With published reports stating public company Chapter 11 filings declined by 50 percent over the past year and economic indicators pointing toward some level of economic recovery, we asked restructuring specialists what we can expect in 2011. Many point to the wave of financings that closed in 2006 and 2007, at the peak of the economic bubble, as a source of restructuring activity. A large percentage of these financing transactions were for real estate and hospitality projects, and, especially those that closed in 2007, included high levels of risk that required special inducements to lenders. How these inducements and “kickers” will be treated by the courts is another question.
One such transaction was reviewed by the U.S. Bankruptcy Court for the District of New Jersey in In re Global Outreach S.A. In Global , the debtor (Global) acquired more than 550 acres in Costa Rica to develop a luxury golf, hotel and condominium resort complex. As part of its efforts to obtain project financing, Global sought a loan from YA Global Investments L.P. (YA). The opinion states that the lender’s due diligence revealed Global’s president had been convicted of real estate fraud, had filed for personal bankruptcy, and had numerous judgments entered against him. Nevertheless, after extending a series of smaller loans, in July 2007, YA loaned Global $41 million pursuant to a note and other loan documents (the loan).
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