In Re: Boston Generating, LLC
21-2543
2d Cir.Sep 19, 2024Background
- The case involves a leveraged recapitalization by EBG Holdings LLC (“EBG”) and its subsidiary Boston Generating LLC (“BosGen”), where EBG members received cash distributions funded via credit facilities obtained by BosGen.
- The transaction led BosGen to transfer approximately $708 million to EBG to fund a $925 million tender offer and a $35 million dividend.
- After bankruptcy, the liquidating trustee of BosGen sought to avoid (claw back) this $708 million transfer as a fraudulent conveyance under state law.
- The defendants are numerous financial entities who received payments as part of the leveraged recap transaction.
- Both the bankruptcy court and district court dismissed the trustee’s claims, citing Section 546(e) of the Bankruptcy Code which protects certain transactions involving securities contracts and financial institutions from avoidance.
- The Second Circuit affirmed those dismissals.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the § 546(e) safe harbor applies to the BosGen transfer | The transfer was not made in connection with a securities contract or settlement payment; BosGen wasn't party to the tender offer. | The transfer was made in connection with a securities contract; BosGen (and EBG) qualified as financial institutions. | The safe harbor applies; transfer was protected by § 546(e). |
| Whether BosGen and EBG are “financial institutions” under § 101(22)(A) | Neither BosGen nor EBG were customers of BONY in connection with a securities contract at the time of transfer. | Both entities used BONY as their agent for the tender offer, satisfying the customer/agent requirement. | Both qualify as financial institutions for this transaction. |
| Whether the safe harbor requires the debtor to be a party to the securities contract | The safe harbor doesn't apply because BosGen was not a party to the contract. | The contract expressly included subsidiaries like BosGen; its funds were used for the transaction. | Safe harbor applies regardless; BosGen was part of contract. |
| Applicability of “overarching transfer” analysis (per Merit Mgmt. and Nine West) | Each component of the transaction should be analyzed separately for safe harbor protection. | The entire transfer should be viewed as a whole; not each component separately. | Court considered the overarching transfer protected. |
Key Cases Cited
- Merit Mgmt. Grp., LP v. FTI Consulting, Inc., 583 U.S. 366 (Sup. Ct. 2018) (safe harbor analysis applies to overall transfer rather than individual steps)
- In re Tribune Co. Fraudulent Conv. Litig., 946 F.3d 66 (2d Cir. 2019) (agency relationship under § 101(22)(A) for safe harbor purposes)
- In re Anderson, 884 F.3d 382 (2d Cir. 2018) (standard of review for bankruptcy appeals)