(This report contains items about companies both in bankruptcy and not in bankruptcy. Adds Dodgers as first item; Solyndra, Yellowstone Club, Graceway, Innkeepers, Alter Communications and Le-Nature’s in Updates; Kodak in Watch List; Media General and Geokinetics in Downgrades; and sections on Bank Failure and Advance Sheets. )
Oct. 3 (Bloomberg) -- To put a lid on what he called the “animus” that may lead to “excessive litigiousness” between the Los Angeles Dodgers baseball club, the commissioner of Major League Baseball and Fox Entertainment Group Inc., U.S. Bankruptcy Judge Kevin Gross scheduled a trial beginning Oct. 31 on whether the team has the right to auction television broadcasting rights while overriding the existing agreement with Fox.
Gross will use the trial to ferret out the facts while avoiding the “harsh allegations and innuendo” hurled among the team, the commissioner and Fox, he said in an order on Sept. 30. Primarily, Gross will decide if bankruptcy law gives him power to abrogate rights of first negotiation and first refusal in the existing agreement for Fox to telecast games through the 2013 season. Gross will simultaneously decide whether Bud Selig, the commissioner, has the power to overrule a decision the team’s owner makes if Selig finds it isn’t in the best interests of baseball.
Gross said he must decide whether “bankruptcy is a safe haven for the debtors from the commissioner’s effort to oust ownership” by refusing to approve a sale of television rights. The judge simultaneously will rule on whether the best interests of Major League Baseball take precedence over the best interests of the team. There is “no middle ground for decision,” he said.
At the trial, which will continue on Nov. 1, 2 and 4, Gross said he wants to hear live testimony from the team’s owner, Frank McCourt, and from Selig. With regard to Selig’s allegations that McCourt sucked money from the team to finance a lavish life style and solve matrimonial problems, Gross warned that he would “strongly consider the appointment of a Chapter 11 trustee” if he find that bankruptcy is a “subterfuge to benefit Mr. McCourt.”
As for the commissioner, Gross characterized Selig as claiming power over a team that is “nearly unparalleled in the business world.”
Gross said in his order that the trial and discovery in advance can’t be used to bare details about other baseball teams. The judge won’t permit the team to investigate other clubs and, in fairness, the judge said Selig can’t introduce evidence about how he treated other clubs.
The trial, according to the judge, will pit bankruptcy law on hand against franchise law on the other. The case presents issues different from what they were with the sale of the Texas Rangers baseball club in a Chapter 11 case last year.
In the Rangers case, secured lenders to the company that owned the team weren’t being paid in full, thus giving rise to more concern for the rights of creditors and the ability of the commissioner to favor one buyer at a price that might not have represented full value. No one is saying that creditors of the Dodgers will come up short. Indeed, the commissioner is proposing to sell the team and generate what could be hundreds of millions of dollars for McCourt and his ex-wife, who claims half ownership.
If the judge finds bankruptcy law doesn’t allow him to abrogate Fox’s rights in the existing broadcast agreement, Gross said that a sale of television rights won’t be in the team’s best interests.
Gross listed questions to be decided at trial. They include: Has the team already breached agreements with Major League Baseball? Did McCourt misappropriate the team’s assets? Is a sale of television rights in the best interests of baseball? What would be the effects of rejecting the existing Fox agreement? Can a baseball team assume agreements with Major League Baseball when the commissioner doesn’t consent? Did the commissioner act in bad faith by opposing a sale of broadcasting rights?
The new schedule laid down by the judge on Sept. 30 substitutes for hearings previously scheduled for Oct. 12 on approving television sale procedures. The commissioner also had a motion on the Oct. 12 calendar to disqualify the team’s law firms and end the Dodgers’ exclusive right to propose a Chapter 11 plan.
The team filed an operating report showing a $1.7 million net loss in August at the holding company on revenue of $34.7 million. Operating income in the month was $3.5 million. Legal expenses in the month were $2.8 million. Interest expense in the month was $2.3 million.
The Dodgers filed under Chapter 11 on June 27 when faced with missing payroll because the commissioner refused to approve an agreement to sell Fox an extension on the existing broadcasting license.
The case is In re Los Angeles Dodgers LLC, 11-12010, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Solyndra May Have Trustee After Officers Take the Fifth
Solyndra LLC, the bankrupt solar-panel maker, should be taken over by a Chapter 11 trustee because two top officers invoked the Fifth Amendment privilege, the U.S. Trustee said in papers filed Sept. 30.
