Harry & David, W Hotel, GSC, Borders, W Hotel: Bankruptcy
March 29, 2011, 8:56 AM EDTBy Bill Rochelle
(This report contains items about companies both in bankruptcy and not in bankruptcy. Updates with El Pollo Loco as first item; Harry & David, W Hotel Boston, Orchard Brands and Border in Updates.)
March 29 (Bloomberg) -- El Pollo Loco Inc., an operator or franchiser of 412 flame-grilled chicken restaurants, has a “high probability” of being unable to cover an $11 million principal payment in May and a $14 million interest payment in June, in the judgment of Standard & Poor’s.
S&P lowered the corporate rating by two notches yesterday to CC. S&P predicts that the first-lien revolving credit lenders should recover 90 percent to 100 percent in the event of payment default.
Holders of second-lien notes should expect a 70 percent to 90 percent recovery, S&P said. The second-lien notes now have a CCC- rating.
The unsecured notes now have a C rating.
Last week, the company reported a $12.5 million operating loss for 2010 on revenue of $271.2 million. The operating loss resulted in part from a $29.9 million intangible asset- impairment charge. Comparable store sales last year were down 4.3 percent. In 2009, comparable store sales were off 8.2 percent.
The net loss in 2010 was $39.5 million. In 2009, the net loss was $52.3 million.
Costa Mesa, California-based El Pollo Loco was part of a prepackaged Chapter 11 filing in late 1997 by its then-parent Flagstar Cos.
Updates
Harry & David Plan Implies 5% Unsecured Recovery
The reorganization plan that Harry & David Holdings Inc. negotiated with creditors before the Chapter 11 filing yesterday means a recovery of about 5 percent for holders of unsecured notes and general unsecured claims, based on the price noteholders will pay to purchase some of the new stock in an equity rights offering.
The specialty-food retailer and direct marketer from Medford, Oregon, has an agreement where holders of 81 percent of the $206.4 million on two issues of unsecured notes agree to support the plan. For details on the plan, click here for the March 28 Bloomberg bankruptcy report.
The plan, yet to be filed, will contain a rights offering where noteholders can purchase about 733,000 shares for $55 million, or about $75 a share. Unsecured creditors and noteholders are to receive about 167,000 shares as their distribution under the plan.
Assuming general unsecured claims total $40 million, noteholders and unsecured creditors together would recover about $12.5 million, or about 5 percent.
If unsecured creditors elect to take cash, they are to receive 75 percent of the value of the stock.
To read about the effect of the Chapter 11 filing on the local economy in Oregon, click here for Bloomberg coverage.
Wasserstein & Co. owns 63 percent of Harry & David. Highfields Capital Management LP has 34 percent.
Harry & David owns 3,400 acres in Oregon. It has 70 stores after closing 52. The balance sheet listed assets of $304.3 million on Dec. 25 with liabilities totaling $360.8 million.
The case is In re Harry & David Holdings Inc., 11-10884, U.S. Bankruptcy Court, District of Delaware (Wilmington).
W Hotel in Boston Under Contract for $89.5 Million
SW Boston Hotel Venture LLC, the owner of the W Hotel in Boston, has an offer to sell the hotel portion of the project for $89.5 million. The bankruptcy judge in Boston will hold a hearing tomorrow to approve auction and sale procedures.
Peeblebrook Hotel Trust, a real estate investment trust, will purchase the 225-unit hotel and garage portion of the property, absent a higher offer. SW says the price is $30 million more than the appraisal offered by Prudential Insurance Co. of America, the secured lender currently owed $148 million.
SW will retain ownership of the 90 unsold condominium units. Thirty-two have been sold, and five are under contract.
The city of Boston is a secured creditor for $10.5 million on a second-lien loan.
The hotel opened in October 2009 and filed under Chapter 11 in April. It is on Stuart Street near Boston Common.
The case is In re SW Boston Hotel Venture LLC, 10-14535, U.S. Bankruptcy Court, District of Massachusetts (Boston).
Orchard Brands Lands Better Exit Financing Agreement
Subsidiaries of retailer Orchard Brands Corp., which are scheduled for confirmation of their prepackaged reorganization on April 14, landed an offer for a more attractive loan to finance emergence from Chapter 11.
