Ocala Funding, LLC voluntarily filed for chapter 11 bankruptcy protection on Tuesday in the Middle District of Florida bankruptcy court. The company is related to another bankrupt entity – Taylor, Bean & Whitaker Mortgage Corporation. Prior to its own chapter 11 filing in the same court several years ago, Taylor, Bean & Whitaker was the country’s largest independent originator and servicer of residential mortgage loans according to court filings. Those same court filings, embedded below, explain Ocala Funding’s operations and its relation to TBW’s collapse:
TBW established the Debtor [Ocala Funding] in January 2005 as a wholly-owned bankruptcy-remote subsidiary (with an independent Special Member). The Debtor was created for the purposes of: (a) purchasing mortgage loans originated by TBW; and (b) selling such mortgage loans to third parties, principally the Federal Home Loan Mortgage Corporation. In furtherance of this structure, the Debtor raised money from Deutsche Bank AG (“DB”) and BNP Paribas Mortgage Corporation, and various other financial institutions, as secured lenders through sales of asset-backed commercial paper under the Prepetition Indenture. The Debtor used proceeds of mortgage sales to Freddie Mac and others to satisfy its financing obligations to its lenders. By 2007, the Debtor’s role in providing liquidity to TBW had grown to the point where the outstanding balance of notes issued under the Funding Facility was over $4.4 billion. The Funding Facility was restructured in June 2008 such that the maximum outstanding balance was reduced to $1.75 billion.
From 2002, prior to the Debtor’s formation, through August 2009, TBW’s former Chief Executive Officer Lee Farkas and certain other employees of TBW engaged in a scheme to defraud, among others, Colonial Bank, the Debtor, and the Debtor’s secured lenders and other creditors. The purpose of the scheme was to enrich the Farkas Parties and cover up their fraud.
From May 2008 until TBW’s collapse in August 2009, the Farkas Parties diverted approximately $1 billion in cash from the Debtor to certain of TBW’s creditors. Chief among the beneficiaries of these payments was Freddie Mac, which received approximately $805 million from Ocala from September 2008 through August 2009. By causing Ocala to transfer funds to certain of TBW’s creditors, the Farkas Parties were able to maintain the appearance that TBW was continuing to honor its servicing obligations to Freddie Mac and others, thereby extending their fraudulent scheme. As a result of the improper use of the Debtor’s funds, the Debtor was left with substantial shortfalls in collateral to secure or service the Funding Facility.
The court filing goes on to explain the reason for Tuesday’s chapter 11 filing and its goals:
After the confirmation of the TBW Plan, the TBW Plan Trust Advisory Committee and I turned to the task of preserving and recovering the remaining assets of the Debtor. In October 2011, the Debtor retained Proskauer Rose LLP to assist it in evaluating its claims and causes of action against Freddie Mac and other third parties, and how best to use the chapter 11 process to recover on account of these claims.
The Debtor determined that the best interests of its estate and its creditors will be served by the Debtor filing for chapter 11 relief and exercising its right to seek discovery under Rule 2004 of the Federal Rules of Bankruptcy Procedure to conduct a thorough review of facts in support of its causes of action against Freddie Mac and others, as well as any defenses that these parties may assert.
Prior to the commencement of the Chapter 11 Case, the Debtor entered into extensive negotiations with the Prepetition Indenture Trustee, DB, BNPP, the FDIC and the TBW Plan Trust with respect to a consensual plan of liquidation for the Debtor, the funding of the Debtor’s Chapter 11 Case, and certain related matters relating to the administration of the Chapter 11 Case and the settlement of certain disputes, the result of which was the parties’ execution of that certain Restructuring and Plan Support Agreement.
Pursuant to the RSA, the Ocala Plan will be unanimously accepted by holders of claims in two of the four impaired classes of claims as described in the RSA, which accepting classes constitute over 97% of all claims against the Debtor. I believe that the Ocala Plan as outlined in the RSA and described above is confirmable, feasible and in the best interests of the Debtor’s creditors. The Debtor therefore intends to comply with its obligations under the RSA.
The full declaration is embedded below. For more information about Ocala Funding’s chapter 11 case, peruse our library of all of the major court filings from this bankruptcy case here.