Solyndra’s chief executive officer and chief financial officer declined to answer questions at a congressional hearing on Sept. 23. At a court hearing on Oct. 17, U.S. Bankruptcy Judge Mary F. Walrath will decide if invocation of the privilege against self-incrimination by itself is sufficient grounds for appointing a trustee.
The U.S. Trustee, the bankruptcy watchdog for the Justice Department, isn’t alleging any “specific wrongdoing.” Rather, she says that the inability to answer questions will prevent “management from fulfilling the disclosure and reporting obligations incumbent upon all debtors-in-possession.”
Bankruptcy law requires the judge to appoint an examiner to conduct an investigation if she declines to appoint a trustee. The bankruptcy judge has the ability to limit or expand the scope of investigation as she believes necessary.
Companies sometimes try to fend off a Chapter 11 trustee by offering to appoint a chief restructuring officer to take over. With a CRO, the company’s bankruptcy lawyer can stay in place.
If there’s a trustee, the trustee ordinarily appoints his or her own lawyers and may discharge the law firms that represented the company. Consequently, the appointment of a trustee can mean the loss of lucrative work for professionals representing a company in Chapter 11.
For details on the issues and the alternative of having an examiner conduct an investigation, click here.
Solyndra filed for Chapter 11 reorganization on Sept. 6 and was raided two days later by the Federal Bureau of Investigation. Operations halted in late August. The startup business was financed partly with a $535 million loan guaranteed by the U.S. government.
Based in Fremont, California, Solyndra said assets were $859 million while debt totaled $749 million as of Jan. 1. When the petition was filed, Solyndra said secured debt was $783.8 million. The business was financed partly 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 and halted 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.)
Yellowstone Resort’s Plan Reinstated after Appeal
The reorganization plan for Yellowstone Mountain Club LLC, which was implemented after being approved in a June 2009 confirmation order, was upheld in a 42-page opinion on Sept. 30 by U.S. Bankruptcy Judge Ralph B. Kirscher in Butte, Montana.
Timothy Blixseth, the Yellowstone resort’s founder, convinced a U.S. district judge on appeal from the confirmation order that there were procedural defects when Kirscher originally approved the plan. Although the plan already had been implemented, U.S. District Judge Sam E. Haddon in Butte remanded the case to Kirscher in November, saying there hadn’t been sufficient notice given to creditors of a settlement negotiated the night before the confirmation hearing.
Haddon also said the plan didn’t adequately describe third parties receiving releases under the plan. On remand, Haddon told Kirscher to identify the released third parties explicitly and “to state the reasons why it reached such conclusions.”
In his detailed opinion, Kirscher recited how he held hearings on the settlement once again in July. Notice given of the new hearing satisfied the procedural defect Haddon found when the settlement was originally approved along with confirmation in June 2009.
Kirscher also described who was released in the plan and explained how the releases are in accord with governing authority from the U.S. Court of Appeals in San Francisco. Among other things, Kirscher explained how the release only protected participants in the case from claims based on their conduct during the case and in promulgating the plan and settlement.
Kirscher described some of the claims that Blixseth still may bring even with the releases and plan confirmation.
The settlement included the secured lender Credit Suisse Group AG, the creditor’s committee and the buyer, a private- equity investor named CrossHarbor Capital Partners LLC. The settlement was reached after the bankruptcy judge ruled that the $309 million secured claim of Credit Suisse should be subordinated to specified unsecured claims.
Under the plan, the resort was sold to CrossHarbor for $115 million, consisting of a note for $80 million and $35 million in cash. The club said it expected unsecured trade suppliers would be paid in full.
The club is a 13,600-acre property just outside Yellowstone National Park.
The Chapter 11 case is In re Yellowstone Mountain Club LLC, 08-61570, U.S. Bankruptcy Court, District of Montana (Butte). The appeal was Blixseth v. Yellowstone Mountain Club LLC, 09- 0047, U.S. District Court, District of Montana (Butte).
Starwood Consents to Dismissal of Viceroy Resort Case
The reorganization of the Viceroy Anguilla Resort and Residences on Anguilla in the British West Indies may be dismissed at a hearing today in U.S. Bankruptcy Court in Delaware.
Bankruptcy Judge Peter J. Walsh will decide whether to grant a motion for dismissal as a result of his decision in September that the reorganization plan was defective and couldn’t be confirmed.
