Bloomberg News

Solyndra, Borders, FGIC, Spiegel, Taylor Bean: Bankruptcy

September 27, 2011

(This report contains items about companies both in bankruptcy and not in bankruptcy. Adds Borders and Sbarro in Updates.)

Sept. 27 (Bloomberg) -- Solyndra LLC is subject to “forces outside the Chapter 11 process” turning the manufacturer of solar energy panels into a “high-speed train headed for a quick sale that cannot be slowed down,” the official creditors’ committee said in a court filing.

The company will appear today in U.S. Bankruptcy Court in Delaware, asking the judge to approve a sale schedule where bids would be due initially on Oct. 25, followed by an Oct. 28 auction and a hearing on Nov. 2 for approval of the sale.

No buyer is yet under contract, nor has an investment banker been official retained.

The committee believes the sale is being “unnecessarily expedited,” especially because there were “no marketing efforts” prior to the bankruptcy filing early this month.

The committee said that the company has enough cash to extend the marketing process for a month.

After receiving a $535 million government-guaranteed loan, the company halted operations in August and filed for Chapter 11 reorganization on Sept. 6.

Two days after bankruptcy, Solyndra was raided by the Federal Bureau of Investigation, executing a search warrant in conjunction with the U.S. Energy Department.

Solyndra, located in Fremont, California, said assets were $859 million while debt totaled $749 million as of Jan. 1, 2011. When the petition was filed, Solyndra said secured debt was $783.8 million. The startup business was financed in part with $709 million from eight issues of preferred stock, plus $179 million in convertible notes.

Construction of the plant began in September 2009. Production commenced in January 2011, to halt in late August when new financing failed to materialize. Revenue in 2010 of $142 million resulted in a $329 million net loss.

The case is In re Solyndra LLC, 11-12799, U.S. Bankruptcy Court, District of Delaware (Wilmington.)


Barnes & Noble Approved to Buy Borders Name, Customer List

Borders Group Inc., the liquidated book seller, improved protections for maintaining confidentiality of customer information and received bankruptcy court approval yesterday to sell trademarks and intellectual property for $15.8 million.

Barnes & Noble Inc., a competitor when Borders was still in business, bought most of the intellectual property for $13.9 million.

Last week, the bankruptcy judge in New York delayed sale approval after the consumer privacy ombudsman raised objections. For Bloomberg coverage, click here.

At the auction won by New York-based Barnes & Noble, the first bid was $3.5 million.

Borders is completing going-out-of-business sales that began at all of its remaining locations in July. The creditors’ committee said before the liquidation began that Borders expected to generate $252 million to $284 million in cash from the sales. Borders is selling store leases separately.

Borders, based in Ann Arbor, Michigan, 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).

FGIC Given Final Extension of Plan-Filing Rights

FGIC Corp., whose prepackaged reorganization fell apart, was given its last extension of the exclusive right to propose a Chapter 11 plan.

After Feb. 3 any creditor or interested party can file a reorganization plan. By then, FGIC will have been in Chapter 11 for 18 months. Bankruptcy law doesn’t permit maintaining exclusivity any longer.

Before last week’s exclusivity hearing, FGIC reported there were two and perhaps three proposals for a new Chapter 11 plan giving unsecured creditors more than the aborted plan. The hearing for approval of a disclosure statement was adjourned to a date to be determined.

FGIC filed for reorganization in August 2010 with a plan where creditors would become owners of the bond insurance subsidiary, Financial Guaranty Insurance Co. The plan became infeasible when an exchange offer failed.

According to the company, the assets to be used in reorganization consist of $10 million cash, the insurance subsidiary, and the opportunity to utilize $4 billion in net tax loss carry forwards.

The plan developed before bankruptcy anticipated dividing the cash and new stock among lenders on the $46 million revolving credit and the $345 million in unsecured notes. The holders of 90 percent of the common stock had agreed to go along with the original plan and waive their $7.2 million unsecured claim.

FGIC’s petition in August 2010 listed $11.5 million in assets and $391.5 million in debt. Wilmington Trust FSB is trustee for the bondholders and JPMorgan Chase Bank is agent for the lenders.

The case is In re FGIC Corp., 10-14215, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Sbarro Reports $2.9 Million Net Loss in August

Sbarro Inc., an operator and franchiser of fast-food Italian restaurants, reported a $2.9 million net loss in August on revenue of $26.7 million. Operating income for the month was $1.4 million.

The monthly operating report filed in bankruptcy court in New York revealed that August interest expense was $1.5 million. Reorganization items totaled $2.6 million.

Since the inception of the bankruptcy reorganization in April, the cumulative net loss is $22.2 million on revenue of $128.7 million. The cumulative operating loss from the outset is $1.3 million.

Sbarro is scheduled to hold an auction today to determine the best offer to underpin a Chapter 11 reorganization plan. The hearing for approval of a disclosure statement to explain the plan is now on the bankruptcy court’s calendar for Oct. 6.

