Ocala Funding files bankruptcy, reaches restructuring support deal

By Caroline Salls

Pittsburgh, July 11 - Ocala Funding, LLC filed Chapter 11 bankruptcy Tuesday in the U.S. Bankruptcy Court for the Middle District of Florida.

According to a statement filed with the court by chief restructuring officer Neil F. Luria, Ocala Funding was created to purchase mortgage loans originated by Taylor, Bean & Whitaker (TBW) and to sell those mortgage loans principally to the Federal Home Loan Mortgage Corp. (Freddie Mac).

Taylor Bean scheme

From 2002 through August 2009, Luria said TBW's former chief executive officer Lee Farkas and other employees engaged in a scheme to defraud Colonial Bank, Ocala Funding, Ocala's secured lenders and other creditors.

Luria said the Farkas parties diverted about $1 billion in cash from Ocala Funding to some of TBW's creditors from May 2008 until Taylor, Bean & Whitaker's collapse in August 2009.

Freddie Mac received about $805 million from Ocala from September 2008 through August 2009, Luria said.

"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," Luria said in the statement.

As a result of the improper use of its funds, Luria said Ocala was left with substantial shortfalls in collateral to secure or service its funding facility.

Luria said Ocala Funding has debt that exceeds its assets by more than $2 billion and nearly half of this shortfall is the result of transfers of Ocala's assets to Freddie Mac under the direction and control of the Farkas parties.

Restructuring terms

In addition, Luria said it has entered into a restructuring support agreement with its pre-bankruptcy indenture trustee, DB, BNPP, the FDIC and the TBW Plan Trust.

Under the support agreement, $26.3 million of the Ocala funds, which were on deposit with Platinum Bank when the bank was shut down and taken over by the FDIC, were distributed by the FDIC, as receiver. Of those funds, 19.96% went to the FDIC as Colonial Bank receiver, 59.89% went to DB and BNPP and 20.15% went to OF Finance, LLC, a new company that is 25% owned by FDIC and 75% owned by DB and BNPP.

Ocala said these funds are to be advanced by the debtor-in-possession financing lender to the debtor under its proposed DIP facility to fund the costs of the Chapter 11 case.

Also under the agreement:

• Ocala Funding will file a motion for approval of the transfer of claims that it holds against Bank of America, NA to DB and BNPP for conversion of its assets in exchange for Bank of America's assignment to Ocala Funding of some claims it may have against former TBW auditor Deloitte & Touche;

• Ocala Funding will file a motion in both its case and TBW's Chapter 11 case for approval of an arrangement under which the net proceeds of all claims and causes of action of Ocala and the TBW Plan Trust against Deloitte will be allocated 75% to Ocala and 25% to TBW; and

•The costs of litigating those claims and causes of action against Deloitte will be paid by the TBW Plan Trust.

Within 90 days of the Chapter 11 filing, Ocala Funding will file a plan of liquidation that provides for the transfer of all remaining mortgage loans and cash collateral proceeds to DB and BNPP; the increase of the TBW claim to $1.75 billion, recoveries of which will be allocated 90% to DB and BNPP and 10% to the FDIC; payment of up to 25% of the general unsecured claims, not to exceed a total of $250,000; the allocation of the proceeds of any fraudulent conveyance and other unencumbered actions of the debtor's estate 25% to the FDIC as Colonial receiver and 75% to DB and BNPP; and the transfer of all claims and causes of action of Ocala Funding to a post-confirmation litigation trust for prosecution.

The Ocala plan must be confirmed and take effect within 160 days of the bankruptcy filing date.

DIP financing

In conjunction with the bankruptcy filing, Ocala Funding has obtained a commitment for $5.2 million in debtor-in-possession financing from O.F. Finance, LLC, together with its members Deutsche Bank AG, BNPP and the FCIC as Colonial Bank's receiver.

The DIP loan will mature on the effective date of Ocala Funding's liquidation plan. Interest will be 0%.

Debt details

According to court documents, Ocala Funding has more than $1 billion in both assets and debt.

The company's largest unsecured creditors are the Federal Deposit Insurance Corp., with an $898.87 million lender claim and Cadwalader, Wickersham & Taft LLP, with a $1.63 million trade claim.

Taylor, Bean & Whitaker Mortgage Corp. owns 100% of Ocala Funding's LLC membership interests.

The company is represented by Stichter, Riedel, Blain & Prosser, PA.

Ocala Funding is an Orlando, Fla.-based financing vehicle. Its Chapter 11 case number is 12-04524.

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