Bloomberg News

Lehman, Crystal Cathedral, Dodgers, Spiegel: Bankruptcy

August 01, 2011

(This report contains items about companies both in bankruptcy and not in bankruptcy. Adds Crystal Cathedral, Paulson resorts, L.A. Dodgers, Philadelphia Orchestra and No Fear in Updates and sections on Bank Failures and Advance Sheets.)

Aug. 1 (Bloomberg) -- Lehman Brothers Holdings Inc. and the creditors’ committee filed appeals from the formal rulings by the bankruptcy judge in mid-July finding that Barclays Bank Plc didn’t take more than it was entitled to receive when it bought the North American investment banking assets one week after the Chapter 11 filing in September 2008.

The committee and Lehman banded together hoping to recover $11 billion from Barclays. They lost.

The trustee for the remnants of the Lehman brokerage was somewhat more successful. The bankruptcy judge awarded the trustee $2.05 billion from Barclays Capital Inc. on account of so-called margin assets. The Lehman brokerage trustee was ordered to pay Barclays more than $1.1 billion on account of the so-called clearance box assets.

The trustee and Barclays already appealed and worked out an arrangement where neither is required to file a bond pending appeal. For a summary of the June 6 ruling, click here for the June 7 Bloomberg bankruptcy report. For a summary of the Feb. 22 opinion, click here for the April 13 Bloomberg bankruptcy report.

The Lehman holding company filed under Chapter 11 in New York on Sept. 15, 2008, and sold office buildings and the North American investment-banking business to Barclays Plc one week later. The remnants of the Lehman brokerage operations went into liquidation on Sept. 19, 2008, in the same court, with a trustee appointed under the Securities Investor Protection Act.

For a summary of Lehman’s compromise reorganization plan, click here for the June 30 Bloomberg bankruptcy report. The hearing for approval of the disclosure statement explaining the plan will take place Aug. 30. The plan represents settlement between creditors favoring substantive consolidation and those opposed.

The Lehman holding company Chapter 11 case is In re Lehman Brothers Holdings Inc., 08-13555, while the liquidation proceeding under the Securities Investor Protection Act for the brokerage operation is Securities Investor Protection Corp. v. Lehman Brothers Inc., 08-01420, both in U.S. Bankruptcy Court, Southern District of New York (Manhattan).


Crystal Cathedral Aims to Raise $50 Million, Not Sell

The pastor of Crystal Cathedral Ministries, a mega-church in Garden Grove, California, announced from the pulpit at services yesterday that the church won’t be sold. Instead, the church said it will raise money to pay secured and unsecured creditors in full.

To raise the required funds, congregants would “combine in prayer to seek God’s blessing of a $50 million miracle,” the church said yesterday in a statement. To keep the campus in the hands of Crystal Cathedral, “God in his perfect timing will provide all funds necessary to pay every creditor in full,” according to the statement.

Although the creditors’ committee “will move on its own in the courts to initiate a sale process,” the church’s statement said the “final word on this campus and this ministry will be up to God Almighty.”

The church itself began the sale process by proposing a plan where the campus would be sold to Greenlaw Partners LLC and leased back in a $46 million transaction. Greenlaw would develop some of the property. Chapman University made a similar $46 million proposal.

Needing a larger cathedral, the Roman Catholic Diocese of Orange County, California, later made an offer to purchase the church and its property for $50 million.

In bankruptcy court today in Santa Ana, California, the creditors’ committee is scheduled to ask the judge to terminate the church’s exclusive right to propose a Chapter 11 plan.

The judge previously approved sale procedures where bids were due July 22 in advance of an Aug. 5 auction and a hearing on Aug. 9 to approve the sale.

Crystal Cathedral filed under Chapter 11 in October in Santa Ana, California, saying assets and debt both exceeded $50 million.

Robert H. Schuller retired from his role as senior pastor of Crystal Cathedral in 2006. His daughter Sheila Schuller Coleman has been senior pastor since July 2009. A court filing said contributions declined 24 percent in 2009, in part on account of “unsettled leadership.”

The case is In re Crystal Cathedral Ministries, 10-24771, U.S. Bankruptcy Court, Central District California (Santa Ana).

Paulson-Winthrop Resorts Settle with Miller Buckfire

The five resorts foreclosed in January by Paulson & Co. and Winthrop Realty Trust agreed to settle an $8 million claim by Miller Buckfire & Co., the companies’ pre-bankruptcy financial advisers and investment bankers.

Miller Buckfire, based in New York, was hired by the then- mezzanine lenders to effect a sale or restructuring of the $200 million in mezzanine debt. The firm was to receive an $8 million fee for a successful transaction within 12 months. In January, Paulson and Winthrop foreclosed the mezzanine debt and took over control.

