Bloomberg News

Northwest Details Creditor Payout: Bankruptcy Report

February 16, 2007

(Corrects trustee name in 13th paragraph.)

Northwest Airlines Inc. (NWACQ:US) filed a revised Chapter 11 plan and disclosure statement yesterday, estimating that unsecured creditors will take home 66 percent to 83 percent of their claims in the reorganized company's stock.

Unsecured creditors are entitled to participate in the $750 million rights offering, underwritten by JPMorgan Chase & Co., by buying $637.5 million in new stock at a price of $27 a share.

The plan has a ``convenience class'' under which unsecured creditors owed $20,000 or less will be paid in full, as will creditors of some affiliates, or ``non-consolidated'' debtors, such as NWA Fuel Services Corp. and Compass Airlines. Inc.

As with the previous plan, the new version wipes out existing stockholders.

To prevent the loss of tax benefits, the amended plan allows the new board of directors to prohibit anyone from buying 4.75 percent or more of the stock for a period up to five years.

The disclosure statement contains an estimate that Eagan, Minnesota-based Northwest had on- and off-balance-sheet pre- bankruptcy secured and unsecured debt of $13.5 billion, including $5.2 billion in secured debt related to aircraft and $4.6 billion representing the present value of aircraft leases.

Eventually, Northwest estimates that unsecured claims will come in between $8.75 billion and $9.5 billion The disclosure statement contains an estimate by Northwest's experts saying that the ``pre-money equity value'' of the reorganized company will be between $6.45 billion and $7.55 billion. Northwest justifies wiping out shareholders by calculating that unsecured creditors will be paid in full as a result.

An ad hoc group of stockholders, who contend Northwest is solvent, disagree with the company's valuation and are scheduled to ask the New York bankruptcy judge, Allan Gropper, to appoint an official equity holders' committee on Feb. 28.

Morgan Stanley disclosed in a securities filing that it has accumulated 6.5 percent of Northwest's stock, making it the airline's single largest stockholder, according to data compiled by Bloomberg. Northwest stock closed yesterday at $2.85 after reaching a high of $6.37 in December while US Airways Group Inc. was making its now withdrawn proposal to merge with Delta.

Northwest has agreed to allow its pilots union to sell an additional 20 percent of its $888 million claim that resulted from pilot contract concessions.

In December, the union sold a similar amount of the claim for 85 percent of face value, generating $150 million. The union said at the time that it would prefer selling more of the claim, but Northwest then would not permit selling more than 20 percent of the holding. The sales will allow pilots to elect between receiving either cash or stock to be issued under a Chapter 11 plan. The distributions will be made into the pilots' retirement accounts.

The case is In re Northwest Airlines Corp., No. 05-17930, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Innovative Communications Gets Trustee to Supervise Bankruptcy

A chapter 11 trustee was appointed Feb. 13 to supervise the bankruptcy of Innovative Communications Corp. LLC and its affiliate, Emerging Communications Inc., by U.S. bankruptcy Judge Judith K. Fitzgerald.

The two companies filed a Chapter 11 petition in the Virgin Islands last August along with their principal, Jeffrey Prosser. The judge denied a motion to convert Prosser's bankruptcy case to a liquidation under Chapter 7, instead appointing an examiner. The companies have been locked in disputes with secured creditors Rural Telephone Finance Cooperative and Greenlight Capital LLC, who together are owed $650 million.

Innovative filed a Chapter 11 petition when it was unable to complete a June settlement resulting from a $130 million judgment obtained by Greenlight in Delaware Chancery Court. The settlement followed the filing of an involuntary chapter 11 petition one year ago in Delaware by Greenlight and affiliates.

The cases are In re Innovative Communications Inc., No. 06- 3007, and In re Jeffrey J. Prosser, No. 06-30009, U.S. Bankruptcy Court, District of Virgin Islands.

Asarco's Parent Objects to Labor Contract, Asks for New Judge

The parent company of Asarco Inc. (AR:US), a bankrupt U.S. metals producer, objected to a new union accord that would increase wages at Asarco by $3 an hour over the life of the contract and give each worker a $3,000 bonus when the deal is ratified.

Asarco, based in Phoenix, filed for bankruptcy in August 2005 to resolve asbestos claims. The objection comes from parent Grupo Mexico SA de C.V., which said through an affiliate in a court filing on Feb. 14 that the contract would give the union ``virtual control over any plan of reorganization.''

