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* In re Levitt & Sons, LLC, 384 B.R. 630 (Bankr. S.D. Fla. Feb. 2008) (Ray, J.)
DIP financing order extinguished junior liens and treated claims as non-priority, unsecured. The debtors were in the business of building residential communities. Due to the recent housing market collapse, the debtors found themselves deeplyunder water with their prepetition lenders. It turns out the debtors had no equity in the real estate on which they were building their communities. The only way to generate enough income to satisfy the debtors' obligations was to complete the building projects and sell off the real estate as a going concern. To do that, the debtors sought post-petition financing from one of their pre-petition lenders. That lender agreed to extend to the debtors a new line of credit secured by a lien on all of the debtors' assets (though junior to any pre-existing senior lienholder). The terms of the loan did not seek to prime any senior lien, but the motion did seek to extinguish all liens junior to the pre-petition lender's and treat those junior lienholders as general, unsecured creditors. The junior lienholders objected on several grounds, of course.
The court overruled all objections and approved the post-petition financing motion. In so ruling, the court found that the post-petition lender was undersecured on its pre-petition loans as of the petition date. For that reason, the court found that the lienholders junior to the prepetition lender would have received nothing in the event of foreclosure. Because the DIP motion did not seek to prime any pre-existing senior liens, and because the junior lienholders were already effectively unsecured, the court concluded that neither the senior nor the junior lienholders were entitled to adequate protection within the meaning of section 364(d)(1)(B). The court also found that the debtors could not obtain unsecured financing through other means and thus concluded that the DIP motion could be granted. Finally, the lienholders' contention that they were not prepared to litigate the value of the collateral was not well-taken. The court held that no adversary proceeding was necessary because the junior lienholders had sufficient notice that a valuation would be necessary for the purposes of the debtor's post-petition financing motion and would be conducted at the hearing.
* In re First NLC Fin. Servs., LLC, 382 B.R. 547 (Bankr. S.D. Fla. Jan. 2008) (Hyman, J.) Introducing first day interim retention orders, a la new Bankruptcy Rule 6003. Effective December 1, 2007, the new rule purports to prohibit a court from granting an application to employ legal counsel for the debtor-in-possession within the first 20 days of a case. Does that mean a limited liability company or corporation must appear pro se for the first 20 days? Must a firm write off its fees if the court ultimately denies its employment? Not so fast, said this bankruptcy court. Considering the phrase in the new rule "to the extent that relief is necessary to avoid immediate and irreparable harm," the court concluded that applications to employ counsel under Rule 2014 may be granted on an interim basis, much like a first day motion for the use of cash collateral or for DIP financing. Accordingly, the court approved the firm's application on an interim basis and reset the matter for final hearing after the 20th day of the case.
©2008 Leif M. Clark
