              IN THE UNITED STATES COURT OF APPEALS

                      FOR THE FIFTH CIRCUIT



                          No. 97-51067



In The Matter of: EL PASO REFINERY, L P
                                   Debtor

ANDREW B KRAFSUR, Trustee for El Paso Refinery, L P
                                   Appellee - Cross-Appellant

                               versus

SCURLOCK PERMIAN CORPORATION
                                    Appellant - Cross-Appellee

*****************************************************************

                          No. 98-50043

In the Matter Of: EL PASO REFINERY, L P
                                   Debtor

SCURLOCK PERMIAN CORPORATION
                                    Appellant - Cross-Appellee

                               versus

ANDREW B KRAFSUR, Trustee for El Paso Refinery, L P
                                   Appellee - Cross-Appellant



          Appeals from the United States District Court
                for the Western District of Texas


                         March 26, 1999

Before HIGGINBOTHAM, DUHÉ, and DeMOSS, Circuit Judges.

HIGGINBOTHAM, Circuit Judge:
     This is an appeal of a bankruptcy case, affirmed by the

district court, in which the Trustee, Andrew Krafsur, was permitted

to avoid payments by the debtor, El Paso Refinery, to one of its

creditors,   Scurlock    Permian   Corporation,   on   the   basis   of

preferential transfers.    We find no such transfers and REVERSE.

                                   I

     El Paso operated a refinery to which Scurlock supplied crude

oil on credit under a written supply agreement established by

Scurlock’s predecessor, the Permian Operating Partnership.           On

October 23, 1992, El Paso filed for bankruptcy protection under

Chapter 11, later converted to Chapter 7.     The Trustee sought to

avoid $82,000,000 in payments made by El Paso to Scurlock during

the preference period.

     El Paso’s obligation to Scurlock was secured by a first lien

on collateral such as accounts receivable, inventory, contract

rights, and proceeds.    El Paso was also financed by Bank Brussels

Lambert, with whom Scurlock had an Intercredit Agreement.            The

Intercredit Agreement between Scurlock and BBL provided that, in

the event of a default, Scurlock and BBL shared Scurlock’s first

lien and that BBL’s lien was of “equal dignity” subject to a pro

rata allocation in accordance with the outstanding principal amount

of BBL’s debt and Scurlock’s debt. The parties stipulated, for the

purposes of the adversary proceeding only, that they shared the

collateral in the following proportion: 54.53% to Scurlock and

45.47% to BBL.

                                   2
      Before    July   1,    1991,      El   Paso        had    usually     paid   Permian

promptly.      Most of the money used to pay Permian, however, was

borrowed    from   BBL,     and    by   July          1991,    BBL   had   advanced     over

$25,000,000 to El Paso.           After Scurlock succeeded Permian, El Paso

fell behind in its payments.            By the end of September 1991, El Paso

was   "past    due"    to    Scurlock            by     $37,450,000        and   owed   BBL

approximately $37,000,000.              At Scurlock's request, in September

1991, El Paso began to pay weekly, sometimes daily, instead of

monthly.

      On November 12, 1991, presumably at Scurlock’s insistence, El

Paso asked BBL to issue an irrevocable letter of credit in favor of

Scurlock, in the amount of $5,000,000, to secure repayment of any

advances by Scurlock in excess of the $37,450,000 already past due,

plus interest, for further continued shipments of crude oil.                             El

Paso gave BBL a priming lien, which by agreement was given a

priority over the preexisting first lien of a group of Term

Lenders, on the refinery's hard assets to secure this letter of

credit.    Scurlock continued to provide approximately $1 million of

crude daily on an “as needed”1 basis as long as the total amount El

Paso owed Scurlock did not exceed $42,420,000 ($37,450,000 plus $5

million credit line).2


      1
     Scurlock leased crude oil storage tanks adjacent to El Paso
and fully controlled the flow of crude oil.
      2
      The unused portion of the credit line was termed the “L/C
Cushion.”

