The bankruptcy case of TOUSA, Inc. and its various subsidiaries (collectively “Tousa”) is one where lenders have seen their fortunes rise and fall. On March 15, 2012, they fell again when the Eleventh Circuit1 (the “Circuit Court”) reversed the District Court’s opinion and reinstated the Bankruptcy Court’s order, which had disgorged over $400 million from Tousa’s senior lenders and avoided certain guarantees and liens granted to them by the Conveying Subsidiaries (defined below). Specifically, the Circuit Court found: (i) the Tousa Bankruptcy Court did not err when it found the Conveying Subsidiaries did not receive reasonably equivalent value in exchange for the new liens provided to the New Lenders; and (ii) the Transeastern Lenders were the direct beneficiaries of the new liens and as such subject to the avoidance powers of section 550(a).

Tousa Facts Reviewed

Tousa and the Conveying Subsidiaries were an integrated and consolidated enterprise that designed, built and marketed homes. Tousa was initially financed by bonds and a revolving credit facility (the “Revolver”). In June 2005, TOUSA Homes LP (“Homes”) and Falcone Ritchie joined forces to acquire certain homebuilding assets owned by Transeastern Properties, Inc., a leading real estate developer in Florida (the “Joint Venture”). A syndicate of lenders financed the Joint Venture (the “Transeastern Lenders”) with $450 million under three agreements: (i) a senior credit agreement; (ii) a senior mezzanine credit agreement; and (iii) a junior mezzanine debt (the “Transeastern Loans”). As part of their collateral package, the Transeastern Lenders required carve-out and completion guarantees (the “Guarantees”). Certain subsidiaries were not initially a party to the Transeastern Loans (the “Conveying Subsidiaries”).