Matter of Saybrook Manufacturing Co.
United States Court of Appeals for the Eleventh Circuit
963 F.2d 1490 (1992)
When Saybrook Manufacturing (debtor) filed Chapter 11, it owed Manufacturers Hanover (Hanover) roughly $34 million, of which only about $10 million was secured, leaving $24 million unsecured; the bankruptcy court entered an emergency financing order under which Hanover would provide a $3 million postpetition loan in exchange for a security interest covering all of Saybrook's prepetition and postpetition property, including Hanover's previously unsecured $24 million prepetition debt - fully securing debt that had been unsecured before. Unsecured creditors Seymour and Jeffrey Shapiro (plaintiffs) objected, but the bankruptcy court overruled their objection and refused to stay the order pending appeal; the district court held their appeal moot under § 364(e), and they appealed further.
Whether a bankruptcy court may permit a creditor's unsecured prepetition debt to be secured in exchange for that creditor's provision of postpetition financing to the debtor.