(This report contains items about companies both in bankruptcy and not in bankruptcy. Adds Lehman as first item; Madoff, South Edge and Seaarland in Updates; M Waikiki in New Filing; and Reader’s Digest, Newark Group, Mueller Water and Flexera in Downgrades.)
Sept. 1 (Bloomberg) -- Lehman Brothers Holdings Inc. and its Lehman Brothers Inc. brokerage subsidiary both filed objections yesterday aimed at knocking out what they called the “significant overstatement” in $6.3 billion in claims filed by JPMorgan Chase Bank NA in both the Chapter 11 case of the Lehman holding company and in the liquidation of the brokerage subsidiary.
The dispute arises from JPMorgan’s role as triparty repo custodian during the week of Sept. 15, 2008, when the holding company filed Chapter 11 and was working out a sale of the brokerage to Barclays Plc. The claim arises from a claimed deficiency following the sale of collateral. Lehman contends JPMorgan “conducted the largest forced liquidation of customer collateral in history” without protecting the customers’ interest.
The objection, on the bankrupt court’s calendar for Oct. 19, contends that JPMorgan didn’t dispose of collateral in a commercially reasonable manner. The holding company and brokerage also argue that the bank isn’t entitled to interest. Much of the objections are redacted.
The objections describe how JPMorgan had a dispute with Barclays over the collateral liquidation. Having made a settlement and recovery from Barclays, Lehman contends JPMorgan isn’t entitled to a second recovery from the bankruptcy cases.
The Chapter 11 plan for the Lehman holding company is out for a vote by creditors. The confirmation hearing for approval of the plan is set for Dec. 6. The Lehman brokerage subsidiary is being liquidated under the Securities Investor Protection Act. It won’t have a plan.
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 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.
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).
Boston Generating’s ‘Hope Certificate’ Plan Confirmed
Power producer Boston Generating LLC has an approved liquidating Chapter 11 plan, although it only gives unsecured creditors with $820 million in claims what are known as hope certificates. The bankruptcy judge yesterday signed the formal plan confirmation order.
There were no objections to confirmation. All creditor classes entitled to vote were in favor of the plan.
BosGen sold its five Boston-area power plants in January to Constellation Energy Group Inc. From the sale and other payments, first-lien secured lenders with $1.142 billion in claims will have received a 98.4 percent recovery, according to the disclosure statement approved by the bankruptcy judge in New York in July.
Unsecured creditors’ recoveries depend on success in a lawsuit initiated by the official committee contending that a refinancing in late 2006 included fraudulent transfers that can be voided in bankruptcy. The disclosure statement says the eventual recovery by unsecured creditors is “unknown.”
Unsecured creditors have the right to opt out and pursue claims on their own. For details on the suit, click here for the Dec. 13 Bloomberg bankruptcy report.
The plan calls for substantive consolidation among the various BosGen companies. Consequently, unsecured creditors will receive the same percentage recovery, if any, without regard for the particular company that owed the debt. The bankruptcy judge said in confirming the plan that no creditor was disadvantaged by consolidation given how it would be difficult to apportion lawsuit recoveries among the BosGen companies.
In addition to the first-lien debt where an affiliate of Credit Suisse Group AG is agent, BosGen’s debt included $350 million on a second lien, a $423 million mezzanine debt liability, and less than $10 million owing to trade suppliers.
BosGen filed under Chapter 11 in August 2010.
The bankruptcy case is In re Boston Generating LLC, 10- 14419, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
Maxam Defendants Freed from Madoff Claims, Perhaps Temporarily
The trustee liquidating Bernard L. Madoff Investment Securities Inc. agreed to what may or may not be the temporary dismissal of some claims in the $100 million lawsuit he filed in December against Sandra Manzke, family members, and her Maxam Capital Management LLC. Separately, the Maxam defendants are objecting to the limited release of confidential financial information proposed by the Madoff trustee.
The Maxam defendants had the lawsuit removed to the courtroom of U.S. District Judge Jed Rakoff, the same judge who dismissed the trustee’s common-law claims in the $9 billion lawsuit against HSBC Holdings Plc.
