Summit Business, Howrey, Vitro, Ambac, Tribune: Bankruptcy
May 09, 2011, 7:32 AM EDTBy Bill Rochelle
(This report contains items about companies both in bankruptcy and not in bankruptcy. Adds Allerton Hotel and Highview Point in New Filings; Vitro, Ambac, Indiana Downs and Atlantic Broadcasting in Updates; Lenny Dykstra in Criminal Docket; and section on Bank Failure.)
May 9 (Bloomberg) -- Summit Business Media Holding Company, a business-to-business publisher and event organizer, began a prepackaged reorganization on Jan. 25 and won the signature of a Delaware bankruptcy judge on a May 5 confirmation order approving the Chapter 11 plan.
The plan was negotiated in advance with holders of 83 percent or more of the first- and second-lien debt. The disclosure statement explaining the plan was approved in late March. The company said it expects to implement the plan in two weeks.
The plan gives a new $110 million first-lien term loan and 89.4 percent of the new stock to holders of the $189 million first-lien debt, for a projected 68 percent recovery.
Holders of the $55 million in second-lien debt are to receive $1 million cash and 5.6 percent of the new stock, calculated to be worth 4 percent.
The plan reduces debt by $140 million, according to a court filing.
Unsecured creditors with $6 million in claims are supposed to have a 2 percent recovery, according to the disclosure statement.
Summit and affiliates publish magazines and websites and produce conferences for the insurance, accounting, financial services, banking and legal industries. The company was created through seven acquisitions since 2006. Based in New York, Summit first violated loan covenants in December 2008 and went through several workouts with lenders.
Summit was 85 percent owned by Wind Point Partners. Summit originally said it had $252 million in debt, with $8.2 million owing to unsecured creditors.
The case is In re Summit Business Media Holding Co., 11- 10231, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Updates
Molecular Insight Confirms Bondholders’ Reorganization Plan
Molecular Insight Pharmaceuticals Inc., a developer of therapeutic and imaging radiopharmaceuticals for cancer treatment, proposed a reorganization plan that was opposed by holders of $201.8 million in secured bonds. Last week, the bankruptcy court signed a confirmation order approving an amended plan that bondholders supported and backstopped.
The plan as confirmed gives all the new stock to bondholders while unsecured creditors divide $500,000 cash. The disclosure statement did not hazard a guess about the percent recovery by either class.
The reorganized company is financed in part by a new $40 million loan provided in part by bondholders or affiliates.
The plan nixed by bondholders would have allowed the current owner, Savitr Capital LLC, to retain all the new stock in return for a $45 million capital investment. The bondholders turned down an offer for $120 million in new bonds. The bondholders’ deficiency claim would have been in the class of general unsecured creditors to be given $55 million in new secured notes plus another $10 million in new notes if conditions were met.
The company filed for Chapter 11 protection on Dec. 9 in Boston. The petition listed assets of $36.5 million and debt totaling $198.8 million. Before the Chapter 11 filing, the company had been talking with bondholders about a debt-for- equity exchange.
The case is In re Molecular Insight Pharmaceuticals Inc., 10-23355, U.S. Bankruptcy Court, District of Massachusetts (Boston).
Howrey Firm Admits Not Paying Debt, Wants Case in Washington
The liquidation of the law firm Howrey LLP could end up in the Washington area, given the defunct firm’s papers filed last week in U.S. Bankruptcy Court in San Francisco. The issue may be resolved at a hearing June 8.
Three creditors filed an involuntary Chapter 7 petition against the firm on April 11 in San Francisco, where it maintained one if its 19 offices around the world. The firm shut down March 15.
The firm filed a motion last week nominally asking the bankruptcy judge to dismiss the case because San Francisco, it says, is not the proper location. Of significance, the firm did not contest the allegation that it’s not paying its debts, nor did it challenge the validity of the claims of any of the creditors that filed the involuntary petition.
Howrey said its largest office was in Washington. If the court isn’t inclined to dismiss the petition, the firm wants the case sent to Washington, or perhaps to Alexandria, Virginia where it had a back-office operation.
