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The Perils of Participations (and Secrets to Successful Subordinations)

December 05, 2012


A recent bankruptcy court decision, In re Brooke Capital Corp., 2012 WL 4793010 (Bankr. D. Kan. 2012), reveals some significant due diligence problems for those who acquire loan participations as well as for those who enter into subordination agreements with the lead lender. Although the decision has questionable analysis on several points and, thus, could potentially be disregarded as simply wrong or at least focused on the wrong questions, it nevertheless provides a useful focus with respect to the underlying issues.

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