Highview, Nortel, GSC, Madoff, DBSD, Innkeepers: Bankruptcy
May 25, 2011, 9:49 AM EDTBy Bill Rochelle
(This report contains items about companies both in bankruptcy and not in bankruptcy. Adds GSC, Madoff, Innkeepers, DBSD, Washington Mutual and Harry & David in Updates; Jackson Hewitt in New Filing; Sears and WCA Waste in Downgrades and Trailer Bridge in Watch List.)
May 25 (Bloomberg) -- Highview Point Partners LLC, accused by the U.S. Securities and Exchange Commission of having a role in an alleged Ponzi scheme involving Kenwood Capital Management LLC, is proposing to hire Louis J. Freeh as its chief restructuring officer.
Freeh was a U.S. district judge before being appointed director of the Federal Bureau of Investigation under President Bill Clinton. A hearing to approve Freeh’s retention is scheduled in bankruptcy court in Wilmington, Delaware, on June 3, the same day as a hearing where the receiver for Kenwood will seek the dismissal of Highview’s Chapter 11 case.
The SEC had a receiver appointed for Kenwood in February, about the time Highview received redemption requests from investors and decided to wind up the funds. Highview intended to distribute 75 percent of the $230 million in the funds in March. At the requests of the SEC, Highview agreed to delay the payments, the company said in a court filing.
Highview filed a bare-bones Chapter 11 petition on May 6, just before the SEC was to appear in district court seeking to have the Kenwood receiver take over Highview as well.
Having Freeh control the company is the best way to deal with competing claims from the SEC, the receiver and investors in the funds, Highview said.
The Kenwood receiver contends the Highview Chapter 11 filing was a bad-faith attempt to preclude him from taking over Highview. Highview is a non-operating investment adviser that directed “fraudulent and illegal transfers” between Highview funds and Kenwood funds, the receiver claimed.
The case is In re Highview Point Partners LLC, 11-11432, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Commentary
Bankruptcy Case Tests Ruling by Fifth Circuit Chief Judge
Sixteen active judges on the U.S. Court of Appeals in New Orleans heard reargument on May 23 in a case representing a challenge to Chief Judge Edith H. Jones’s ability to shape bankruptcy law in the 5th Circuit.
Jones, by placing herself on many three-judge panels involving key bankruptcy appeals, has helped to move 5th Circuit laws on corporate reorganizations and individual bankruptcies in directions that diverge from the other 10 U.S. courts of appeal. The 5th circuit, based in New Orleans, makes law binding on bankruptcy and district courts in Texas, Louisiana and Mississippi.
In the case reargued on May 23, Reed v. City of Arlington, Jones wrote the original opinion in September for a three-judge panel. Reversing a district judge, Jones barred a bankruptcy trustee from collecting a $1 million judgment because the bankrupt, not the trustee, committed a fraud.
The case involved a fireman who filed for bankruptcy after he obtained judgment in excess of $1 million against the city which had employed him. He repeatedly failed to disclose the judgment in his bankruptcy papers and was found out only after the appeals court affirmed the judgment.
The bankruptcy trustee sought to collect the judgment so the proceeds could be used to pay creditors in full. U.S. District Judge Terry R. Means crafted a resolution that would have allowed the trustee to collect enough to pay creditors fully while preventing the bankrupt from getting anything.
When the case came to the circuit court a second time on appeal, Jones overturned Means, ruling that neither the trustee nor the bankrupt was entitled to collect anything.
Jones said it wasn’t proper to “distinguish the debtor’s conduct from the trustee in applying” a legal principle called judicial estoppel. Without citing case-law authority, Jones broadly stated that the trustee “succeeds to the debtor’s claim with all its attributes,” including the “potential for judicial estoppel.”
Judicial estoppel is a legal principle prohibiting someone from taking inconsistent positions in different courts. It can be invoked by a court to preclude a result that appears unjust.
During argument on May 23 Jones indicated that she believed her September ruling was correct. By contrast, former Chief Judge Carolyn D. King, a bankruptcy expert before being appointed to the appeals court, lauded Means for “how well he handled the case.” Given how often bankrupts try to conceal property, King questioned whether it would be proper to “vaporize the assets” every time a bankrupt lies.
The Commercial Law League said in a brief seeking to overturn Jones’s opinion that her ruling didn’t follow a previously decided 5th Circuit case involving similar facts, where the ruling went the other way.
Among lawyers specializing in bankruptcy reorganization, Jones is most noted for her 2008 opinion in a case called Dynasty Oil & Gas LLC v. Citizens Bank (In re United Operating LLC). Her opinion, not followed in any other circuit, ruled that a Chapter 11 plan must contain a “specific and unequivocal” statement of all lawsuits to be prosecuted after confirmation.
If not “expressly” listed, the suit must be dismissed. The result is to make it difficult for creditors to increase recoveries by bringing lawsuits after Chapter 11 reorganizations are completed.
