Gym operator Bally Total Fitness Holding Corp. (BFTH:US) announced yesterday that it will solicit votes on a so-called prepackaged Chapter 11 reorganization negotiated with holders of 80 percent of the $295 million in senior subordinated 9.875 percent notes due in October.
The plan will swap the subordinated debt for all of the new stock and $150 million in new subordinated notes bearing interest at 11.5 percent. The new notes would earn 13 percent interest if the company elects a payment in kind option under which interest could paid with more notes. The plan would reduce debt by $150 million.
The sponsoring noteholders will underwrite a $77.5 million offering of new subordinated debt to give Bally more cash for investing in the business.
The $235 million in senior 10.5 percent notes of 2011 must also vote in favor of the plan.
In return for waiving defaults, the holders of the 10.5 percent senior notes will receive a 1 percent consent fee.
The subordinated noteholder group includes affiliates of Goldman, Sachs & Co., Tennenbaum Capital Partners LLC, and Anschutz Investment Co.
Under the prepackaging procedure allowed under bankruptcy law, Bally will solicit votes from creditors before filing the Chapter 11 petition. If successful, a so-called prepack cuts the time in Chapter 11 to a few weeks.
Just hours before the announcement about the Chapter 11 filing, Bally disclosed in a filing with the Securities and Exchange Commission that it had signed a confidentiality agreement with Padus Capital Management LLC, its largest shareholder with 14.8 percent of the stock.
The filing said that the agreement enabled Bally to give Pardus confidential information enabling them to negotiate ``a possible restructuring of the company.''
Bally currently has a forbearance agreement good until July 13 with its secured lenders and with holders of the senior notes and the subordinated notes.
Bally missed a $15 million payment last month on the senior subordinated notes.
Bally said March 15 that it might be forced into a Chapter 11 filing if it couldn't restructure debt.
Chicago-based Bally's generates almost $1 billion a year in revenue from more than 400 locations in 29 states and several foreign countries. Bally's brand names include Pinnacle Fitness, Crunch, Gorilla Sports, and The Sports Club of Canada. The company was spun off nine years ago from Bally Entertainment Corp.
Creditors and U.S. Trustee Seek Trustee for 1031 Tax Group
The 1031 Tax Group LLC and its affiliates were operating a ``Ponzi scheme'' and should be taken over by a Chapter 11 trustee, according to papers filed May 29 in U.S. Bankruptcy Court in New York by a group of creditors and the U.S. Trustee.
The hearing on the motion for a trustee will be held June 11. If approved by the bankruptcy court, an independent Chapter 11 trustee would take over, ousting management and the professionals who filed the Chapter 11 petition for 1031 and its affiliates.
The creditors pointed to filings by 1031 admitting that the companies' principal, Edward Okun, ``borrowed'' $132 million from the $151 million that was being held for 300 customers to complete their property exchanges. The filing says that Okun used the money to make long term investments intended to earn a higher rate of interest.
The creditors, who hold claims exceeding $17.5 million, contend that 1031 became a ``Ponzi scheme'' in which Okun was ``robbing Peter to pay Paul'' until ``the music stopped'' in late April or early May.
The U.S. Trustee paints an even worse picture in her papers, saying she has seen documents indicating that improperly borrowed funds totaled $158.1 million, not $132 million, and constituted 87.5 percents of the companies' combined assets.
1031 and its affiliates are a rollup of six ``qualified intermediaries'' who facilitated ``deferred like kind property exchanges'' so their customers can avoid recognizing capital gains taxes on the sale of property. Properly conducted, a qualified intermediary holds proceeds from the sale of property until the owner purchase a replacement property.
The U.S. Trustee is a division of the U.S. Justice Department charged with protecting the interests of creditors and the integrity of the bankruptcy system.
A call to 1031's attorney for comment was not returned.
The chief restructuring officer for 1031 previously said that the U.S. Attorney in Richmond, Virginia, is conducting an investigation.
The Chapter 11 filing listed assets of $154.6 million.
The case is In re The 1031 Tax Group LLC, 07-11448, U.S. Bankruptcy Court, Southern District New York (Manhattan).
