In connection with financing obtained from a syndicate of banks and insurance companies (Syndicate), Powerine Oil Co. (Powerine) entered into a security agreement whereby its assets would serve as collateral for all letters of credit issued by a Syndicate member. Powerine bought crude oil from Koch Oil Company (Koch) (defendant), which was named as a beneficiary of two letters of credit issued by First National Bank of Chicago (First National), a Syndicate member. The letters of credit totaled $8.7 million, which exceeded Koch’s sales to Powerine. In the spring of 1984, Powerine made a $3.2 million overdue payment to Koch. Within 90 days, Powerine filed a Chapter 11 bankruptcy petition. The Committee of Creditors Holding Unsecured Claims (the Committee) (plaintiff) sought to recover the $3.2 million payment from Koch. By the time the action was filed, the First National letters of credit had expired. Moreover, the letters were undersecured because of Powerine’s insolvency. The unsecured creditors of Powerine, of which Koch was a member, could expect a recovery in the bankruptcy of far less than 100 cents on the dollar. The bankruptcy court granted Koch’s motion for summary judgment, allowing it to keep the $3.2 million payment on the grounds that it was a “contemporaneous exchange for new value,” an exception to avoidance set forth at 11 U.S.C. § 547(c)(1). The Bankruptcy Appellate Panel (BAP) affirmed on an equitable basis, concluding that avoidance of the transaction would be unfair to Koch because Koch would have received full payment, pursuant to the letters of credit, had Powerine defaulted rather than paid late. The Committee appealed.