Seeing the handwriting on the wall after the Maxam defendants filed a motion to dismiss, the Madoff trustee agreed to the dismissal of two counts in the complaint alleging constructive trust and unjust enrichment.
Although the claims are dismissed for now, the arrangement allows the trustee to reinstate the claims within six months after the HSBC ruling is set aside on appeal, if it ever is.
Maxam filed papers this week in bankruptcy court objecting to parts of procedures proposed by the trustee for dealing with the document-production nightmare created by the 900 lawsuits he filed against almost 5,000 defendants.
Maxam and two other groups of defendants object to how the arrangement would unilaterally abrogate confidentiality agreements under which they gave the trustee confidential personal financial information.
The arrangements, according to Maxam, would allow 5,000 other defendants to have access to their financial information. The issue is scheduled for hearing before the bankruptcy judge on Sept. 7. For details on the trustee’s proposal, click here for the Aug. 8 Bloomberg bankruptcy report.
The suit against Manzke alleges that she continued doing business with Madoff after she left Tremont Group Holdings, which the trustee also sued. The suit says she and other defendants were responsible for bringing $300 million into the Madoff fraud. For a summary of the grounds on which Rakoff dismissed parts of the HSBC suit, click here for the July 29 Bloomberg bankruptcy report.
The Madoff firm began liquidating in December 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 Maxam case in district court is Picard v. Maxam, 11- 03261, U.S. District Court, Southern District (Manhattan). The HSBC suit in U.S. District Court is Picard v. HSBC Bank Plc, 11- 763, U.S. District Court, Southern District of New York (Manhattan).
The liquidation in bankruptcy court in 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, Southern District of New York (Manhattan).
Los Angeles Dodgers Post $3.9 Million Net Profit in July
The Los Angeles Dodgers baseball club reported a $3.9 million consolidated net profit in July at the holding company level, on total revenue of $41.6 million. Ticket revenue at the holding company was $15.75 million, the monthly operating report revealed.
During the month, bankruptcy expenses were $2.5 million, with interest expense totaling $3 million.
For June and July together, the consolidated net loss at the holding company level was $310,000 on total revenue of $80.1 million.
The reorganization begun in late June is being financed with a $150 million unsecured loan from the Commissioner of Major League Baseball. The loan gives the Commissioner few of the controls lenders often demanded from bankrupt companies.
The Dodgers began bankruptcy reorganization on June 27, listing assets of more than $500 million and debt of less than $500 million. At the outset, the team said it intends to solve financial problems by selling Fox Entertainment Group Inc. a 17- year extension on exclusive cable television 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 television-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).
Cerberus, Chatham Face October 10 Innkeepers Trial
Innkeepers USA Trust can have a trial on Oct. 10 to decide if Cerberus Capital Management LP and Chatham Lodging Trust had the right to terminate an agreement to buy 64 hotels in a $1.12 billion acquisition. If Innkeepers can’t force the buyers to complete the sale, the Chapter 11 plan confirmed on June 29 could unravel.
The buyers terminated the contract on Aug. 19, contending there was a material adverse change in the business. Saying the business hasn’t suffered in the least, Innkeepers sued the erstwhile buyers this week in bankruptcy court. In court yesterday when the trial date was set, Cerberus’ lawyer declined to explain the nature of the adverse change. To read Bloomberg coverage of the hearing, click here.
Innkeepers won a significant concession when Cerberus agreed to extend a mid-September deadline for implementing the Chapter 11 plan. Without the concession or help from the judge, missing the deadline would have resulted in the automatic revocation of plan approval.
In the lawsuit, Innkeepers wants the bankruptcy judge to force the buyers to complete the acquisition or pay damages in excess of the $20 million deposit. The buyers argued in court yesterday that they can’t be compelled to buy and that a so- called liquidated damages clause caps their liability at $20 million even if they were wrong to walk out of the deal. For a summary of the lawsuit filed this week, click here for the Aug. 30 Bloomberg bankruptcy report.
Assuming the sale goes through, Lehman Ali Inc., a non- bankrupt subsidiary of Lehman Brothers Holdings Inc., would receive $233 million cash for its $238 million in floating-rate mortgages on 20 of the Innkeepers properties. The disclosure statement said Lehman would be paid in full.
