Innkeepers, Capmark, Vallejo, Inner City Media: Bankruptcy
August 23, 2011, 8:50 AM EDTBy Michael Bathon
(This report contains items about companies both in bankruptcy and not in bankruptcy. Updates with Innkeepers comment in first item; Andronico’s Market in New Filings; ShengdaTech and Lehman in Updates.)
Aug. 23 (Bloomberg) -- Cerberus Capital Management LP and Chatham Lodging Trust terminated their agreement to buy 64 hotels from Innkeepers USA Trust for $1.1 billion, citing a possible adverse change in the business.
The firms agreed to the transaction in June as part of Innkeepers’ bankruptcy reorganization. At an auction in May, they placed the winning bid for the largest group of Innkeepers hotels, topping an offer from a unit of Lehman Brothers Holdings Inc. and Five Mile Capital Partners LLC.
The reneging buyers cited a possible adverse change in Innkeepers’ business as the reason for backing out of the June transaction, in a statement yesterday. The sale was a key element in the lodging company’s plan to exit bankruptcy.
“Throughout our restructuring process, Innkeepers has maintained normal business operations at all of its properties,” Marc A. Beilinson, Innkeepers’ chief restructuring officer, said in a statement. “Cerberus/Chatham cannot dispute this fact and cannot support any argument that recent volatility in the global markets has negatively impacted the 64 hotels.”
Cerberus, the New York-based buyout firm, and Chatham, a publicly traded hotel investor in Palm Beach, Florida, didn’t specify what triggered the decision to invoke what is known as a material adverse effect clause.
The clause allowed them to back out of the deal in the occurrence of a “condition, change or development that could reasonably be expected to have a material adverse effect” on conditions including Innkeepers’ business and financial position, according to the statement.
Innkeepers said the companies acted “inappropriately,” and it will evaluate “all legal and equitable remedies.”
The collapse of the sale to Cerberus and Chatham disrupts Innkeepers’ exit from Chapter 11 after a judge previously signed off on a plan that has approval of the Palm Beach-based company’s creditors. Officials for Cerberus didn’t respond to phone calls or e-mails seeking comment.
“Chatham looks at this development as transaction specific not as a reflection of the hotel industry environment,” said Michael Kontos, a spokesman for the company.
Innkeepers owns 71 hotels in 20 U.S. states and the District of Columbia, including Residence Inns by Marriott and Hampton Inns, according to a July 19 statement. On July 14, Chatham completed the acquisition of five hotels comprising 764 rooms from Innkeepers for $195 million in cash, a deal that isn’t affected by today’s decision.
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Other Updates
Capmark’s $4 Billion Reorganization Plan Wins Court Approval
Capmark Financial Group Inc., the commercial lender once a part of General Motors Corp., won court approval to exit bankruptcy by giving creditors cash, stock and new debt worth a total of almost $4 billion.
U.S. Bankruptcy Judge Kevin Gross said he would sign an order approving the plan this week after minor wording changes are made to the documents.
After almost two years in bankruptcy, the company will reorganize around its Utah-based bank and will be owned by creditors, including unsecured noteholders and lenders. Those creditors voted overwhelmingly in favor of the plan.
Under the plan, creditors will split $900 million in cash, new debt securities of $1.25 billion and stock in the reorganized company, estimated to be worth about $1.83 billion. The company may implement the plan, and pay the creditors, by Sept. 30, said a Capmark attorney.
Capmark, based in Horsham, Pennsylvania, became partly owned by affiliates of New York-based Goldman Sachs Group Inc. when the bank and a group of investors bought 78 percent of Capmark, then called GMAC Commercial Mortgage, in 2006 for $1.5 billion in cash and the repayment of $7.3 billion of debt.
While in bankruptcy, Capmark sold its loan-servicing unit to Warren Buffett’s Berkshire Hathaway Inc. and Leucadia National Corp. in a deal valued at $468 million.
The creditors committee also battled with Goldman Sachs over how to handle so-called insider preference claims -- lawsuits sometimes brought against company insiders, including equity holders, accused of wrongly taking money from the company in the months before the bankruptcy filing.
The right to file any insider claims passes to the new company, under the plan.