Unless outbid, the senior lenders intend on converting a maturing $35 million loan for the bankruptcy case, plus $75 million from pre-bankruptcy secured debt, into a $110 million term loan to kick in when Sbarro exits bankruptcy. The remainder of the pre-bankruptcy loan, about $100 million, will convert to ownership of the reorganized business.

Trade suppliers who continue doing business could divide $250,000 cash among themselves. All other creditor classes receive nothing. Those being wiped out include unsecured noteholders and other unsecured creditors. The indenture trustee for holders owed $157.8 million on senior unsecured notes opposed holding the auction.

The lenders will also provide a fresh $18.6 million credit on emergence from Chapter 11.

On filing for court protection in April, Sbarro had already negotiated terms for a Chapter 11 plan. In May, the company dropped the prepackaged plan, saying it had an offer at a higher value from what it called a “qualified bidder.”

MidOcean Partners, Ares Corporate Opportunities Fund II LP and first-lien lenders agreed with the decision to drop the previously negotiated plan, Sbarro said. MidOcean acquired Sbarro in January 2007 for $417 million. Ares is the largest holder of senior notes, according to a court filing.

The petition listed assets of $471 million and debt totaling $486.6 million. Assets on the balance sheet as of Sept. 26 included $352.2 million of goodwill and trademarks.

Sbarro, based in Melville, New York, owned or franchised 1,045 restaurants in 42 countries when the bankruptcy began. Of the total, 472 were owned at the time.

The case is In re Sbarro Inc., 11-11527, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Spiegel Catalogue’s Former Owner Seeks Exclusivity

The owner of the Spiegel catalogue filed for Chapter 11 protection on June 6, completed the sale of the business to the secured lender on Sept. 12, and is requesting a first extension of the exclusive right to propose a Chapter 11 plan.

At the Oct. 18 hearing on the so-called exclusivity motion, the company will explain how efforts are now focused on “addressing obstacles” to a liquidating Chapter 11 plan. A wind-down officer has been named to work on a plan and distribution of the remaining assets.

The business was purchased by a fund associated with Patriarch Partners LLC, the owner and lender through affiliated funds. The contract with Patriarch was negotiated before the Chapter 11 filing. The Patriarch fund paid $2 million cash and assumed specified liabilities, including $30 million outstanding on a term loan and revolving credit.

New York-based Signature Styles LLC owned the Spiegel catalogue, which it purchased for $21.7 million at a foreclosure sale in June 2009. The company listed assets of $48.6 million and debt of $87.6 million. Listed debt included $37.2 million on a secured term loan and revolving credit. Other debt included $9.8 million owing to trade suppliers and $23.2 million in customer obligations.

The company’s other businesses included Newport News and Shape Fx. Spiegel produced 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).

Taylor Bean Creditors’ Trustee Sues Deloitte & Touche

When Taylor Bean & Whitaker Mortgage Corp. implemented its Chapter 11 plan on Aug. 10, the case was really only beginning for Deloitte & Touche LLP, which had been outside auditors for what was once the largest independent mortgage originator in the U.S.

In a lawsuit begun yesterday in state court in Miami, a trust created for creditors sued the former auditors, saying they ignored red flags that a fraud was being conducted. For Bloomberg coverage, click here.

Lee Farkas, the former chairman, was sentenced in June to 30 years in federal prison after being convicted on 14 counts of conspiracy and bank, wire and securities fraud in what prosecutors said was a $3 billion scheme involving fake mortgage assets.

In addition to creating the creditors’ trust, the plan ultimately is to administer $322 million to $521 million, according to the disclosure statement. Once claims with higher priority are paid, the disclosure statement explained that between $264 million and $354 million would remain for unsecured creditors with claims totaling more than $8 billion.

Unsecured creditors were expected to have a distribution between 3.3 percent and 4.4 percent, the disclosure statement said. The largest claim, $3.25 billion, belongs to the Federal Deposit Insurance Corp.

Taylor Bean filed under Chapter 11 in August 2009, three weeks after federal investigators searched the offices of the Ocala, Florida-based company. It managed an $80 billion mortgage servicing portfolio. The petition said assets and debt both exceed $1 billion.

The case is Taylor Bean & Whitaker Mortgage Corp., 09- 07047, U.S. Bankruptcy Court, Middle District of Florida (Jacksonville).

DeWitt Nursing Home Again Seeking More Exclusivity

DeWitt Rehabilitation & Nursing Center Inc., a 499-bed nursing home on East 79th Street in Manhattan, filed for Chapter 11 reorganization in January and is again requesting an expansion of the exclusive right to propose a bankruptcy reorganization plan.

If approved by the bankruptcy court at an Oct. 19 hearing, the new deadline would be pushed out by two months to Nov. 22.