                                             3
     El Paso’s business did not improve and by March 1992, it had

exhausted the $5 million credit line.               On March 11, 1992, again at

Scurlock's insistence, El Paso arranged for a second letter of

credit from BBL in favor of Scurlock for $6 million.                   Like the $5

million credit letter, this letter was designed to continue to

secure sales of crude by Scurlock to El Paso.                Similarly, as long

as the sales of crude did not cause El Paso's total indebtedness to

Scurlock to exceed the $42,420,000 plus the new $6 million line of

credit,    Scurlock    would    continue       to    ship   crude    to    El    Paso.

Scurlock, BBL, and other lenders participated in the loan for the

$6 million letter of credit, which was secured by another lien on

the refinery's hard assets.

     On October 16, 1992, Scurlock notified El Paso of a default

and invoked its contractual right to stop the supply of crude oil.

El Paso filed for Chapter 11 on October 23, 1992; the case was

converted to Chapter 7 in November 1993.               El Paso’s Trustee filed

this preference lawsuit to avoid and recover payments made to

Scurlock during the 90 days preceding the bankruptcy filing (July

24, 1992 - October 23, 1992).

     After deciding that the Intercredit Agreement operated as a

partial    assignment     and    not     a    subordination       agreement,       the

bankruptcy court ruled that 54.53% of the payments from El Paso to

Scurlock in the 90 day period preceding the bankruptcy filing were

proceeds    from    Scurlock’s     own       collateral     and     therefore     not

recoverable    as     preferences.           The    remaining     45.47%    of     the

                                         4
transferred payments, however, were deemed preferential because,

according    to   the    bankruptcy     court’s    interpretation    of   the

Intercredit Agreement, that portion had been assigned to BBL.             The

bankruptcy   court      held   that   Scurlock    received   a   preferential

transfer equal to 45.47% of the total payments ($37,285,400 of a

total $82 million), but concluded that some of it qualified as new

value.   After applying the new value exception, the bankruptcy

court calculated that Scurlock received a preference in the amount

of $10,696,460.      It rejected Scurlock’s “ordinary course of the

business” defense.       The district court affirmed and both parties

appealed.    We have jurisdiction pursuant to 28 U.S.C. § 158(d).

                                       II

     We apply the same standards of review to the bankruptcy

court's findings of fact and conclusions of law as applied by the

district court.      See Kennard v. MBank Waco, N.A. (In re Kennard),

970 F.2d 1455 (5th Cir. 1992).          A bankruptcy court's findings of

fact are reviewed under the clearly erroneous standard, and its

conclusions of law are reviewed de novo.             See Traina v. Whitney

Nat’l Bank, 109 F.3d 244, 246 (5th Cir. 1997).

                                      III

     Our ultimate issue is whether any of the payments from El Paso

to Scurlock during the 90 days preceding the bankruptcy filing were

preferential. Scurlock argues that none of the payments made to it

during the 90 day period preceding the bankruptcy filing were

preferential transfers.        In the alternative, Scurlock claims that

                                       5
if    the    payments   were       preferential,     the    maximum       recoverable

preference not subject to its new value defense would be $751,703.

The Trustee argues that all payments, approximately $82,000,000,

were preferential and recoverable.

       The   elements   of     a   preference    are     set   out   in    §   547(b),

providing:

       [T]he trustee may avoid any transfer of an interest of the
       debtor in property--

       (1) to or for the benefit of a creditor;

       (2) for or on account of an antecedent debt owed by the debtor
           before such transfer was made;

       (3) made while the debtor was insolvent;

       (4) made--

              (A) on or within 90 days before the date of filing of the
              petition; or

              (B) between ninety days and one year before the date of
              the filing of the petition, if such creditor at the time
              of such transfer was an insider; and

       (5) that enables such creditor to receive more than such
       creditor would receive if--

              (A) the case were a case under chapter 7 of this title;

              (B) the transfer had not been made; and

              (C) such creditor received payment of such debt to the
              extent provided by the provisions of this title.


Once the trustee meets this burden, the defendant must establish

one   of     the   exceptions      contained    in   §     547(c)    to    prove   the

nonavoidability of a transfer.            See 11 U.S.C. § 547(g).