PNC Bank NA is offering a $90 million credit, $10 million more than the previous offer from UBS Loan Finance LLC, Wells Fargo Bank NA, and Ally Commercial Finance LLC. For Bloomberg coverage, click here.
The bankruptcy court will hold a hearing today where the companies seek authority to sign a commitment agreement. The loan itself would be approved as part of the process of confirming the Chapter 11 plan.
The companies filed their Chapter 11 petitions on Jan. 19 after soliciting acceptances of the plan. For details on the plan, click here for the March 3 Bloomberg bankruptcy report.
The Orchard Brands companies have 55 retail stores. They are controlled by private-equity investor Golden Gate Capital Corp. Orchard, a holding company, is not itself in Chapter 11.
Beverly, Massachusetts-based Orchard operates its stores under 17 names, including Appleseed’s, Draper’s & Damon’s, Gold Violin, Haband and Norm Thompson. The stores sell clothing, footwear, and household goods appealing to shoppers over age 55. Orchard also sells through catalogs and the Internet.
The case is In re Appleseed’s Intermediate Holdings LLC, 11-10160, U.S. Bankruptcy Court, District of Delaware (Wilmington).
GSC Trustee Wins Approval for Retention Bonuses
James L. Garrity, the former U.S. bankruptcy judge serving as Chapter 11 trustee for GSC Group Inc., was authorized by the bankruptcy court on March 25 to pay retention bonuses to company officials while the business is being sold. For details on the bonus program, click here for the March 10 Bloomberg bankruptcy report.
The bankruptcy judge adopted Garrity’s argument that even the highest-ranking executives aren’t “insiders” and thus may be given retention bonuses.
The trustee was appointed to oust GSC’s management after some lenders argued that company executives became “quasi agents” for Black Diamond Capital Finance LLC, whose funds hold a majority of the $206.6 million owing to secured lenders.
Although Black Diamond won an auction for GSC with a bid of $235 million, the company later withdrew the motion for approval of the sale to Black Diamond. GSC filed under Chapter 11 at the end of August and held an auction at the end of October.
Originally named Greenwich Street Capital Partners Inc. when it was a subsidiary of Travelers Group Inc., GSC became independent in 1998 and at one time had $28 billion of assets under management. Market reverses, termination of some funds, and withdrawal of customers’ investments reduced funds under management at the time of bankruptcy to $8.4 billion.
Based in Florham Park, New Jersey, GSC listed assets of $119.8 million against debt totaling $313.6 million.
GSC also owes $10.2 million to Calyon New York Branch on an interest rate swap agreement.
The case is In re GSC Group Inc., 10-14653, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
Best Buy Approved to Buy Partsearch for $6.4 Million
Electronics retailer Best Buy Co. was authorized by the bankruptcy court on March 25 to buy Partsearch Technologies Inc. for $6.4 million.
Best Buy had been the biggest customer for Partsearch, which sold parts for consumer electronics and outdoor power equipment until discovery it had been overcharged by $5.9 million.
The opening bid at auction from another prospective buyer had been $2.875 million.
Kingston, New York-based Partsearch didn’t hold inventory of its own. Inventory came from suppliers. The company was forced to file in Chapter 11 when it was cut off by Best Buy.
Partsearch listed assets for $4 million and total liabilities of $13 million. On top of the $5.9 million owing to Best Buy, liabilities included $7 million in trade payables plus an undetermined amount for labor law violations for firing workers without required notice.
The case is In re Partsearch Technologies Inc., 11-10282, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
Point Blank Approved for $275,000 in Plan Lender Fees
Point Blank Solutions Inc., a manufacturer of soft body armor for police and military, was authorized by the bankruptcy judge on March 25 to pay as much as $275,000 in deposits and expenses to potential lenders willing to provide some of the funding necessary for an exit from Chapter 11.
Point Bank said that some proceeds of the loan would finance payments to creditors while also providing working capital for the business going forward. The amount of the loan wasn’t mentioned. The loan itself would be approved in the process of confirming a reorganization plan.
Based in Pompano Beach, Florida, Point Blank has two plants. Revenue in 2009 exceeded $153 million. The former chief executive and chief operating officer were convicted in September of orchestrating a $185 million fraud.
The Chapter 11 petition in April 2010 listed assets of $64 million against debt totaling $68.5 million. Debt included a $10.5 million secured loan paid off by financing for the Chapter 11 case. Point Blank said it also owes $28.2 million to trade suppliers.