The settlement calls for Miller Buckfire to receive an approved $4 million claim and $2 million in cash. A hearing to approve the settlement is scheduled for Aug. 17.

Paulson and Winthrop foreclosed mezzanine loans on five resorts in January and put them into Chapter 11 in February. The filing forestalled maturity of $1 billion in mortgages and $525 million in mezzanine debt.

The resort owners said earlier this year that they intend to sell the Doral Golf Resort & Spa in Miami. They would retain the Grand Wailea Resort Hotel & Spa in Hawaii; the La Quinta Resort & Club and the PGA West golf course in La Quinta, California; the Arizona Biltmore Resort & Spa in Phoenix; and the Claremont Resort & Spa in Berkeley, California. Including Doral, the resorts have 14 golf courses.

Morgan Stanley’s CNL Hotels & Resorts Inc. owned the resorts before the Jan. 28 foreclosure.

The properties listed assets of $2.2 billion and liabilities of $1.9 billion. New York-based Morgan Stanley purchased the five resorts in 2007 for $4 billion. Revenue in 2010 was $465 million.

The case is In re MSR Resort Golf Course LLC, 11-10372, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Fox Sports Objecting to Blackstone Work for Dodgers

Fox Entertainment Group Inc., through one of its subsidiaries, filed what it called a limited objection to the application by the Los Angeles Dodgers baseball club to hire Blackstone Advisory Services LP as the team’s investment bankers and financial advisers.

Fox currently has the right to broadcast Dodgers games. The network objected to the portion of the team’s application that would allow Blackstone to work on a transaction involving broadcast rights.

Fox contends that the retention would violate a portion of its existing television agreement that gives it exclusive bargaining rights at this time.

Fox filed the objection even though the team’s current expressed intention is to restructure in bankruptcy by implementing an agreement negotiated with the subsidiary of News Corp. before the Chapter 11 filing. The dispute comes to bankruptcy court for resolution on Aug. 16.

In a written opinion on July 22, the bankruptcy judge in Delaware refused to allow the Dodgers to take a $150 million secured loan from Highbridge Principal Strategies LLC, an affiliate of JPMorgan Chase & Co. Instead, the judge in substance directed the team to take the same amount in an unsecured loan from MLB. For details on the court’s ruling, click here for the July 25 Bloomberg bankruptcy report.

The Dodgers began bankruptcy reorganization on June 27, listing assets as being worth more than $500 million with debt less than $500 million. The team at the time said it intended to solve financial problems by selling Fox a 17-year extension on exclusive cable-TV rights under the current arrangement that runs through the 2013 season.

For a summary of the financial problems and the team’s plans to finance reorganization by borrowing $385 million from Fox as part of the long-term TV-rights deal, click here for the June 28 Bloomberg bankruptcy report.

The case is In re Los Angeles Dodgers LLC, 11-12010, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Peter Nero Aims to Investigate Annenberg Foundation

Peter Nero, the conductor of the Philly Pops, filed papers asking the bankruptcy court to compel the Annenberg Foundation to turn over documents relating to a $50 million gift the foundation made to the Philadelphia Orchestra in 2003.

Nero filed his motion in response to the orchestra’s statements that it intends to reject the agreement to produce the Philly Pops concerts, where Nero is director. Nero is the founder, music director and conductor of the Pops, his court papers say. The orchestra says it has been losing money producing the Pops.

Nero’s court filing says “it is believed” that producing the Pops concerts is required by the foundation’s gift. Nero wants the bankruptcy judge in Philadelphia to require the foundation to turn over a broad list of documents regarding its relationship with the orchestra.

Nero wants a “share of” the orchestra’s endowment to support the Pops if they’re no longer produced by the orchestra, according to the papers. No hearing date has been set as yet on Nero’s document request. The foundation has until Aug. 12 to object.

From the outset, the orchestra said it needs relief from pension obligations, a new lease with the Kimmel Center where it performs, and a new union contract with musicians.

The orchestra’s Chapter 11 petition in April said assets and debt were both less than $50 million.

The case is In re The Philadelphia Orchestra Association, 11-13098, U.S. Bankruptcy Court, Eastern District of Pennsylvania (Philadelphia).

Retailer No Fear Retail Continuing Under New Name

Employees of retailer No Fear Retail Stores Inc. escaped the loss of their jobs when a going-concern buyer beat out liquidators at auction.