InSight Scheduled to Leave Chapter 11 in Six Weeks
InSight Health Services Holdings Corp. (IHSC:US), the medical imaging company that filed a so-called prepackaged Chapter 11 plan May 29, is set to emerge from reorganization in less than six week, if it can stick to the scheduled set up yesterday by the U.S. Bankruptcy Judge in Delaware.
InSight negotiated with its creditors and solicited acceptances of its Chapter 11 plan before filing the Chapter 11 petition this week. Garnering votes in advance of filing is known as a prepackaged Chapter 11, or ``prepack'' for short.
All creditors will be paid in full except holders of the $194.5 million in notes to be given 90 percent of the stock. Existing shareholders will retain the other 10 percent.
The Delaware bankruptcy judge yesterday selected July 9 as the day when InSight can ask for approval of the plan in an order of confirmation. Creditors need not vote again if the bankruptcy court rules that the procedures used before filing comply with bankruptcy law governing prepacks.
The U.S. Trustee objected to emerging quickly from Chapter 11, contending that changes in plan should entitled creditors to vote again.
The U.S. Trustee is a division of the U.S. Justice Department whose responsibilities include watching over a reorganization before a creditors' committee is formed.
The operating subsidiaries did not file to reorganize in Chapter 11.
Based in Lake Forest, California, InSight has 109 fixed sites and 1087 mobile facilities in thirty states. Revenue last year was almost $300 million.
The case is InSight Health Services Holdings Corp., 07- 10700, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Delphi and Unions Talking; New Financing Proposal Possible
Ron Gettelfinger, the president of the United Auto Workers, said that talks between the union and Delphi Corp. (DPHIQ:US) are ``ongoing.'' He said he had ``no idea'' when the talks will conclude.
Highland Capital Management LP, Delphi's second-largest shareholder, disclosed in a filing with the Securities and Exchange Commission that it may propose making an investment in Delphi along with Pardus European Special Opportunities Master Fund LP and Brandes Investment Partners LP.
Last year, Highland made a $4.7 billion financing proposal to compete with the $3.4 billion in exit financing offered by Appaloosa Management LP and Cerberus Capital Management LP. Delphi selected the proposal from Appaloosa and Cerberus over Highland. Although the U.S. Bankruptcy Court in New York approved the Appaloosa/Cerberus financing in January, the arrangement was conditioned on agreements with labor that were not met. Since then, Cerberus has pulled out, according to Delphi.
Highland has signed a confidentiality agreement allowing it access to confidential information about Delphi. In return Highland agreed to limits its ability to buy and sell Delphi stock and debt.
At a hearing yesterday, the bankruptcy court approved a settlement among Delphi, the Internal Revenue Service, and the Pension Benefit Guaranty Corp. regarding the under-funding of Delphi's pension plans.
Delphi is to contribute $1.3 billion to its pension plans while $1.5 billion in pension under-funding liabilities will be transferred to General Motors Corp.
Delphi is required by the settlement to file a reorganization plan by July 31 and emerge from bankruptcy court protection not later than November 15.
The settlement obligates Delphi to post $150 million in letters of credit to secure the pension funding obligations and to contribute $20 million in return for a waiver of an excise tax claim by the IRS for funding deficiencies.
Separately, Delphi's monthly operating report for April showed the company incurring a $66 million net loss. The operating loss for the companies in reorganization was $102 million for the month.
For the first four months of 2007, Delphi's net loss totaled $599 million.
``Reorganization items'' were $13 million in April and $44 million for January through April.
In April, the contribution from non-filed subsidiaries mostly abroad reduced the loss by $68 million. For Jan. 1 through April 30, the foreign operations cut the losses by $171 million.
Troy, Michigan-based Delphi began the Chapter 11 reorganization in October 2005 and commenced the process in March 2006 of asking the bankruptcy court to reject union contracts and terminate supply agreements with GM. The rejection motions have been on hold pending negotiations.
