The economic downturn has affected many sectors and litigation is no exception. The Delaware Court of Chancery’s docket reflects, and will continue to reflect for some time to come, the consequences of the economic downturn. The most recent example of this trend isTrilogy Portfolio Co. v. Brookfield Real Estate Financial Partners.

This case arose from the proposed restructuring of a $2.8 billion mortgage loan secured by resorts in the Bahamas. In 2006, the resort owner decided to expand the resort through a $3.8 billion LBO and the $2.8 billion mortgage loan was originated as part of that transaction. The loan was securitized and sold as part of an investment vehicle holding mortgages and other securities backed by residential and commercial mortgages. As part of the securitization, the loan was broken up into promissory A-Notes and promissory B-Notes. The A-Notes were senior in priority to the B-Notes. The B-Notes were broken into seven junior participants of descending priority. Defendants Brookfield Real Estate Financial Partners and BREF One held the most junior B-Notes. As the holder of the most junior notes, the defendants were entitled to act as the controlling holder under certain circumstances, which included the power to appoint a special servicer in the event of a loan default, under the participating and servicing agreement. The special servicer could take certain actions necessary to deal with any default.

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