trigger an Event of Default giving the trustees the
right to accelerate the Debt Securities. Upon acceleration, Bancorp will be required to
pay immediately the full outstanding amount owed on the Debt Securities. Assuming
Bancorp already will have paid the approximately $39 million in deferred interest, the
remaining amount due will exceed $290 million.
The evidence at trial, including evidence presented by Bancorp, demonstrates
overwhelmingly that Bancorp cannot pay off the accelerated debt. When asked about the
possibility of quickly liquidating the Retained Assets, Levan testified frankly: “Well, you
can‟t. That would be suicide.” Tr. 814. Toalson testified that she has never analyzed
how Bancorp could pay off the Debt Securities in the event of acceleration and did not
know of any source that Bancorp could tap for a $290 million payment.
A key
assumption underlying the Sale Transaction has been that Bancorp will manage and
monetize the Retained Assets slowly over time. Because the Sale Transaction will breach
the Successor Obligor Provision, Bancorp will not have that luxury. As Levan testified
concerning the value of the Retained Assets in a quick sale: “who knows what those
numbers are.” Tr. 815.
36
If Bancorp cannot pay the accelerated debt, then in addition to the obvious harm
from non-payment, aspects of the Sale Transaction will violate the absolute priority rule.
Through the Sale Transaction, Levan extracted personal consideration for himself and
other insiders, moving them to the head of the line. At closing, Bancorp‟s three most
senior executives—Levan, his son Jarett, and Jack Abdo—will receive more than $10
million in severance and non-compete payments, an amount greater than the total book
value of Bancorp’s equity as of September 30, 2011. Neither Levan nor Jarett have an
employment contract entitling them to severance payments.
Levan will retain his
position as a Bancorp executive and conceded at trial that he is not being “severed” from
anything. BB&T‟s CFO testified that BB&T gave Bancorp the option of either making
the payments to the executives or increasing the purchase price. Bancorp chose the
former. The Sale Transaction payments hearken back to Levan‟s insistence on severance
during the negotiations with Bidder 1, even after Bidder 1 made clear that the increased
severance would reduce the purchase price. The payments divert a portion of the deal
consideration to Bancorp‟s controlling stockholders, vaulting them over the Debt
Securities and other corporate constituencies.
Finally, even without acceleration, New York law recognizes that “a shift in
bargained-for risk may constitute irreparable harm where the lender‟s only recourse is
against the borrower.” Bank Midwest, N.A. v. Hypo Real Estate Capital Corp., 2010 WL
4449366, at *6 (S.D.N.Y. Oct. 13, 2010). A lender under New York law will be entitled
to injunctive relief when the borrower agrees to a transaction that “would shift the risk
37
that the parties contracted to assume.”8 As demonstrated by the qualitative analysis of
the Sale Transaction, the sale of BankAtlantic will alter fundamentally the risk profile of
Bancorp as a borrower and shift to the holders of the Debt Securities risks they did not
contract to assume.
3.
Balance Of Hardships
The balance of hardships calls for weighing the consequences of an injunction
against the consequences of failing to act. Bancorp argues strenuously against relief.
According to Bancorp, (i) the status quo is untenable, (ii) an injunction blocking the Sale
Transaction will restore the status quo, leading to Bancorp‟s failure as an entity, and (iii)
all of Bancorp‟s constituencies, including the Debt Securities, will be harmed irreparably
by that result. Bancorp bluntly “ask[s] this Court to save Plaintiffs from themselves.”
BPTB 1.
The apocalyptic picture painted by Bancorp at trial contrasts sharply with the
history of the Sale Transaction. On October 4, 2011, when updating the board on the
8
Citibank, N.A. v. Singer Co., 684 F. Supp. 382, 386 (S.D.N.Y. 1988); see U.S.
Fid. & Guar. Co. v. J. United Elec. Contracting Corp., 62 F. Supp. 2d 915, 926
(E.D.N.Y. 1999) (finding irreparable harm “since there is a risk that all collectible assets
will be dissipated”); Shearson Lehman Hutton Hldgs. Inc. v. Coated Sales, Inc., 697
F. Supp. 639, 642 (S.D.N.Y. 1988) (finding irreparable harm where the lender “bargained
for security and loses that security as the result of” the defendant‟s contractual breaches);
E. W. Bank v. Jung Sun Laundry Gp. Corp., 2010 WL 5252848, at *5 (N.Y. Sup. Ct. Dec.
15, 2010) (finding irreparable harm where “the limitations in the Loan Agreements
regarding transfer of the Collateral [were included] to ensure that Plaintiff had ready
access to the Property that serves as its security interest under the Loans”); Nat’l Sur.