The firm previously was known as Howrey & Simon and Howrey Simon Arnold & White LLP. At one time, it had over 700 lawyers. The firm specialized in antitrust and intellectual property matters.
The three creditors filing the involuntary petition together have $36,600 in claims, according to their petition. The firm has the ability to defeat the Chapter 7 petition by putting itself in Chapter 11.
The case is In re Howrey LLP, 11-31376, U.S. Bankruptcy Court, Northern District California (San Francisco).
Lenders Yield on Movie Gallery Customer Collections
The first-lien lenders to Movie Gallery Inc., the liquidated movie-rental chain, agreed to rectify procedures being used to collect on 3.3 million accounts from customers owing $244 million in face amount.
When Movie Gallery confirmed its liquidating Chapter 11 plan in October, the customer receivables went into a trust created for first-lien term-loan lenders. The trustee of the trust hired a collection agency that subcontracted with National Credit Solutions LLC from Oklahoma City.
The attorneys general in all 50 states and the District of Columbia charged that NCC was using improper collection tactics and making inaccurate reports to credit-reporting agencies. The result was a settlement that the bankruptcy judge in Movie Gallery’s case approved on May 6.
In the settlement, the Movie Gallery secured lenders agreed to rescind all previously given negative credit reports, make no new reports based on customer accounts, and add no collection fees or interest charges to the principal amount owed.
Customers will receive refunds for any improper fees or charges they previously paid.
The bankruptcy court in Richmond, Virginia, approved Movie Gallery’s plan in an Oct. 29 confirmation order. For details on the plan, click here for the Sept. 14 Bloomberg bankruptcy report.
Movie Gallery liquidated the last 1,028 movie-rental stores. It had some 2,600 stores in operation before filing under Chapter 11 for a second time in February 2010. The new filing was less than two years after a previous bankruptcy reorganization. Debt when the new case began included $100 million on a secured revolving credit, $394 million on a first- lien facility, and $146 million in claims held by second-lien creditors.
The new case is In re Movie Gallery Inc., 10-30696, U.S. Bankruptcy Court, Eastern District Virginia (Richmond). The prior case is In re Movie Gallery Inc., 07-33849, in the same court.
Vitro Receives Permission to Auction U.S. Businesses
Whether Vitro SAB, Mexico’s largest glassmaker, will have its Chapter 15 case in New York or in Texas will be decided today at a hearing before U.S. Bankruptcy Judge Harlin “Cooter” Hale in Dallas.
At a May 6 hearing, U.S. Bankruptcy Judge Barbara Houser in Dallas gave approval for Vitro to sell the businesses of the four U.S. subsidiaries that put themselves into Chapter 11 in the face of involuntary petitions filed by holders of some of the $1.2 billion in defaulted bonds.
The Texas cases had been pending before Russell Nelms in Fort Worth, who had them temporarily reassigned to Hale on account of illness. When Hale was unavailable for the May 6 sale procedures hearing, Houser stepped in. She is the chief bankruptcy judge in the Northern District of Texas.
Observing the bankruptcy judges overseeing Vitro’s U.S. bankruptcy cases is like watching a game of musical chairs. Vitro originally had a Chapter 15 case in New York before U.S. Bankruptcy Judge Sean Lane. When Vitro’s Mexican reorganization was dismissed by a judge in Monterrey, Vitro likewise dismissed the Chapter 15 case before Lane.
When the Mexican reorganization was reinstated, Vitro filed another Chapter 15 petition in New York. The new Chapter 15 case went to U.S. Bankruptcy Judge Shelley Chapman.
Vitro then filed a motion asking Chapman to reassign the case to Lane. Chapman refused and kept the case.
The Texas court, as the location of the first-filed case, has the right under federal bankruptcy law to decide whether to transfer the Chapter 15 case to Texas from New York.