“It was clear that it was an extremely intricate case,” said Gross, who presided over the hearing because U.S. Bankruptcy Judge Christopher Sontchi wasn’t available.
The case is In re Capmark Financial Group Inc., 09-13684, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Peter Madoff’s Aston Martin Sells at Auction for $247,500
An Aston Martin previously owned by Peter Madoff, brother of Bernard L. Madoff, sold at auction for $247,500 in Monterey, California, according to RM Auctions.
The 1958 Aston Martin MK III Drophead Coupe was sold Aug. 19, Amy Christie, a spokeswoman for the auction house, said in an e-mail. An online sale catalog valued the car at $200,000 to $250,000.
The proceeds will go to investors who lost as much as $19 billion in his brother’s Ponzi scheme, according to Irving Picard, the trustee liquidating Bernard Madoff’s firm in New York. Madoff’s U.K. firm bought the car for Peter Madoff in 2008 for $267,000 and wasn’t reimbursed for the expense, Picard said in a court filing.
The car, with a carriage green finish and tan upholstery and showing about 30,400 miles, is one of 84 Drophead Coupes built and has a “well-maintained older restoration,” according to the catalog. It had servicing and “paintwork” in 2008 from Aston Workshop in the U.K. at a recorded 30,184 miles, RM said. The restoration has held up and the car performed well on a recent road test, it said in the catalog.
Peter Madoff, sued by U.K. liquidators in 2009 for allegedly enriching himself unjustly by taking the Aston Martin, transferred ownership of the car to Picard on May 4, the trustee said in a filing. It is being auctioned with agreement from the U.K. liquidators, Picard said.
Peter Madoff was chief compliance officer at Bernard L. Madoff Investment Securities LLC. He was among those to whom Bernard Madoff confessed shortly before his arrest, according to Ira Sorkin, a lawyer for Bernard Madoff. Peter Madoff also co- signed Bernard Madoff’s $10 million bond following the money manager’s arrest.
The $247,500 sales price includes the buyer’s premium, Christie said in the e-mail.
The main case is Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities LLC, 08-ap-1789, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
Vallejo Citizens Still Feeling Shockwaves From Bankruptcy
While Vallejo, California, located 24 miles (39 kilometers) north of San Francisco, emerged from court protection on Aug. 5, the city’s citizens are still feeling the ripple effects caused by its trip through bankruptcy.
“I see prostitutes, pimps and drug dealers out my front window,” resident Ruth Rooney, who moved to the city in 2005, said in a telephone interview with Bloomberg’s Alison Vekshin on Aug. 5. “There’s two on the corner right now.” Her property value has dropped 70 percent in six years, she said.
Vallejo, a onetime U.S. Navy town of about 120,000 on San Francisco Bay, sought protection from creditors in May 2008 after the recession eroded tax revenue and unions rejected wage cuts.
Prostitution became a growth industry in Vallejo as the city slashed its payroll, cutting police by a third, to 90 from 134. The largest municipal bankruptcy in California since Orange County’s in 1994 has forced law enforcement to focus on violent crime at the cost of so-called quality-of-life issues, residents and officials said.
“When you have half the number of people, you can only do half the amount of work,” Robert Nichelini, Vallejo’s police chief, said in an Aug. 15 telephone interview. “Where it’s taken a toll is the lower-priority crimes, which have had to take a back seat.”
Interim Fire Chief Paige Meyer said his department employs 67, down from 122 in May 2008. Three of eight stations were closed about the time the city filed for bankruptcy.
The sharp reduction in city services has prompted residents to fill the void, particularly in law enforcement.
Vallejo has 302 neighborhood-watch associations with 2,552 members, up from 10 groups with 60 people in 2009, said Tony Pearsall, executive director of the Fighting Back Partnership, a Vallejo-based nonprofit social-services group.
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ShengdaTech Board Sues CEO in Chinese Reverse Merger Case
Board members of ShengdaTech Inc., a Chinese company that gained access to U.S. investors through a reverse merger, sued the chief executive officer of the bankrupt chemical maker, claiming he’s obstructing an internal fraud investigation.