Corp. v. Titan Constr. Corp., 26 N.Y.S.2d 227, 230 (N.Y. Sup. Ct. 1940) (“The damage
resulting from the failure to give security is not ascertainable, and the legal remedy is
therefore inadequate.”), aff’d, 24 N.Y.S.2d 141 (N.Y. App. Div. 1940).
38
possible sale to BB&T, Levan told the directors that Bancorp would proceed with the sale
only if the deal was “agreeable” to Bancorp; otherwise, “the process will be suspended
until market conditions improve.” JX 161 at 4. Levan never suggested that Bancorp
would fail if BankAtlantic did not immediately find a buyer. An internal BankAtlantic
memo from November 2011 noted that “BankAtlantic met all capital requirements
outlined in the Cease & Desist Order” and that Bancorp “was not compelled to sell
BankAtlantic.” JX 254 at 4. Since then, Bancorp has maintained its trajectory. If
anything, the rate of decline has decreased. At trial, Bancorp witnesses testified that
Florida‟s real estate market was finally improving and that BankAtlantic‟s loan portfolio
and performance were strengthening. If necessary, Bancorp could continue on its current
course for another two years, until the deferred interest on the Debt Securities comes due
in the first half of 2014.
Bancorp appears to have Indenture-compliant alternatives. Levan did not testify
credibly at trial when he asserted that a whole-company sale is “impossible.” Tr. 798. In
support, Levan cited Bancorp‟s experience with Bidder 1, but the record demonstrates
that Levan did not want to proceed further with Bidder 1 because the transaction did not
meet his personal bottom line. The board broke off discussions with Bidder 1 after Levan
(i) told the board that BFC would not support a transaction that delivered less than $115125 million, (ii) incorrectly described the terms of the Bid Letter, and (iii) refused to
recognize the commercial reasonableness of Bidder 1‟s requests for supplemental legal
due diligence. Although Levan told Bancorp‟s directors that a $50 million number was
not a serious offer, he developed the “good bank/bad bank” strategy precisely because he
39
recognized that this figure fell in the middle of what traditional rules of thumb suggested
an acquirer would pay and at the high end of the $14-48 million that Bancorp realistically
might achieve.
Bancorp has not pointed to any developments that would impair its ability to
achieve an Indenture-compliant transaction at a realistic value for Bancorp‟s equity.
Bidder 1 was prepared to engage in such a transaction. In addition, under current
banking regulations, bank holding companies with less than $15 billion in assets can
benefit from the TruPS by treating them as Tier I capital. At least two of the potential
bidders in the process that led to the Sale Transaction could have taken advantage of this
regulatory benefit. During the process, however, Bancorp made clear that it was pursuing
the “good bank/bad bank” structure and never opened the door to a transaction in which
the acquirer would assume the Debt Securities. Admittedly there is a risk that Bancorp
will fail without the Sale Transaction, but it is far from clear that failure is imminent or
that Bancorp lacks other options. As Bancorp‟s Chairman and a principal of Bancorp‟s
controlling stockholder, Levan has powerful economic incentives to find an alternative.
In any event, this is a contract case, and a party cannot “abrogate a contract,
unilaterally, merely upon a showing that it would be financially disadvantageous to
perform it; were the rules otherwise, they would place in jeopardy all commercial
contracts.” 407 E. 61st Garage, Inc. v. Savoy Fifth Ave. Corp., 244 N.E.2d 37, 42 (N.Y.
1968).
“[W]here impossibility or difficulty of performance is occasioned only by
financial difficulty or economic hardship, even to the extent of insolvency or bankruptcy,
performance of a contract is not excused.” Id. at 41.
40
Parties who enter into lawful contracts are entitled to enforce their rights. Lenders
can insist on repayment, even if it forces the debtor into bankruptcy. The public has a
strong interest in seeing that contract and property rights are respected.
This is
particularly so for indentures, which provide the holders of unsecured debt with their only
protections. Companies will find it more costly and difficult to raise financing if the
contractual protections in an indenture can be ignored when the issuer faces financial
difficulty. That is precisely when creditors most need their contract rights.
