In re Powerine Oil Co.

Koch Oil Company (Koch) sold crude oil to Powerine Oil Co. (Powerine) and was named beneficiary of $8.7 million in letters of credit issued by a bank syndicate member, exceeding Koch's actual sales. When Powerine made a $3.2 million overdue payment to Koch shortly before filing for chapter 11 bankruptcy within 90 days, the letters of credit had already expired and were undersecured due to Powerine's insolvency, and Powerine's unsecured creditors, including Koch, could expect far less than full recovery in the bankruptcy. The bankruptcy court let Koch keep the $3.2 million as a contemporaneous exchange for new value under § 547(c)(1); the Bankruptcy Appellate Panel affirmed on equitable grounds instead, reasoning avoidance would be unfair since Koch would have been paid in full under the letters of credit had Powerine simply defaulted rather than paid late; the creditors' committee appealed.