A special committee of ShengdaTech sued Chen Xiangzhi to prevent him from regaining control of the company, ending a probe of its finances and ousting a newly appointed chief restructuring officer.
Reorganizing ShengdaTech requires “the continued existence of the special committee and the CRO, and the preservation of their independent powers,” the board members said in court papers filed Aug. 20 in U.S. Bankruptcy Court in Reno, Nevada.
The company listed $295.4 million in assets and $180.9 million in debt as of last Sept. 30 in court papers the special committee filed Aug. 19.
ShengdaTech makes nano precipitated calcium carbonate, or NPCC, a chemical additive used in automotive and polyvinyl chloride products. ShengdaTech is the only supplier of NPCC products to the tire industry in China, according to the company’s website.
The company was organized by a so-called reverse merger in 2006, when Chen’s Faith Bloom Limited acquired a U.S. company incorporated in Nevada named Zeolite Exploration Co.
In a reverse merger, a company not listed in the U.S. buys an American public shell corporation, allowing the new entity to avoid the scrutiny of an initial public offering.
The case is In re ShengdaTech Inc., 11-52649, U.S. Bankruptcy Court, District of Nevada (Reno).
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Canary Wharf Agrees Not to Vote Against Lehman Liquidation Plan
Canary Wharf Group Plc, saying it won’t vote against Lehman Brothers Holdings Inc.’s amended liquidation plan, agreed to reduce its claims against the collapsed bank to $780 million from $4.5 billion.
Under an agreement with the London real estate developer, Lehman will reserve against payment an amount equal to what would have been provided had the debt been classified as senior unsecured claims in the amended plan, according to a filing yesterday in U.S. Bankruptcy Court in Manhattan.
Lehman had earlier disputed Canary Wharf’s $4.5 billion in claims, filed in September 2009, according to the filing. The agreement is subject to bankruptcy court approval.
Lehman, Canary Wharf Group’s largest tenant, occupied more than 1 million square feet (93,000 square meters) of office space at London’s 20-25 Bank Street in 2003 on a 30-year lease. Canary Wharf filed three claims in 2009, including a $4.3 billion claim in rent and charges for units on Heron Quays. The Heron Quays claim was reduced to $770 million, according to the filing.
Lehman filed an amended payout plan on July 1 that allots more money to a group including Goldman Sachs Group Inc. and less to bondholders including Paulson & Co. Creditors holding more than $100 billion in claims support the plan, Lehman said.
The case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
New Filings
Radio Station Owner Inner City Media Targeted for Bankruptcy
Creditors of Inner City Media Corp., the holding company for the owner of New York’s WLIB and WBLS radio stations, filed an involuntary Chapter 11 bankruptcy petition.
The creditors, a group of senior secured lenders including Yucaipa Cos. funds, listed about $254 million in debt in an Aug. 19 filing in U.S. Bankruptcy Court in Manhattan. The Yucaipa affiliates are owed a bulk of the debt, holding about $155.2 million.
“The alleged debtors have been mismanaged and the value of the senior lenders’ collateral has steadily decreased to the point where they are now substantially undersecured,” the creditors said in court papers. The involuntary filing was “the only means to break the apparent impasse caused by the entrenched equity holders who have disregarded their fiduciary duties as directors and officers” of the company, they added.
The creditors claim the company’s chairman, Pierre Sutton, scuttled a restructuring proposal they negotiated with the company’s board which would have been implemented through a consensual Chapter 11 bankruptcy filing. Sutton removed the incumbent board and replaced them in an effort to gain leverage, according to court documents.
The lenders’ proposed reorganization plan would have left unsecured creditors unaffected and paid equity holders about $1.2 million and 2 percent of the equity with warrants to buy more.
The creditors will seek court permission to file their own reorganization plan for the radio owner, lawyers said in court papers.
Inner City Media, through Inner City Broadcasting, owns urban-formatted radio stations in New York, California, South Carolina and Mississippi.
The case is In re Inner City Media Corp., 11-13967, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
Andronico’s Market Files for Bankruptcy, Will Sell Assets
Andronico’s Market Inc., the 82-year-old California supermarket chain, sought bankruptcy protection from creditors and will sell the company to private equity investor Renovo Capital.