                                          6
     In this case, the parties stipulated to the first four of the

five elements of § 547(b).       The Trustee had to establish the fifth

element – as a result of the transfer, the creditor received a

greater percentage recovery on its debt than it would otherwise

have received had it looked solely to distribution from the Chapter

7 estate for its payment.        See 11 U.S.C. § 547(b)(5); Palmer Clay

Prods. Co. v. Brown, 297 U.S. 227 (1936).

     The greater percentage test is most easily understood in the

context   of    an   unsecured    creditor   that   receives   prepetition

payments.      In that case, if the unsecured creditor received more

than he would have if the payments had been retained by the estate

and then distributed to all the unsecured creditors after paying

the secured creditors in a bankruptcy proceeding, the unsecured

creditor impermissibly received a greater percentage by preference.

In contrast, a fully secured creditor who receives a prepetition

payment does not receive a greater percentage than he would have in

a bankruptcy proceeding because as a fully secured creditor he

would have recovered 100% payment in a bankruptcy proceeding.

Accordingly, a creditor who recovers his own collateral is not

deemed to have recovered a greater percentage than he would have in

bankruptcy.      Similarly, an undersecured creditor who receives

prepetition payments does not receive a greater percentage recovery

when the source of the payments is the creditor’s own collateral.

     To determine whether an undersecured creditor received a

greater percentage recovery on its debt than it would have under

                                      7
chapter 7 the following two issues must first be resolved: (1) to

what claim the payment is applied and (2) from what source the

payment comes.       See id. at 434.    Both aspects must be examined

before the issue of greater percentage recovery can be decided.

      (1) The Application Aspect

      If a payment to an undersecured creditor, like Scurlock, is

applied to the unsecured portion of the debt, then the undersecured

creditor will have recovered a greater percentage on this claim if

the estate cannot pay its unsecured creditors 100% of these claims.

See id. (citing Flynn v. Midamerican Bank & Trust Co. (In re Joe

Flynn Rare Coins, Inc.), 81 B.R. 1009, 1018 (Bankr.D.Kan. 1988));

In re Fitzgerald, 49 B.R. 62, 65 (Bankr.D.Mass. 1985); 4 L. KING,

COLLIER   ON   BANKRUPTCY, ¶ 547.09, at 547-43 (15th ed. 1990).    In

contrast, if the undersecured creditor applies the payment to the

secured portion of the debt, the creditor effectively releases a

portion of its collateral from its security interest, that is, its

secured claim is reduced, freeing up a corresponding amount of

collateral.       In this situation, the creditor does not receive a

greater percentage recovery.      If, however, the creditor does not

actually release collateral upon application of the payment, then

the payment is ipso facto a payment on the unsecured portion of the

claim.     See id. at 435-36.

      The bankruptcy court found no evidence in the record that

Scurlock ever released collateral when it received payments from El

Paso.     Scurlock's security instruments were designed to capture

                                    8
"any and all indebtedness," meaning that, so long as there was

indebtedness in excess of collateral, all the collateral remained

encumbered.   See id.

     Scurlock argues that the bankruptcy court and district court

erred because they ignored the fact that El Paso’s antecedent debt

was covered by letters of credit that were in turn collateralized

by El Paso’s assets.    If El Paso failed to pay Scurlock during the

90 days and Scurlock drew on the letters of credit issued by BBL,

BBL would have had a claim against El Paso’s collateralized assets.

According to Scurlock, each time a payment was made, it prevented

a corresponding claim from being asserted by BBL against El Paso’s

assets.   Therefore, Scurlock maintains the payments were not

preferential because they were indirectly applied to the secured

portion of Scurlock’s undersecured debt.

     The district court found the bankruptcy court’s determination

that Scurlock was undersecured and never released any collateral a

finding of fact that was not clearly erroneous. Despite Scurlock’s

argument otherwise, it seems untenable to claim to have released

collateral with each payment when the entire collateral base

remained secured throughout the payments.      We therefore find no

error in the ruling below on the application aspect of the greater

percentage recovery test.