As justification for longer exclusivity, DeWitt once again told the judge how it’s saving $65,000 month by using another pharmacy provider and $20,000 a month from outsourcing the jobs of four physical therapists. In addition, there are negotiations with the union on a new contract. The same statements were made in the first request for more exclusivity.

The Chapter 11 petition said the nursing home owed $38.4 million. Secured lenders Metropolitan National Bank and Israel Discount Bank have liens on all assets to cover $10 million owing on a term loan, a court filing said.

The nursing home is owned by Marilyn Lichtman, who has been the operator since the facility opened in 1967.

The case is In re DeWitt Rehabilitation & Nursing Center Inc., 11-10253, U.S. Bankruptcy Court, Southern District New York (Manhattan).

New Filings

Mountain City Beef Professor Files for Quick Sale

Mountain City Meat Co. Inc., calling itself one of the largest processors of portion controlled beef in the U.S., filed a Chapter 11 petition on Sept. 24 its Denver hometown and hopes to sell the business in October.

No buyer is yet under contract.

The inventory was on the books for $6.1 million on Sept. 22, according to a court filing. The secured lender Fifth Third Bank is owed $17.8 million.

If the bankruptcy judge agrees with the timetable, bids would be due Sept. 30, in anticipation of an Oct. 11 auction and a hearing Oct. 14 for approval of the sale.

A preliminary hearing on sale procedures is being held today. The company is intending to sell the inventory even before the business is sold.

The bankruptcy began with an involuntary petition filed in August by unsecured creditors. The bank had a state-court receiver appointed before the Chapter 11 filing.

Mountain City has two plants, one in Denver and the other in Nashville.

The case is In re Mountain city Meat Co. Inc., 11-32656, U.S. Bankruptcy Court, District of Colorado (Denver).

Energy & Power Solutions Files in Santa Ana

Energy & Power Solutions Inc. filed for Chapter 11 protection on Sept. 23 in Santa Ana, California. The Costa Mesa, California-based company described its business as owning and operating combined heat and power cogeneration facilities at customers’ plants.

The company filed a registration statement last year in an effort to sell stock. At the time, the company said it had been funded with $50 million in private-equity capital.

The Chapter 11 petition said assets and debt both exceed $10 million.

The case is Energy & Power Solutions Inc., 11-23362, U.S. Bankruptcy Court, Central District California (Santa Barbara).

Bankruptcy Podcasts

Madoff, L.A. Dodgers, Solyndra: Bankruptcy Audio

U.S. Bankruptcy Judge Burton R. Lifland upheld a complaint against Bernie Madoff’s family and used the opinion to bolster his argument explaining why the safe harbor in bankruptcy law doesn’t apply to a broker that’s a through-going Ponzi scheme. In the podcast, Bloomberg Law’s Lee Pacchia and Bloomberg News bankruptcy columnist Bill Rochelle report on the latest statistics predicting the number of large companies that may resort to Chapter 11 if the economy turns to recession once again. Rochelle closes the podcast by reporting on a new case from the U.S. Court of Appeals for the 3rd Circuit in Philadelphia giving reason to file Chapter 11 in Delaware if the case will likely give rise to a lawsuit by creditors against company managers. To listen, click here.

In another podcast Rochelle explains why the bankruptcy court might appoint a trustee or examiner for Solyndra LLC now that executives asserted their Fifth Amendment rights not to testify before Congress. Fox Entertainment Group Inc. is headed in the direction Rochelle predicted when he explained in a previous podcast how the TV network has grounds for opposing efforts by the Los Angeles Dodgers baseball club for auctioning off television broadcasting rights. The podcast ends with an explanation for why the trustee liquidating Bernard L. Madoff Investment Securities Inc. was disappointed at not being able to have a customers’ appeal dismissed on a technicality. To listen, click here.

Advance Sheets

Nondisclosure Results in Total Fee Disgorgement

Lawyers representing bankrupt companies in the Middle District of Pennsylvania should be careful to make complete disclosure in view of a Sept. 23 opinion by U.S. District Judge Christopher C. Conner in Scranton, Pennsylvania.

The case involved a lawyer who had represented a company for several years before filing in Chapter 11. In his application to represent the company during bankruptcy, the lawyer disclosed his retainer, although not fees he’d received in the year before bankruptcy.

The bankruptcy judge disqualified the lawyer and required him to return a $17,500 retainer. On appeal, Conner upheld disqualification and disgorgement.

Conner ruled that disclosure had not been complete. He also held that the lawyer had an actual, undisclosed conflict of interest because of involvement in a pre-bankruptcy corporate transaction resulting in a lawsuit.

The case is Geisenberger v. U.S. Trustee, 10-01660, U.S. District Court, Middle District Pennsylvania (Scranton).

--With assistance from Tiffany Kary in New York, Sophia Pearson in Philadelphia 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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