For Midland Loan Services Inc., the servicer for $825 million of fixed-rate mortgages on 45 hotels, completing the sale and the plan would generate $725.8 million in modified mortgages and $12.8 million cash. Midland’s recovery should equal almost 88 percent, according to the disclosure statement. For details on the plan, click here for the June 24 Bloomberg bankruptcy report.
Apollo Investment Corp. acquired Palm Beach, Florida-based Innkeepers in July 2007 in a $1.35 billion transaction. It had 72 extended-stay and limited-service properties with 10,000 rooms in 20 states. The Chapter 11 petition filed in July 2010 listed assets of $1.5 billion against debt totaling $1.52 billion.
The lawsuit is Innkeepers USA Trust v. Cerberus Four Holdings LLC (In re Innkeepers USA Trust), 11-02557, U.S. Bankruptcy Court, Southern District New York (Manhattan). The Chapter 11 case is In re Innkeepers USA Trust, 10-13800, in the same court.
Raser Technologies’ Hope Certificate Plan Confirmed
Raser Technologies Inc., the owner of a 6 megawatt geothermal electric generating plant in Utah, filed under Chapter 11 at the end of April and won the signature of the bankruptcy judge on an Aug. 30 confirmation order approving the reorganization plan.
The plan gives ownership of the business to a group including Linden Advisors LP and Tenor Capital Management LP in exchange for debt they hold and $2.5 million cash.
The plan was accepted by all creditor classes entitled to vote, even though unsecured creditors receive nothing aside from interests in a litigation trust. The disclosure statement characterized the recovery as “unknown.” As a group, unsecured creditors had $65.1 million in claims.
Linden and Tenor provided financing for the Chapter 11 case and own about half the $57.2 million owing on 8 percent convertible senior unsecured notes.
In addition to the 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 Chapter 11 petition in April 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. Inc. 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).
Napa Home & Garden Price Rises 526 Percent at Bankruptcy Auction
Prices sometimes rise dramatically in a bankruptcy auction. Napa Home & Garden Inc., a home and garden supplier, is an example.
The company filed for Chapter 11 protection on July 5 in Atlanta, intending to sell the business to Teters Floral Products Inc. for $1.1 million, unless a better offer turned up at auction.
There were three bidders at the late July auction. Teters ended up the winner, although it was forced to increase the bid to $5.785 million. The sale was completed last month.
The bankruptcy judge appointed a Chapter 11 trustee at the request of the U.S. Trustee. The Justice Department’s bankruptcy watchdog said a trustee was needed to insure there was “truly a need” for a quick sale and the transaction was negotiated at arm’s length.
The bankruptcy and sale were precipitated by a recall announced in June for 460,000 bottles and jugs of pourable fuel. The Consumer Product Safety Commission said there had been 23 burn injuries.
Napa, based in Duluth, Georgia, said the recall left the company with “huge litigation expense” for personal injury and product liability claims. The business generated $10.5 million revenue in 2010 and $6.6 million over the first half of 2011.
The petition said assets were $1.3 million, with liabilities totaling $2.2 million, including $1.2 million in secured claims.
The case is In re Napa Home & Garden Inc., 11-69828, U.S. Bankruptcy Court, Northern District of Georgia (Atlanta).
Books-A-Million Approved to Take 14 Borders Leases
Book retailer Books-A-Million Inc. was authorized this week by the bankruptcy judge to purchase the leases for 14 stores being liquidated by Borders Group Inc.
Book-A-Million will pay about $935,000 for both the leases and to cure defaults on the payment of rent. The stores are in 10 states.
Borders, now conducting going-out-of-business sales over the entire chain, must turn over the stores, broom clean, between Sept. 20 and Nov. 14.
Before the GOB sales began, Books-A-Million made an offer to take over and operate 30 Borders stores as a going concern. The parties couldn’t come to terms.
Borders is attempting to sell leases for the other stores. So far, there were buyers for only eight leases for stores that must be vacated by the end of September. Another auction will be held for the remaining stores.
Borders began liquidating the store inventory in GOB sales on July 22. The creditors’ committee said before the liquidation began that Borders expected to generate $252 million to $284 million in cash from GOB sales. Borders arranged separate sales for the store leases and intellectual property.