Vitro already has a contract to sell the U.S. businesses for $44 million to an affiliate of Grey Mountain Partners LLC from Boulder, Colorado. Arch Aluminum & Glass Co., an affiliate of Sun Capital Partners Inc., said it is willing to pay $45 million. For coverage of the May 6 sale procedures hearing, click here.
Vitro filed the Chapter 15 case for enforcement in the U.S. of whatever reorganization the court in Mexico eventually approves.
A group holding more than 60 percent of Vitro’s $1.2 billion in defaulted bonds opposes the Mexican reorganization. They say it would be a misuse of Chapter 15 because Vitro intends on cramming a plan down on noteholders by using votes arising from $1.9 billion in inter-company claims.
In the Mexican reorganization, Vitro is offering noteholders what it said would be a recovery of as much as 73 percent by exchanging existing debt for cash, new debt and convertible bonds. Bondholders claim Vitro is worth enough to pay them in full. For a summary of Vitro’s reorganization, click here for the Dec. 15 Bloomberg bankruptcy report.
The Chapter 11 case in Texas is In re Vitro Asset Corp., 11-32600, U.S. Bankruptcy Court, Northern District of Texas (Fort Worth). The new Chapter 15 case in New York is Vitro SAB de CV, 11-11754, U.S. Bankruptcy Court, Southern District New York (Manhattan).
Ambac Settles Securities Class Suits for $2.5 Million
Ambac Financial Group Inc., the holding company for an insurance company partially in rehabilitation, tentatively agreed to pay $2.5 million in cash to settle several securities class-action lawsuits first filed in January 2008.
The settlement must approved by the bankruptcy court in New York, where the Ambac parent filed for Chapter 11 protection. Insurance companies that provided directors’ and officers’ liability insurance will provide an additional $24.6 million in the settlement.
The class actions were settled following a fifth mediation that took place after Ambac’s Chapter 11 filing in November. In one of the class suits, the U.S. district judge in New York dismissed claims based on a March 2008 securities offering while sustaining claims related to a February 2007 offering.
Ambac’s insurance subsidiary stopped paying dividends to the parent in 2007 and stopped writing new business entirely in mid-2008. The Ambac parent filed under Chapter 11 in November and listed assets of $90.7 million and liabilities totaling $1.62 billion, virtually all unsecured. Almost all of the debt is made of up of $1.62 billion owing on seven note issues. One issue for $400 million is subordinated.
The class actions being settled are In re Ambac Financial Group Inc. Securities Litigation, 08-00411, U.S. District Court, Southern District of New York (Manhattan).
The state insurance rehabilitation case is In re The Rehabilitation of Segregated Account of Ambac Assurance Corp., 2010cv001576, Dane County, Wisconsin, Circuit Court (Madison). The parent’s Chapter 11 case is In re Ambac Financial Group Inc., 10-15973, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
Indiana Downs Opposed on Management Contract Rejection
The bankruptcy judge presiding over the reorganization of Indianapolis Downs LLC, the operator of a horse-racing track and casino 25 miles from Indianapolis, will confront a frequently- posed problem at a hearing on May 17: When several contracts are inter-related, can the bankrupt company assume one and reject another?
Bankruptcy provides that a bankrupt cannot assume part of a contract and reject the remainder. If a contract is to be assumed and continued despite bankruptcy, the bankrupt must take on all of the burdens as well as the benefits.
Indiana Downs filed a motion shortly after the Chapter 11 filing in early April to assume a trademark agreement and reject a management contract. Both are with an affiliate of Gomes & Cordish Gaming Management LLC. The two contracts were signed four months apart when the track was being developed.
Gomes & Cordish contends that the two contracts are “inextricably intertwined.” Consequently, it argues that the track cannot terminate the management agreement without also terminating the trademark licenses.
Indicating a willingness to settle, Gomes & Cordish said in a court filing that it would “consider” allowing the trademark licenses to go forward if the track agrees to continue a modified the management arrangement.
To assume a contract, a bankrupt must cure defaults and agree to perform in full in the future. To escape the obligations of a contract, the bankrupt may reject. The rejection of a contract amounts to a court-authorized breach. Resulting damages, including future lost profits, become pre- bankruptcy unsecured claims.