Ryderz Compound Inc. bought the inventory and store operations under a contract valued at $3.08 million. The sale was completed last week, court papers said. In bidding against the liquidators, the company and the creditors’ committee gave Ryderz value for saving jobs.

In a separate auction, the trademarks and intellectual property were purchased under a contract with Brands Holdings Ltd. valued at $11.1 million. The sale to Brands was completed June 25. As the so-called stalking-horse bidder, Brands opened the auction with a bid of $6.25 million.

No Fear, based in Carlsbad, California, decided to sell the business quickly because “sales results have been lower than projected.”

The closely held retailer entered Chapter 11 in February with 41 stores in seven southwestern states, including 60 percent in California. It sold what it called “action wear” to teenagers and young adults, with an emphasis on “blue collar” males. The brands include No Fear and So Cal.

No Fear filed lists showing assets of $25.5 million and debt totaling $12.5 million, including $1.2 million in secured claims.

The case is In re No Fear Retail Stores Inc., 11-02896, U.S. Bankruptcy Court, Southern District of California (San Diego).

Spiegel Catalogue Aims to Restore Google Web Links

Before the owner of the Spiegel catalogue filed for bankruptcy reorganization, it had an agreement with Google Inc. where the company’s advertisements would appear adjacent to search results when a Google user made a search using specified words.

When the Chapter 11 door slammed, Google was left unpaid to the tune of about $890,000 and catalogue’s advertisements ceased to appear. The catalogue told the court in a filing there was a “dramatic negative impact” on the business.

The catalogue owner will hold a hearing in bankruptcy court on Aug. 3 for permission to pay the pre-bankruptcy debt owing to Google so the links to advertisements will reappear.

The Internet this year is generating 75 percent of the catalogue’s business, the court filing said.

The bankruptcy court authorized a Sept. 1 auction to learn whether the best offer for the business is from a fund associated with Patriarch Partners LLC, the owner and lender through affiliated funds. The purchase contract with Patriarch was negotiated before the Chapter 11 filing June 6. The buyer will assume specified debt, including $30 million on a term loan and revolving credit. The buyer will also honor some customer obligations.

New York-based Signature Styles LLC, the owner of the Spiegel catalogue, listed assets of $48.6 million and debt of $87.6 million. It purchased the Spiegel business for $21.7 million at a foreclosure sale in June 2009. Net sales of $119.9 million in 2010 resulted in a $25.6 million operating loss and a $31.1 million net loss. Debt includes $37.2 million owing on a secured term loan and revolving credit. Other debt includes $9.8 million owing to trade suppliers and $23.2 million in customer obligations.

The company’s other businesses include Newport News and Shape Fx. Spiegel produces 75 percent of revenue, a court filing said.

The case is In re Signature Styles LLC, 11-11733, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Corus Bank Holding Company Has September Confirmation

Corus Bankshares Inc., a holding company whose bank subsidiary was taken over by regulators in September 2009, returns to bankruptcy court on Sept. 27 for a confirmation hearing to approve the Chapter 11 plan. Last week, the bankruptcy court in Chicago approved the disclosure statement giving creditors the information they need in deciding how to vote on the plan.

The plan puts the Federal Deposit Insurance Corp. into two classes, one for a priority claim and another for its non- priority unsecured claim. Eventually, Corus doesn’t believe the FDIC will have any valid priority claim to be paid in full ahead of unsecured creditors. For the unsecured claim that could be as much as $183.4 million, the disclosure statement says the FDIC will recover between 6.2 percent and 53.3 percent.

Holders of trust preferred securities, known as TOPrS, are to have a similar recovery for their $415.6 million in claims. General unsecured creditors with claims totaling between $10 million and $21 million are to have an identical dividend.

Subordinated creditors and shareholders aren’t to receive anything.

The FDIC and Corus are in litigation over who owns $258 million in tax refunds.

Corus’ Chapter 11 petition filed in Chicago in June 2010 listed assets of $314.1 million against debt totaling $532.9 million.

The Corus bank had 80 branches and $7 billion in deposits that were transferred to MB Financial Inc. in a transaction estimated at the time of the takeover to cost the FDIC $1.7 billion.

The case is In re Corus Bankshares Inc., 10-26881, U.S. Bankruptcy Court, Northern District Illinois (Chicago).

Perkins Restaurants Run $6.15 Million Month Net Loss

Restaurant operator Perkins & Marie Callender’s Inc. filed an operating report covering the period from the beginning of the Chapter 11 case on June 13 through July 10.

The Perkins stores reported a $6.15 million net loss on total revenue of $21.11 million. The Callender’s retail operation had a $25,000 net profit on total revenue of $6.21 million.