The parent is also asking a federal district court to take the dispute over the contract away from U.S. Bankruptcy Judge Richard S. Schmidt. Grupo Mexico acquired Asarco for $1.2 billion in stock six years ago.

The case is In re Asarco LLC, 05-21207, U.S. Bankruptcy Court, Southern District of Texas (Corpus Christi).

Bear Stearns Ordered to Pay $125.1 Million by Bankruptcy Judge

Bear Stearns Cos. (BSC:US), the fifth-largest U.S. securities firm by market value, was ordered by a bankruptcy judge yesterday to pay at least $125.1 million to the Chapter 11 trustee for hedge fund Manhattan Investment Fund Ltd.

U.S. Bankruptcy Judge Burton R. Lifland, granted the trustee's summary judgment motion last month and ruled that New York-based Bears Stearns was the recipient of a fraudulent conveyance. The securities firm had sufficient notice that the fund's principal, a ``convicted felon'' named Michael Berger, was operating a ``massive Ponzi scheme,'' the judge said in his Jan. 9 opinion.

The U.S. Securities and Exchange Commission sued the fund for fraud in January 2000. A receiver was appointed, and the fund entered Chapter 11 protection in New York three months later. The receiver was later named to serve as the Chapter 11 trustee.

The case is In re Manhattan Investment Fund. Ltd., 00-01092, and the lawsuit is Gredd v. Bear, Stearns Securities, Corp., 01- 2606, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Beverage Maker Le-Nature's to Be Sold by Chapter 11 Trustee

The trustee overseeing beverage producer Le-Nature's Inc. asked a judge for permission to hire agents to sell its plant and equipment to a ``turnkey buyer.'' Such a buyer will resume operations at the bankrupt company's Latrobe, Pennsylvania, bottling plant and warehouse, according to court papers filed Feb. 12. The proposed agents, Gordon Brothers Industrial LLC and Harry Davis & Co., will advance $8 million to the trustee, to be repaid from first proceeds of a sale.

Previously, the business was being run while under court protection by a turnaround manager who concluded in November that it wasn't viable after previously suspending production at the main plant and shutting down a second plant in Phoenix.

The custodian put Le Nature's in Chapter 11 protection in early November in Pittsburgh federal court after creditors had filed an involuntary Chapter 7 petition. The Delaware Chancery Court had also appointed a custodian after finding that former management may have committed criminal acts.

The custodian alleged the company was keeping two sets of financial records.

The case is In re Le-Nature's Inc., No. 06-25454, U.S. Bankruptcy Court, Western District of Pennsylvania (Pittsburgh).

Delphi Gets Court Permission to Auction Brake Shoe Business

Delphi Corp. (DPHIQ:US), the biggest U.S. auto-parts maker, received court permission yesterday to sell its brake hose assembly business at auction on March 12 and March 20. The opening bid of $9.8 million comes from Harco Manufacturing Group LLC. The union approved the sale of the $60 million business.

Delphi, based in Troy, Michigan, filed a Chapter 11 petition in October 2005 and followed with a motion at the end of March to reject union contracts and terminate supply agreements with General Motors Corp. The rejection motions were adjourned while the parties negotiate. Delphi is closing or selling 21 of its 29 domestic plants.

The case is In re Delphi Corp., No. 05-44481, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Granite Broadcasting Judge Agrees to Appoint Examiner

Granite Broadcasting Corp. (GBTVQ:US) will undergo investigation by a court-appointed examiner who must deliver a report before the bankruptcy judge rules on whether to confirm the company's reorganization plan. The deadline for the report is April 2.

U.S. Bankruptcy Judge Allan Gropper of New York on Feb 14 approved Granite's disclosure statement, which describes the plan, in advance of sending the plan to creditors for a vote.

Granite's plan would give control and new notes to Silver Point Capital LP and other secured creditors in exchange for $295 million in debt. Granite contends that the reorganized company will be worth between $463 million and $523 million, not enough to cover secured claims.

The U.S. Trustee's Office asked for an examiner because Granite's plan benefits company officials who negotiated with Silver Point.

Granite operates 23 television stations in 11 markets. The petition listed assets of $443.5 million versus debts totaling $644.1 million. The filing resulted from Granite's inability to close the sale of stations in Detroit and San Francisco.