Companies also will find it more difficult and more costly to raise financing if
subsequent purchasers of debt cannot enforce contract rights to the same degree as the
original investors. Bancorp has suggested that because certain non-trustee plaintiffs
acquired their TruPS at a discount from par value, after Bancorp began to suffer
financially, they are “vultures” who should not be granted equitable relief. Ironically, in
early 2010, Bancorp offered to purchase TruPS at twenty cents on the dollar.
Bancorp‟s objection does not apply to the trustee plaintiffs, nor to non-trustee
plaintiffs Trapeza CDO I, LLC, Trapeza CDO II, LLC and Trapeza CDO III, LLC who
hold over $25 million in TruPS purchased at par. Bancorp has not articulated any reason
why an investor who purchases a debt security at a discount should be denied its
contractual protections, nor any standard for determining when or to what degree a
“vulture defense” would apply. A selective approach to contract enforcement would
harm the ability of issuers to access the debt markets. Initial purchasers would pay less
knowing that secondary purchasers would discount the securities for the less valuable
41
rights they would receive. Although perhaps convenient for a particular defendant in a
particular case, a “vulture defense” would do more harm than good.
Bancorp‟s equity holders had the right to reject a whole-company transaction with
Bidder 1 because they felt the transaction did not provide them with adequate
consideration.
Bancorp‟s officers and directors likewise were free to seek out an
alternative transaction that could provide greater consideration for the equity holders.
What Bancorp‟s officers and directors cannot do is extract value over time to benefit
themselves and the equity through a transaction that violates clear contractual rights in
the Indentures. Just as Bancorp‟s equity holders could exercise their voting rights to
block the transaction with Bidder 1, the Trusts can stand on their contract rights when
faced with the Sale Transaction.
Having considered the risks to Bancorp and its constituencies from an injunction,
and having weighed those risks against the irreparable harm that the holders of Debt
Securities will suffer if an injunction does not issue, I find that the balance decidedly
favors relief.
III.
CONCLUSION
The Sale Transaction constitutes a breach of the Successor Obligor Provision,
results in an Event of Default, and will inflict irreparable harm on the plaintiffs. The
balance of hardships favors the issuance of permanent injunctive relief. Accordingly, I
have entered contemporaneously an order enjoining Bancorp permanently from
completing the Sale Transaction.
42
Appendix A
Trust
Successor Obligor Provisions
BBC Capital
Trust II
(JX 3)
Section 5.5 Compliance with Consolidation Provisions. The Company
shall not, while any of the Debentures remain outstanding, . . . sell,
convey, transfer or lease all or substantially all of its property or assets
to, any other company unless the provisions of Article XII hereof are
complied with.
Section 12.1 Company May Consolidate, Etc. Nothing contained in this
Indenture or in any of the Debentures . . . shall prevent any sale,
conveyance, lease, transfer or other disposition of the property and
assets of the Company, as the case may be, or its successor or successors
as an entirety, or substantially as an entirety, to any other corporation
(whether or not affiliated with the Company, as the case may be, or its
successor or successors) authorized to acquire and operate the same;
provided, however, the Company hereby covenants and agrees that, (i)
upon any such . . . sale, conveyance, lease, transfer or other disposition,
the due and punctual payment, in the case of the Company, of the
principal of and interest on all of the Debentures, according to their
tenor and the due and punctual performance and observance of all the
covenants and conditions of this Indenture to be kept or performed by
the Company as the case may be, shall be expressly assumed, by
supplemental indenture (which shall conform to the provisions of the
Trust Indenture Act, as then in effect) satisfactory in form to the Trustee
executed and delivered to the Trustee . . . by the entity which shall have
acquired such property . . . .
BBC Capital
Trust V
(JX 8)
Section 8.1. Company May Consolidate, Etc., Only on Certain Terms.
The Company shall not . . . convey, transfer or lease its properties and
assets substantially as an entirety to any Person, . . . unless:
(a) if the Company shall . . . convey, transfer or lease its properties and
assets substantially as an entirety to any Person, . . . the Person that
acquires by conveyance or transfer, or that leases, the properties and
assets of the Company substantially as an entirety . . . shall expressly
assume, by an indenture supplemental hereto, executed and delivered to
the Trustee, in form reasonably satisfactory to the Trustee, the due and
punctual payment of the principal of and any premium and interest
(including any Additional Interest) on all the Securities and the
performance of every covenant of this Indenture on the part of the
Trust
Successor Obligor Provisions
Company to be performed or observed . . . .