The resort filed papers last week saying that dismissal would be “premature” even though it “may now be inevitable.” Secured creditor Starwood Capital Group LLC supports the idea of dismissing. The motion to dismiss was filed by several individuals who made deposits to buy units in the unfinished project. The buyers became creditors because their deposits weren’t held in escrow.
Opposing dismissal, the resort described how Starwood used authorization from the bankruptcy court and foreclosed the property, leaving the company in bankruptcy with no ongoing business, no assets, and nothing to distribute to creditors. Consequently, the resort contends that dismissal won’t accomplish anything because “the outcome for unsecured creditors at this point cannot get any worse.”
The resort also said that Starwood at present won’t accept any alternative Chapter 11 plan that would give reason for remaining in Chapter 11.
The resort threw a bone to unit buyers by agreeing they should be able to sue in Anguilla for a determination of their rights in the real property. Still, the resort believes the buyers shouldn’t be allowed to carry out whatever rights the court in Anguilla decides they have in the property.
The resort’s plan seemed near confirmation until Walsh ruled that it unfairly discriminated among creditors who made deposits to buy units.
Starwood was the winner of a July auction to determine who would sponsor the reorganization plan. It called for Starwood to assume ownership on account of its $370 million secured claim. When the plan failed, Starwood took ownership through foreclosure. For details on the plan, click here for the June 15 Bloomberg bankruptcy report.
Over budget, the resort didn’t open officially until October 2010. Construction began in 2005. The 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).
Judge to Set Graceway Auction Procedures on Oct. 17
Graceway Pharmaceuticals LLC filed under Chapter 11 on Sept. 29 and told the bankruptcy judge in Delaware at the first hearing the next day that there should be more than one bidder when the business goes up for auction.
At the Sept. 30 hearing, the bankruptcy judge gave interim approval for a $6 million secured loan from a Canadian affiliate. The final hearing on financing will take place Oct. 17.
The Oct. 17 hearing is also when the judge will set up auction and sale procedures. Switzerland’s Galderma SA already agreed to pay $275 million in cash. If the judge adopts Graceway’s proposed schedule, the auction will take place Nov. 3. Holders of 40 percent of the first-lien debt consent to the sale, Graceway said.
Debt of the Bristol, Tennessee-based company includes $430.7 million owing on a first-lien revolving credit and term loan. Second-lien debt is $330 million, with mezzanine debt totaling another $81.4 million. Trade suppliers are owed $30 million.
Sales in 2007 of $314 million dropped to $220 million in 2010. In the first half of 2011, net sales were $65.5 million. The decline largely resulted from the expiration of the patent on Graceway’s Aldara skin cream in February 2010.
The case is In re Graceway Pharmaceuticals LLC, 11-13036, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Lehman Trustee and U.K. Liquidators Still Squabbling
The trustee liquidating Lehman Brothers Inc., the brokerage subsidiary of Lehman Brothers Holdings Inc., isn’t giving an inch when it comes to the dispute over whether a $8.9 billion claim by the European brokerage affiliate Lehman Brothers International (Europe) is entitled to higher status as a so- called customer claim.
The Lehman brokerage trustee objected to customer status of the Lehman Europe claim. The U.K. administrators of the European affiliate responded in August, saying the plain reading of the governing statute gives them customer status. For a rundown on the August response, click here for the Aug. 4 Bloomberg bankruptcy report.
In papers filed Sept. 30, the Lehman trustee likewise contends the European broker isn’t a customer under the plain meaning of the statute, although he points to different provisions in the law.
The fight is over the so-called house claim that subsumed transactions where the U.K. company served as the U.S. company’s broker to carry out securities transaction in Europe, and vice versa. Lehman Europe said it is “by far and away the largest creditor” of the U.S. Lehman brokerage.
The Lehman trustee argues the liquidators don’t have a customer claim because there were no customers on the other side of the positions at Lehman Europe. Instead, the Lehman trustee said the accounts were part of the companies’ capital.
The Lehman trustee points to provisions in the statute saying that a claim for property to be part of a bankrupt broker’s capital can’t be a customer claim.
Status as a customer claim gives a creditor better treatment because property known customer property isn’t shared with unsecured creditors, who typically receive smaller recoveries in brokerage liquidations.
The Lehman trustee points to decisions from other courts saying that the term “customer” is to be “construed narrowly.” The trustee also quotes from legislative history saying that only “public customers” of a broker are to have customer status.
