Bloomberg News

Dana Corp., American Home, Federal-Mogul: Bankruptcy

August 27, 2007

When carpart maker Dana Corp. won approval at the end of July to sell $750 million in convertible preferred stock as part of the financing for a reorganization plan, the U.S. Bankruptcy Court in New York laid out a formal procedure to be followed by anyone intending to make a better offer than the proposal from Centerbridge Capital Partners LP to purchase $250 million of the new equity.

Dana announced Aug. 24 in a filing with the Securities and Exchange Commission that Appaloosa Management LP, its largest shareholder, had formally begun the process of submitting a an offer better than the Centerbridge proposal approved in July.

Dana said it will consider during the week of Sept. 24 any final offers received in competition with Centerbridge's. If Dana accepts another offer, Centerbridge earns a breakup fee.

Dana must file a reorganization plan by September 3 under the Centerbridge proposal. Appaloosa, which unsuccessfully opposed bankruptcy court approval of the Centerbridge financing, previously filed an appeal.

Toledo, Ohio-based Dana, an axle and frame manufacturer, began 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).

Updates

San Diego Diocese Abuse Cases Going to State Court for Trial

The Roman Catholic Diocese of San Diego sustained a defeat Aug. 24 when U.S. Bankruptcy Judge Louise De Carl Adler sent 42 of 127 child sexual abuse cases back to state court for trials determining the amount of the plaintiffs' claims.

The diocese was hoping to keep the cases in bankruptcy court where it filed for reorganization in February just before the beginning of the first trial.

In her 17-page decision, Adler said it is ``likely'' the diocese was ``forum shopping'' when requesting that the federal courts estimate the sexual abuse claims rather than have them tried in state court where they began. The diocese transferred the cases from state court to bankruptcy court after filing the Chapter 11 petition.

Adler said that the $95 million being offered by the diocese to settle all abuse claims is ``far below'' the average in California for each claim. She said that the first five trials in state court ``may spur settlements.'' The bankruptcy judge believes a prompt resolution of the cases in bankruptcy court is ``unlikely'' absent settlement.

Going back to state court for trials is not the diocese's only worry. The diocese was already facing a Sept. 6 hearing where Adler would decide if she would throw the diocese out of bankruptcy court entirely for ``gross mismanagement'' and failure to comply with court orders.

An accounting expert issued a 175 report at the end of July criticizing how some parishes handled cash and reported assets. Adler in response scheduled the Sept. 6 hearing to decide if dismissing the case is appropriate should she decide that parishes were concealing assets and violating court orders about handling cash that might be used to satisfy sexual abuse claims.

The diocese filed an amended list of assets and liabilities in March showing assets of $167.8 million and $95.5 million in claims.

Five Roman Catholic dioceses filed Chapter 11 petitions to settle sexual abuse claims. Spokane, Washington, Portland, Oregon and Tuscon, Arizona, emerged from Chapter 11. Davenport, Iowa, began its reorganization last October.

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

Asarco Looking to Pay Union $1 Million for Expenses

Asarco LLC (AR:US), the Arizona copper miner, is asking for permission to pay another $1 million to the union, mostly to reimburse the union for attorneys' fees spent in litigation with Asarco's parent, Grupo Mexico SA de CV.

One year ago the U.S. Bankruptcy Court in Corpus Christi, Texas authorized Asarco to pay the union $500,000 in reimbursement of various expenses. Five months later, Asarco and the union reached agreement on a new contract, bringing an end to what the company called acrimonious labor relations ever since Grupo Mexico bought the company.

This year, Asarco says the union spent more than expected in fighting Grupo Mexico's opposition to the new contract. The union is also spending money on lawyers because Grupo Mexico appealed approval of the new contract.

Separately, the bankruptcy court approved Asarco's proposed settlement of environmental claims arising from a Superfund site at a mine in Leadville, Colorado that Grupo Mexico also had opposed. The settlement calls for the U.S. government to have an approved $19.3 million claim while Resurrection Mining Co. will have an approved $6 million claim and receive a $10 million cash payment from Asarco.

Asarco has lawsuits pending against Grupo Mexico alleging that the parent stripped assets out of Asarco for the parent's benefit. This month the Asarco creditors' committee also filed a lawsuit for more than $100 million against nine former Asarco officers and directors who it says were controlled by Grupo Mexico.

Asarco filed to reorganize under Chapter 11 in August 2005 to deal with asbestos claims. Grupo Mexico acquired Asarco for $1.2 billion in stock six years ago and lost control of Asarco early in the reorganization.

The case is In re Asarco LLC, 05-21207, U.S. Bankruptcy Court, Southern District of Texas (Corpus Christi). ' Plan for Source Magazine Going to Creditors for Vote

Source Enterprises Inc., the publisher of the hip-hop magazine The Source, gained approval of its disclosure statement on the second try, allowing creditors to vote on the reorganization plan in advance of a Sept. 27 confirmation hearing for approval of the plan.