The case is In re Delphi Corp., 05-44481, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
Convertible Top Maker ASC to Auction Assets June 13
Turning back opposition from the official creditors' committee, auto sunroof maker ASC Inc. won approval yesterday from the U.S. Bankruptcy Court in Detroit, Michigan to sell its business at a June 13 auction if anyone tops the $14.7 million bid from an affiliate of Hancock Park Associates, a private equity investor from Los Angeles, California.
Anyone intending to compete at the auction with the stalking horse Hancock must submit a bid by June 8. The sale approval hearing is set for June 20.
ASC's reorganization began with the May 2 Chapter 11 filing that listed assets of $31.3 million and debt totaling $50.8 million, including a $9.8 million loan from Comerica Bank secured by all of the assets. The Southgate, Michigan-based company now has three operating plants after shutting down seven facilities.
The case is In re ASC Inc., No. 07-48680, U.S. Bankruptcy Court, Eastern District Michigan (Detroit).
Cyber Continuity Files Chapter 11 for Uncompleted Data Center
Cyber Continuity Center West Chicago LLC filed May 29 to reorganize in Chapter 11 to salvage its unfinished, 62,000 square foot data storage and disaster recovery facility 35 miles from Chicago.
The Northfield, Illinois-based company said in its filing that it owes $25 million to creditors.
The case is Cyber Continuity Center - West Chicago LLC, 07- 09659, U.S. Bankruptcy Court, Northern District of Illinois (Chicago).
Dana Judge Asked Again to Delay Decision on Cutting Wages
Dana Corp. and its two unions still don't want U.S. Bankruptcy Judge Burton Lifland in New York to decide whether Dana can cut workers' salaries and trim benefits.
The trial on Dana's request for authority throw out the collective bargaining agreements with the United Auto Workers and the United Steelworkers unions concluded April 3.
Lifland was required to issue his decision by the end of April. Just before the previous deadline, the auto parts maker and the two unions asked for one month more to negotiate.
This time, they asked Lifland in a letter yesterday to delay his ruling by two weeks, to June 15.
Under bankruptcy law, Dana could lower wages absent a court ruling by the deadline.
Separately, Dana is in a dispute with Sypris Technologies Inc., one of its main suppliers.
Sypris told Lifland in a May 30 court filing that Dana shouldn't be permitted to sign contracts with other suppliers to provide parts in violation of provisions in Sypris' contracts. Sypris said it has the exclusive right to supply Dana, its single largest customer, with 1,000 different parts through 2014.
Lifland is scheduled to rule on the dispute at a June 11 hearing.
Toledo, Ohio-based Dana commenced the Chapter 11 reorganization in March 2006, listing assets of $7.9 billion and $6.8 billion in debt.
The case is In re Dana Corp., 06-10354, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
Hovnanian Has Third Quarterly Loss and Second Moody's Downgrade
Home builder Hovnanian Enterprises Inc. (HOV:US) announced its third consecutive quarterly loss yesterday. The red ink for the three months ended April 30 was $28.1 million, compared to a $103.7 profit in the quarter last year.
Hovnanian said that the contract backlog is down 33 percent from last year. New contracts for the quarter were off 21 percent.
Before the earnings release, Moody's Investors Service downgraded the subsidiary K. Hovnanian Enterprises, Inc. for the second time in seven weeks.
The ratings all slipped one notch. The new corporate and senior note ratings are Ba3 while the subordinate debt is now B2.
The corporate rating from Moody's is now one level lower than the BB rating that Hovnanian has enjoyed from Standard & Poor's for the last four years.
The Red Bank, New Jersey-based Hovnanian generated $5.8 billion in revenue in the 12 months ended in January.
Homebuilder Beazer Also Downgraded by Moody's
A second home builder, Beazer Homes USA, Inc. (BZH:US), was downgraded yesterday by Moody's Investors Service over concern that the Atlanta, Georgia-based company will come close to violating its interest coverage covenant.
The corporate and senior note ratings are both one peg lower at Ba2.
The country's tenth-largest homebuilder generated $4.6 billion revenue in the twelve months ended March 31.
