Opinion ID: 2301005
Heading Depth: 2
Heading Rank: 1

Heading: Bancorp And Its TruPS

Text: Bancorp is a Florida corporation headquartered in Fort Lauderdale. It was formed in 1994 to serve as a holding company for BankAtlantic, which has existed since 1952. BankAtlantic is a traditional commercial bank that accepts deposits and makes loans. Bancorp's stock trades publicly on the New York Stock Exchange under the symbol BBX. Bancorp's Chairman and CEO, Alan Levan, and its Vice Chairman, John Abdo, own a majority of the voting shares of Bancorp's controlling stockholder, BFC Corporation (BFC). Levan's son, Jarett Levan, serves as President of Bancorp and CEO of BankAtlantic. [1] Valerie Toalson serves as CFO for both Bancorp and BankAtlantic. Between 2002 and 2007, Bancorp raised approximately $285 million using a structured finance product known as trust preferred securities (TruPS). Many bank holding companies found TruPS attractive because they seemingly combined the best features of debt and equity: The bank holding company could deduct payments to investors as interest expense yet treat the security as equity capital under then-applicable banking regulations. To achieve this favorable duality, the bank holding company does not issue TruPS directly. Rather, it forms a wholly owned trust subsidiary that issues preferred equity securities the TruPSto investors. The trust subsidiary purchases as its sole asset junior subordinated notes issued by the bank holding company, and the terms of the TruPS mirror the terms of the junior subordinated notes. The bank holding company makes payments of principal and interest on the notes, and the trust uses the payments to redeem or pay dividends on the TruPS. Bancorp followed this recipe. In 2002 and 2003, Bancorp issued eleven series of TruPS through trust subsidiaries denominated BBC Capital Trust II through XII. [2] In 2007, Bancorp issued two additional series of TruPS through trust subsidiaries denominated BBX Capital Trust 2007 1(a) and II(a). Each trust purchased an issuance of subordinated notes from Bancorp. Each trust sold TruPS to investors with terms in the declaration of trust that generally matched the terms of the indenture governing the subordinated notes. Each series of notes will mature thirty years after issuance, can be pre-paid approximately five years after issuance, and pays interest quarterly, although interest can be deferred for up to twenty consecutive quarters. The notes purchased by BBC Capital Trust II bear interest at a fixed annual rate of 8.5%, and its TruPS trade on Nasdaq. The notes purchased by the other trusts bear interest at a floating rate indexed to LIBOR. Their TruPS do not trade publicly, although there is a wafer-thin secondary market. Each trust is overseen by an institutional trustee. Plaintiff Wilmington Trust Company is the trustee for and has sued on behalf of BBC Capital Trust II, BBC Capital Trust XI, and BBX Capital Trust 2007 II(a). Plaintiff Wells Fargo Bank, N.A., is the trustee for and has sued on behalf of BBC Capital Trust IX and BBC Capital Trust XII. The remaining plaintiffs hold TruPS issued by and have sued on behalf of BBC Capital Trust II, BBC Capital Trust V, BBC Capital Trust VI, BBC Capital Trust IX, BBC Capital Trust XII, and BBX Capital Trust 2007 I(a). [3] I refer to the wholly owned trust subsidiaries as the Trusts. I refer to the notes they purchased as the Debt Securities and the indentures governing the Debt Securities as the Indentures. Technically, this decision only addresses the rights of the eight Trusts named in the case. For simplicity, I follow the parties' lead and take into account all of the outstanding Debt Securities when providing financial figures such as the amount of principal and interest due. To avoid burdening the reader with seriatim descriptions of eight substantively identical Indentures, I again follow the parties' lead and discuss a single representative Indenture. The pertinent provisions from all of the Indentures appear in Appendix A. The Indenture for BBC Capital Trust IX, like all the Indentures, generally prohibits Bancorp from transferring all or substantially all of its assets. Section 3.07 provides that Bancorp will not, while any of the Debt Securities remain outstanding, . . . sell or convey all or substantially all of its property to any other Person unless the provisions of Article XI hereof are complied with. JX 14 at 21. Section 11.01 qualifies the general prohibition as follows: Nothing contained in this Indenture or in the Debt Securities . . . shall prevent any sale, conveyance, transfer or other disposition of the property or capital stock of the Company or its successor or successors as an entirety, or substantially as an entirety, to any other Person (whether or not affiliated with the Company, or its successor or successors) authorized to acquire and operate the same; provided, however, that the Company hereby covenants and agrees that, upon any such . . . sale, conveyance, transfer or other disposition, the due and punctual payment of all payments due on all of the Debt Securities in accordance with their terms, according to their tenor, and the due and punctual performance and observance of all the covenants and conditions of this Indenture to be kept or performed by the Company, shall be expressly assumed by supplemental indenture reasonably satisfactory in form to the Trustee executed and delivered to the Trustee by . . . the entity which shall have acquired such property or capital stock. JX 14 at 48-49. I refer to the obligations imposed by Sections 3.07 and 11.01 as the Successor Obligor Provision. Failing to comply with the Successor Obligor Provision constitutes an Event of Default under the Indenture. Section 5.01 states: The following events shall be Events of Default with respect to Debt Securities: . . . (c) the Company defaults in the performance of, or breaches, any of its covenants or agreements in Sections 3.06, 3.07,3.08 or 3.09 of this Indenture (other than a covenant or agreement a default in whose performance or whose breach is elsewhere in this Section specifically dealt with), and continuance of such default or breach for a period of 90 days after there has been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the holders of not less than 25% in aggregate principal amount of the outstanding Debt Securities, a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a Notice of Default hereunder. . . . JX 14 at 24-25. The trustee has a range of remedies available following an Event of Default. Under Section 5.01, the trustee can accelerate the debt and declare that Bancorp's obligations are immediately due and payable: If an Event of Default occurs and is continuing with respect to the Debt Securities, then, and in each and every such case, . . . either the Trustee or the holders of not less than 25% in aggregate principal amount of the Debt Securities then outstanding hereunder . . . may declare the entire principal of the Debt Securities and the interest accrued, but unpaid, thereon, if any, to be due and payable immediately; and upon any such declaration the same shall become immediately due and payable. JX 14 at 25. Wilmington Trust has represented that it will accelerate the debt if there is an Event of Default and believes that every trustee would do so. In addition to acceleration, the trustee can seek legal and equitable remedies under Section 5.05 of the Indenture, including a decree of specific performance: In case of an Event of Default hereunder the Trustee may in its discretion proceed to protect and enforce the rights vested in it by this Indenture by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any of such rights, either by suit in equity or by action at law or by proceeding in bankruptcy or otherwise, whether for the specific enforcement of any covenant or agreement contained in this Indenture or in aid of the exercise of any power granted in this Indenture, or to enforce any other legal or equitable right vested in the Trustee by this Indenture or by law. JX 14 at 28. In this case, the plaintiffs seek either a decree of specific performance mandating that Bancorp comply with the Successor Obligor Provision or the functionally equivalent remedy of a permanent injunction against the sale of BankAtlantic to BB & T.