Bloomberg News

Asarco, Northwest, Rockaway, Amcast: Bankruptcy

April 11, 2007

Asarco LLC, the Arizona copper producer, sued Montana Resources Inc. to recover ownership of its minority interest in a mining venture that was lost while the company was controlled by Grupo Mexico SA de C.V.

Through a complaint filed April 9, Asarco seeks to regain its 49.9 percent interest in the Montana mining operation. Asarco says in its papers that it lost the interest in Montana Resources when it was financially unable to invest less than $5 million to cover the operating needs of the business. Asarco said it was unable to meet the cash calls because valuable assets had been taken away from Asarco under Grupo Mexico's management.

Asarco claims it is entitled to recover its interest because the transfer, it says, was a fraudulent conveyance. Asarco contends that the Montana investment was worth ``hundreds of millions, if not billions, of dollars.''

Asarco's complaint recites that the majority interest in the Montana business was controlled by Dennis Washington.

In an unrelated court filing on April 4, ACRE Acquisition Corp. disclosed it was formed in December by Glencore Ltd. and Washington Corp. for the purpose of exploring the possibility of acquiring Asarco.

Asarco sued Grupo Mexico in February, contending its parent company fraudulently transferred Asarco's 54 percent ownership in a Peruvian copper mine named Southern Copper Corp. to another subsidiary of Grupo Mexico before the Chapter 11 filing. The copper company previously was named Southern Peru Copper Corp.

Phoenix-based Asarco filed to reorganize in 2005 to help resolve asbestos claims. Grupo Mexico acquired Asarco for $1.2 billion in stock six years ago.

The Chapter 11 case is In re Asarco LLC, 05-21207, U.S. Bankruptcy Court, Southern District of Texas (Corpus Christi).

Northwest Airlines Wins Extension of $233 Million Credit Lines

Northwest Airlines Corp. won agreement from U.S. Bank N.A. for a one-year extension of three letters of credit totaling $233 million.

The letters of credit secured Northwest's obligations regarding charter flight operations, U.S. Customs Service requirements and workers' compensation policies. The letters of credit are secured by cash and Northwest's trans-Pacific routes.

Northwest is scheduled to ask a U.S. Bankruptcy Court judge in New York at an April 24 hearing for approval to extend the letters of credit.

Creditors are voting on Northwest's reorganization plan which will distribute the airline's new stock in exchange for unsecured claims. The confirmation hearing to approve the plan is scheduled to begin May 16, two days after the deadline for the examiner to issue his report on whether Northwest ``employed improper processes and procedures in order to arrive at a materially reduced valuation of their assets and businesses.''

Northwest, based in Eagan, Minnesota, estimates the plan will pay unsecured creditors between 66 percent and 83 percent of the value of their claims. The plan will extinguish existing stock and issue new equity to creditors in exchange for their claims.

Separately, Spirit Airlines Inc., which has been suing Northwest for $300 million claiming violation of antitrust laws, arranged to cap its antitrust claim at $105 million.

The interim agreement provides that a judgment in the antitrust suit in federal court in Detroit won't exceed $105 million. The arrangement also provides that Spirit can vote a $35 million claim either for or against Northwest's reorganization plan and participate in the rights offering as though it had a $28.5 million claim.

The Chapter 11 case is In re Northwest Airlines Corp., No. 05-17930, U.S. Bankruptcy Court, Southern District New York (Manhattan).

Joan Fabrics Files Chapter 11, Seeking to Sell Assets

Joan Fabrics Corp., a textile maker with plants in North Carolina and Mexico, filed a petition yesterday under Chapter 11 of the Bankruptcy Code with the intention of selling its business.

The Tyngsboro, Massachusetts-based company generated $124 million in revenue last year making woven jacquard and velour fabrics for the home and commercial markets. Revenue fell from $345 million in 2003 as a result of foreign competition, the company said in its filing. An affiliate filed the same day.

Joan Fabrics' chief operating officer said in a filing that the company owes $45 million to secured creditors, $7.1 million on a secured factoring agreement and $5 million in subordinated secured debt. Suppliers are owed $19 million.

The company has obtained $10 million in financing to carry it through the bankruptcy process.

In its petition, filed in U.S. Bankruptcy Court in Wilmington, Delaware, the company said its largest unsecured creditor, trade creditor UNFI, is owed $4.8 million. The Pension Benefit Guaranty Corp. is the second-largest creditor, owed $3.3 million for an under-funded pension plan.

The case is In re Joan Fabrics Corp., 07-10479, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Former Mortgage Lenders Network Chief Liable for Arrest

Mitchell Heffernan, the former chief executive officer of Mortgage Lenders Network USA Inc., lost a bid to block state authorities in Connecticut from bringing criminal charges against him for failing to pay employee commissions.