The claims don’t go only one way. The U.K. liquidators previously explained how the U.S. broker has filed “a multibillion dollar” claim against the U.K. broker.
The Lehman holding company announced in September that it reached a settlement in principle with the liquidators of Lehman Europe. To read about the settlement, click here for the Sept. 19 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.
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).
Corus Bank Holding Company Crams Down Plan on FDIC
Corus Bankshares Inc. overcame objection from the Federal Deposit Insurance Corp. and persuaded the bankruptcy judge in Chicago last week to sign a confirmation order approving the Chapter 11 plan.
The creditor class specially set aside for the FDIC voted against the plan. With other creditor classes voting “yes,” U.S. Bankruptcy Judge Pamela S. Hollis exercised her so-called cramdown power to approve the plan over FDIC’s “no” vote and objection.
Corus is a holding company whose bank subsidiary was taken over by regulators in September 2009. It has two lawsuits pending in U.S. District Court with the FDIC over who is entitled to receive $265 million in tax refunds. As the receiver for the bank that paid the tax, the FDIC claims the refunds.
For a rundown on arguments by the FDIC that the bankruptcy judge rejected, click here for the Sept. 8 Bloomberg bankruptcy report.
Corus doesn’t believe the FDIC eventually will have anything other than an unsecured claim for as much as $183.4 million. The plan would give the FDIC a recovery between 6.2 percent and 53.3 percent, according to the disclosure statement.
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 will have an identical dividend.
Subordinated creditors and shareholders receive nothing.
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).
Innkeepers Committee to Intervene in Cerberus Suit
The official creditors’ committee for Innkeepers USA Trust doesn’t want the hotel owner by itself to decide creditors’ fates when the trial begins on Oct. 10 to force Cerberus Capital Management LP and Chatham Lodging Trust to carry out a $1.12 billion acquisition of 64 hotels.
At the end of last week, the committee filed a motion for permission to participate in the trial. The intervention motion will be decided by the bankruptcy judge at an Oct. 6 hearing.
The purported cancellation of the contract by Cerberus and Chatham left Innkeepers unable to implement the reorganization plan the bankruptcy judge approved with a confirmation order in late June.
Apollo Investment Corp. acquired Palm Beach, Florida-based Innkeepers in July 2007 in a $1.35 billion transaction. Innkeepers 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 against Cerberus is Innkeepers USA Trust v. Cerberus Four Holdings LLC (In re Innkeepers USA Trust), 11- 02557, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The Chapter 11 case is In re Innkeepers USA Trust, 10-13800, in the same court.
Nebraska Book Says Confirmation May Not Be in October
Nebraska Book Co., the college bookseller that can’t land $250 million in financing to finance an exit from Chapter 11, is requesting a four-month extension of the exclusive right to propose a Chapter 11 plan. If approved by the bankruptcy court at an Oct. 18 hearing, the new deadline will be Feb. 22.
The company previously disclosed that prospective lenders have “interest” in making a loan although they aren’t willing as yet to commit financing required for implementation of the plan. The reorganization was largely worked out before the Chapter 11 filing in late June.
The plan confirmation hearing originally was scheduled to occur tomorrow. The hearing already was postponed to Oct. 24. In a court filing last week, Nebraska Book said there is a “substantial possibility” confirmation will be further delayed.
As originally envisioned, first-lien and second-lien debt would be paid in full with the new financing. The plan would exchange remaining debt for new debt, cash and new stock. The stock would go mostly to subordinated noteholders of the operating company and holders of notes issued by the holding company. The plan was designed remove $150 million in debt from the balance sheet. For details on the plan after a settlement with shareholders, click here for the Sept. 9 Bloomberg bankruptcy report. For details on the original 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).
Point Blank Turns Profit Thanks to ‘Other Income’
Point Blank Solutions Inc., trying to sell the business a third time, filed an operating report for August showing net income of $482,000 on net sales of $5.95 million.
August results for the manufacturer of soft body armor for police and military would have been in the loss column were it not for a $6 million item denominated as “other income.” The operating loss in the month, before non-recurring expenses, was $1.7 million.
Assuming the judge goes along with the idea of a sale and there is no better bid, the business would go for $20 million to Barrier Acquisition LLC, an affiliate of the Gores Group LLC from Boulder, Colorado.