The plan creates a litigation trust for unsecured creditors whose claims total $27 million according Source's list of creditors. The trust will be funded initially with $400,000 to finance filings lawsuits. Source will pay the trust 12 percent of earnings for three years.

For its claim of $18.3 million, the pre-bankruptcy secured creditor will receive $200,000 cash, a note for $3.75 million, and 15 percent of the stock. The remainder of the stock goes to the secured creditors who financed the reorganization.

The magazine expects to be profitable in 2008, so says the disclosure statement explaining the plan.

The reorganization of New York-based Source began when creditors filed an involuntary petition in July 2006. Source converted the involuntary filing into a Chapter 11 reorganization in September 2006.

Source's schedules of property and claims listed assets of $763,000 against debts totaling $47.4 million.

The case is In re Source Enterprises, Inc., No. 06-11707, U.S. Bankruptcy Court, Southern District New York (Manhattan).

Hydraulic Technologies Has $5.4 Million Offer for Hard Assets

Hydraulic Technologies Inc., a maker of welded hydraulic cylinders, will attend an Aug. 30 hearing asking the U.S. Bankruptcy Court in Akron, Ohio, to approve bidding procedures for an auction testing whether anyone will beat the offer from Lignon Industries LLC, the owner of similar facilities.

Lignon's offer is $5.4 million plus 85 percent of current accounts receivable.

The company is asking the bankruptcy court to require other bids by Sept. 4, followed by a Sept. 10 auction and a Sept. 11 sale approval hearing.

The Galion, Ohio-based company listed debt totaling $15.2 million, including $10.3 million in secured claims. Hydraulic Tech filed July 3 in Chapter 11 after customers cut orders more than 50 percent this year.

The case is In re Hydraulic Technologies Inc., No. 07- 61947, U.S. Bankruptcy Court, Northern District Ohio (Canton).

Samaritan Hospital in Kentucky Proposes Liquidation Plan

Samaritan Hospital, a 336 bed acute care hospital in Lexington, Kentucky, sold the assets to the University of Kentucky in June and filed a liquidating plan estimated to have $2.5 million available for distribution to unsecured creditors.

The hospital would not guess what percentage unsecured creditors could receive on their claim. The proposed disclosure statement, coming to court for approval at a Sept. 28 hearing, noted that the schedules listed $14.2 million owing to unsecured creditor not including claims from the rejection of leases.

Once the U.S. Bankruptcy Court in Lexington approves the disclosure statement, creditors can vote on the plan. The sale to the university had been worked out before the filing. The hospital blamed the filing on difficulties in collecting receivables from insurance companies, Medicare, and Medicaid.

The case is In re Samaritan Alliance, LLC, No. 07-50735, U.S. Bankruptcy Court, Eastern District Kentucky (Lexington).

Palco Wins Bonus Approval and Asks More Time for Plan

Timberland owner Scotia Pacific Co. (MXM1:US) and its affiliate Pacific Lumber Co (MXM1:US). won approval of bonus programs on Aug. 24 for top executives all the way down to production employees.

If the company's earnings in 2007 before interest, taxes, depreciation, and amortization are negative by not more than $7.7 million, the chief executive will earn a bonus of one year's salary. If EBITDA is positive, the CEO's bonus would be 18 months' salary.

The other senior officers of Palco are in line for bonuses equal to 9 months' or 13.5 months' pay depending on which EBITDA target the company meets. The Palco executive bonuses would cost a maximum of $1.8 million.

More modest programs were approved for lower level managers and production employees. All bonuses depend on continuing employment with the companies until they emerge from reorganization.

Separately, the companies filed a request that the U.S. Bankruptcy Court in Corpus Christi, Texas extend their exclusive right to file a plan until Dec. 1. A hearing on the request will be held Sept. 14.

Palco, Scotia Pacific and four affiliates filed Chapter 11 petitions Jan. 18 when a $27 million payment was coming due on $714 million in notes secured by timber acreage in Humboldt County, California. The companies are affiliated with Maxxam Inc., which acquired the companies in a 1986 leveraged buyout. Maxxam is headed by Texan Charles Hurwitz.

The case is Scotia Pacific Co. LLC, No. 07-20027, Bankruptcy Court, Southern District Texas (Corpus Christi).

Liberty Brands to Sell Equipment Nov. 1

Liberty Brands LLC, a Virginia discount cigarette manufacturer, has the green light to sell its equipment at auction Nov. 1

The second-largest creditor, A&A of Tupelo Inc., will be permitted to bid for the equipment using $1.5 million of its $5.1 million secured claim. Other creditors have a Sept. 18 deadline for objecting to the amount that A&A can credit bid.