In another opinion last year, Jones reversed two lower courts and told the third-party buyers of Scotia Pacific Co. and affiliate Pacific Lumber Co. that they must pay an extra $29.7 million because the bankruptcy judge made a mistake in calculating the amount owed to secured lenders for using their collateral during the Chapter 11 case.
The purchasers have had a motion pending for more than seven months in the 5th Circuit requesting a so-called en banc hearing before all the active judges. If denied, they may seek permission to appeal to the U.S. Supreme Court. The buyers contend Jones’s opinion creates a so-called conflict of circuits because it differs from rulings on the same issue by appeals courts in New York, Chicago and Philadelphia.
The case argued today is Reed v. City of Arlington, 08- 11098, 5th U.S. Circuit Court of Appeals (New Orleans).
Updates
Garrity, GSC Trustee, Opposes Minority Lenders’ Plan
The Chapter 11 trustee for GSC Group Inc. will be in court today in Manhattan to tell the bankruptcy judge that the reorganization plan proposed by a group of minority lenders has “at least one fatal confirmation defect” and cannot be approved.
The trustee, former bankruptcy judge James L. Garrity, is requesting that the court not approve the disclosure statement explaining the minority lenders’ plan.
All of the secured lenders other than Black Diamond Capital Finance LLC filed a Chapter 11 plan in April seeking to head off a sale of the business by Garrity. Their plan would give the lenders all the new stock and $160 million in new 10 percent senior notes to mature in 2026. Unsecured creditors would receive nothing.
Garrity said in his May 23 court papers that he is on the cusp of filing a motion to sell the business to Black Diamond and the other secured lenders.
Garrity said the plan can’t be confirmed because Black Diamond holds enough debt to prevent acceptance by the class for secured lenders. There won’t be any other voting classes, Garrity said. Consequently, the plan couldn’t be confirmed, even using the so-called cramdown process.
The trustee said that the minority lenders’ plan “does not benefit anyone but” them.
Black Diamond, objecting to approval of the minority lenders’ disclosure statement, said their plan improperly includes “gerrymandering to create a potentially impaired approving class.” For a discussion of gerrymandering, see the item in today’s report on Colonial BancGroup.
Making some of the same arguments as Garrity, Black Diamond says the minority lenders’ plan is “patently unconfirmable” and “dead-on-arrival.”
For Bloomberg coverage with regard to possible problems in the minority lenders’ plan, click here for the April 28 Bloomberg bankruptcy report. For details on the plan by the group calling themselves the non-controlling lenders, click here for the April 27 Bloomberg bankruptcy report. The plan proponents include affiliates of Credit Agricole SA, UBS AG, and General Electric Capital Corp.
The bankruptcy judge had a trustee appointed after some lenders argued that company executives became “quasi agents” for Black Diamond.
GSC filed under Chapter 11 at the end of August and held an auction at the end of October. Although Black Diamond won the auction with a bid of $235 million, the company later withdrew the motion for approval of the sale to Black Diamond.
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.
The case is In re GSC Group Inc., 10-14653, U.S. Bankruptcy Court, Southern District New York (Manhattan).
Objection Denied to $7.2 Billion Picower-Madoff Deal
A customer of Bernard L. Madoff Investment Securities Inc. was thrown out of court by U.S. District Judge Thomas P. Griesa for trying to block the $7.2 billion settlement with the late Jeffrey M. Picower.
The customer, Adele Fox, filed papers asking to intervene in the so-called forfeiture action where Picower’s estate agreed to settle with the government and turn over the entire $7.2 billion being sought by the Madoff trustee.
For details on the Picower settlement and how the money is to be distributed, click here for the Dec. 20 Bloomberg bankruptcy report.
Griesa said in his May 23 opinion that “Fox’s main goal appears to be to challenge the treatment of net winners.” Griesa said she didn’t have standing, meaning the right to participate in the government’s forfeiture action.
As a victim of Madoff’s fraud, Griesa said Fox’s status “is too removed to create the interest necessary to intervene.”
“Victimhood does not create an interest in forfeited property as there is no requirement that forfeited property be given to victims,” Griesa said.
Griesa cited law for the proposition that the government has the right to retain forfeited property. In this case, everything from Picower is going to Madoff customers with approved claims. To read Griesa’s four-page opinion, click here.
Griesa said that Fox’s proper challenge is in the appeal argued in early March where so-called net winners asked the U.S. Court of Appeals in New York to reverse the bankruptcy court’s method for distributing recovered assets. For a rundown on comments from the three-judge panel in March, click here for the March 4 Bloomberg bankruptcy report.
Having dismissed Fox’s objection, Griesa entered judgment for the government and directed that the money be forfeited in accordance with the December Picower settlement.
The Madoff trustee is in substance ignoring the amounts shown as owing on customers’ account statements, since all profits were fictions. Instead, the bankruptcy judge approved a process where a customer’s claim is measured by the amount of cash put in less the amount taken out. Customers won’t have claims for profits unless and until all approved customer claims are paid in full.