     (2) The "Source" Aspect

     Even if the payment in question was applied to the unsecured

portion of an undersecured creditor's claim, the creditor will not

                                  9
be deemed to have received a greater percentage as a result of the

payment   if    the   source     of    the    payment     is    the    creditor's    own

collateral.      A creditor who merely recovers its own collateral

receives no more as a result than it would have received anyway had

the funds been retained by the debtor, subject to the creditor's

security interest.          See In re El Paso Refinery, 178 B.R. at 435-36

(citing 4 L. KING, COLLIER      ON   BANKRUPTCY, ¶ 547.09, at 547-43 (15th ed.

1990)).

       Scurlock offered uncontroverted expert testimony to establish

that all of the funds used to make the allegedly preferential

payments were proceeds of a security interest in current assets

(inventory, accounts receivable, contract rights, and proceeds).

The bankruptcy court held that the evidence established that the

source of all the alleged preferential payments were "proceeds" of

collateral in which Scurlock held a security interest.                        See id. at

436.

       Scurlock maintains that once the bankruptcy court determined

that   the   source    of     the    preferential       payments       was    Scurlock’s

collateral, the inquiry should have ended with no preferential

payments established. The bankruptcy court, however, rejected this

argument because of its interpretation of the Intercredit Agreement

and the parties’ stipulations regarding Scurlock’s collateral.                        We

now    arrive   at    the    determinative        issue    of    this    appeal:     the

bankruptcy      and   district        courts’     treatment       of    the     parties’

stipulations and the impact of the Intercredit Agreement.

                                             10
                                     IV

      In the initial appeal, the district court held that the

bankruptcy court’s interpretation of the parties’ stipulations

conflicted with the bankruptcy court’s analysis of the Intercredit

Agreement.   The conflict existed because the bankruptcy court held

that the parties’ stipulations concerning the Intercredit Agreement

implied a partial assignment of security interest by Scurlock to

BBL, but that the Intercredit Agreement, which was not part of the

record at that time, constituted a subordination agreement.                 The

district court therefore remanded the case to be supplemented with

the Intercredit Agreement and directed the bankruptcy court to

determine    whether   the    Intercredit    Agreement      was    a    partial

assignment or a subordination agreement.

      The Trustee argues that the district court erred in holding

that the bankruptcy court should not have accepted the parties’

trial stipulations about the Intercredit Agreement.           There are two

stipulations at issue.       Stipulation 6 provided that the first lien

Scurlock had on El Paso’s collateral was also held by BBL pursuant

to an Intercredit Agreement, which provided that the first lien

position was shared on a ratable basis.         Stipulation 18 provided

that, for the purposes of this adversary proceeding only, Scurlock

and BBL held perfected security interests in El Paso’s collateral

and   that   they   shared    in   this   collateral   in    the       following

proportion, 54.53% to Scurlock and 45.47% to BBL.



                                     11
      Generally, stipulations in a pretrial order bind the parties,

absent modification.         See Save Barton Creek Ass'n v. Federal

Highway Admin., 950 F.2d 1129, 1132 n.3 (5th Cir. 1992).                  Federal

Rule of Civil Procedure 16 provides that a pretrial order controls

the subsequent course of the action, unless modified to prevent

manifest injustice.         The Trustee argues that Scurlock failed to

show any circumstances to warrant disregard of the stipulations and

that the bankruptcy court’s commentary about the stipulations

should be regarded as dicta.

      A trial judge has "broad discretion in determining whether or

not a pretrial order should be modified or amended."                      Coastal

States Mktg., Inc. v. Hunt, 694 F.2d 1358, 1369 (5th Cir. 1983).

Although a trial court generally does not need to make findings on

stipulated facts, it may have to make a finding if conflicting

inferences can be drawn from the undisputed facts.                See 9A CHARLES

A. WRIGHT & ARTHUR R. MILLER, FEDERAL PRACTICE   AND   PROCEDURE § 2579 at 541-42

(2d ed. 1995).

      Here, the district court found conflicting inferences and

exercised its discretion to make further findings.                 We find that

the district court did not err in directing the bankruptcy court to

supplement the record with the Intercredit Agreement and interpret

the stipulations accordingly.