BBC Capital
Trust VI
(JX 13)
Section 8.1. Company May Consolidate, Etc., Only on Certain Terms.
The Company shall not . . . convey, transfer or lease its properties and
assets substantially as an entirety to any Person, . . . unless:
(a) if the Company shall . . . convey, transfer or lease its properties and
assets substantially as an entirety to any Person, . . . the Person that
acquires by conveyance or transfer, or that leases, the properties and
assets of the Company substantially as an entirety . . . shall expressly
assume, by an indenture supplemental hereto, executed and delivered to
the Trustee, in form reasonably satisfactory to the Trustee, the due and
punctual payment of the principal of and any premium and interest
(including any Additional Interest) on all the Securities and the
performance of every covenant of this Indenture on the part of the
Company to be performed or observed . . . .
BBC Capital
Trust IX
(JX 14)
Section 3.07. Compliance with Consolidation Provisions. The
Company will not, while any of the Debt Securities remain
outstanding, . . . sell or convey all or substantially all of its property to
any other Person unless the provisions of Article XI hereof are complied
with.
Section 11.01. Company May Consolidate, etc., on Certain Terms.
Nothing contained in this Indenture or in the Debt Securities . . . shall
prevent any sale, conveyance, transfer or other disposition of the
property or capital stock of the Company or its successor or successors
as an entirety, or substantially as an entirety, to any other Person
(whether or not affiliated with the Company, or its successor or
successors) authorized to acquire and operate the same; provided,
however, that the Company hereby covenants and agrees that, upon any
such . . . sale, conveyance, transfer or other disposition, the due and
punctual payment of all payments due on all of the Debt Securities in
accordance with their terms, according to their tenor, and the due and
punctual performance and observance of all the covenants and
conditions of this Indenture to be kept or performed by the Company,
shall be expressly assumed by supplemental indenture reasonably
satisfactory in form to the Trustee executed and delivered to the
Trustee . . . by the entity which shall have acquired such property or
capital stock.
A-2
Trust
Successor Obligor Provisions
BBC Capital
Trust XI
(JX 25)
Section 3.07. Compliance with Consolidation Provisions. The
Company will not, while any of the Debt Securities remain
outstanding, . . . sell or convey all or substantially all of its property to
any other Person unless the provisions of Article XI hereof are complied
with.
Section 11.01. Company May Consolidate, etc., on Certain Terms.
Nothing contained in this Indenture or in the Debt Securities . . . shall
prevent any sale, conveyance, transfer or other disposition of the
property or capital stock of the Company or its successor or successors
as an entirety, or substantially as an entirety, to any other Person
(whether or not affiliated with the Company, or its successor or
successors) authorized to acquire and operate the same; provided,
however, that the Company hereby covenants and agrees that, upon any
such . . . sale, conveyance, transfer or other disposition, the due and
punctual payment of all payments due on all of the Debt Securities in
accordance with their terms, according to their tenor, and the due and
punctual performance and observance of all the covenants and
conditions of this Indenture to be kept or performed by the Company,
shall be expressly assumed by supplemental indenture reasonably
satisfactory in form to the Trustee executed and delivered to the
Trustee . . . by the entity which shall have acquired such property or
capital stock . . . .
BBC Capital
Trust XII
(JX 20)
Section 3.07. Compliance with Consolidation Provisions. The
Company will not, while any of the Debt Securities remain
outstanding, . . . sell or convey all or substantially all of its property to
any other Person unless the Provisions of Article XI hereof are complied
with.
Section 11.01. Company May Consolidate, etc., on Certain Terms.
Nothing contained in this Indenture or in the Debt Securities . . . shall
prevent any sale, conveyance, transfer or other disposition of the
property or capital stock of the Company or its successor or successors
as an entirety, or substantially as an entirety, to any other Person
(whether or not affiliated with the Company, or its successor or
successors) authorized to acquire and operate the same; provided,
however, that the Company hereby covenants and agrees that, upon any
such . . . sale, conveyance, transfer or other disposition, the due and
punctual payment of all payments due on all of the Debt Securities in
A-3
Trust
Successor Obligor Provisions
accordance with their terms, according to their tenor, and the due and
punctual performance and observance of all the covenants and
conditions of this Indenture to be kept or performed by the Company,
shall be expressly assumed by supplemental indenture reasonably
satisfactory in form to the Trustee executed and delivered to the
Trustee . . . by the entity which shall have acquired such property or
capital stock.