The track missed an interest payment in November on $375 million in second-lien notes and filed for reorganization on April 7. The Chapter 11 case is being financed with a $103.1 million loan from the existing first-lien lenders. Wells Fargo Bank NA is agent for the lenders.
Secured liabilities of the so-called racino include $98.1 million owing on the first-lien financing, $375 million outstanding on the second-lien notes and $72.7 million on third- lien subordinated notes.
The Indiana Downs track opened in 2002 and the casino began operations in 2008. The permanent facility opened in March 2009 with 2,000 slot machines and electronic table games. Revenue in 2010 was $270 million.
The petition says assets are more than $500 million while debt is less than $500 million.
The case is In re Indianapolis Downs LLC, 11-11046, U.S. Bankruptcy Court, District of Delaware (Wilmington).
South Jersey Radio Stations Sold for $4.2 Million
Atlantic Broadcasting of Linwood New Jersey LLC, the owner of five radio stations, filed under Chapter 11 in December and held a May 4 auction where the price increased to $4.2 million from $3 million.
The buyer, Longport Radio LLC, received approval for the transaction on May 6 from the bankruptcy judge.
Based in Linwood, New Jersey, the five stations cover Atlantic City and Cape May, New Jersey. The formats are rock, talk, top 40, classic hits and Spanish.
The business was purchased in 2008 by Northwood Ventures LLC, which retained 88 percent of the stock.
The secured lender Sun National Bank is owed $6.8 million, according to a proposed disclosure statement. There are $1.2 million in unsecured claims, a court paper said. The petition says assets and debt are both less than $10 million.
The case is In re Atlantic Broadcasting of Linwood New Jersey LLC, 10-49149, U.S. Bankruptcy Court, District of New Jersey (Camden).
L.A. Times Publisher Hartenstein Named Tribune CEO
The publisher of the Los Angeles Times, Eddy Hartenstein, has been named chief executive of Tribune Co. He replaces a four-person counsel that filled the top executive spot.
For Bloomberg coverage, click here.
The confirmation hearing for approval of one of the two competing reorganization plans began March 7. The trial completed, the bankruptcy judge scheduled closing arguments in June.
Tribune is the second-largest newspaper publisher in the U.S. It listed $13 billion in debt for borrowed money and assets of $7.6 billion in the Chapter 11 reorganization begun in December 2008. It owns the Chicago Tribune, Los Angeles Times, six other newspapers and 23 television stations.
The case is In re Tribune Co., 08-13141, U.S. Bankruptcy Court, District Delaware (Wilmington).
New Filings
Allerton Hotel Files in Chicago to Stop Foreclosure
The owner of the Allerton Hotel in Chicago filed for Chapter 11 protection on May 5 in its hometown to halt foreclosure on the $69 million first mortgage.
The hotel has 443 rooms. Because of the recession, revenue per available room declined 29 percent in the year following completion of a renovation in July 2008.
The owner, ALT Hotel LLC, contends in court papers that Diamond Rock Hospitality Co., a real estate investment trust, acquired the mortgage in May 2010 at a “steep discount” expressly “for the purpose of acquiring ownership of the hotel.”
The hotel alleges that Diamond Rock violated an intercreditor agreement with a mezzanine lender by not honoring an agreement where the junior lender could acquire the senior debt.
For other Bloomberg coverage, click here.
The case is In re ALT Hotel LLC, 11-19401, U.S. Bankruptcy Court, Northern District of Illinois (Chicago).
Highview Point, Investment Adviser, files in Delaware
Highview Point Partners LLC, described on its web site as an investment adviser focused on emerging markets, filed a so- called bare-bones Chapter 11 petition on May 6 in Delaware.
The petition says assets are less than $500,000 while debt exceeds $100 million.
Aside from the three-page standard-form petition, little was filed with the bankruptcy court other than a list of creditors and resolutions authorizing the filing.
High Point is based in Stamford, Connecticut, according to the petition and the website.
