Article

Note: EPCO Carbon Dioxide Products, Inc. (Debtor) acquired a site and manufacturing equipment for its liquid carbon dioxide production process using financing from JP Morgan Chase Bank, NA (Creditor). The transaction between Debtor and Creditor was structured using the "lower floater" financing structure.

"Lower Floater" financing is a security structure in which notes are underwritten and sold in the public finance market to investors who will rely on the letter of credit as a source of repayment. The trustee of the letter of credit, [Creditor], will make payments to the holders of the notes and can then seek reimbursement from the [Debtor] pursuant to the terms of a Reimbursement Agreement signed by the parties.

The agreement between Debtor and Creditor stated that Creditor would issue a direct pay LC for US$3,350,000 to support option notes that Debtor would issue.

Subsequently, the parties entered into an agreement to restructure Debtor's indebtedness and extend the LC. However, Creditor then breached the agreement and made repeated threats not to renew the LC, thus placing Debtor in default on Debtor's credit facilities unless Debtor agreed to pay increased fees to Creditor.

Debtor sued Creditor for breach of contract to prevent Creditor from carrying out its threat. Creditor's motion to dismiss the case was granted by the United States District Court for the Western District of Louisiana, Monroe Division, James, J. On appeal, the Court of Appeals for the Fifth Circuit, Smith, J., reversed.

Creditor argued that Debtor's complaint failed to state a cause of action because it did not allege applicability of a statute regarding extension of credit, the Louisiana Credit Agreement Statute. The Louisiana Credit Agreement Statute states that "all actions based on a credit agreement are barred unless the agreement is...in writing and signed by the creditor and debtor." In concluding that the pleading was adequate, the appellate court stated that an agreement's violation of this statute is an affirmative defense and, therefore, compliance with the statute need not be pled by the plaintiff.

[JEB/az]

COPYRIGHT OF THE INSTITUTE OF INTERNATIONAL BANKING LAW & PRACTICE

The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of ICC or the other partners in DC-PRO.