BBX Capital
Trust 2007
I(a)
(JX 45)
Section 3.07. Compliance with Consolidation Provisions. The
Company will not, while any of the Debt Securities remain
outstanding, . . . sell, convey, transfer or otherwise dispose of all or
substantially all of its property or capital stock to any other Person
unless the provisions of Article XI hereof are complied with.
Section 11.01. Company May Consolidate, etc., on Certain Terms.
Nothing contained in this Indenture or in the Debt Securities . . . shall
prevent any sale, conveyance, transfer or other disposition of all or
substantially all of the property or capital stock of the Company or its
successor or successors to any other Person (whether or not affiliated
with the Company, or its successor or successors) authorized to acquire
and operate the same; provided, however, that the Company hereby
covenants and agrees that, (i) upon any such . . . sale, conveyance,
transfer or other disposition, the successor entity shall be an entity
organized and existing under the laws of the United States or any state
thereof or the District of Columbia . . . and such entity expressly
assumes all of the obligations of the Company under the Debt Securities,
this Indenture, the Capital Securities Guarantee and the Declaration . . . .
BBX Capital
Trust 2007
II(a)
(JX 55)
Section 3.7. Compliance with Consolidation Provisions. The Company
will not, while any of the Debentures remain outstanding, . . . sell or
convey all or substantially all of its property to any other Person unless
the provisions of Article XI hereof are complied with.
Section 11.1. Company May Consolidate, etc., on Certain Terms.
Nothing contained in this Indenture or in the Debentures . . . shall
prevent any sale, conveyance, transfer or other disposition of the
property of the Company or its successor or successors as an entirety, or
substantially as an entirety, to any other Person (whether or not affiliated
with the Company, or its successor or successors) authorized to acquire
and operate the same; provided, however, that the Company hereby
A-4
Trust
Successor Obligor Provisions
covenants and agrees that, upon any such . . . sale, conveyance, transfer
or other disposition, the due and punctual payment of the principal of
(and premium, if any) and interest on all of the Debentures in
accordance with their terms, according to their tenor, and the due and
punctual performance and observance of all the covenants and
conditions of this Indenture to be kept or performed by the Company,
shall be expressly assumed by supplemental indenture satisfactory in
form to the Trustee executed and delivered to the Trustee . . . by the
entity which shall have acquired such property.
A-5
Trust
Event of Default and Acceleration Provisions
BBC Capital
Trust II
(JX 3)
Section 7.1 Events of Default. (a) Whenever used herein with respect to
the Debentures, “Event of Default” means any one or more of the
following events that has occurred and is continuing:
...
(vii) the Company fails to observe or perform any other of its covenants
or agreements with respect to the Debentures for a period of 90 days
after the date on which written notice of such failure, requiring the same
to be remedied and stating that such notice is a “Notice of Default”
hereunder, shall have been given to the Company by the Trustee, by
registered or certified mail, or to the Company and the Trustee by the
holders of at least 25% in principal amount of the Debentures at the time
outstanding.
...
(b) In each and every such case . . . either the Trustee or the holders of
not less than 25% in aggregate principal amount of the Debentures then
Outstanding hereunder . . . may declare the principal of and the interest
on all the Debentures, including any Compounded Interest, Additional
Interest, if any, and any other amounts payable under this Indenture, to
be due and payable immediately, and upon any such declaration the
same shall become and shall be immediately due and payable,
notwithstanding anything contained in this Indenture or in the
Debentures.
BBC Capital
Trust V
(JX 8)
Section 5.1. Events of Default. “Event of Default” means, wherever
used herein with respect to the Securities, any one of the following
events . . . :
...
(c) default in the performance, or breach, of any covenant or warranty of
the Company in this Indenture and continuance of such default or breach
for a period of thirty (30) days after there has been given, by registered
or certified mail, to the Company by the Trustee or to the Company and
the Trustee by the Holders of at least twenty five percent (25%) in
aggregate principal amount of the Outstanding Securities a written
notice specifying such default or breach and requiring it to be remedied
A-6
Trust
Event of Default and Acceleration Provisions
and stating that such notice is a “Notice of Default” hereunder . . . .
Section 5.2. Acceleration of Maturity; Rescission and Annulment. (a)
If an Event of Default occurs and is continuing, then and in every such
case the Trustee or the Holders of not less than twenty five percent
(25%) in aggregate principal amount of the Outstanding Securities may
declare the principal amount of all the Securities to be due and payable
immediately . . . and upon any such declaration the principal amount of
and the accrued interest (including any Additional Interest) on all the
Securities shall become immediately due and payable.
