Opinion ID: 7622542
Heading Depth: 2
Heading Rank: 2

Heading: Whether the Proviso’s Condition Was Satisfied

Text: The Bankruptcy and District Courts concluded that the sale of Oasis to Culligan did not satisfy the proviso’s condition. Central to that conclusion was the Bankruptcy Court’s classification of three tranches of a term loan between the Zohar Funds and Oasis 7 (the “Amendment 8 Tranches”) as debt, rather than equity. The Bankruptcy Court found that this classification was “not a close call, based on the unambiguous language” of Amendment 8 to the parties’ Credit Agreement, which created these Tranches. J.A. 42. The District Court agreed that the classification was consistent with “a common sense evaluation of [the] facts and circumstances surrounding the transaction.” J.A. 22.5 For purposes of our review, because “the determinative inquiry in classifying [an investment] as debt or equity is the intent of the parties as it existed at the time of the transaction,” the classification “is a question of fact that, ‘once resolved by a [bankruptcy court], cannot be overturned unless clearly erroneous.’”6 In re SubMicron Sys. Corp., 432 F.3d 448, 457 (3d Cir. 2006) (quoting A.R. Lantz Co. v. United States, 424 F.2d 1330, 1334 (9th Cir. 1970)). 5 PPMG argues that the Bankruptcy and District Courts “elevate[d] form over substance” by focusing on “[t]he terminology used in the Eighth Amendment,” which allegedly “elide[d] the fundamental issue [of] ‘whether the parties called an instrument one thing when in fact they intended it as something else.’” Appellant’s Br. 36–37 (first quoting Austin Vill., Inc. v. United States, 432 F.2d 741, 746 (6th Cir. 1970), then quoting In re SubMicron, 432 F.3d 448, 456 (3d Cir. 2006)). But this argument misses the mark, as both the Bankruptcy Court and the District Court conducted a “common sense evaluation of the facts and circumstances” to conclude that the parties intended to create debt, not equity, in light of Amendment 8’s terms and the surrounding context. J.A. 27. 6 PPMG suggests that clear error review is inappropriate because the Bankruptcy Court purportedly made no factual findings based on witness testimony and did not conduct a formal recharacterization analysis in determining that the Amendment 8 Tranches were properly classified as debt. This argument is meritless because the Bankruptcy Court made the explicit factual finding that Amendment 8 created debt. See J.A. 41–43. 8 On this record, we cannot conclude that the Bankruptcy Court clearly erred in classifying the Amendment 8 Tranches as debt. As the Bankruptcy Court observed, “[s]ophisticated parties negotiated [Amendment 8] and used various terms therein” that make clear their intention to create debt. J.A. 42. Those terms include the description of Amendment 8 as an “amendment[] to the Credit Agreement” between Oasis and the Zohar Funds, J.A. 242; the reference to Oasis and the Zohar Funds as “Borrower” and “Lender,” J.A. 242, 249; the description of the Amendment 8 Tranches as “[t]erm loan[s],” J.A. 249; the delineation of the “[t]ype of [l]oan[s]” and the “[a]pplicable [m]argin” used to calculate interest on each tranche under the credit agreement, J.A. 249; and the provision making the Tranches legal obligations of the Borrower, enforceable “subject to the satisfaction . . . of the conditions set forth” in the Credit Agreement, J.A. 242. Although PPMG emphasizes the low rate at which interest accrued on these Tranches and that interest was allegedly never billed or paid, these factors are not “per se characteristics of equity,” and neither that observation, nor any other evidence “outside the four corners” of Amendment 8, compels us to conclude that the Bankruptcy Court clearly erred. J.A. 43. As a result, Culligan’s purchase of Oasis did not “permit [Oasis] to pay all of its . . . outstanding debt,” J.A. 850, so PPMG was not entitled to a Transaction Fee.