The Madoff firm began liquidating on Dec. 11, 2008, with the appointment of the trustee under the Securities Investor Protection Act. Bernard Madoff individually went into an involuntary Chapter 7 liquidation in April 2009. His bankruptcy case was consolidated with the firm’s liquidation. Madoff is serving a 150-year prison sentence following a guilty plea.
The forfeiture action in Griesa’s court is U.S. v. $7,206,157 on Deposit at JPMorgan Chase Bank NA, 10-9398, U.S. District Court, Southern District of New York (Manhattan).
The Madoff liquidation case is Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities Inc., 08-01789, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The criminal case is U.S. v. Madoff, 09-cr- 00213, U.S. District Court for the Southern District of New York (Manhattan).
Midland Preempts Reorganization Plan Dispute with Innkeepers
Innkeepers USA Trust already received opposition to its Chapter 11 plan from the U.S. Trustee, even though the confirmation hearing isn’t on the calendar until June 23. Midland Loan Services Inc., the hotel owner’s largest secured creditor, is taking its remaining dispute over the plan to the bankruptcy court at a June 7 hearing.
The U.S. Trustee, the bankruptcy watchdog for the Justice Department, filed papers on May 23 saying that the plan contains forbidden releases of third parties, such as Apollo Investment Corp., Innkeepers’s owner. The U.S. Trustee also contended that the plan fails one of the tests for confirmation known as the best interests rule.
The best interests test requires the judge to find that creditors receive as much under the plan as they would if the company were liquidated in Chapter 7. The defect, according to the U.S. Trustee, deals with preferred shareholders.
Even though the equity group initially receives as much as it would in liquidation, the plan fails the best interests test because it precludes shareholders from bringing lawsuits against third parties, diminishing their recoveries compared with Chapter 7.
At a June 7 hearing, Midland, the servicer for $825 million of fixed-rate mortgages on 45 hotels, wants the bankruptcy judge to decide whether it waived claims against Innkeepers’s corporate parent, Grand Prix Holdings LLC. If the courts finds there was no waiver in favor of Grand Prix, Midland contends it will receive millions more under the plan.
If there was a waiver, the cash will go to Apollo. Midland said the agreement setting up the auction only waived claims against the main companies that owned the 72 hotels.
Creditors are voting on Innkeepers’s plan in anticipation of the June 23 confirmation hearing. The plan is now supported by the ad hoc committee representing preferred shareholders following the company’s decision to give the committee $3.5 million on emergence from Chapter 11.
Lehman Ali, a non-bankrupt subsidiary of Lehman Brothers Holdings Inc., is to receive $233 million in cash for its $238 million in floating-rate mortgages on 20 Innkeepers properties. The disclosure statement said Lehman will be paid in full.
Midland would receive $725.8 million in modified mortgages and $12.8 million cash. Its recovery is almost 88 percent, according to the disclosure statement.
For other details on the plan that Innkeepers revised on May 9, click here for the May 16 Bloomberg bankruptcy report.
Apollo acquired the company in July 2007 in a $1.35 billion transaction. Palm Beach, Florida-based Innkeepers has 72 extended-stay and limited-service properties with 10,000 rooms in 20 states. The Chapter 11 petition filed in July listed assets of $1.5 billion against debt totaling $1.52 billion.
The case is In re Innkeepers USA Trust, 10-13800, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
DBSD Full-Payment Plan Set for June 30 Confirmation
DBSD North America Inc. received approval yesterday for the disclosure statement explaining the revised Chapter 11 plan that pays all creditors in full, with $280 million left over for the owner, ICO Global Communications Holdings Inc.
The confirmation hearing for approval of the plan is set for June 30. The full-payment plan resulted from the auction process where first-lien creditor Dish Network Corp. raised its offer to $1.49 billion from about $1 billion. DBSD is a development-stage company providing wireless communications by satellite to customers in North America where traditional cellular service isn’t available.
The bankruptcy judge approved the revised Dish purchase agreement in March.
There would have been no full recovery were it not for a ruling by the U.S. Court of Appeals setting aside DBSD’s prior reorganization plan. The bankruptcy judge had confirmed the prior plan over negative votes from creditor classes including Dish and Sprint-Nextel Corp.
Although the appeals court upheld cramdown on Dish, cramdown on Sprint was reversed. Dish ultimately benefited from Sprint’s victory in the 2nd U.S. Circuit Court of Appeals because it got another opportunity to buy DBSD.
DBSD, based in Reston, Virginia, placed a geosynchronous satellite into orbit in April 2008. The Chapter 11 petition in May 2009 listed assets of $630 million and debt totaling $813 million as of March 31, 2009, including $51 million in first- lien debt.
The Chapter 11 filing was caused in part by the illiquidity of $98 million in auction-rate securities purchased in 2008.