Connecticut authorities have been threatening to file the charges, saying its actions were aimed at Heffernan, not the company, which filed Chapter 11 Feb. 5. Yesterday, U.S. Bankruptcy Judge Peter J. Walsh in Wilmington, Delaware, said bankruptcy protection wasn't a shield from prosecution.

``I don't think it is the province of this court to make a determination as to whether the criminal prosecution is being brought in good faith or bad faith,'' Walsh said.

Mortgage Lenders Network, the country's 15th-largest subprime mortgage provider in 2006, is one of the five such lenders undergoing bankruptcy reorganization.

The case is In re Mortgage Lenders Network USA, 07-10146, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Pleasant Care Faces Call for Trustee From U.S. Health Department

The U.S. Health and Human Services Department will join the U.S. Trustee at a May hearing to call for the naming of a Chapter 11 trustee to manage Pleasant Care Corp.'s 30 nursing homes in California.

Lender Bridge Healthcare Finance LLC had asked for a Chapter 11 trustee four days after Pleasant Care filed for reorganization in March. Bridge dropped the request after Pleasant Care chose consultants to take over as chief operating officer and chief clinical officer.

The U.S. Trustee, the arm of the U.S. Justice Department that participates in Chapter 11 cases, filed a separate motion for a Chapter 11 trustee, and Health and Human Services joined the motion.

The motion for the Chapter 11 trustee and a competing motion to approve the new officers will both come before the U.S. Bankruptcy Court in Los Angeles for approval on May 2.

The U.S. Trustee is a government official, while a Chapter 11 trustee supplants management and takes over control of the company's reorganization.

Pleasant Care filed its Chapter 11 petition on March 20 immediately before Bridge, owed $9.7 million, was scheduled to ask a state court in California to appoint a receiver. Bridge argued that the company was ``grossly mismanaged'' to the ``detriment of the elderly residents.''

Pleasant Care's filing listed $20.6 million in debts to its 20 largest unsecured creditors.

The case is In re Pleasant Care Corp., 07-12312, U.S. Bankruptcy Court, Central District of California (Los Angeles).

Rockaway Bedding Files Chapter 11 with 194 Stores in New Jersey

Rockaway Bedding Inc. and its six subsidiaries, together operating 194 mattress stores in New Jersey, filed for Chapter 11 reorganization on April 9, listing $12.7 million owed to the 20 largest creditors.

Rockaway Bedding, based in Randolph, New Jersey, filed no papers in the bankruptcy court by the close of business yesterday, except for the petition and the list of its largest creditors.

The case is In re Rockaway Bedding Inc., 07-14890, U.S. Bankruptcy Court, Northern District of New Jersey (Newark).

Auto Part Maker Amcast Wins Approval of Liquidation Plan

Amcast Industrial Corp. won approval of its liquidation plan from a U.S. Bankruptcy Judge in Indianapolis, who said April 9 that he would sign a confirmation order.

Amcast reached agreement with its creditors' committee and lenders in January on a revised Chapter 11 plan originally filed in October. The plan calls for distributing remaining cash and receivables toward $52.8 million still owing in secured debt.

The plan sets aside $2 million for unsecured creditors. Before confirmation, Amcast settled all its disputes with General Motors Corp. The settlement gave GM a $2 million payment to release $38 million in secured, unsecured and administrative claims that GM was making against Amcast.

Senior secured creditors were paid through asset sales.

Amcast confirmed a plan in July 2005. It filed another Chapter 11 petition in December 2005. The more recent filing occurred after GM decided to take its business elsewhere.

Amcast, based in Fremont, Indiana, made metal products for the auto and construction industries. GM reportedly accounted for 80 percent of Amcast's business.

The case is Amcast Automotive of Indiana Inc., 05-33322, U.S. Bankruptcy Court, Southern District of Indiana (Indianapolis).

Advanced Marketing to Sell U.K. and Australian Operations

Book distributor Advanced Marketing Services Inc., which already sold its primary assets, proposed selling its operations in the U.K. and Australia.

Advanced Marketing has a contract for the sale of the Australian business for a total of $475,000 together with a separate agreement with current managers to pay a total of $216,000 for the business they founded in 1992 and later sold to Advanced Marketing.

Other bids are due by April 20.

Advanced Marketing has sold the larger part of its assets to Baker & Taylor Inc., which described itself as the world's largest book distributor. The U.S. Bankruptcy Court in Wilmington, Delaware, previously approved the sale of the subsidiary Publishers Group West.

Advanced Marketing, based in San Diego, California, filed its petition for Chapter 11 reorganization in December.

