When the largest homebuilder in the country (TOUSA, Inc.) went bankrupt, the committee of unsecured creditors sought to recover nearly $600 million from the company’s “disastrous” refinancing deal with Citigroup bank (its advisor was Lehman Bros.). Both sides enlisted teams of valuation, real estate, restructuring, and cost/construction experts—who, for the most part, proved credible to the court if not key to its ultimate findings on the alleged fraudulent conveyances in In re Tousa Inc., 2009 WL 3519403 (Bankr. S.D. Fla.)(Oct. 30, 2009).
One of the bank’s experts did not fare so well. He testified under oath that “no court had ever found his methodology to be unreliable” or failed to adopt his solvency opinion. Subsequent testimony revealed, however, that at least two courts rejected his methods and/or ultimate opinion. With his attorney’s help, the expert tried to distance himself from these cases (it depends on your definition of “ultimate”), but the TOUSA court found his “dissembling… extraordinarily troublesome.” More troubling still, the expert “swore” in a deposition that he’d reviewed an internal company memo before coming to his conclusions, and then testified at trial that he’d never seen the document. “Such a fundamental contradiction about a crucial document…served only to erode [his] overall credibility further,” the court said. It was left with the distinct impression that the expert’s testimony “on this and many other points was simply unbelievable and that, for the right price, [he] would opine as desired on anything.”
Better lessons in the remaining 186-pages. The remainder of the court’s lengthy opinion analyzes all of the expert valuation opinions in painstaking detail, including their reliance on DCF/asset analyses by third party real estate appraisers; their range of discount rates; reliance on observable market inputs; sources of historical cost data; use of management forecasts; and selection of company comparables. Read the complete digest of the TOUSA bankruptcy case in the January 2009 Business Valuation Update™, and the full-text court opinion at BVLaw™.
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