The case is In re DBSD North America Inc., 09-13061, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
WaMu Announces Tentative Settlement With Shareholders
Washington Mutual Inc. said yesterday there is a “tentative settlement” to end opposition from the official shareholders’ committee to approval of the reorganization currently scheduled for a June 29 confirmation hearing.
Details about the multi-party settlement, such as the identities of the parties involved, weren’t included in WaMu’s statement. Nothing is yet filed in bankruptcy court about the settlement. Bloomberg News reported last week that a settlement was in the works.
Subordinated creditors, preferred shareholders, and common shareholders would get some new stock and a litigation trust would be created for them. The trust would be funded initially with $5 million to create a war chest for suing third parties that don’t receive releases in the plan. The trust could receive another $25 million, though any recoveries from lawsuits would go first toward repayment of the additional advance.
The statement also said that “certain significant creditors” will provide a $100 million credit. For other Bloomberg coverage, click here.
If the settlement details aren’t worked out, WaMu said it will pursue confirmation at the June 29 hearing without the compromise with shareholders. Yesterday’s statement didn’t say whether the newest settlement would require new votes by any creditor classes.
The bankruptcy judge wrote a 109-page opinion in January explaining why she couldn’t confirm a prior version of the plan. For details on the opinion, click here for the Jan. 10 Bloomberg bankruptcy report. For details on the plan as revised after the January ruling, click here for the Feb. 14 Bloomberg bankruptcy report. For details on WaMu’s last-minute changes in the disclosure, click here for the March 21 Bloomberg bankruptcy report.
The WaMu holding company filed under Chapter 11 in September 2008, one day after the bank subsidiary was taken over. The bank, once the sixth-largest depository and credit- card issuer in the U.S., was the biggest to fail in the country’s history. The holding company filed formal lists of assets and debt showing property with a total value of $4.49 billion against liabilities of $7.83 billion.
The holding company Chapter 11 case is In re Washington Mutual Inc., 08-12229, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Genband Seeks to Recover $27 Million from Nortel from Sale
Genband Inc., which purchased the Internet telephony business from Nortel Networks Inc., tired of waiting and filed a motion on its own to compel Nortel to carry out a settlement of the price-adjustment clause in the purchase agreement.
Genband’s motion will be the subject of a hearing in bankruptcy court on June 7. If the bankruptcy judges goes along, Genband will receive a refund of almost $27 million from the sale that was predicted to bring in $182 million.
Genband was authorized in March 2010 to buy the business. After the sale was completed, a dispute arose over price adjustments. If Genband were correct in its interpretation, the final price would be $142.9 million. If Nortel were right, it would be $182 million.
The parties took the dispute to mediation and reached a settlement in April. According to Genband’s motion, Nortel is to pay almost $27 million. Where the bankrupt company ordinarily files motions to approve settlements, Genband accused Nortel of foot-dragging and filed its own motion asking the bankruptcy court to approve the settlement at the next major hearing on June 7.
Nortel has sold almost all of the assets. A portfolio of 6,000 patents and patent application, the major unsold asset group, will go up for auction June 20. Google Inc. will make the first bid of $900 million.
Nortel filed a Chapter 11 plan in July proposing full payment for secured creditors and distributions to lower-ranking creditors in accordance with priorities in bankruptcy law. There would be no distributions to creditors with subordinated claims.
Recoveries will vary depending on the Nortel company that owes a particular debt because Nortel isn’t attempting so-called substantive consolidation.
The Toronto-based Nortel companies filed for bankruptcy reorganization in January 2009 in the U.S., Canada and London. The companies reported $11.6 billion in consolidated assets against debt totaling $11.8 billion as of Sept. 30, 2008.
Revenue was $9.7 billion in 2007. For the first nine months of 2008, sales were $6.8 billion.
The Chapter 11 case is In re Nortel Networks Inc., 09- 10138, and the parent’s Chapter 15 case is In re Nortel Networks Corp., 09-10164, both in U.S. Bankruptcy Court, District of Delaware (Wilmington).
Colonial Judge Tells How to Fix Plan for Confirmation
Colonial BancGroup Inc. ostensibly was handed a defeat when the bankruptcy judge in Montgomery, Alabama, wrote a 13-page opinion on May 20 refusing to sign a confirmation order approving the bank holding company’s Chapter 11 plan.
In reality, the defects identified by the bankruptcy judge were minor.
Colonial filed an amendment to the plan on May 23 along with a motion asking the bankruptcy judge to hold an expedited hearing to confirm the plan.
Confirming the plan required use of the so-called cramdown process because the classes for unsecured and subordinated creditors were almost unanimous in opposition to the proposal. The only classes to accept were the so-called convenience class and the class for indenture claims.
U.S. Bankruptcy Judge Dwight H. Williams Jr. was prepared to cram the plan down on the dissenting class because his May 20 opinion rejected the principal objections from the Federal Deposit Insurance Corp. and the trustee for the subordinated creditors. Both were in the general unsecured creditor class and voted down the plan.