The company has a Chapter 11 plan on file giving stock to general unsecured creditors and to holders of senior unsecured notes. The plan is designed for funds managed by Wayzata Investment Partners LLC to take control of the company when the plan is confirmed. For details on the plan, click here for the July 18 Bloomberg bankruptcy report.

Court papers said assets are $290 million while debt aggregates $440.8 million. When the bankruptcy began, the company owned 85 Marie Callender’s stores in 9 states and franchised 37 in four states. It owned 160 Perkins stores in 13 states and franchised 314 in 31 states. Along with the filing, the company said it was closing 58 stores. It was acquired in 2005 by Castle Harlan Inc. for $245 million cash.

The case is In re Perkins & Marie Callender’s Inc., 11- 11795, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Palm Harbor Homes Expects to File Plan this Week

Palm Harbor Homes Inc. sold the assets to Fleetwood Enterprises Inc. in April for $83.9 million and said in court papers that it expects to file a Chapter 11 plan this week.

Since the time was coming for filing another motion to extend exclusive rights on plan filing and vote solicitation, Palm Harbor is asking the bankruptcy court to extend exclusive filing rights only until Aug. 8. It wants the exclusive right to solicit acceptances extended to Nov. 16.

Palm Harbor says it will file the plan hand-in-hand with the creditors’ committee. Terms of the plan weren’t spelled out in the so-called exclusivity motion.

The hearing on the exclusivity motion is set for Aug. 16.

Palm Harbor filed under Chapter 11 in November. The petition said assets were $321 million with debt totaling $280 million. In addition to $34 million owing to Textron Financial Corp., there was $53.8 million owing on 3.25 percent convertible senior notes due 2024.

The case is In re Palm Harbor Homes Inc., 10-13850, U.S. Bankruptcy Court, District of Delaware.

Retailer Metropark’s Trademark Fetches $175,000

Metropark USA Inc., a liquidated retailer that catered to consumers between ages 25 and 35, didn’t receive any bids to compete with the $175,000 offer from Strato Trading Group Inc. to buy the trademark and trade names. The auction was canceled.

Metropark, which has headquarters in Los Angeles, had 69 stores in 21 states. The petition listed assets of $28.9 million and debt of $28.7 million. Liabilities included $255,000 on a first-lien financing and $825,000 on second-lien debt owing to Bricoleur Capital Partners LP.

The case is In re Metropark USA Inc., 11-22866, U.S. Bankruptcy Court, Southern District New York (White Plains).


American Reprographics Demoted on Commercial Building

American Reprographics Co., a provider of reproduction and document management services for the construction, architectural and engineering industries, was dealt a one-notch downgrade of its corporate rating last week by Standard & Poor’s.

The corporate rating is now B+, as is the grade for the $200 million in 10.5 percent unsecured notes.

S&P said its action was partly based on the company’s “dependence on the nonresidential construction industry” and “high geographic concentration in California.”

Referring to commercial construction, S&P said there is “little visibility regarding the timeframe for a recovery in this sector.” S&P currently is predicting a 1 percent decline in non-residential construction this year followed by an additional 3 percent drop in 2012.

S&P predicted that senior noteholders would recover up to 50 percent if there were a payment default.

Stock of the Walnut Creek, California-based company closed on July 29 at $6.83, down 25 cents a share in New York Stock Exchange Trading. The three-year high was $19.38 on Sept. 19, 2008. The low in the period was $2.81 on March 11, 2009.

Bank Failures

Three Bank Failures Bring Year’s Total to 61

Three bank failures on July 29 in South Carolina, Indiana and Virginia will cost the Federal Deposit Insurance Corp. $253.4 million. For Bloomberg coverage, click here.

There have been 61 bank failures so far this year, compared with 157 last year. The failures in 2010 were the most since 1992, when 179 institutions were taken over by regulators.

Daily Podcast

Lehman, L.A. Dodgers, Madoff, Ambac, Vitro: Bankruptcy Audio

The new Bloomberg bankruptcy podcast explains how the list of lenders that refused to finance the Los Angeles Dodgers reads like Who’s Who on Wall Street. Bloomberg Law’s Lee Pacchia and Bloomberg News bankruptcy columnist Bill Rochelle explain how the reorganization of Lehman Brothers Holdings Inc. sometimes looks more like a hedge fund than an estate in bankruptcy. Rochelle reflects on the multi-billion-dollar lawsuits by the trustee for Bernard L. Madoff Investment Securities Inc. If banks and customers succeed in the next three months with their pending motions to dismiss the suits, the results will cast doubt about the trustee’s stewardship of the case. Rochelle explains how Ambac Financial Group Inc. backed off from the drop-dead date it gave to the Wisconsin insurance commissioner. He then looks at a seemingly innocuous ruling by the bankruptcy judge and explains why it may give leverage to the holders of defaulted bonds issued by Mexican glassmaker Vitro SAB. To listen, click here and here.