Ann Arbor, Michigan-based Borders had 642 stores on entering bankruptcy in February and was operating 399 when the liquidation began. It listed assets of $1.28 billion and liabilities totaling $1.29 billion. Debt included $196 million on a revolving credit and $48.6 million on a term loan. Trade suppliers were owed $302 million for inventory.
The case is In re Borders Group Inc., 11-10614, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
Nebraska Book Reports $25.3 Million Loss in Quarter
Nebraska Book Co., a bookseller to college students, filed an operating report showing a $25.3 million net loss for four months ended July 31. Revenue in the period was $108.9 million. The loss would have been greater were it not for an $8.1 million tax benefit.
The loss from operations in the period was $10.6 million. Interest expense totaled $16 million while reorganization items aggregated $6.9 million.
The company scheduled an Oct. 4 confirmation hearing for approval of the reorganization plan hashed out before the Chapter 11 filing in late June. The plan will swap existing debt for new debt, cash and the new stock, after first-lien and second-lien debt is paid in full. The stock will be divided among subordinated noteholders of the operating company and holders of notes issued by the holding company. The plan was designed to remove $150 million of debt from the balance sheet. For details on the plan, click here for the July 19 Bloomberg bankruptcy report.
Based in Lincoln, Nebraska, the company sells used textbooks and operates more than 290 college bookstores. The company said $598 million in sales during fiscal 2011 resulted in a net loss of $98 million, including an $89 million writedown of intangible assets.
The case is In re Nebraska Book Co. Inc., 11-12005, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Caribe Media Seeks More Exclusivity, Reports Net Loss
Yellow pages publisher Caribe Media Inc. reported a $76,000 net loss in July, prompted the U.S. Trustee to object to the reorganization plan, and is requesting an extension until Dec. 29 of the exclusive right to propose a Chapter 11 reorganization.
The company plus affiliates filed for reorganization in early May and submitted a proposed plan on Aug. 18 where secured lenders would take ownership and receive a $55 million loan, for a projected recovery of 79 percent to 95 percent. The U.S. Trustee objected this week to the disclosure statement, saying it’s not proper to give a release to venture capital investor Welsh, Carson, Anderson & Stowe, whose funds control the equity.
The operating report showed revenue in July of $674,000 and operating income of $192,000.
The motion for more exclusivity will take place Sept. 20, the same date as the hearing for approval of the disclosure statement explaining the plan. Subordinated noteholders owed about $58.5 million are to receive noting under the plan.
Caribe Media sought relief in Chapter 11 so claims could be brought against affiliates to recover $44.2 million in dividends paid to the parent Local Insight Regatta Holdings Inc. between May 2009 and September 2010.
Local Insight is a group of publishers that filed under Chapter 11 in November. Caribe’s case was not consolidated for procedural purposes with Local Insight’s.
In addition to the $126.5 million on senior bonds, liabilities include $57 million on senior subordinate notes. Cantor Fitzgerald Securities is agent for the senior bondholders. WACS Capital Partners IV LP is holder of the subordinated notes, court papers say.
Caribe publishes yellow page directories in Puerto Rico and the Dominican Republic. It was acquired in 2006 by Local Insight, the publisher of 870 directories for 115 phone companies.
The Caribe case is In re Caribe Media Inc., 11-11387, and The Local Insight case is In re Local Insight Media Holdings Inc., 10-13677, both in U.S. Bankruptcy Court, District of Delaware (Wilmington).
Perkins & Marie Callender’s Stores Both Report Losses
Restaurant operator Perkins & Marie Callender’s Inc. filed an operating report showing a $3 million net loss for the Perkins operation for four weeks ended Aug. 7. Revenue in the period was $20.9 million.
For the Marie Callender’s stores, revenue of $5.4 million resulted in a $683,000 net loss.
The company filed a Chapter 11 plan offering stock to general unsecured creditors and to holders of senior unsecured notes. The plan is intended for funds managed by Wayzata Investment Partners LLC to take control 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).
Secured Lenders in Line to Take Deb Shops for Debt
Retailer Deb Shops Inc. said in a court filing this week that no one submitted a bid to compete with the offer from the secured lenders to buy the company. Consequently, the auction was canceled. The hearing for approval of the sale to the lenders is set for Sept. 13.