The FDIC and the indenture trustee complained that the plan improperly put them in separate classes to insure that there would be at least one class accepting the plan, as bankruptcy law requires before cramdown is possible. Williams rejected the so-called gerrymandering argument.
Williams said it was proper to put the three issues of publicly held debt into a separate class that ended up voting in favor of the plan. The U.S. Court of Appeals in Atlanta gives the bankrupt company “considerable discretion” to make separate classes “according to the facts and circumstances of the case,” he said.
Williams did find two minor problems with the plan. The trustee for the trust created under the plan might earn compensation exceeding what could be earned by a Chapter 7 trustee. He therefore said the plan violated the so-called best interests of creditors test.
He also identified a defect in who could decide what lawsuits to file after confirmation. Colonial said in its May 23 motion that it fixed both defects and wants the judge to hold a confirmation hearing quickly to approve the revised plan.
Colonial and the FDIC have been in litigated disputes since the case began. For a description of some of the disputes, click here for the March 24 Bloomberg bankruptcy report.
Colonial filed under Chapter 11 in August 2009 after the bank subsidiary was taken over by regulators. The Colonial holding company, based in Montgomery, listed assets of $45 million and debt of $380 million.
Colonial provided loans to mortgage-loan originators to tide them over until mortgages could be packaged and sold to investors in securitizations. The holding company was being investigated with regard to accounting practices and the warehouse loan operation.
The case is In re Colonial BancGroup Inc, 09-32303, U.S. Bankruptcy Court, Middle District of Alabama (Montgomery).
Raser Committee, U.S. Trustee Opposing Sale Structure
Raser Technologies Inc., the owner of a six-megawatt geothermal electric generating plan in Utah, is facing opposition at a hearing today from the official creditors’ committee, the U.S. Trustee and some individual creditors.
They are arguing against Raser’s proposed financing and procedures for selling the business, mostly likely to secured creditors.
Raser wants the bankruptcy court in Delaware to sanction a July 25 auction for the right to sponsor a reorganization plan and take ownership when the company emerges from Chapter 11. Before the April 29 Chapter 11 filing, Raser reached agreement on a reorganization plan where Linden Advisors LP and Tenor Capital Management LP would acquire all of the new stock for $19.7 million.
The price is composed of $2.5 million in cash and exchange for debt, a court filing said.
The U.S. Trustee and the official committee both argue that a 5 percent breakup fee for the so-called stalking-horse buyers is too high, especially considering the cash component of the price is $2.5 million. The U.S. Trustee says that proposed auction procedures “ultimately prevent a competitive bidding process.”
The committee similarly sees the process as insuring that no one else will bid while the financing will “cede complete control” of the case to the lenders.
The period for soliciting other offers is too truncated, while the financing would force unsecured creditors to negotiate a Chapter 11 plan “after the plan structure is approved,” the committee said.
Raser wants the court to require other bids by July 20, two days before auction. The sale itself would be approved as part of the confirmation process on a Chapter 11 reorganization plan.
If the court approves at today’s hearing, Linden and Tenor will provide $8.75 million in financing. From the total, $6 million is for paying off existing debt. The two investors already own about half the $57.2 million owing on 8 percent convertible senior unsecured notes.
In addition to the one plant, Raser has interests in geothermal rights for seven projects in four western states covering 270,000 acres, plus rights in another 100,000 acres in Indonesia.
The petition listed assets of $41.8 million and debt totaling $107.8 million. The company had revenue of $4.25 million in 2010, resulting in a $71.9 million operating loss. The net loss last year was $101.8 million.
Liabilities of the Provo, Utah-based company include a $10.3 million secured debt on the plant. An affiliate of Merrill Lynch & Co. has a $22.6 million unsecured debt arising from financing for the plant.
The case is Raser Technologies Inc., 11-11315, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Accredited Home Confirms Possible 100 Percent Chapter 11 Plan
Accredited Home Lenders Holding Co., a former home mortgage originator and securitizer, won the signature of the bankruptcy judge yesterday on a confirmation order approving a liquidating Chapter 11 plan. Every class of affected creditors accepted the plan.
The plan is based on a settlement where the owner Lone Star Funds will pay $15.8 million in cash, waive $100 million in claims against the operating companies, and subordinate $97 million in claims against the holding company. Lone Star’s directors’ and officers’ insurance company, together with some of the Lone Star entities, will pay another $30 million.
The disclosure statement projected that unsecured creditors of the operating companies may recover 100 percent on $108 million in claims while unsecured creditors of the holding company could see 65 percent for their $60 million in claims.
The affiliated real estate investment trust should see a 76 percent to 87 percent recovery on $20 million in claims. The REIT will distribute the recovery to its own creditors.
The disclosure statement warned that recoveries might be lower if tax refunds turn out not to be so large or claims come in higher than predicted.