Point Blank is proposing a sale for lack of any other means the company can concoct for emerging from Chapter 11. It’s been unable to reach agreement with the official equity committee on a plan after the bankruptcy judge rejected the first effort at selling the business out from underneath shareholders.
Point Blank filed under Chapter 11 in April 2010. Based in Pompano Beach, Florida, Point Blank has two plants. Revenue in 2009 exceeded $153 million.
The Chapter 11 petition listed assets of $64 million against debt totaling $68.5 million. Debt included a $10.5 million secured loan paid off by financing for the Chapter 11 case. Point Blank said it also owes $28.2 million to trade suppliers.
The case is In re Point Blank Solutions Inc., 10-11255, U.S. Bankruptcy Court, District of Delaware.
Judge Threatens to Name Trustee for Alter Communications
Alter Communications Inc., the publisher of the Baltimore Jewish Times, won approval of Chapter 11 plan in December, only to see U.S. District Judge Richard D. Bennett in Baltimore set aside the confirmation order in June.
Alter and its adversary, former printer H.G. Roebuck & Son Inc., returned to bankruptcy court where they proposed competing reorganization plans.
U.S. Bankruptcy Judge James F. Schneider in Baltimore refused to confirm either of the competing plans. Last week, he directed the warring factions to negotiate their differences and file a joint plan by Oct. 21.
Absent a plan acceptable to both sides, Schneider said he would consider appointing a Chapter 11 trustee.
To read about the plan that was confirmed last year, click here for the Dec. 22 Bloomberg bankruptcy report. To read an explanation for why Bennett ruled that the plan was improperly confirmed, click here for the June 6 Bloomberg bankruptcy report.
Alter was forced to file in Chapter 11 following a $362,000 judgment in favor of the former printer. Alter said assets and debt were both less than $10 million. Debt included $641,000 owing to a secured lender.
In addition to the newspaper, publications included the magazine Style, with circulation of 90,000, and Chesapeake Life, with a circulation of 57,000.
The case is In re Alter Communications Inc., 10-18241, U.S. Bankruptcy Court, District of Maryland (Baltimore).
North American Petroleum Completes Full-Payment Plan
North American Petroleum Corp. USA, subsidiary Prize Petroleum Corp. and North American’s parent Petroflow Energy Ltd. implemented a full-payment Chapter 11 plan on Sept. 30 that the U.S. Bankruptcy Court in Delaware approved in a Sept. 14 confirmation order.
North American and Prize filed under Chapter 11 in May 2010, at the time owing $103 million on a term loan and revolving credit provided by Texas Capital Bank NA. The plan resulted from a settlement approved in May allowing full payment to secured and unsecured creditors.
The settlement ended disputes over how much was owed to an affiliate of Equal Energy Ltd. under a so-called farmout agreement. In the triangular settlement, Equal bought North American’s Oklahoma properties for a gross cash price of $93.5 million. North American in turn paid $98 million for full payment of the bank debt. Equal waived claims against North American. For details on the settlement, click here for the May 20 Bloomberg bankruptcy report.
For full payment, unsecured creditors of Petroflow and North American have the option of taking cash or stock in the reorganized company.
Going forward, the company will be financed with a fresh $3 million investment in Class A convertible preferred stock. Unsecured creditors of North American and Petroflow receive Classes B and C, respectively, of convertible preferred stock.
A shareholder with fewer than 250,000 shares of Petro flow will receive about 35 cents a share. Stockholders with larger holdings of existing stock receive new common stock calculated to be worth the same 35 cents for each old share.
North American is cashing out smaller shareholders so the fewer stockholders going forward will permit the company to avoid securities law filing requirements.
The Chapter 11 filing in May 2010 resulted from liens Equal filed against wells, alleging it was owed $15 million. Also alleging North American was in default for missing deadlines on drilling wells, Equal directed customers to send payments to them rather than North American. Customers’ holdbacks totaling $7 million also contributed to the Chapter 11 filing.
Denver-based North American said it will drill its first new well beginning in December.
The case is In re North American Petroleum Corp. USA, 10- 11707, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Wachovia, BDO Paying $130 Million for Le-Nature’s Settlement
The liquidation trustee for Le-Nature’s Inc. was given permission by the bankruptcy judge on Sept. 30 for part of a $130 million settlement of suits against Wachovia Capital Markets LLC and BDO Seidman LLP, the beverage maker’s pre- bankruptcy lender and auditor.