Deb filed under Chapter 11 in late June, with agreement already reached for lenders led by Ableco Finance LLC to purchase the business in 44 states in exchange for $75 million in secured debt. The lenders are also providing $21.7 million in secured financing.
When the reorganization began, Deb was operating 318 stores selling junior wear for women ages 13 to 25.
Philadelphia-based Deb said in the bankruptcy petition that assets are $124.4 million while debt totals $270.1 million. Revenue for a year ended in April was $297.2 million. First-lien debt is $117 million. The owner Lee Equity Partners has about $25 million in additional first-lien debt that can be paid only after the other first-lien lenders are paid in full.
Barclays Bank Plc is agent for second-lien lenders owed $58.6 million. There is an unsecured mezzanine loan for $28.9 million.
Lee acquired Deb in 2007 in a $259.4 million transaction. Lee, a holder of some of the secured debt, is part of the purchasing group.
The case is In re DSI Holdings Inc., 11-11941, U.S. Bankruptcy Court, District of Delaware (Wilmington).
South Edge Settlement Stays on Course, for Now
South Edge LLC, the owner of the 2,000-acre Inspirada residential development in Henderson, Nevada, avoided having one of the project’s minority owners muddy a settlement negotiated by the trustee with KB Home and other homebuilders who were some of the ultimate owners of the project.
Focus South Group LLC, a junior partner in the project, was rebuffed in court yesterday when it sought permission to sue the homebuilders that agreed to settle. The bankruptcy judge in Las Vegas said that Focus first needed to block the settlement before seeking authority sue on the claims the trustee aims to settle.
Focus South believes the settlement is inadequate. By suing, it believes enough can be collected for the project to be completed. For Bloomberg coverage of yesterday’s hearing, click here.
The settlement is with owners holding a 92 percent interest in the project. For details on the settlement to be carried out through a Chapter 11 plan, click here for the June 17 Bloomberg bankruptcy report.
KB has 49 percent of the project. Other owners joining in the settlement include Coleman Toll LP (10.5 percent), Pardee Homes Nevada Inc. (4.9 percent), and Beazer Homes USA Inc. (2.6 percent), a KB regulatory filing said. Meritage Homes, with 3.5 percent of the project, is among owners not in the settlement.
Lenders filed an involuntary bankruptcy petition against South Edge. The U.S. District Court in April upheld a decision in February by the bankrupt judge to put South Edge in bankruptcy and appoint a trustee simultaneously.
The project ultimately was to cost $1.25 billion and would have 8,500 homes. The lenders were to provide $595 million in financing. Other financing includes $102 million in public bonds for improvements.
The Chapter 11 case is In re South Edge LLC, 10-32968, U.S. Bankruptcy Court, District of Nevada (Las Vegas).
Seaarland Has $4.8 Million in Affiliate Financing
Ship owner and manager Seaarland Shipping Management arranged for $4.8 million in secured financing from a non- bankrupt affiliate. If approved by the bankruptcy judge, $2.4 million would be available on an interim basis. A hearing is set for Sept. 15.
Seaarland explained in its motion last week that it lost the ability to charter one if its vessels and earn a $700,000 profit because it didn’t have $2 million to cover fuel and other costs for the trip. The proposed lender is Futmarine BV.
The proposed loan would come ahead of existing secured creditors’ mortgages.
Amsterdam-based Seaarland filed under Chapter 11 on July 29 in New York. Secured lender Credit Agricole Corporate & Investment Bank alleged in a court filing that Seaarland is perpetrating a “sham” on the bankruptcy court in New York.
The bank, serving as agent for lenders owed $89.7 million on the security of three vessels, contended “these Dutch” ship owners “have no actual connection” with New York, where the Chapter 11 petitions were filed July 29.
Credit Agricole arrested one of the three vessels and had warrants outstanding for arrest of the other two when the bankruptcy began. Arrest in maritime law means seizing a vessel in preparation for foreclosure.
Formally named Seaarland Shipping Management BV, the company filed along with affiliates that together own six vessels. The other three are collateral for $117.7 million owing to Royal Bank of Scotland as lenders’ agent.