At the outset, Accredited Home assumed unsecured creditors wouldn’t recover 10 percent. In addition to the Lone Star settlement, increased recoveries are the result of a 2009 changes in tax law that generated $94 million in tax refunds by permitting 2008 losses to be carried back five years.
Accredited sold the mortgage-servicing business after the Chapter 11 filing in May 2009. Most of the mortgage loans were sold later. The Chapter 11 petition for Accredited Home said assets were less than $50 million while debt exceeded $100 million.
The case is In re Accredited Home Lenders Holding Co., 09- 11516, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Harry & David Says Plan Depends on Pension Plan Termination
Harry & David Holdings Inc. told a bankruptcy judge yesterday that termination of its pension plan or agreement with the Pension Benefit Guaranty Corp. on the reorganization proposal is required before the company can exit Chapter 11.
For Bloomberg coverage of yesterday’s hearing, click here.
The specialty-food retailer and direct marketer from Medford, Oregon, filed a Chapter 11 plan last week incorporating a previously announced agreement under which the official unsecured creditors’ committee now supports the plan. Unsecured creditors are to receive a 10 percent recovery, with 40 percent of that coming in 2012 and 60 percent in 2013.
The plan is now “largely consensual,” Harry & David said in the explanatory disclosure statement.
PBGC and holders of $58.2 million in senior floating-rate notes and $148.2 million in senior fixed-rate notes are in a class together. In return for their claims, they are to receive 146,000 new common shares and the right to purchase another 733,000 shares, or about 74.9 percent, in a $55 million rights offering.
The proceeds of the rights offering will be used to repay the $55 million in second-lien financing for the Chapter 11 case.
The recovery for noteholders is estimated at between 5.9 percent and 14.8 percent. Noteholders are backstopping the rights offering. As a fee, they will receive 50,000 shares.
Existing lenders providing $100 million in first-lien financing for the Chapter 11 case will continue the loan when the company leaves bankruptcy.
Apart for the recovery for unsecured creditors, the plan was agreed to before bankruptcy by holders of 81 percent of the senior notes, including Wasserstein & Co., the largest senior noteholder and owner of 63 percent of the stock. Wells Fargo Bank serves as indenture trustee for the noteholders.
The pension plan is owed $27.4 million, court papers previously said.
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).
Gardens Alive Approved to Buy International Garden
International Garden Products Inc. was given approval on May 23 by the U.S. Bankruptcy Judge in Delaware to sell the business to land and garden-product producer Gardens Alive Inc.
There was another bidder at the May 17 auction. After several rounds of offers, Gardens Alive made the top bid when it increased the cash portion of the purchase price by $600,000, a court filing says. Before the auction, Gardens Alive was the so- called stalking horse with a contract for $26.7 million.
Proceeds from the sale will go to secured creditors, except for money set aside to pay professionals in the Chapter 11 case. In addition, Lawrenceburg, Indiana-based Gardens Alive is providing an extra $250,000 for unsecured creditors for supporting the sale.
IGP filed under Chapter 11 in early October. Based in Damascus, Oregon, it supplies independent garden stores, landscapers and landscape suppliers. It produces dwarf conifers and Japanese maples through affiliate Iseli Nursery Inc. Affiliate Weeks Wholesale Rose Grower is one of the largest growers of roses in the U.S.
At the outset, IGP owed $30.7 million on a secured revolving credit and $13 million on a secured term loan. EF Private Equity Partners (Americas) LP holds more than half of the common stock and the Series A preferred stock.
The case is In re International Garden Products Inc., 10- 13207, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Banning Lewis Approved for June 28 Auctions for Plan
Banning Lewis Ranch, a master-planned community in Colorado, received approval from the bankruptcy judge on May 23 to sell the project in two auctions, both on June 28.
Preliminary bids are due June 23. The hearing for approval of the sales is set for June 29.
The company filed a Chapter 11 plan this month to encompass the auction sales that will determine who will sponsor a reorganization.
The parent company’s assets presumably will be purchased in return for forgiveness of financing for the Chapter 11 case and assumption of a modified term loan with KeyBank NA. The intended purchasers are Greenfield BLR Finance Partners LP and DBL Investors LLC. The bankruptcy judge required filing a definitive purchase agreement by May 27.
Confirmation of the plan evidently will require using the so-called cramdown process on term-loan lenders. The draft disclosure statement filed along with the plan proposes that the lender would be paid in full, though the maturity of the loan would be stretched out to 2019 and the interest rate reduced.
For details on the plan, click here for the May 18 Bloomberg bankruptcy report.
The project has 21,000 acres of undeveloped land northeast of Colorado Springs and $450 million in known debt, including $65.5 million on a secured loan with KeyBank as agent. Other debt includes a $105 million mezzanine loan and a separate $23.5 million loan for which KeyBank also is agent. The petition said the assets are worth more than $50 million while debt exceeds $100 million.