Auto component maker Dura Automotive Systems Inc (DRRAQ:US). yesterday reported a $14.4 million net loss in its April operating statement. The operating loss for the month was $7.7 million. ``Reorganization items'' in the period were $3.4 million. Rochester Hills, Michigan-based Dura is a roll-up of 19 companies acquired between 1994 and 2003. The Chapter 11 petition last September listed $2 billion in assets and debt of $1.7 billion. The case is In re Dura Automotive Systems Inc., 06-11202, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Kara Homes Inc., the New Jersey home builder, received permission to auction 27 more residential properties June 26. The sale includes 26 lots in the Cottage Gate development and one lot in Freehold, New Jersey. Cottage Gate has $3.4 million in mortgages and mechanics' liens. Seven homes are under contract while 19 are unsold. The lot in Freehold is subject to a $642,000 bank lien. The bank lender is entitled to bid its mortgage at the auction rather than cash. The sale approval hearing is to be held July 9. Kara is proposing a reorganization plan under which creditors of each of the 33 affiliates would be treated separately. East Brunswick, New Jersey-based Kara filed its Chapter 11 petition last October, listing assets of $350 million and debt totaling $297 million. The case is In re Kara Homes, Inc., 06-19626, U.S. Bankruptcy Court, District of New Jersey (Trenton).
Tower Automotive Inc. (TWRAQ:US), the world's largest manufacturer of structural components and frames for the auto industry, lost $22.3 million in April. The operating loss in the month was $12 million, and the ``reorganization items'' totaled $4.2 million. Tower is proposing a reorganization plan that will pay a dividend of less than 0.1 percent to creditors holding $1.09 billion unsecured claims, according to the proposed disclosure statement filed May 1. The business is to be purchased by Cerberus Capital Management LP, unless a higher offer appears at a June 25 auction. Since filing the Chapter 11 petition in February 2005, Tower has reached its target of $31 million a year in labor cost savings. The case is In re Tower Automotive Inc., 05-10578, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
The lead plaintiffs in the Refco Inc. (RFXCQ:US) securities class action asked the U.S. Bankruptcy Court in New York in a filing yesterday to order full disclosure of the report of the examiner Joshua Hochberg, who previously was the head of the Justice Department's fraud unit. In early April, the U.S. Bankruptcy Judge in New York ruled that the publicly filed version of the report would not contain information that was obtained confidentially. At the time, the bankruptcy judge set up procedures under which all or portions of the report kept secret would be disclosed publicly. Refco and affiliates completed their liquidating Chapter 11 plan just before New Year's. The Chapter 11 filings in October 2005 occurred one week after disclosure that $430 million was owing by purported customers that were secretly controlled by the former Chief Executive Officer Phillip R. Bennett who is now under indictment. The case is In re Refco Inc., 05-60006, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
M. Fabrikant & Sons Inc., a manufacturer of diamond and gemstone jewelry, officially received permission May 30 to sell its assets for $51.9 million. The sale had been approved tentatively at a May 22 hearing. An unidentified group of investors is buying most of the assets for $41.5 million. The group had purchased $160 million in bank debt in the secondary market. Surya Jewels, another purchaser, is paying $10.4 million for a separate lot of inventory. The delay in approval resulted from major changes made in the sale approval orders. The assets went up for auction with no buyers already under contract. New York-based Fabrikant filed a Chapter 11 petition last November listing assets of $382 million and $366 million in debt, including $161.9 million owing to secured creditors. The case is In re M. Fabrikant & Sons, Inc., 06-12737, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
Dakota Arms Inc., the South Dakota rifle and shotgun manufacturer that sold the business for $1.12 million cash plus debt assumption, will complete its liquidation in Chapter 7. The U.S. Bankruptcy Court in Minneapolis, Minnesota granted the request of the U.S. Trustee May 30 to switch the case from Chapter 11 to Chapter 7. The buyer was a company controlled by the chief executive. Dakota Arms, from Sturgis, South Dakota, filed chapter 11 in Minneapolis in July after defaulting on a $2.1 million bank loan. The case is In re Dakota Arms Inc., 06- 41315, U.S. Bankruptcy Court, District of Minnesota (Minneapolis).
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