The hearing for approval of the sale will be held Nov. 5.

Richmond, Virginia-based Liberty fired all employees June 30 and shut down after filing for Chapter 11 relief in early May, listing assets of $9.3 million and $25.6 million in debt.

The case is In re Liberty Brands, LLC, 07-10645, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Morgan Stanley Takes Back Servicing on $519 Million in Loans

American Home Mortgage Investment Corp. (AHM:US) largely gave up resisting an Aug. 15 suit filed by a unit of Morgan Stanley (MS:US) to take back servicing rights on $519 million in mortgage loans.

Morgan Stanley said in its complaint in U.S. Bankruptcy Court in Delaware that it purchased the loans from American Home along with the right to service the mortgages, while allowing American Home to service the loans temporarily.

Morgan Stanley contended that it terminated American Home's right to service the loans on Aug. 3 when the loan originator was no longer qualified to be a servicer for Fannie Mae and Freddie Mac.

In an arrangement approved by the bankruptcy court Aug. 24, American Home will turn over servicing and all related documents to a Morgan Stanley unit that performs servicing. Morgan Stanley waived some claims and retained others while American Home did not admit there was a right to terminate servicing.

A unit of Bear Stearns Cos (BSC:US). filed an Aug. 24 lawsuit asking the bankruptcy court to force American Home to give up serving and turn over documents on $117 million in mortgage loans.

Bear Stearns made a $3.4 million margin call on July 30 that was not met, the papers say.

American Home has been authorized to conduct a Sept. 11 auction for $1.62 billion in mortgage loans owned by two affiliates not in bankruptcy.

Melville, New York-based American Home shut down and abruptly filed in Chapter 11 on Aug. 6. It specialized in making so-called Alt-A loans to individuals who could not qualify as prime borrowers but still weren't subprime.

The case is In re American Home Mortgage Holdings Inc., No. 07-11047, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Nellson Nutraceutical Authorized to Sell Assets for $122 Million

Nellson Nutraceutical Inc. was authorized at an Aug. 23 hearing to sell its assets for $122 million to a group of the first lien creditors. The price includes $66.4 million cash and $55.6 million from the portion of the first lien debt that the buyers own.

The sale had been opposed by other first lien creditors and by the official creditors' committee.

Nellson, an Irwindale, California manufacturer of diet bars and shakes, filed a Chapter 11 petition in January 2006 along with six affiliates, listing debts of $330 million and assets worth more than $100 million.

The case is In re Nellson Nutraceutical, Inc., 06-10072, U.S. Bankruptcy Court, District of Delaware.

Bear Stearns Buys Nylon Maker Nylstar In Plan Confirmation

Bear Stearns & Co., the secured creditor holding $44.7 million in debt, will become the owner of Nylstar Inc., a manufacturer of nylon fiber yarn from Ridgeway, Virginia.

The U.S. Bankruptcy Court in Lynchburg, Virginia ruled at an Aug. 23 hearing it would approve Nylsar's plan in a confirmation order allowing Bear Stearns to swap debt for ownership. Bear Stearns purchased most of the bank debt early this year.

Each unsecured creditor will be paid $5,000 or the amount of its claim, whichever is less.

Nylstar filed its reorganization petition on July 5.

Nylsar was owned until March by Snia SpA from Italy and France's Rhodia SA until the two sold Nylstar for 2 euros to Nylstar's creditor banks. Rhodia is France's largest specialty chemical manufacturer while Snia makes textile filaments and chemicals.

The case is In re Nylstar Inc., 07-61227, U.S. Bankruptcy Court, Western District of Virginia (Lynchburg).

Osays Mobile Plan Going to Creditors For Vote

RHP Master Fund LTD and LAP Summus Holdings LLC are on the way to taking over ownership of Oasys Mobile Inc. (OYSM:US) now that the U.S. Bankruptcy Judge in Delaware said Aug. 24 that he would approve the disclosure statement explaining the plan swapping $8 million in senior secured debentures they hold for the stock.

The plan now goes to creditors for a vote. The debentures matured at the end of June.

Osays, a Raleigh, North Carolina-based provider of content for mobile phones like games, entertainment, messaging, filed under Chapter 11 on July 18 with the purchase agreement in hand.

Unsecured creditors could receive up to $2 million from a trust if the new owners sell the company for more than specified target prices. Osays listed $2.5 million owning to unsecured creditors among $11.5 million in total claims.

The assets were on the books for $1.7 million.

Existing equity holders will lose their stock but could receive a distribution if anything is left in the trust after paying off unsecured creditors.

The debeture holders provided $2.7 million in financing with deadlines requiring approval of the disclosure statement by Aug. 24 and approval of the plan in a confirmation order by Sept. 28.