BBC Capital
Trust VI
(JX 13)
Section 5.1. Events of Default. “Event of Default” means, wherever
used herein with respect to the Securities, any one of the following
events . . . :
...
(c) default in the performance, or breach, of any covenant or warranty of
the Company in this Indenture and continuance of such default or breach
for a period of thirty (30) days after there has been given, by registered
or certified mail, to the Company by the Trustee or to the Company and
the Trustee by the Holders of at least twenty five percent (25%) in
aggregate principal amount of the Outstanding Securities a written
notice specifying such default or breach and requiring it to be remedied
and stating that such notice is a “Notice of Default” hereunder . . . .
Section 5.2. Acceleration of Maturity; Rescission and Annulment. (a) If
an Event of Default occurs and is continuing, then and in every such
case the Trustee or the Holders of not less than twenty five percent
(25%) in aggregate principal amount of the Outstanding Securities may
declare the principal amount of all the Securities to be due and payable
immediately . . . and upon any such declaration the principal amount of
and the accrued interest (including any Additional Interest) on all the
Securities shall become immediately due and payable.
BBC Capital
Trust IX
(JX 14)
Section 5.01. Events of Default. The following events shall be “Events
of Default” with respect to Debt Securities:
...
(c) the Company defaults in the performance of, or breaches, any of its
A-7
Trust
Event of Default and Acceleration Provisions
covenants or agreements in Sections 3.06, 3.07, 3.08 or 3.09 of this
Indenture (other than a covenant or agreement a default in whose
performance or whose breach is elsewhere in this Section specifically
dealt with), and continuance of such default or breach for a period of 90
days after there has been given, by registered or certified mail, to the
Company by the Trustee or to the Company and the Trustee by the
holders of not less than 25% in aggregate principal amount of the
outstanding Debt Securities, a written notice specifying such default or
breach and requiring it to be remedied and stating that such notice is a
“Notice of Default” hereunder . . . .
...
If an Event of Default occurs and is continuing with respect to the Debt
Securities, then, and in each and every such case, . . . either the Trustee
or the holders of not less than 25% in aggregate principal amount of the
Debt Securities then outstanding hereunder . . . may declare the entire
principal of the Debt Securities and the interest accrued, but unpaid,
thereon, if any, to be due and payable immediately; and upon any such
declaration the same shall become immediately due and payable.
BBC Capital
Trust XI
(JX 25)
Section 5.01. Events of Default. The following events shall be “Events
of Default” with respect to Debt Securities:
...
(c) the Company defaults in the performance of, or breaches, any of its
covenants or agreements in Sections 3.06, 3.07, 3.08 or 3.09 of this
Indenture (other than a covenant or agreement a default in whose
performance or whose breach is elsewhere in this Section specifically
dealt with), and continuance of such default or breach for a period of 90
days after there has been given, by registered or certified mail, to the
Company by the Trustee or to the Company and the Trustee by the
holders of not less than 25% in aggregate principal amount of the
outstanding Debt Securities, a written notice specifying such default or
breach and requiring it to be remedied and stating that such notice is a
“Notice of Default” hereunder . . . .
...
If an Event of Default occurs and is continuing with respect to the Debt
A-8
Trust
Event of Default and Acceleration Provisions
Securities, then, and in each and every such case, . . . either the Trustee
or the holders of not less than 25% in aggregate principal amount of the
Debt Securities then outstanding hereunder . . . may declare the entire
principal of the Debt Securities and the interest accrued, but unpaid,
thereon, if any, to be due and payable immediately, and upon any such
declaration the same shall become immediately due and payable.
BBC Capital
Trust XII
(JX 20)
Section 5.01. Events of Default. The following events shall be “Events
of Default” with respect to Debt Securities:
...
(c) the Company defaults in the performance of, or breaches, any of its
covenants or agreements in Sections 3.06, 3.07, 3.08 or 3.09 of this
Indenture (other than a covenant or agreement a default in whose
performance or whose breach is elsewhere in this Section specifically
dealt with), and continuance of such default or breach for a period of 90
days after there has been given, by registered or certified mail, to the
Company by the Trustee or to the Company and the Trustee by the
holders of not less than 25% in aggregate principal amount of the
outstanding Debt Securities, a written notice specifying such default or
breach and requiring it to be remedied and stating that such notice is a
“Notice of Default” hereunder . . . .