The case is In re Highview Point Partners LLC, 11-11432, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Bank Failure
Florida Bank Failure is 40th in 2011
Coastal Bank of Cocoa Beach, Florida, was taken over by regulators on May 6. It was the 40th bank to fail this year and the fifth in Florida.
The failed bank had $124 million in deposits. The Federal Deposit Insurance Corp. said the failure would cost the fund $13.4 million.
Last year, there were 157 bank failures, compared with 140 in 2009. Last year’s were the most since 1992, when 179 institutions were taken over by regulators.
Bankruptcy Audio & Video
Lehman Plans, Madoff Suits, Thornburg, Market Conditions
The competing reorganization plans for Lehman Brothers Holdings Inc., the $2 billion lawsuit against five giant banks by the trustee for Thornburg Mortgage Inc., and the dramatic decline in major Chapter 11 filings are analyzed in the video featuring Bloomberg Law’s Lee Pacchia and Bloomberg News bankruptcy columnist Bill Rochelle. To view the video, click here.
The new bankruptcy podcast kicks off with two developments in the liquidation of Bernard L. Madoff Investment Securities Inc. One is the first distribution from the $7.6 billion the trustee collected, and the second concerns developments in the trustee’s $9 billion lawsuit against HSBC Holdings Plc. Rochelle and Pacchia describe why the corn supplier for ethanol plant owner Clean Burn Fuels LLC may be sorry it disregarded or underestimated the possibility of bankruptcy when structuring an agreement for raw materials. Using Builders FirstSource Inc. as an example, they analyze whether the credit markets are at an inflection point where selling bonds may not be so easy for some companies as it once was. Rochelle concludes the podcast by talking about a May 4 opinion from the U.S 3rd Court of Appeals in Philadelphia giving insurance companies more right to be heard in some asbestos reorganizations. To listen to the podcast, click here.
Statistics
U.S. Junk Default Rate Declines Again in April
The default rate on junk-rated debt in the U.S. declined at the end of April to 2.6 percent from 2.9 percent in March, according to Moody’s Investors Service. One year ago, the junk default rate was 9.5 percent in the U.S.
There were no defaults in April by companies with ratings from Moody’s. In April 2010, there were five defaults. The total defaults so far this year is eight, Moody’s said.
Measured by dollar amount, the junk default rate was an even lower 1.4 percent at the end of April. In March, the dollar-weighted default rate was 1.5 percent. A year ago, it was 9.5 percent.
Worldwide, the default rate on junk paper in April was 2.3 percent. Moody’s is predicting the default rate will decline to 1.5 percent by the end of 2011.
Criminal Docket
Former Major Leaguer Len Dykstra Indicted for Bankruptcy Fraud
Lenny Dykstra, a former major league baseball player for the New York Mets and Philadelphia Phillies, was indicted last week for bankruptcy fraud. The indictment supersedes a criminal complaint filed April 13 in Los Angeles.
Dykstra, 48, was charged with selling or destroying contents of his home after his personal bankruptcy filing in 2009. Dykstra’s trustee estimated that he removed or destroyed $400,000 of furnishings and contents of the mansion he had purchased for $18.5 million. To read Bloomberg coverage, click here.
Dykstra filed for reorganization under Chapter 11 in July 2009 in Woodland Hills, California. A Chapter 11 trustee was appointed in September 2009, and the case was converted to a liquidation in Chapter 7 in October 2009.
Dykstra listed assets of $24.6 million against debt totaling $37.1 million. Debt included $12.9 million owing to JPMorgan Chase & Co.
The criminal case is U.S. v. Dykstra, 11-00788, U.S. District Court, Central District of California (Los Angeles). The bankruptcy case is In re Lenny Kyle Dykstra, 09-18409, U.S. Bankruptcy Court for the Central District of California (Woodland Hills).
--With assistance from David McLaughlin in New York; and Steven Church, Dawn McCarty and Michael Bathon in Wilmington, Delaware. Editor: 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: John Pickering at jpickering@bloomberg.net
