Bloomberg News

Lehman, Barzel, Harry & David, Hooters Casino: Bankruptcy

August 12, 2011

(This report contains items about companies both in bankruptcy and not in bankruptcy. Updates with Reed/Innocent Trustee decision in Advance Sheets.)

Aug. 12 (Bloomberg) -- Lehman Brothers Holdings Inc. creditors don’t have the information they need to evaluate the failed investment bank’s plan to liquidate and pay creditors, a German bank group said.

The plan shouldn’t move forward because Lehman hasn’t provided details about its risks, litigation over claims and other matters, the Association of German Banks said in a filing yesterday in U.S. Bankruptcy Court in New York.

Lehman “fails to apprise creditors of the substantial risks underlying the debtors’ plan and arm creditors with information necessary to assess those risks,” said the group, the national association of German private-sector banks.

Lehman, which filed for bankruptcy almost three years ago, is scheduled to ask a U.S. bankruptcy judge on Aug. 30 to approve a description of the proposal for creditors, who would then vote on the plan.

Wilmington Trust Co. also filed an objection yesterday to the plan description, saying it contains “confusing and inadequate disclosure” about certain securities.

Kimberly Macleod, a Lehman spokeswoman, declined to comment on the objections.

The case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

New Filing

MRA Pelican Pointe Apartments Files Bankruptcy in Florida

MRA Pelican Pointe Apartments LLC filed for Chapter 11 bankruptcy protection Aug. 10, declaring assets and liabilities of as much as $50 million each.

MRA, based in Pompano Beach, Florida, is also known as Whispering Isles Apartments, according to papers filed in U.S. Bankruptcy Court in Fort Lauderdale, Florida. Fannie Mae was listed as the largest unsecured creditor, with a claim of $12 million.

The case is In re MRA Pelican Pointe Apartments, LLC, 11- br-32457, U.S. Bankruptcy Court, Southern District of Florida (Fort Lauderdale).

Other Updates

Hooters Casino Hotel Given Permission to Honor Casino Chips

155 East Tropicana LLC, popularly known as the Hooters Casino Hotel, was given permission to honor casino chips and other gaming liabilities by the U.S. Bankruptcy Court in Las Vegas.

The chips, wagers, deposits, customer promotions and other obligations are necessary to preserve the company’s operations and “avoid immediate and irreparable harm,” according to the judge’s order.

When it filed for bankruptcy, the casino said it was a victim of the recession and the ensuing decline in consumer spending. Revenue fell to $43.6 million in 2010 from $66.5 million 2007. Last year, there was a $59.3 million loss from operations and a $73 million net loss.

The business would be profitable without “substantial debt payments,” the casino said. With a prepackaged filing not possible, the casino said it would use Chapter 11 “to properly restructure the balance sheet.” The casino began defaulting on the notes in April 2009, court papers show.

The property operates with the Hooters name under license from Hooters of America LLC.

The case is In re 155 East Tropicana LLC, 11-22216, U.S. Bankruptcy Court, District of Nevada (Las Vegas).

Barzel Seeks $18.6 Million in Tax Refunds

Barzel Industries Inc., a steel processor and manufacturer, filed a brief Aug. 5 in the bankruptcy court in Delaware presenting legal arguments to support its request for tax refunds of almost $18.6 million.

A hearing on Barzel’s right to the refunds is scheduled for Sept. 8.

The government has objected to the request, arguing that Barzel’s net operating loss for its 2009 tax year “should be reduced by operation of the corporate equity reduction transaction,” or CERT rules, Barzel stated in the memorandum filed with the court. The government’s argument, if accepted, may reduce the refund by as much as $6 million.

The CERT rules, which don’t allow the carryback of net operating losses, “have no relevance” to the refund because Barzel didn’t take into account interest expense in calculating its net operating loss carryback, the company said in the brief.

Barzel once had 15 facilities. The petition listed assets of $366 million against debt totaling $385 million, including $315 million on senior secured notes. Another $18.4 million was owing on an asset-backed loan with a first lien on accounts receivable.