                                        V

      On   remand,    the     bankruptcy    court        determined     that   the

Intercredit    Agreement     was   a   partial    assignment      and   that   the

                                       12
stipulations accurately represented the partial assignment nature

of the Intercredit Agreement.     The   bankruptcy court concluded

that, by virtue of the partial assignment in the Intercredit

Agreement, Scurlock received a greater percentage of recovery than

it would have in a bankruptcy proceeding.       Specifically, the

bankruptcy court held that 54.53% of the total proceeds were

indisputably Scurlock's, and its receipt of that proportion of the

proceeds was not a preferential payment.   The remaining 45.47% of

the proceeds, however, were the subject of another creditor's

security interest--that of BBL.      When Scurlock received those

monies, it received monies not sheltered by the source rule, which

protects only transfers of a given creditor's own collateral.

Thus, the bankruptcy court held that Scurlock recovered a greater

percentage than it otherwise would have received in a Chapter 7

liquidation (in which the stipulation of the parties regarding

BBL's security interest would be enforced).   The bankruptcy court

therefore ruled that the Trustee established the fifth element of

§ 547(b), greater percentage recovery, with respect to 45.47% of

the transfers made to Scurlock during the preference period.   The

district court affirmed.

     Scurlock argues that the bankruptcy court’s interpretation of

the Intercredit Agreement as a partial assignment was erroneous.

Scurlock claims that the Intercredit Agreement was an agreement to

modify contractually the relative lien positions of Scurlock, BBL,

and the other term lenders.     Scurlock also maintains that the

                                13
collateral sharing contemplated by the Intercredit Agreement did

not occur until declaration of default and asserts that BBL never

made a claim for any percentage of the $82 million paid during the

preference period.

     We now examine the Intercredit Agreement to determine whether

it was indeed a partial assignment or merely a subordination

agreement. Before the 1991 amended Intercredit Agreement, Scurlock

had a perfected first lien and BBL had an independently perfected

second   lien   in   the   proceeds   of   the   common   collateral.   The

Intercredit Agreement changed this relationship by providing, in

pertinent part, the following:

     4(f) Subject to Sections 4(b) and (c) hereof, the security
     interests, liens, and other interests . . . at any time
     granted to or held by (I) [BBL] and (ii) [Scurlock], in the
     Common Collateral and the Common Secondary Collateral shall be
     and remain at all times and in all respects of equal priority
     subject to Section 4(g) and 4(h) hereof.

     4(g) Subject to Sections 4(b) and (c) hereof, all proceeds
     resulting from any sale, disposition, or other realization
     upon any or all of the Common Collateral or the Common
     Secondary Collateral occurring at any time after [BBL,
     Scurlock or the Term Lenders], as the case may be, shall have
     demanded payment under, declared a default or Event of Default
     under or exercised any enforcement remedies under the [BBL]
     Loan Documents, the [Term Lenders] Loan Documents or the
     [Scurlock] Loan Documents shall be shared by [BBL] and
     [Scurlock] pro rata in accordance with the outstanding
     principal of the [BBL] Debt and the [Scurlock] Debt (the “Pro
     Rata Allocation”).

The dispute here is whether the Intercredit Agreement assigns part

of Scurlock’s security interests to BBL or only modifies their

relative lien positions through a private sharing arrangement.



                                      14
     Contract interpretation is a matter of law reviewed by this

court de novo.    See Liberty Mut. Ins. Co. v. Pine Bluff Sand &

Gravel Co., Inc., 89 F.3d 243, 246 (5th Cir. 1996).          Our primary

concern is to give effect to the true intentions of the parties as

expressed in the written agreement.     See Burns v. Exxon Corp., 158

F.3d 336, 340 (5th Cir. 1998). Absent ambiguity, the writing alone

will be deemed to express the intention of the parties, and

objective intent rather than subjective intent controls.         See id.

(citing Sun Oil Co. v. Madeley, 626 S.W.2d 726, 728 (Tex. 1981)).

     The two subsections in dispute are in a section of the

Intercredit Agreement entitled “Agreement to Subordinate.”         There

are no terms of conveyance in subsections 4(f) and (g) assigning a

portion of Scurlock’s secured interest to BBL.        Rather, subsection

4(k) of the Intercredit Agreement provides that BBL and Scurlock

“hereby consent to the modifications of their respective lien

priorities as effected by this agreement.”     This language reads as

a subordination agreement rather than a partial assignment.