The case is In re Granite Broadcasting Corp., 06-12984, U.S. Bankruptcy Court District of New York.

Seven McDonald's Brooklyn Restaurants to Be Sold at Auction

Seven McDonald's (MCD:US) restaurants in Brooklyn, New York, owned by Yandoli Foods Inc. or one of its affiliates will be sold at a bankruptcy auction March 22. Oak Brook, Illinois-based McDonald's Corp., the franchisor, is exercising its right of first refusal to buy four of the locations.

The prices range between $600,000 and $1.6 million. Anyone wishing to submit a competing bid must initially deliver a notice of intent to bid by Feb. 26.

The lead case is In re Yandoli Foods Inc., No. 06-42541, U.S. Bankruptcy Court, Eastern District of New York (Brooklyn).

Medifacts International to Sell Clinical Research Business

Medifacts International Inc., a privately owned company that performs clinical trials under contract for pharmaceutical companies, will sell its clinical research business at auction on March 7.

The Rockville, Maryland-based company filed a Chapter 11 petition last month in Delaware federal court, planning to reorganize around a division based on cardiac safety monitoring devices. The company said when it sought court protection that it intends to pay trade creditors in full.

The case is In re Medifacts International Inc., No. 07- 10110, U.S. Bankruptcy Court, District of Delaware.

Ownit Mortgage Gets Temporary Reprieve From Landlord Debt

Ownit Mortgage Solutions Inc., a sub-prime home mortgage lender, received permission from U.S. Bankruptcy Judge Kathleen Thompson Feb. 13 to continue occupying offices without paying landlords until Feb. 26.

In asking for the delay, Ownit said it didn't have enough cash to pay landlords. Ownit said in a motion filed Jan. 23 that its $330,000 cash on hand wouldn't even pay rent. Not having debtor in possession financing, Ownit filed a motion on Feb. 12 to sell 54 mortgages to generate cash to pay operating expenses.

Then the country's 11th largest sub-prime home mortgage lender, the Agoura Hills, California-based company filed a Chapter 11 petition in San Fernando Valley federal court in December.

Ownit halted operations earlier that month when a warehouse lender shut down credit and froze Ownit's funds. Ownit made $5.5 billion in loans during the first half of 2006 and $8.3 billion in 2005.

The case is In re Ownit Mortgage Solutions Inc., No. 06- 12579, U.S. Bankruptcy Court, Central District of California (San Fernando Valley).

Go-Cart Track Faces $4.4 Million in Liens, Post-Dispatch Says

More than 20 contractors have filed $4.4 million in liens for unpaid bills against Grand Prix Speedway, a go-cart track in Earth City, Missouri, according to the St. Louis Post-Dispatch. Earth City is 22 miles outside of St. Louis.

Anixter International Downgraded On Sale of Convertible Notes

Anixter International Inc., (AXE:US) a distributor of wiring systems for voice, data, video, and industrial fasteners, was lowered a notch by Moody's Investors Service Inc. to Ba2 on the corporate scale. Anixter's senior unsecured notes were lowered one notch to Ba1, losing investment grade status.

According to Moody's, the corporate downgrade was warranted by a recent $300 million senior convertible note offering, and a history of using debt to buy stock and fund dividends.

Anixter, based in Glenview, Illinois, bought Distribution Dynamics Inc., a distributor of fasteners and small components, and Pentacon Inc., a manufacturer of fasteners and small parts for the auto and aerospace industries.

Univision Communications Downgraded on Planned $14 Billion Deal

Univision Communications Inc. (UVN:US) was issued a downgrade by Standard & Poor's in view of a planned $14 billion acquisition of the Los Angeles-based company by private equity investors. The corporate rating was lowered two notches to B. S&P also assigned the Spanish language television and radio network a B rating to the $9.15 billion first lien credit and a CCC+ grade to the second lien facility.

Global Tel*Link, Prison Telecom Firm, Downgraded on Acquisition

Global Tel*Link Corp., a provider of telecommunications services to correctional facilities, is becoming the industry's largest by acquiring the corrections business of Verizon Communication Inc., causing Moody's Investors Services Inc. to lower the corporate rating by one notch, to B2.

To contact the reporter responsible for this story: Bill Rochelle in New York at wrochelle@bloomberg.net.

To contact the editor responsible for this story: Patrick Oster at poster@bloomberg.net.


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