Advance Sheets

2nd Circuit’s Enron Ruling Forces Peck to Dismiss Suit

U.S. Bankruptcy Judge James Peck ruled last week that he was forced by a June decision from the U.S. Court of Appeals in New York to immunize a $376 million redemption of privately- placed notes from preference attack.

Peck said that dismissing the preference suit without trial was required by 2nd Circuit’s June 28 opinion in Enron Creditors’ Recovery Trust v. Alfa SAB.

Two of the three appellate judges in the Enron case ruled that the plain language of the so-called safe harbor in Section 546(e) of the Bankruptcy Code required dismissing a suit to recover payments on the early redemption of debt so long as there was a financial institution involved as the payment intermediary. U.S. District Judge John G. Koeltl, sitting by designation on the circuit court, dissented from the Enron decision.

The losing side in Enron filed a petition for rehearing before all the active judges on the 2nd Circuit. The so-called motion for rehearing en banc was filed July 12.

Peck said that the case he decided on July 27 was an example of the broad effect Koeltl predicted from the Enron opinion. Peck said he was forced to dismiss even though the case involved “behavior that the law generally would seek to discourage.” He characterized the behavior immunized in his ruling as “ganging up on a vulnerable borrower to obtain clearly preferential treatment in the months leading up to a bankruptcy.”

Peck said that he was forced to dismiss the suit “regardless of any systemic significance.” He also said the Enron ruling meant it was no longer relevant to have expert testimony about what is or isn’t a “settlement payment within the private placement sector of the securities industry” or to decide if the payment was a redemption rather than a repurchase.

For a discussion of Enron, click here for the June 30 Bloomberg bankruptcy report.

Peck’s opinion is Official Committee of Unsecured Creditors of Quebecor World (USA) Inc. v. American United Life Insurance Co. (In re Quebecor World (USA) Inc.), 08-01417, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

7th Circuit Says Stern May Affect Circuit Split Issue

When the same facts were fully litigated during a bankruptcy case, a creditor was barred by the doctrine of collateral from filing a later lawsuit against other creditors in the bankruptcy based on the Racketeer Influenced and Corrupt Organizations Act, commonly known as RICO.

Without resolving the question, last week’s ruling from the federal appeals court in Chicago mentions that a recent bankruptcy ruling from the Supreme Court will complicate the resolution of a split of circuits on a related res judicata question.

Collateral estoppel is a rule that bars litigating the same issue a second time. As explained in a July 28 opinion by the U.S. Court of Appeals in Chicago, issues cannot be litigated a second time if they were the same as in the prior proceeding, the issue was actually litigated, the issue was essential to the final judgment in the prior litigation, and the party against which the issue is asserted was “fully represented in the prior action.”

During the bankruptcy, the creditor alleged there was fraud involving the secured lender and an insider that purchased the assets. The bankruptcy court’s finding of no fraud was upheld on appeal.

After bankruptcy, the creditor filed a RICO suit against the lender and the insider-buyer. The 7th Circuit in Chicago upheld dismissal of the suit based on collateral estoppel. The appeals court said it didn’t matter that the RICO suit involved some facts occurring after bankruptcy.

While the ruling on collateral estoppel is unremarkable, the case is most notable for its discussion of how the Supreme Court’s June decision in Stern v. Marshall may have a role to play on the split of circuits on a related res judicata issue.

The 7th Circuit is the only appeals court to hold that a “core” ruling in a prior suit isn’t res judicata in a later suit where the bankruptcy jurisdiction is “non-core.” All other circuits hold that res judicata applies regardless of the core or non-core distinction.

In last week’s opinion, Circuit Judge Diane S. Sykes declined to rule on whether Stern implies how the circuit split should be resolved. Stern “suggests that resolving the conflict may be a bit more complicated than the caselaw presently admits,” she said.

For a discussion of the Stern decision, click here for the June 24 Bloomberg bankruptcy report.

The case is Matrix IV Inc. v. American national Bank & Trust Co. of Chicago, 08-3917, U.S. 7th Circuit Court of Appeals (Chicago).

--With assistance from Dakin Campbell in San Francisco; and Dawn McCarty and Michael Bathon in Wilmington, Delaware. Editors: Mary Romano, Michael Hytha

To contact the reporter on this story: Bill Rochelle in New York at

To contact the editor responsible for this story: John Pickering at

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