...
If an Event of Default occurs and is continuing with respect to the Debt
Securities, then, and in each and every such case, . . . either the Trustee
or the holders of not less than 25% in aggregate principal amount of the
Debt Securities then outstanding hereunder . . . may declare the entire
principal of the Debt Securities and the interest accrued, but unpaid,
thereon, if any, to be due and payable immediately, and upon any such
declaration the same shall become immediately due and payable.
BBX Capital Section 5.01. Events of Default. The following events shall be “Events
Trust 2007 I(a) of Default” with respect to Debt Securities:
(JX 45)
...
(d) the Company defaults in the performance of, or breaches, any of its
covenants or agreements in Sections 3.06, 3.07, 3.08 or 3.09 of this
A-9
Trust
Event of Default and Acceleration Provisions
Indenture (other than a covenant or agreement a default in whose
performance or whose breach is elsewhere in this Section specifically
dealt with), and continuance of such default or breach for a period of 30
days after there has been given, by registered or certified mail, to the
Company by the Trustee or to the Company and the Trustee by the
holders of not less than 25% in aggregate principal amount of the
outstanding Debt Securities, a written notice specifying such default or
breach and requiring it to be remedied and stating that such notice is a
“Notice of Default” hereunder . . . .
...
If an Event of Default specified under clause (c) of this Section 5.01
occurs and is continuing with respect to the Debt Securities, then, and in
each and every such case, . . . either the Trustee or the holders of not less
than 25% in aggregate principal amount of the Debt Securities then
outstanding hereunder . . . may declare the entire principal of the Debt
Securities and any premium and interest accrued, but unpaid, thereon, if
any, to be due and payable immediately, and upon any such declaration
the same shall become immediately due and payable. . . .
Notwithstanding anything to the contrary in this Section 5.01, if at any
time during the period in which this Indenture remains in force and
effect, the Company ceases or elects to cease to be subject to the
supervision and regulations of the Federal Reserve, OTS, OCC or
similar regulatory authority overseeing bank, thrift, savings and loan or
financial holding companies or similar institutions requiring
specifications for the treatment of capital similar in nature to the capital
adequacy guidelines under the Federal Reserve rules and regulations,
then the first sentence of this paragraph shall be deemed to include
clauses (a), (b) and (d) under this Section 5.01 as an Event of Default
resulting in an acceleration of payment of the Debt Securities to the
same extent as provided herein for clause (c).
BBX Capital Section 5.1. Events of Default. “Event of Default,” wherever used
Trust 2007 II(a)herein, means any one of the following events . . . :
(JX 55)
...
(c) the Company defaults in the performance of, or breaches, any of its
covenants or agreements in this Indenture or in the terms of the
Debentures established as contemplated in this Indenture (other than a
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Trust
Event of Default and Acceleration Provisions
covenant or agreement a default in whose performance or whose breach
is elsewhere in this Section specifically dealt with), and continuance of
such default or breach for a period of 60 days after there has been given,
by registered or certified mail, to the Company by the Trustee or to the
Company and the Trustee by the holders of at least 25% in aggregate
principal amount of the outstanding Debentures, a written notice
specifying such default or breach and requiring it to be remedied and
stating that such notice is a “Notice of Default” hereunder . . . .
...
If an Event of Default under Section 5.1(b) or (c) occurs and is
continuing with respect to the Debentures, then, and in each and every
such case, unless the principal of the Debentures shall have already
become due and payable, either the Trustee or the holders of not less
than 25% in aggregate principal amount of the Debentures then
outstanding hereunder, by notice in writing to the Company (and to the
Trustee if given by Securityholders), may proceed to remedy the default
or breach thereunder by such appropriate judicial proceedings as the
Trustee or such holders shall deem most effectual to remedy the
defaulted covenant or enforce the provisions of this Indenture so
breached, either by suit in equity or by action at law, for damages or
otherwise.1
1
The acceleration language in this provision differs from the other Indentures, but
the parties did not advance any arguments on that basis.
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Trust
Specific Performance Provisions
BBC Capital
Trust II
(JX 3)
Section 7.2 Collection of Indebtedness and Suits for Enforcement by
Trustee.
...