The case is In re Point Blank Solutions Inc., 10-11255, U.S. Bankruptcy Court, District of Delaware (Wilmington).
The Art of the Liquidation at 225 Borders Stores
The liquidation sales at 225 Borders Group Inc. stores is an example of how the book prices at a bankruptcy sale may be higher than a shopper could find at a regular retail outlet such as Amazon. For Bloomberg coverage, click here.
Ann Arbor, Michigan-based Borders had 642 stores on filing under Chapter 11 on Feb. 16. It is closing 225 locations.
Borders listed assets of $1.275 billion and liabilities totaling $1.293 billion. Debt included $196 million on a revolving credit and $48.6 million on a term loan. Trade suppliers are owed $302 million for inventory.
Borders is 31 percent owned by Pershing Square Capital Management LP and 15.4 percent by LeBow Gamma LP.
The case is In re Borders Group Inc., 11-10614, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
Downgrade
Hollywood Theaters Demoted to CCC on Inadequate Cash
Hollywood Theaters Inc. and its corporate parent Wallace Theater Holdings Inc. were both downgraded one notch yesterday by Standard & Poor’s to CCC corporate grades. The senior secured notes due 2013 also went to CCC.
The new S&P ratings are one click below the downgrade issued in October by Moody’s Investors Service.
S&P calculates that earnings before interest, taxes, depreciation and amortization only covered 90 percent of interest expense in 2010. In the last quarter of the year, attendance was down 11 percent compared with the year before.
S&P said that the companies’ liquidity is “less than adequate over the near term.” Noteholders would recover not more than 70 percent in the event of a payment default, S&P predicts.
Moody’s in October said that Hollywood hadn’t generated any positive free cash flow since 2008.
Portland, Oregon-based Wallace operates in small and midsized markets in 15 states. Hollywood has about 50 theaters with more than 500 screens.
Advance Sheets
When District Court Rules on Direct Appeal to Circuit
Ordinarily, a motion to take an appeal directly to the U.S. Court of Appeals is filed in the bankruptcy court and decided by the bankruptcy judge. If the appeal already has been docketed in the district court, then the district court is the proper court to decide if the appeal should go directly to the circuit court, according to a March 28 opinion by U.S. District Judge James Mahan in Las Vegas.
Mahan said he was the proper judge to decide on direct appeal even if he had already ruled that the order from the bankruptcy court wasn’t final and not proper for appeal.
The case is Ambac Assurance Corp. v. Las Vegas Monorail Co. (In re Las Vegas Monorail Co.), 10-678, U.S. District Court, District of Nevada (Las Vegas).
Alienation of Affection Debt Not Dischargeable
An extramarital affair today can be the basis for a nondischargeable debt in bankruptcy tomorrow, U.S. District Judge Frank Whitney in Charlotte, North Carolina, ruled on March 25.
A wife sued a woman in state court for alienation of affection and criminal conversation after discovering the woman was having an affair with her husband. After the woman filed bankruptcy, the wife filed a similar suit in bankruptcy court to declare that the resulting claim wasn’t discharged.
The parties agreed to hold a jury trial in state court and later have the bankruptcy court rule whether the debt was dischargeable.
The jury in state court ruled in favor of the wife and awarded $125,000 in damages for alienation of affection and criminal conversation. Later, a federal district court ruled in a prior appeal that the judgment for criminal conversation could be discharged.
Whitney ruled last week that the bankruptcy judge was nevertheless correct in ruling that the entire $125,000 wasn’t discharged as a valid claim for alienation of affection.
A debt can be declared not discharged in bankruptcy if the bankruptcy judge determines it was for a willful and malicious tort. In North Carolina at least, having a affair is a willful and malicious injury to the innocent spouse.
The case is Keever v. Gallagher (In re Gallagher), 10-00237, U.S. District Court, Western District of North Carolina (Charlotte).
--With assistance from Dawn McCarty and Michael Bathon in Wilmington, Delaware; Anthony Effinger in Portland, Oregon; and Tiffany Kary in New York. Editors: Glenn Holdcraft, Peter Blumberg
To contact the reporter on this story: Bill Rochelle in New York at wrochelle@bloomberg.net
To contact the editor responsible for this story: David Rovella at drovella@bloomberg.net
