The Distressed Debt Report - June 10, 2008

Questions Over the Depth of Commercial Property Distress

Opportunity-minded real estate money managers have raised billions of dollars in the credit market upheaval since August 2007. They anticipated snapping up commercial real estate as well as commercial property debt for bargain basement prices.

So far, the funds focused on buying debt have been the most active. With the securitization markets virtually shut down, lenders have few options but to sell commercial notes to the funds at discounts of 5% to 20%.

Bankruptcy Decision Reverses Delaware Trend

A recent court decision may put corporate board members and lenders at greater risk of being sued when their actions contribute to a company's financial woes.

The decision came in April in the bankruptcy of The Brown Schools, the former operator of a defunct chain of schools and behavioral health facilities for delinquent youths. The U.S. Bankruptcy Court in Delaware reversed a trend in the Delaware court's decisions in recent years of discouraging creditors from filing claims based on the legal theory known as "deepening insolvency," according to legal observers.

An investor is suing troubled asset-based lending fund SageCrest II to enforce a redemption demand.

Wood Creek Capital Management sued SageCrest and affiliate Windmill Management in Connecticut Superior Court in Stamford on May 28. Wood Creek is seeking a $5.4 million redemption payment, including interest, allegedly owed from SageCrest II for about a year. Wood Creek, of New Haven, Conn., wants the court to allow it to attach $5.8 million of the fund's assets to secure its claim.

• Second Lien Loans Get Rarer and More Like Mezzanine
• Indian Company Mines for Profits in the U.S.
• Loughlin Meghji Embarks on Hiring Spree
• Restricted Stock Partners Acquires Trade Receivables Exchange
• Judge Denies Korth's Request to Delay Dura's Reorganization
• Sands Brothers Starts Asset-Based Lending Fund
• Textron Names Butera as Chief Credit Officer