The creditors’ liquidation trustee receives $50 million, while lenders who bought part of the loan from Wachovia will receive $56 million. The California Public Employees’ Retirement System takes home $24 million. For Bloomberg coverage, click here.
Gregory J. Podlucky, the former chief executive officer, pleaded guilty to charges he masterminded an $800 million fraud at the beverage maker. The plea agreement allows for a prison term of as long as 20 years. Sentencing is scheduled for Oct. 20.
Podlucky’s brother and three others also made guilty pleas.
The liquidating Chapter 11 plan for Le-Nature’s was confirmed in July 2008. For details, click here for the July 11, 2008, Bloomberg bankruptcy report.
The fraud surfaced after the Delaware Chancery Court appointed a custodian for Le-Nature’s in October 2006. The custodian began the Chapter 11 reorganization the next month in Pittsburgh.
The custodian concluded that Latrobe, Pennsylvania-based Le-Nature’s had two sets of books and that annual revenue could have been as low as $32 million in 2005 when audited financials showed $275 million. A Chapter 11 trustee took over in January 2007 and operations halted. The two plants were sold.
The case is In re Le-Nature’s Inc., 06-25454, U.S. Bankruptcy Court, Western District of Pennsylvania (Pittsburgh).
Kodak’s Stock, Bonds Plunge on Bankruptcy Speculation
Predicting whether Eastman Kodak Co. files bankruptcy depends on whether one believes the company’s statements or assumes a buyer won’t purchase the patent portfolio without protection from a bankruptcy judge.
Kodak’s stock fell 54 percent in Sept. 30 trading, amid news reports that the company is considering bankruptcy as a means for selling intellectual property. The company responded with a press release at 5:01 p.m. on Sept. 30 saying it has “no intention of filing for bankruptcy.”
Bloomberg News reported that Kodak was including bankruptcy among its options because prospective buyers are concerned they otherwise could be sued for receiving a fraudulent transfer, according to people who asked not to be named because the talks are private.
Were Kodak to sell assets and later find itself in bankruptcy, the buyer could be sued for what’s known as a constructive fraudulent transfer. Creditors would be required to show that Kodak was insolvent when it sold the assets or was rendered insolvent by the sale. To succeed, creditors also must prove that the buyer paid less than fair value.
Kodak in its statement said it’s “not unusual for a company in transformation to explore all options” while hiring financial and legal advisers.
For Bloomberg coverage, click here. The stock closed on Sept. 30 at 78 cents in New York Stock Exchange trading. In the past three years, the closing high was $15.48 on Oct. 1, 2008.
Kodak, based in Rochester, New York, had sales of $7.2 billion last year. Sales declined by 24 percent since 2008.
The net loss last year was $687 million. The loss from continuing operations was $875 million.
During the first half of this year, the net loss was $425 million on sales of $2.81 billion. Gross profit in the half was $336 million.
Kodak makes imaging products for consumers, professionals, and medicine.
The $250 million of 7.25 percent senior unsecured notes due November 2013 traded on Sept. 30 at 26 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. As recently as Sept. 27, they fetched 63 cents.
TV, Newspaper Owner Media General Downgraded to B3
Media General Inc., a newspaper publisher and television broadcaster, received a downgrade on Sept. 30 to a B3 corporate rating from Moody’s Investors Service, matching the action taken in February by Standard & Poor’s.
Moody’s says there will be “challenges” in refinancing the credit that matures in March 2013 because there’s insufficient free cash flow.
Revenue for Richmond, Virginia-based Media General is split roughly evenly between television and newspapers. Most operations are in the southeastern U.S. The 18 network- affiliated television stations are in small or medium-sized markets. There are also 20 newspapers and 200 other publications.
The 11.75 percent secured notes due in 2017 traded on Sept. 30 at 88 cents on the dollar to yield 15 percent.
Media General had a $22.6 million net loss for the fiscal year ended Dec. 26 on revenue of $678 million. Operating income for the year was $72.9 million.
For the first half of 2011, the net loss was $41.2 million on revenue of $303.7 million. Operating income in the first half was $2.5 million.
Media General closed on Sept. 30 at $1.91, down 9 cents in New York Stock Exchange composite trading. The three-year closing high was $13.21 on May 17, 2010. The low in the period was $1.25 on March 5, 2009.