The company, based in San Francisco, California listed as much as $50 million in both debt and assets in Chapter 11 documents filed yesterday in U.S. Bankruptcy Court in Oakland, California.
Andronico’s, founded in 1929 by Greek immigrant Frank Andronico, has struggled after the grocer took on a significant amount of debt in a bid to expand its operations, according to a company statement issued yesterday. The expansion campaign failed due to the slumping economy, forcing it to close some stores.
“This is a bittersweet moment in our history,” said Bill Andronico, Andronico’s CEO and a member of the third generation of the family that owns the markets, in the statement. “We have struggled mightily to keep going, but the combination of the economic downturn and a broken balance sheet was too heavy a burden. The good news is that this deal preserves our markets and keeps our employees working.”
Renovo Capital, which will buy the company for an undisclosed amount, will also provide a loan to help fund Andronico’s operations while in bankruptcy.
The company has about 400 workers at seven supermarkets. Four stores are located in Berkeley and the other three markets in San Francisco, Los Altos and San Anselmo, California.
The case is: In re Andronico’s Market Inc., 11-48963, U.S. Bankruptcy Court, Northern District of California (Oakland).
Watch List
Alabama Local Borrowers Punished as Jefferson Faces Bankruptcy
Local governments in Alabama, where thousands of highways and bridges are overdue for repairs, face higher borrowing costs for public projects as Jefferson County debates filing the nation’s biggest municipal bankruptcy.
A town that wants to borrow for road improvements or building renovations will pay about 0.2 percentage point more than one with the same credit rating in another state, even if the debt has nothing to do with Jefferson County, said Jonathan Nordstrom, a managing director at Morgan Keegan & Co., which he said is the top Alabama underwriter. If the issuer is in Jefferson County, it might be stuck with 0.8 percentage point more in regular interest rates, he said.
“In the municipal marketplace, people see the initials AL for Alabama by it and they say, ‘I need higher yield,’” said Tom Dalpiaz, who oversees $280 million in municipal bonds as senior vice president at Monument, Colorado-based Advisors Asset Management Inc. “If bond market participants don’t see the state stepping in to help Jefferson County in some way, the reasoning becomes, ‘If other entities in the state come into trouble, maybe the state isn’t going to help them either.’”
That means that residents of the state, which the U.S. Census Bureau ranks 47th in median household income, have comparatively less access to capital to improve infrastructure, schools and public institutions.
Jefferson County, home to Birmingham and more than 658,000 people, has spent three years dealing with the collapse of a sewer-bond refinancing. The county was poised last week to file the largest municipal bankruptcy in U.S. history, and delayed the decision to try again to settle with creditors including JPMorgan Chase & Co.
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Separately, Jefferson County Commission President David Carrington said yesterday they won’t agree to a debt restructuring deal that rules out the possibility of filing for bankruptcy protection.
Carrington, who is traveling to New York this week to speak with creditors in a failed $3.14 billion sewer bond refinancing, wants the option open because the county hasn’t shored up its general fund after a court struck down a wage tax.
“If a condition is we agree to not file Chapter 9, that’s a nonstarter,” Carrington told reporters yesterday in his Birmingham office.
The county rejected an offer Aug. 12 that would have reduced debt to $2.33 billion and required Alabama Governor Robert Bentley to give his permission before the county could file for bankruptcy. It has until Sept. 16 to negotiate another offer. The county has proposed debt be reduced by another $140 million, Carrington said.
A deal would probably need the approval of Alabama’s Legislature. Under the creditors’ proposed agreement, the debt would come with a “moral obligation” backing from the state, requiring lawmakers’ approval and estimated to be worth more than $1 billion in reduced interest rates.
--With assistance from Cristina Alesci, Sarah Frier and Linda Sandler in New York; Steven Church in Wilmington, Delaware; Jacob Greber in Sydney; Alison Vekshin and Karen Gullo in San Francisco; Edvard Pettersson in Los Angeles; and Kathleen Edwards in Birmingham, Alabama. Editors: Mary Romano, Andrew Dunn
To contact the reporters on this story: Michael Bathon in Wilmington, Delaware, at mbathon@bloomberg.net.
To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net
