United States Bankruptcy Court, N.D. Ohio, 2001.
37 Bankr.Ct.Dec. 137.
Bankruptcy Risks - Company wants to use cash collateral.
-Debtor, large steel corporation, filed for Chapter 11 for second time in 2000.
-Debtor created a wholly owned subsidiary known as Sales Finance (SF) for purpose of conducting asset-backed securitizations or structured finance (ABS agreement).
-Abbey, large financial institution, entered into an ABS transaction in 1994. To effectuate this agreement, Debtor entered into an agreement with SF which purports to sell all of Debtor’s rights and interest in its account receivables to SF on continuing basis.
-Abbey agreed to loan $270M to SF in exchange for SF granting Abbey a security interest in the receivables. Chase Manhattan was Abbey’s agent for the transaction.
-LTV Steel Products “SP”, another wholly owned subsidiary, entered into a $30M securitization of LTV’s inventories with a group of banks led by Chase.
-Neither SF nor SP is a debtor here.
-Debtor filed motion permitting it to use cash collateral. Consisted of receivables and inventory that are ostensibly owned by SF and SP.
-Debtor stated that it would be forced to shut its doors/cease operations if it did not receive authorization to use this cash collateral.
-Abbey asks court to modify the cash collateral order.
-Abbey: receivables which constituted the collateral are not property of Debtor’s estate, and the court lacked jurisdiction.
-Court does not modify the cash order, granting Abbey relief from the order would be highly inequitable.
-Court says debtor should keep its doors open and continue to meet its obligations to employees, retirees, customers and creditors.
-Upon the filing of bankruptcy petition an estate is created consisting of all legal or equitable interests of the debtor in property as of the commencement of the case.
-Property may be included in Debtor’s estate even if Debtor does not have a possessory interest in that property.
-Maintaining status quo would allow debtor to remain in business while it searches for substitute financing, and would adequately preserve Abbey’s rights.