Greenfield BLR Partners LP and Farallon BLR Investor LLC hold $141 million in debt. Together, they also have 85 percent of the stock.
The case is In re Banning Lewis Ranch Co. LLC, 10-13445, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Judge Gives Berkline Final Cash-Use Approval
Berkline/BenchCraft Holdings LLC, a furniture manufacturer 90 percent owned by private-equity investor Sun Capital Partners Inc., filed under Chapter 11 on May 2 and was given final approval yesterday to use cash representing collateral for the secured lenders.
The creditors’ committee was given a budget of $50,000 to investigate the validity of secured claims. The lenders won the right, should there be a sale, to pay for the assets using secured debt rather than cash.
Liquidator Hilco Merchant Resources LLC was already given authority to sell the inventory.
Based in Morristown, Tennessee, the company decided to liquidate in March. It makes Berkline reclining sofas.
Wells Fargo Capital Finance LLC is the first-lien lender owed $4.29 million. A court filing say the collateral is worth slightly more than the debt. For the $140 million second lien, Goldman Sachs Group Inc. was syndication agent. Court papers say there are $12.5 million in unsecured subordinated notes mostly held by affiliates of Boca Raton, Florida-based Sun Capital.
The case is In re Berkline/BenchCraft Holdings LLC, 11- 11369, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Tubo Creditors May File Chapter 11 Plan After June 8
Tubo de Pasteje SA and subsidiary Cambridge-Lee Holdings Inc. won their sixth and last extension of the exclusive right to propose a Chapter 11 plan.
By June 8, they will have been in Chapter 11 for 18 months. After that, bankruptcy law allows any creditor to file a plan to reorganize or liquidate the companies. The final extension of exclusivity was approved by the bankruptcy judge on May 23.
Discussions on a plan are “nearing completion” and a “consensual plan” is expected soon, Tubo said.
Tubo is a subsidiary of Mexico City-based Industrias Unidas SA. IUSA said in February there was agreement in principle with creditors for a $371 million debt swap. Tubo’s Chapter 11 filing in December 2009 followed a payment default the preceding month on $200 million in 11.5 percent senior notes due 2016.
IUSA is a diversified manufacturer of copper and electrical products. The U.S. subsidiary, Cambridge-Lee, is based in Reading, Pennsylvania. IUSA is the issuer of the notes, which were secured by a pledge of the stock of Cambridge-Lee.
The case is In re Tubo de Pasteje SA de CV, 09-14353, U.S. Bankruptcy Court, District of Delaware (Wilmington).
LTAP’s Bankruptcy Dismissed, New Filing Prohibited
The Chapter 11 case begun in December by LTAP US LLP was dismissed by the bankruptcy court on May 20. The judge also prohibited LTAP from filing bankruptcy again for a year.
LTAP, a purchaser of life insurance policies in the so- called life settlement market, filed under Chapter 11 in December and was authorized by the bankruptcy judge on April 1 to turn over assets to Wells Fargo Bank NA, the lender owed $252 million.
The decision to turn over the assets and permit dismissal was the result of an opinion by the bankruptcy judge giving the bank the right to foreclose. At the same time, the judge refused to approve $40 million in financing that would have come ahead of the bank’s lien. The financing was to pay premiums on life- insurance policies.
For details on the settlement, which was structured like a sale to the San Francisco-based bank, click here for the March 21 Bloomberg bankruptcy report.
LTAP had 410 policies on 313 lives with aggregate death benefits of $1.36 billion, according to the settlement papers. In addition to Well Fargo, unsecured creditors are owed $7.6 million.
When LTAP filed for Chapter 11 protection, it claimed the policies were worth $311.5 million. Based in Atlanta, LTAP is managed by a company wholly owned by Berlin Atlantic Holding GmbH.
In the life-settlement market, companies like LTAP buy a policy for less than the death benefit from the owner of a policy on an individual’s life. The price is higher than what the policy owner would receive were the policy instead surrendered.
The case is In re LTAP US LLP, 10-14125, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Lender Set to Buy Blixseth’s Yellowstone ‘Family Compound’
The so-called Family Compound at the Yellowstone Mountain Club LLC failed to attract any bid to compete with the $10.9 million offer from the secured lender. Consequently, the May 20 auction was canceled, court filings say.
The sale was being undertaken by the bankruptcy trustee for Edra Blixseth, who took over management of the bankrupt club development when her husband Timothy gave her the property in August 2008 as part of a divorce settlement.
Situated on 160 acres, the home has two 2,240 square-foot residences. Membership in the club wasn’t included in the purchase price.
Edra Blixseth filed her own Chapter 11 petition in March 2009 in the same Montana bankruptcy court where the reorganization is pending for the private ski and golf resort in Big Sky, Montana. Her reorganization was converted to a Chapter 7 liquidation in May 2009 with the appointment of a trustee.