The case is In Barzel Industries Inc., 09-13204, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Harry & David Wins Tentative Court Approval of Exit Plan

Harry & David Holdings Inc., the gift-box retailer that has sold fruit by mail since the 1930s, won tentative court approval of its recovery plan, enabling the company to exit bankruptcy before the holiday season.

U.S. Bankruptcy Judge Mary Walrath said yesterday in Wilmington, Delaware, that she will be “happy to sign” the final reorganization plan confirmation order. Senior noteholders will get control of the company in exchange for canceling more than $200 million in debt.

Unsecured creditors supported the plan, which will pay them a total of 10 percent of their claims in cash during a period of two to three years.

The lenders that provided $100 million in first-lien financing for the bankruptcy case will continue the loan when the company emerges from Chapter 11. Harry & David, based in Medford, Oregon, filed for bankruptcy in March, blaming competition from Internet retailers and warehouse-style stores and the recession.

The case is In re Harry & David Holdings, Inc., 11-10884, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Philly Orchestra Asks Court for More Time to File Plan

The Philadelphia Orchestra, which filed for bankruptcy April 16, asked the court to extend the time when it may be the only one to file a reorganization plan.

The orchestra, in its first request for an extension, asked to have until Nov. 12 to file a plan and until Jan. 12 to solicit support for it.

The orchestra’s “revenues and going concern value have steadily declined over the past several years like countless performing arts enterprises,” according to court papers. Since the Chapter 11 filing, the orchestra has “made significant progress in administering” the Chapter 11 case, it said. More time is needed because resolving employee benefits and union contracts will require “intense and lengthy negotiations,” the orchestra said.

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

Assets and debt were both less than $50 million, according to the Chapter 11 petition.

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

Crystal Cathedral’s Creditors File Disclosure Statement

The committee of unsecured creditors of Crystal Cathedral Ministries filed a disclosure statement explaining its liquidation plan for the California-based church.

The committee, which is reviewing the church’s books and records for fraudulent transfers, wants to sell the Crystal Cathedral Campus in Garden Grove, California, to a selected buyer, rather than at a bankruptcy auction. Other property would be liquidated, according to the disclosure statement filed in U.S. Bankruptcy Court in Santa Ana, California.

The claims of all insiders, including retired pastor Robert H. Schuller and his daughter, the senior pastor Sheila Schuller Coleman, would be subordinated to unsecured debt, under the plan to be filed by the committee. A hearing is scheduled for Sept 14 on the disclosure statement.

Earlier, the church filed a reorganization plan in which it proposed selling the Crystal Cathedral Campus to Greenlaw Acquisitions LLC or a higher bidder at a bankruptcy auction. The committee opposed the plan, saying an offer higher than Greenlaw’s already had been received.

The committee asked the court on July 5 to terminate the church’s exclusivity so it could file a competing plan. Before the motion could be heard, more offers for the property were made, the board was reconstituted and the exclusivity period expired, the committee said.

The church’s plan previously called for a $46 million sale and leaseback. The church later said it planned to hold a fundraising campaign to pay creditors in full. Crystal Cathedral filed under Chapter 11 in October, saying assets and debt both exceeded $50 million.

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

Sawgrass Marriott May Face Competing Plan From Creditor

Sawgrass Marriot Resort, the resort in Ponte Vedra, Florida, faces a challenge to its status as the lone party in the bankruptcy that may file a reorganization plan.

Creditor Marriott International Inc. on Aug. 10 asked the U.S. Bankruptcy Court in Jacksonville, Florida, to terminate the resort’s exclusivity and give the hotel franchisor permission to file its own plan.

“The bankruptcy case has gone on too long and cost too much money,” Marriott International said in a court filing.

Allowing Marriott International to sponsor a plan “will equitably fulfill the purpose behind” the right of first refusal in its franchise agreement with Sawgrass and avoid a $10 million damage claim against the resort for breaching the provision, Marriott International said in court papers.

Marriott International said in a filing that it will bring a motion to compel the resort to assume or reject the franchise agreement.

Separately, the resort yesterday obtained for the sixth time court permission to continue using cash collateral, subject to certain limitations.