The petition said assets are $926 million while debt totals $926 million. Liabilities include $19 million in unsecured debt, of which $10 million is owing to trade suppliers.
The case is In re Marco Polo Seatrade BV, 11-13634, U.S. Bankruptcy Court, Southern District New York (Manhattan).
Honolulu Hotel Files to Oust Marriott from Management
M Waikiki LLC, the owner of the recently renamed Modern hotel in Honolulu, filed a bare-bones Chapter 11 petition yesterday in Hawaii to prevent Marriott International Inc. from retaking management of the property.
The Chapter 11 filing occurred on the same day when a state court granted Marriott a temporary injunction allowing it to resume management of the property. The owner purported to remove Marriott and install new management on Aug. 28. Before the management change, the 353-room hotel had been named Waikiki Edition.
The owner said in a statement yesterday that it will use Chapter 11 to “reaffirm” Marriott’s termination. The statement also said the owner will seek tens of millions of dollars in damages from Bethesda, Maryland-based Marriott.
The hotel owner filed no papers in bankruptcy court aside from the printed form petition, claiming assets and debt both exceed $100 million, plus a resolution authorizing the bankruptcy filing. There wasn’t even a list of creditors.
The case is In re M Waikiki LLC, 11-02371, U.S. Bankruptcy Court, District of Hawaii (Honolulu).
Rooftop Solar Maker Solyndra Shuts, to File Chapter 11
Solyndra LLC, a manufacturer of what it calls “innovative cylindrical solar systems for commercial rooftops,” announced yesterday that it halted production and will file for reorganization in Chapter 11.
The Fremont, California-based company said the options include selling the operation or licensing technology and manufacturing knowhow. Some 1,100 workers lost their jobs, the press release said.
Solyndra said it could not compete with the resources of larger foreign competitors. The company also cited a global glut of solar panels and price declines.
Solyndra’s Chapter 11 filing will be the third in a month by major solar cell manufacturers. Last month, two U.S. manufacturers, SpectraWatt Inc. and Evergreen Solar Inc., sought bankruptcy protection. For other Bloomberg coverage, click here.
Newly Reorganized Reader’s Digest Lowered to CCC+
Publisher and direct marketer Reader’s Digest Association, which implemented a Chapter 11 reorganization plan in February 2010, was downgraded two notches yesterday by Standard & Poor’s to a CCC+ corporate grade.
S&P based its action in part on “weak second-quarter results” and “its narrow cushion of compliance with financial covenants.” S&P predicts that “discretionary cash flow will be negative for the full year 2011 and in 2012.”
The $525 million in senior unsecured notes were lowered three clicks to CCC in view of a new $45 million secured term loan that’s higher in the capital structure. S&P predicts a recovery on the notes won’t exceed 30 percent in the event of payment default. The bonds last traded at 88.25 cents on the dollar on Aug. 23, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
Despite the reduction in debt from the bankruptcy reorganization, S&P calculates that the ratio of adjusted debt to earnings before interest, taxes, depreciation and amortization was about 5.4 times as of June 30.
For the direct-marketing business, which represents 60 percent of revenue, S&P sees “minimal growth prospects.”
The Chapter 11 plan reduced funded debt by 75 percent while providing a maximum 63 percent recovery to first-lien lenders owed $1.645 billion. They received a new $300 million second- lien loan and all the new stock.
General unsecured creditors were predicted to have a maximum 3.6 percent recovery by spreading $4 million in cash among claims totaling up to $120 million. To read details about the Reader’s Digest plan, click here for the Nov. 25, 2009, Bloomberg bankruptcy report.
Newark Group Demoted to Caa1 Despite 2010 Prepack
Newark Group Inc., which emerged from an eight-week prepackaged Chapter 11 reorganization in August 2010, was downgraded one notch yesterday by Moody’s Investors Service to a Caa1 corporate rating in view of “significant deterioration in operating performance.”
Moody’s also said there is “uncertainty” regarding the liquidity of the Cranford, New Jersey-based manufacturer of recycled paperboard products. Revenue for a year ended in April was about $809 million, Moody’s said.