(d) . . . In case of an Event of Default hereunder, the Trustee may in its
discretion proceed to protect and enforce the rights vested in it by this
Indenture by such appropriate judicial proceedings as the Trustee shall
deem most effectual to protect and enforce any of such rights, either at
law or in equity or in bankruptcy or otherwise, whether for the specific
enforcement of any covenant or agreement contained in this Indenture or
in aid of the exercise of any power granted in this Indenture, or to
enforce any other legal or equitable right vested in the Trustee by this
Indenture or by law.
BBC Capital
Trust V
(JX 8)
Section 5.3. Collection of Indebtedness and Suits for Enforcement by
Trustee.
...
(c) If an Event of Default with respect to Securities occurs and is
continuing, the Trustee may in its discretion proceed to protect and
enforce its rights and the rights of the Holders of Securities by such
appropriate judicial proceedings as the Trustee shall deem most effectual
to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of
the exercise of any power granted herein, or to enforce any other proper
remedy.
BBC Capital
Trust VI
(JX 13)
Section 5.3. Collection of Indebtedness and Suits for Enforcement by
Trustee.
...
(c) If an Event of Default with respect to Securities occurs and is
continuing, the Trustee may in its discretion proceed to protect and
enforce its rights and the rights of the Holders of Securities by such
appropriate judicial proceedings as the Trustee shall deem most effectual
to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of
the exercise of any power granted herein, or to enforce any other proper
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Specific Performance Provisions
remedy.
BBC Capital
Trust IX
(JX 14)
Section 5.05. Proceedings by Trustee. In case of an Event of Default
hereunder the Trustee may in its discretion proceed to protect and
enforce the rights vested in it by this Indenture by such appropriate
judicial proceedings as the Trustee shall deem most effectual to protect
and enforce any of such rights, either by suit in equity or by action at
law or by proceeding in bankruptcy or otherwise, whether for the
specific enforcement of any covenant or agreement contained in this
Indenture or in aid of the exercise of any power granted in this
Indenture, or to enforce any other legal or equitable right vested in the
Trustee by this Indenture or by law.
BBC Capital
Trust XI
(JX 25)
Section 5.05. Proceedings by Trustee. In case of an Event of Default
hereunder the Trustee may in its discretion proceed to protect and
enforce the rights vested in it by this Indenture by such appropriate
judicial proceedings as the Trustee shall deem most effectual to protect
and enforce any of such rights, either by suit in equity or by action at
law or by proceeding in bankruptcy or otherwise, whether for the
specific enforcement of any covenant or agreement contained in this
Indenture or in aid of the exercise of any power granted in this
Indenture, or to enforce any other legal or equitable right vested in the
Trustee by this Indenture or by law.
BBC Capital
Trust XII
(JX 20)
Section 5.05. Proceedings by Trustee. In case of an Event of Default
hereunder the Trustee may in its discretion proceed to protect and
enforce the rights vested in it by this Indenture by such appropriate
judicial proceedings as the Trustee shall deem most effectual to protect
and enforce any of such rights, either by suit in equity or by action at
law or by proceeding in bankruptcy or otherwise, whether for the
specific enforcement of any covenant or agreement contained in this
Indenture or in aid of the exercise of any power granted in this
Indenture, or to enforce any other legal or equitable right vested in the
Trustee by this Indenture or by law.
BBX Capital
Trust 2007
I(a)
(JX 45)
Section 5.05. Proceedings by Trustee. In case of an Event of Default
hereunder the Trustee may in its discretion proceed to protect and
enforce the rights vested in it by this Indenture by such appropriate
judicial proceedings as the Trustee shall deem most effectual to protect
and enforce any of such rights, either by suit in equity or by action at
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Trust
Specific Performance Provisions
law or by proceeding in bankruptcy or otherwise, whether for the
specific enforcement of any covenant or agreement contained in this
Indenture or in aid of the exercise of any power granted in this
Indenture, or to enforce any other legal or equitable right vested in the
Trustee by this Indenture or by law.
BBX Capital
Trust 2007
II(a)
(JX 55)
Section 5.5. Proceedings by Trustee. In case of an Event of Default
hereunder the Trustee may in its discretion proceed to protect and
enforce the rights vested in it by this Indenture by such appropriate
judicial proceedings as the Trustee shall deem most effectual to protect
and enforce any of such rights, either by suit in equity or by action at
law or by proceeding in bankruptcy or otherwise, whether for the
specific enforcement of any covenant or agreement contained in this
Indenture or in aid of the exercise of any power granted in this
Indenture, or to enforce any other legal or equitable right vested in the
Trustee by this Indenture or by law.
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