     The   Trustee’s   attempt   to    characterize    the   Intercredit

Agreement as an assignment because it was filed at the Texas

Secretary of State’s office is not persuasive.    While § 9.405(a) of

the Tex. Bus. & Com. Code provides that a secured party may assign

of record all or part of its rights under a financing statement by

the filing in the Secretary of State’s office of a separate written

statement of the assignment, the act of filing does not generate

authority for the Trustee to enforce the Intercredit Agreement.

                                  15
      Scurlock argues that it merely subordinated its first lien

position    to    BBL       in   relation   to    their    claims    to   the   Common

Collateral in the event of a default.                 It stresses that there is

nothing to suggest that it assigned its underlying debt to BBL, and

a lien is not subject to an assignment without the underlying debt.

See Svancina v. Gardner, 905 S.W.2d 780, 783 (Tex. App.--Texarkana

1995, no writ).         Indeed, the Trustee concedes, as it must, that

Scurlock did not assign its debt to BBL, and BBL did not assign its

debt to Scurlock. Again, this circumstance favors a reading of the

Intercredit Agreement as a subordination agreement.

      In Section 26, entitled “No Third Party Beneficiaries,” the

Intercredit Agreement provides that BBL, Scurlock, and the Term

Lenders entered into this agreement “for their mutual convenience”

and “not    for    the       benefit   of   El    Paso.”     The    parties     to   the

Intercredit Agreement further provided that the agreement “is

intended to establish relative rights and priorities between” them.

El   Paso   signed      a    consent   form      acknowledging      the   Intercredit

Agreement and consenting to the following:

      [A]ny agreement among you providing for the alteration or
      modification of the priorities of the respective liens,
      security interests and/or mortgages held by each of you and to
      any agreement among you with respect to the order of
      distribution among you of proceeds of any collateral subject
      to such liens, security interests and/or mortgages.


This language further suggests that the Intercredit Agreement was

a subordination agreement and not a partial assignment.



                                            16
      The consent language also makes plain that the Intercredit

Agreement gave neither El Paso nor its Trustee standing to enforce

its terms because they were not a party to the agreement.               See 11

U.S.C. § 510(a); In re Terrace Gardens Park Partnership, 96 B.R.

707, 716 (Bankr. W.D.Tex. 1989).       Despite the Trustee’s insistence

that, irrespective of the label given to the Intercredit Agreement,

Scurlock and BBL shared a first lien priority on the Common

Collateral mandating that the proceeds from the Common Collateral

be shared with BBL in a chapter 7 liquidation, we find the Trustee

has no standing to assert such a claim for BBL, as the bankruptcy

court    correctly     acknowledged       in     its    original      opinion.

Specifically, the Trustee cannot enforce the agreement’s sharing

arrangement and cannot rely on it to demonstrate greater recovery

by Scurlock.

      We are ultimately persuaded that the Intercredit Agreement is

a   subordination    agreement    treating     the   order   of   distribution

between the parties who executed it.            The Intercredit Agreement

describes the parties’ intent to share pro rata, according to the

outstanding debt, the proceeds of common collateral in the event of

a declaration of default.        There is no evidence that BBL sought to

recover any percentage of the $82,000,000 that was paid to Scurlock

during the 90 days preceding bankruptcy filing and no evidence that

any such right would belong to anyone else.

      That said, the parties’ affairs do not easily give up their

full meaning – at least from what we have before us.               If Scurlock

                                     17
received more than that to which it was entitled according to its

agreement with BBL, the ball rests with BBL, not the Trustee of El

Paso.

     Given this conclusion and the fact that the source of all of

the prepetition payments to Scurlock from El Paso were proceeds

from collateral in which Scurlock held a secured interest, we find

that Scurlock did not receive a greater percentage of recovery than

it would have in a bankruptcy proceeding.        Therefore, the Trustee

has failed to establish the fifth element of § 547(b), which

requires a trustee to show that a creditor received a greater

percentage   then   he   would   have   in   a   bankruptcy   proceeding.

Accordingly, we hold that Scurlock did not receive any preferential

payments from El Paso.     The district court is REVERSED, and the

Trustee/debtor takes nothing.




                                   18