Newark began the prepackaged Chapter 11 reorganization on June 9, 2010 and had the plan confirmed on July 30. The plan converted the $175 million in 9.75 percent unsecured subordinated notes into 96.5 percent of the new equity. The predicted recovery on the notes was 75.4 percent, according to the disclosure statement. Trade suppliers and unsecured creditors owed $57 million were paid in full.
Existing stockholders, who owned 84 percent of the equity, kept 1.5 percent of the new stock plus warrants for another 15 percent.
The Chapter 11 case was In re The Newark Group Inc., 10- 27694, U.S. Bankruptcy Court, District of New Jersey (Newark).
Mueller Water Downgraded on Low Municipal Spending
Mueller Water Products Inc., a supplier of infrastructure and flow-control products for water systems and waste-treatment plants, received a one-notch downgrade yesterday from Moody’s Investors Service lowering the corporate rating to B3.
Moody’s based its action on the “prolonged weakness in construction markets, coupled with the reduction in water infrastructure spending by municipalities.”
The $225 million in senior unsecured notes were demoted to B2 while the $420 million in senior subordinated debt became Caa2.
For nine months ended June 30, net sales of $965.6 million resulted in a net loss of $28.5 million. Income from operations in the period was $2.7 million. Total liabilities stood at $1.12 billion.
The senior unsecured notes for the Atlanta-based company traded on Aug. 30 at 104.375 cents on the dollar to yield 7.923 percent, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The subordinated notes traded yesterday at 90.558 cents on the dollar, for a 9.546 percent yield, Trade reported.
The stock fell 16 cents yesterday to $2.32 in New York Stock Exchange trading. The three-year high was $12.48 on Sept. 19, 2008. The low in the period was $1.56 on March 3, 2009.
Flexera Software Downgraded on New Debt, Acquisition
Flexera Software Inc., a provider of application usage management software, was downgraded yesterday by one level to a B corporate grade by Standard & Poor’s in view of debt being issued in part to finance an acquisition by the Ontario Teachers’ Pension Plan.
The Schaumburg, Illinois-based company currently is controlled by Thoma Bravo LLC, according to Bloomberg data.
8th Circuit Pens Treatise on Improvement-in-Position
The U.S. Court of Appeals in St. Louis wrote a 16-page opinion on Aug. 30 about the improvement-in-position test for preferences to secured creditors under Section 547(c)(5) of the Bankruptcy Code.
Neither the facts nor the result was remarkable, so we don’t bother to summarize the case. It’s nonetheless noteworthy for its survey of law on Section 547(c)(5).
Suffice it to say that the 8th Circuit upheld the two lower courts that found a preference and voided a previously granted security interest in accounts receivable that wasn’t perfected with a UCC filing until less than 90 days before bankruptcy.
The case is Lange v. Inova Capital Funding LLC (In re Qualia Clinical Services Inc.), 11-1201, U.S. Court of Appeals for the Eighth Circuit (St. Louis).
Judge Defers to Tax Court on $44 Million Disputed Tax
The federal tax court, rather than the bankruptcy court, should decide a disputed $44.3 million claim by the Internal Revenue Service, according to an Aug. 30 opinion by U.S. Bankruptcy Judge Arthur J. Gonzalez in New York.
The case involved an individual who pleaded guilty to embezzling from a stock broker. Later, the IRS assessed back taxes for unreported embezzlement income, among other things. The individual was scheduled for a hearing in federal tax court on the same day he filed bankruptcy.
The IRS filed a $44.3 million claim in the bankruptcy, followed later by a motion asking Gonzalez to abstain and allow the tax court to determine the tax liability.
The bankrupt and his trustee both urged Gonzalez to decide if taxes were owed. Gonzales admitted that the IRS claim represented the largest claim in the case. Although the dispute was within his power to decide, the judge declined, exercising the right to abstain contained in bankruptcy law.
Gonzalez said the dispute could be decided no more quickly in bankruptcy court than in tax court. He was also reluctant to make rulings on complicated issues regarding embezzlement income.
The case is In re Gordon, 09-16230, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
--With assistance from Steven Church, Dawn McCarty and Michael Bathon in Wilmington, Delaware. Editors: John Pickering, Glenn Holdcraft.
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