Opinion ID: 2301005
Heading Depth: 3
Heading Rank: 3

Heading: Balance Of Hardships

Text: 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 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 $115-125 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 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., 23 N.Y.2d 275, 296 N.Y.S.2d 338, 244 N.E.2d 37, 42 (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., 296 N.Y.S.2d 338, 244 N.E.2d at 41. 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 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.