Technical Olympic USA, Inc. (TOUS)

[Duffau]

Court Approves Suit Against First Lien Holders

The 'Fraudulent Conveyance' suit is going forward by order of the BK Court. The Committee of Unsecured Creditors is prosecuting it rather than the Debtors in Possession because of apparent conflict of interest between TOUSA and Citibank. TOUSA and the First Lien group have just been too close and Tousa appears to have given unusual preferences to the first lien group. Thus the Official Committee of Unsecured Creditors sought and won the right to prosecute this suit by order published today.

If the committee of unsecured creditors wins, then according to an Oliver Wendel Holmes opinion, all of the bankruptcy estate will benefit including the debtors. The benefit as I see it would be about half a billion dollars minimum. If the financing forced on all the companies last year was fraudulent to any of them then it was fraudulet to all. There is no usual offset for value received, thanks to Oliver.

I'm thinking that the first lien holder, Citibank, should probably immediately buy this out of bankruptcy by buying all other parties out. A settlement should be done before this progresses much further if they want to protect their shareholders. They should at least make a SEC filing showing the potential liability in their Tousa financing.

Things are going just swimmingly....