In July 2007, The Hartford Floating Rate Fund (the
"Fund") and more than 60 other lenders (known
collectively as the "Transeastern Lenders") accepted the
payoff of a guarantee from Tousa, Inc.
("Tousa"), a Florida homebuilder. In order to fund the
payoff, Tousa borrowed money from certain new
lenders and secured the loan by granting liens to the
new lenders on the assets of certain Tousa
subsidiaries (the "Subsidiaries"). In January 2008, Tousa
filed petitions for relief under Chapter 11 of the
U.S. Bankruptcy Code. In July 2008, a committee of
creditors of the Subsidiaries (the "Committee")
brought suit in the Bankruptcy Court of the Southern
District of Florida (the "Bankruptcy Court") against
the Transeastern Lenders alleging that the Subsidiaries
had received no benefit in return for the liens on
their assets, that the Subsidiaries were co-borrowers on
the loan from the new lenders, and that the
Transeastern Lenders received the value of the liens
when the Transeastern Lenders accepted the
payoff. The Subsidiaries sought the avoidance of their
liens and the return of the value of those liens to
the bankruptcy estate. On October 13, 2009, the
Bankruptcy Court ruled in favor of the Committee,
avoided the liens, and ordered the Transeastern Lenders
to return the payoff amount to the bankruptcy
estate. The Transeastern Lenders, together with the
Fund, appealed the decision to the U.S. District
Court for the Southern District of Florida (the "District
Court"). On February 11, 2011, the District Court
ruled in favor of the Transeastern Lenders (including the
Fund) and quashed the Bankruptcy Court's
opinion. The Committee
appealed to the U.S. Circuit Court of Appeals for the
Eleventh Circuit (the "Eleventh Circuit"), which
reinstated the Bankruptcy Court opinion, but remanded
back to the District Court on the question of
remedies. The District Court then in turn remanded one
issue back to the Bankruptcy Court for a report
and recommendation. On April 1, 2016, the Bankruptcy
Court issued its report and recommendation,
which was unfavorable in many respects to the
Transeastern Lenders. On March 8, 2017, the District
Court accepted the report and recommendation and
ordered the Transeastern Lenders to disgorge and
return the payoff amount, plus prejudgment interest. The
Transeastern Lenders appealed the District
Court's decision to the Eleventh Circuit and entered into
settlement negotiations. On December 19, 2017,
the parties to the Tousa matter entered into a settlement
agreement, which was approved by the
Bankruptcy Court in January 2018. As part of that
settlement agreement, the Fund paid $1,972,739.72,
which represents a portion of the proceeds it received as
part of the loan guarantee payments. As part of
the settlement agreement, the Fund was released from
any further claims in this matter.