Geokinetics Downgraded for No Positive Gross Margin
Geokinetics Holdings Inc., the world’s second-largest provider of seismic data, was downgraded to a Caa2 corporate grade by Moody’s Investors Service on Sept. 30, one notch lower than the ding issued the previous day by Standard & Poor’s.
Moody’s cited the company’s “apparent inability to generate acceptable margins in its International Data Acquisition business.” Moody’s also said that “positive gross margins remain virtually non-existent.”
Although the Houston-based company says insurance coverage is adequate, Moody’s says liability is “uncertain” following a lifeboat accident in the Gulf of Mexico with four fatalities.
Geokinetics reported a $68.2 million net loss in the first half of 2011 on revenue of $333.2 million. For 2010, the net loss was $138.7 million on revenue of $558.1 million. The loss from operations last year was $92.1 million.
The parent company, Geokinetics Inc., closed on Sept. 30 at $2.42, down 2 cents in New York Stock Exchange composite trading. The three-year closing high was $22.14 on Sept. 29, 2009. The low in the period was $1.96 on March 6, 2009.
Texas Bank Fails for First Time in 19 Months
First International Bank from Plano, Texas, became the 74th bank to fail this year when it was taken over by regulators on Sept. 30. No Texas bank had failed since February 2010.
The failure will cost the Federal Deposit Insurance Corp. $53.8 million. The accounts and seven branches were transferred to another bank.
Last year, there were 157 bank failures. The failures in 2010 were the most since 1992, when 179 institutions were taken over by regulators.
Environmental Debt Undischarged Absent Payment Right
Auto-parts manufacturer Mark IV Industries Inc. didn’t discharge a liability to clean up ground water when it implemented a confirmed Chapter 11 plan in November 2009, U.S. District Judge Shira Scheindlin in New York ruled on Sept. 28 in upholding a decision by the bankruptcy court.
The case involved property where New Mexico environmental authorities were proceeding under a state water-quality act that didn’t permit the state to clean up a site and bill those responsible. The state’s only remedy was to force cleanup by those responsible.
If the state had a “claim,” as the word is defined in bankruptcy law, then the debt was discharged, Scheindlin said. She concluded that there was no claim because the state’s only remedy was to force compliance with a cleanup order.
Scheindlin rejected Mark IV’s argument that the state had a claim because it could have sued under other statutes where there would have been a right to a monetary recovery. The judge said the argument would mean that all environmental claims would end up being discharged in bankruptcy.
Scheindlin said the U.S. Court of Appeals in Manhattan “has already established a rule that renders most environmental injunctions nondischargeable.”
The appeal is Mark IV Industries Inc. v. New Mexico Environmental Department (In re Mark IV Industries Inc.), 11- 648, U.S. District Court, Southern District of New York (Manhattan). The Chapter 11 case is In re Mark IV Industries Inc., 09-12795, U.S. Bankruptcy Court, Southern District New York (Manhattan).
No Fraudulent Transfer to Represent Company Officer
A law firm that represented a company and its controlling principal in criminal and civil proceedings breathed a sigh of relief when U.S. District Judge Joel Pisano in Newark, New Jersey ruled on Sept. 29 that using company funds to pay the lawyers wasn’t a fraudulent transfer.
The case involved an individual who was indicted and eventually convicted for using his company to launder money. The company’s bankruptcy trustee sued the law firm that represented both the company and the individual, saying it was constructive fraud because the firm was in substance representing only the individual.
Pisano dismissed the suit against the law firm, saying no trial was necessary.
The judge said the undisputed facts showed that the company and the individual “shared a complete indemnity of interest.” Pisano said that the legal defenses for the company and the individual were “interdependent,” thus precluding the trustee from contending that the company received no value for the legal services.
The case is Frost v. Walder Hayden & Brogan PA (In re Aspect Computer Corp.), 09-5023, U.S. District Court, District of New Jersey (Newark).
Madoff Winners & Losers, Los Angeles Dodgers: Bankruptcy Audio
Who won and who lost when a district judge limited clawback suits by the trustee for Bernard L. Madoff Investment Securities Inc. is the first topic on the bankruptcy podcast with Bloomberg News bankruptcy columnist Bill Rochelle and Bloomberg Law’s Lee Pacchia. Rochelle analyzes the status of season-ticket holders for the Los Angeles Dodgers and talks about whether they deserve an official committee of their own. To listen, click here.
--With assistance from Dawn McCarty, Steven Church and Michael Bathon in Wilmington, Delaware. Editors: Mary Romano, Michael Hytha
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