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The Heilig-Meyers bankruptcy continues to generate litigation, which even if not directed against trustees is of interest to trustees. Most recently, in December 2001, a group of institutional investors led by AIG Global Securities Lending Corp. filed a federal securities fraud action against Banc of America Securities, LLC and First Union Securities, Inc., as the underwriters and initial purchasers for two offerings of Heilig-- Meyers Master Trust asset-backed securities (AIG Global Securities Lending Corp., et al. v. Banc of America Securities, LLC, et al., 01 CV 11448, S.D.N.Y.). While First Union Bank, as trustee, is not named as a defendant in this action, its role as trustee is raised in at least two ways: First, its affiliate First Union Securities, Inc., is alleged to have committed violations of securities laws by failing to disclose information the complaint claims it had access to as a result of the trustee's role as back-up servicer for the asset-backed securities. Second, the underwriters were accused of overstating and misrepresenting the nature of Heilig-Meyers' servicing capacity, as well as the back-up servicing readiness and capacity of the trustee. In raising these issues, the complaint further highlights the type of predefault foresight and monitoring that (as discussed in the past issues of ABA Trust er Investments) investors seem to have increasingly demanded of trustees and others.
* Background. Prior to filing for bankruptcy court protection in August 2000, Heilig-Meyers was a leading operator of retail furniture stores primarily in the South and West. Heilig-Meyers was the servicer for hundreds of thousands of retail sales installment contracts made with furniture purchasers, the proceeds of which contracts were transferred to and used to back certain investor securities issued by MacSaver Funding Corporation, a wholly-owned, bankruptcy-remote subsidiary of Heilig-Meyers, pursuant to the Heilig-Meyers Master Trust.
On the same day it filed for bankruptcy, Heilig-Meyers sought authority to reject the pooling and servicing agreement with MacSaver Funding Corporation and First Union National Bank, as trustee, pursuant to which the master trust had been established. The company indicated that it found its farflung collections process and high level of contract delinquencies to be a drain on profitability, relying as it did upon thousands of employees telephoning...