Oasys also provided its customers with storage so purchased content wouldn't be lost if the customer loses the mobile phone or if it breaks.

The case is In re Oasys Mobile Inc., No. 07-10961, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Hershkowitz/Woolf-Turk Companies May be Jointly Administered

A hearing will be held today on the involuntary Chapter 11 petition filed July 31 against 16 companies run by New York real estate developers named Michael Hershkowitz and Ivy Woolf-Turk who were arrested for using the Kingsland Group Inc. to defraud 70 investors told they were making loans under first mortgages that were never recorded.

The very same day the petitions were filed, the U.S. Bankruptcy Judge in New York required the appointment of a trustee for New 118th LLC and the other 15 companies.

Unless an opposition is made to the involuntary filing, the 16 companies will be in Chapter 11 officially.

Involuntary petitions were filed Aug. 17 and Aug. 20 against other Hershkowitz/ Woolf-Turk companies named 72 Kingsland Ave. Corp. and Kingsland Group Inc. Creditors say that Kingsland Group was the umbrella manager for the companies.

The creditors of New 118th are asking that all of the companies be handled in Chapter 11 together by the trustee for the first 16 companies.

While the investors thought they were to have first mortgages, the properties were in fact encumbered by $50 million in valid bank mortgages, a bankruptcy court filing said.

The criminal case is U.S. v. Hershkowitz, 07-Mag.-1235, U.S. District Court, Southern District of New York (Manhattan). The bankruptcy case is New 118th LLC, 07-12333, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Involuntary Filing

Florida Mortgage Servicer Transland Faces Involuntary Petition

Three banks filed an involuntary Chapter 11 petition against mortgage lender and servicer Transland Financial Services, Inc.

The same day, Aug. 23, the banks filed an emergency request for the appointment of a trustee based on allegations that Transland ``fraudulently diverted'' $22 million from collections on mortgages that should have been paid over to them.

The petitioning banks are TierOne Bank (TONE:US), Federal Trust Bank, and MidCountry Bank.

The banks told the U.S. Bankruptcy Court in Orlando that Maitland, Florida-based Transland doesn't have the cash to make good on its commitments to fund mortgages.

The case is In re Transland Financial Services Inc., 07- 03834, U.S. Bankruptcy Court for the Middle District of Florida (Orlando).

Downgrades

Beazer, Tenth Largest Homebuilder, Downgraded Again

Beazer Homes USA, Inc. (BZH:US), the Atlanta, Georgia-based home builder, was downgraded a second time in 11 days by Moody's Investors Service.

The Aug. 24 two-notch ding brought the corporate peg to B1, one level below the downgrade that Standard & Poor's issued Aug. 14.

Moody's mentioned the ongoing U.S. Attorney and Securities and Exchange Commission investigations, the inability to file quarterly financials pending an investigation into whether a former chief financial officer recorded reserves and accrued liabilities improperly, and the possibility that bonds might be accelerated as a result of the late financials.

Beazer filed suit in Atlanta federal court to block the bondholders from accelerating the debt. Early this month Beazer said that rumors about filing bankruptcy were ``scurrilous and unfounded.''

Operating in 21 states, Beazer is one of the country's ten largest homebuilders.

Leslie's Poolmart Downgraded by Second Rating Agency

Leslie's Poolmart Inc. (LESL:US) was downgraded last week by two rating agencies.

Standard & Poor's acted first on Aug. 22 with a downgrade to B on the corporate scale.

Two days later, Moody's Investors Service took its turn with a demotion to B3, one lever lower than S&P.

Both rating agencies were reacting to the $310 million in debt sold by the holding company, Leslie's Holdings Inc. Although Poolmart is not liable on the debt, it is the only source of cash flow for the holding company's new debt.

Moody's left Poolmart's senior unsecured notes at B2, or one level higher than the new B- S&P rating for the notes.

Phoenix, Arizona-based Leslie's is the country's largest pool supply retailer, with 577 stores in 35 states.

Briefly Noted

Federal-Mogul Corp. (FDMLQ:US) is asking for permission to sell its 30 percent interest in Indian piston ring maker India Pistons Ltd. to the 70 percent owner Simpson & Co. for $13.65 million cash. Federal-Mogul has completed the trial portion of the confirmation hearing for approval of its reorganization plan. The contesting parties are now filing post-trial briefs. A Southfield, Michigan-based manufacturer and distributor of engine, transmission, steering and suspension parts, Federal- Mogul filed under Chapter 11 in October 2001 to deal with asbestos claims. The case is In re Federal-Mogul Global Inc., 01-10578, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Quote of the Day

Referring to the housing industry in its Beazer downgrade, Moody's said it ``does not expect a sector recovery to begin before 2009.''

To contact the reporter on 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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