Sawgrass can use the cash for a 13-week period ending Nov. 25, U.S. Bankruptcy Judge Paul M. Glenn wrote in an order. Goldman Sachs Mortgage Co., the resort’s lender, was granted “additional security interests and liens” against Sawgrass, Glenn said.

The resort filed under Chapter 11 on March 1, saying assets and debt both exceed $100 million.

The case is In re RQB Resort, LP, 10-01596, U.S. Bankruptcy Court, Middle District of Florida (Jacksonville).

Briefly Noted

Barnes Bay Development Meets with Objection to Amended Plan

The U.S. Trustee objected Aug. 10 to the second amended plan of liquidation filed June 28 by Barnes Bay Development, Ltd. The objection is scheduled for a hearing on Aug. 24.

The second amended plan contains “releases and exculpation provisions” that are “too broad in scope” and include “non- debtor third parties that are not otherwise entitled to such relief,” the trustee said in a court filing.

Barnes Bay owns Viceroy Anguilla Resort & Residences on Anguilla in the British West Indies, a luxury resort. The March 17 bankruptcy petition listed assets of $531 million and debt totaling $462 million. The 35-acre project has 166 residences with prices ranging from $600,000 to $6.5 million.

The case is In re Barnes Bay Development Ltd., 11-10792, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Downgrades

Sunoco’s Long-Term Debt Downgraded, Moody’s Says

Sunoco Inc. had its long-term debt rating downgraded to Ba1 from Baa3 by Moody’s Investors Service.

Moody’s also assigned Ba1 corporate family and probability of default ratings, the ratings company said in the statement. The ratings outlook is stable, Moody’s said.

While steps Sunoco has taken to “reposition its businesses and reduce costs” will help, “the Ba1 rating better reflects its smaller scale and reduced diversification, as well as uncertainties over its exposure to a still-sizeable refining position in the Northeast,” according to the statement.

MediMedia USA Long-Term Corporate Credit Downgraded, S&P Says

MediMedia USA Inc., the pharmaceuticals marketing-services company, had its long-term corporate credit downgraded to CCC+ from B by Standard & Poor’s.

The rating on the senior secured credit facility was also downgraded to B from BB- and the senior subordinated notes were lowered to CCC- from CCC+, S&P said.

MediMedia’s second-quarter operating performance “was much weaker that our base case assumptions due to disruptions in its pharmaceutical marketing business,” S&P said in a statement.

Advance Sheets

Blameless Trustee Not Barred by Estoppel, Appeals Court Says

The U.S. Court of Appeals in New Orleans ruled yesterday that a trustee who has done no wrong can pursue a judgment that a bankrupt person concealed during a bankruptcy case, even when the person is barred from doing so.

Most of the panel of 16 active judges on the 5th Circuit agreed with the district judge in a case reargued on May 23. A three-judge panel of the appeals court reversed the judge’s decision in September. Chief Judge Edith H. Jones wrote the earlier opinion, which 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 obtaining the judgment against the city of Arlington, Texas, for violations of the Family Medical Leave Act. He 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” so-called 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.

The en banc panel ruled differently yesterday, holding that the judgment became the property of the bankruptcy estate “the moment” that the firefighter filed his petition.

Allowing the trustee to pursue the judgment would “protect the integrity of the bankruptcy process, by adhering to basic tenets of bankruptcy law” and help preserve the estate’s assets, the court said. Judicial estoppel must be used to “deter dishonest debtors,” according to the ruling.

The result is in accord with the decisions by the seventh, 10th and 11th circuits, according to the opinion. The 5th circuit makes law binding on bankruptcy and district courts in Texas, Louisiana and Mississippi.

Three dissenting judges expressed concern over “satellite litigation” caused by the undeclared judgment and questioned the value to creditors.

The case is Reed v. City of Arlington, 08-11098, 5th U.S. Circuit Court of Appeals (New Orleans).

--With assistance from Michael Bathon and Dawn McCarty in Wilmington, Delaware, and David McLaughlin in New York. Editor: Stephen Farr

To contact the reporter on this story: Carla Main in New Jersey at Cmain2@bloomberg.net.

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net


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