Three former AMS officers were given prison sentences for allegedly assisting in the issuance of false financial statements. AMS was restating earnings dating back to 2002.

The case is In re Advanced Marketing Services Inc., 06- 11480, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Florida Builder Construction Compliance Files for Bankruptcy

Construction Compliance Inc., a Florida homebuilder, filed a Chapter 11 reorganization petition April 3, listing assets of $8.9 million and debt of $10.9 million.

The filing in U.S. Bankruptcy Court in Tampa, Florida, said the company had revenue of $63 million in 2005.

The St. Petersburg-based company ceased operations this year, according to a story in the Bradenton Herald.

The case is In re Construction Compliance, Inc., No. 07- 02650, U.S. Bankruptcy Court, Middle District Florida (Tampa).

San Diego Diocese, Lawyers Threatened With Contempt of Court

A bankruptcy judge ordered the Diocese of San Diego and its lawyer to appear in court today to determine whether they transferred church property in violation of the law and should be held in contempt.

After the diocese was driven into bankruptcy by lawsuits claiming sexual abuse, two priests allegedly told parishes that U.S. Bankruptcy Judge Louise De Carl Adler in San Diego had ordered the parishes to transfer 770 bank accounts held in trust by the diocese and to obtain new taxpayer identification numbers for the accounts, the judge said in her April 9 order.

``A creditor or other claimant such as the parishes may not undertake any action to obtain possession of property of the estate or exercise control over that property,'' she wrote. The priests and a newly formed organization of parishes and its lawyers were also ordered to appear with their lawyers.

Adler said it appeared that the diocese's parish organization and its lawyers ``conspired'' with the diocese and its lawyer to ``effect a post-petition transfer of the debtor's assets.'' The diocese, the lawyers and the parish organization were told to file papers yesterday explaining their actions.

If she determines their actions were improper, Adler said, she may find them in contempt, impose sanctions and bar the diocese's lawyer from participating in the case.

Calls to the lawyers for the diocese and the parish organization weren't returned.

The diocese filed its petition in February, on the eve of the first trial stemming from approximately 150 sexual-abuse claims. The diocese proposed a Chapter 11 reorganization plan at the end of March, offering to create a trust fund with $95 million to compensate victims of sexual abuse by priests.

Along with the disclosure statement explaining the plan, the diocese filed an amended list of its assets and liabilities on March 29. The list shows assets of $167.8 million and claims of $95.5 million.

The bankruptcy filing in San Diego was the fifth by a Roman Catholic diocese.

The case is In re Roman Catholic Bishop of San Diego, No. 07-00939, U.S. Bankruptcy Court, Southern District of California (San Diego).

Downgrades, Statistics

Hovnanian Ratings Cut by Moody's on Housing's `Steep Decline'

Credit ratings at homebuilder Hovnanian Enterprises Inc. (HOV:US) and its subsidiary K. Hovnanian Enterprises Inc. were cut yesterday by Moody's Investors Service Inc. in light of the housing market's ``steep decline.''

The corporate and senior note ratings were both dropped one level, to Ba2. The subordinated notes fell two steps, to B1.

Hovnanian, based in Red Bank, New Jersey, generated $5.8 billion in revenue in the 12 months ended in January.

Hovnanian shares fell 29 cents to $23.56, a 52-week low, in New York Stock Exchange composite trading yesterday, during which the hares fell as low as $23.45.

Berry Downgraded on Merger With Covalence Specialty Materials

The merger between Berry Plastics Holdings Corp. and Covalence Specialty Materials Corp. spurred Moody's Investors Service Inc. to cut Berry's corporate rating one level.

Moody lowered the company's rating to B2 after concluding that ``required investments for synergies will leave no free cash flow for debt reduction.''

Berry's $750 million in second-lien notes were also lowered one level, to B3. The senior subordinated debt of Covalence, which becomes an obligation of Berry, fell to Caa1, one step below its pre-merger level.

Berry, based in Evansville, Indiana, makes rigid plastic packaging products. Bedminster, New Jersey-based Covalence makes polyethylene-based plastic film and packaging products.

Company Bankruptcies in Japan Rose 9.3 Percent in Fiscal 2007

Company bankruptcies during Japan's fiscal year ended March 31 increased 9.3 percent over the prior year, according to statistics compiled by Teikoku Databank Ltd.

Total filings in fiscal 2007 were 9,572. While the number of bankrupt companies increased, the debts of the failed companies decreased 8.6 percent.

To contact the reporter on this story: Bill Rochelle in New York at

To contact the editor responsible for this story: Patrick Oster at

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Companies Mentioned

  • HOV
    (Hovnanian Enterprises Inc)
    • $4.11 USD
    • 0.07
    • 1.7%
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