Before the auction, the secured lender was under contract to buy the property for $10.9 million, absent a higher offer. The lender agreed the bankruptcy trustee could have $850,000 from sale proceeds. The hearing to approve the sale is scheduled to be held today.
Edra received her discharge in February. Her former husband succeeded in beating back an involuntary bankruptcy petition filed against him in Las Vegas. The resort itself is attempting to complete its own Chapter 11 reorganization.
The club is a 13,600-acre property just outside Yellowstone National Park.
Edra Blixseth’s case is In re Edra Blixseth, 09-60452, U.S. Bankruptcy Court, District of Montana (Butte).
New Filing
Tax Preparer Jackson Hewitt Goes to Lenders in Prepack
Jackson Hewitt Tax Service Inc., a provider of tax- preparation services for individuals, filed a so-called prepackaged Chapter 11 petition yesterday in Delaware where secured lenders owed $357 million are to receive all the new stock and a new $100 million term loan.
Existing shareholders receive nothing. Similarly, general unsecured creditors with an estimated $3.5 million in claims are to have no recovery, according to the disclosure statement explaining the reorganization plan.
After emerging from Chapter 11, the business will be financed in part with a $115 million revolving credit. Existing secured lenders have the right to participate in the new revolver.
Jackson Hewitt began soliciting votes from secured lenders on May 23 and immediately received sufficient acceptances. The company said it hopes the plan will be approved by the court and implemented inside two months.
The recovery by the lenders is estimated at 51.8 percent, according to the disclosure statement.
Jackson Hewitt, based in Parsippany, New Jersey, has about 1,110 company-owned offices and almost 4,900 operated by franchisees. The company, through company-owned and franchised locations, also operates kiosks in 2,000 stores operated by Wal- Mart Stores Inc.
The petition says there were assets of $388.6 million and debt of $444.8 million as of Jan. 31. Jackson Hewitt estimates that the company’s enterprise has a mid-point value of $225 million. As a result, the lenders’ deficiency claim is estimated to be $172 million.
Jackson Hewitt was facing a mandatory $30 million payment toward the secured debt on April 30 in advance of the loan’s maturity in October.
Jackson Hewitt reported a $33.2 million net loss on revenue of $90.4 million for the nine months ended Jan. 31. The loss from operations was $25.3 million. For the fiscal year ended in April 2010, revenue was $213.8 million, resulting in a $272 million net loss following a $274 million goodwill impairment charge.
The stock, to be extinguished in the plan, was issued as part of the public offering when the company was spun off in 2004 from what is now know as Avis Budget Group. The three-year closing high was $17.49 on Sept. 11, 2008.
For other Bloomberg coverage of the filing, click here.
The case is In re Jackson Hewitt Tax Service Inc., 11- 11587, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Downgrades
Sears Downgraded on Declining Sales, Quarterly Loss
After Sears Holdings Corp. announced last week that it had a $170 million net loss in the April 30 quarter, Standard & Poor’s issued a one-notch downgrade yesterday lowering the corporate grade to B+.
S&P attributed the downgrade to “weak sales trends at Sears domestic and Sears Canada due to intense competition, weak consumer demand, and subpar store execution.” Revenue was $9.7 billion in the quarter, a 3.4 percent decline from the same quarter last year.
Sears’s liquidity is “strong,” with $980 million in cash in addition to a revolving credit facility, S&P said.
Kmart Corp. completed a Chapter 11 reorganization in April 2003 and acquired Hoffman Estates, Illinois-based Sears along with its name in 2005.
Waste Hauler WCA Demoted to B2 by Moody’s
WCA Waste Corp., a waste-management provider based in Houston, was given a one-notch downgrade yesterday when Moody’s Investors Service lowered the corporate grade to B2.
WCA is issuing $175 million in new senior notes due in 2019 to finance a tender offer for the currently outstanding $150 million in senior notes due in 2014.
Moody’s said there will be a “modest increase in debt.”
Revenue has been hampered by the decline in demolition waste stemming from the recession in construction, Moody’s said. Revenue for a year ended in March was $235 million, Moody’s said.
Watch List
Shipper Trailer Bridge Facing 12-Month Debt Maturity
Trailer Bridge Inc., an ocean and truck freight carrier, was demoted by two grades on May 23 by Moody’s Investors Service because $85 million of $102 million in total debt matures within a year.
The new ratings for the corporate and senior-secured notes are Caa2. The $82.5 million in 9.25 percent senior secured notes mature in November.
Moody’s calculated that the ratio of debt to earnings before interest, taxes, depreciation and amortization is 12 to 1.
Based in Jacksonville, Florida, Trailer Bridge carries freight between Puerto Rico and the Dominican Republic and the U.S. Revenue for the year ended in March was $114 million, Moody’s said.
--With assistance from Dawn McCarty, Steven Church and Michael Bathon in Wilmington, Delaware. Editors: Stephen Farr, 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.
