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(This report contains items about companies both in bankruptcy and not in bankruptcy. Updates Dodgers; adds Madoff in Updates and section on Daily Podcast.)
Oct. 27 (Bloomberg) -- The settlement that Lehman Brothers Holdings Inc. worked out with the U.K. bankruptcy administrators for Lehman Brothers International (Europe) calls for LBIE to have a $1 billion claim against the Lehman holding company, according the settlement agreement filed in U.S. Bankruptcy Court in New York on Oct. 25.
The agreement provides that Lehman’s German subsidiary, Lehman Brothers Bankhaus AG, will be primarily liable for the claim. The Lehman U.S. parent will be responsible to the extent LBIE’s $1 billion isn’t paid in full by Bankhaus.
In addition, LBIE is to have a $900 million claim against Lehman Brothers Special Financing Inc. Finally, LBIE affiliates will have an aggregate of $1.7 billion in claims against the Lehman holding company. The claims will be classified as unsecured affiliate claims under Lehman’s Chapter 11 plan.
Lori Fife, a partner from Weil Gotshal & Manges LLP working on the LBIE claims, said in an interview that it was a “very, very difficult transaction to negotiate and document.”
The LBIE settlement was negotiated along with compromises with all of Lehman’s foreign affiliates in anticipation of the confirmation hearing on Dec. 6 for approval of Lehman’s Chapter 11 plan. Creditors are now voting on the plan, which has support from creditors with $160 billion in claims.
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).
Dodgers, Commissioner’s Trial Put Off One Month
The Los Angeles Dodgers baseball club and the Commissioner of Major League Baseball will come to blows at trial one month later than originally scheduled. The bankruptcy judge yesterday allowed both sides more time to prepare by pushing back the trial’s commencement from Oct. 31 to Tuesday, Nov. 29.
The judge set aside four days for trial. It will continue through Dec. 2. For Bloomberg coverage of yesterday’s hearing, click here.
The judge also told the commissioner and Fox Entertainment Group Inc. to turn over e-mails to the team that they exchanged before bankruptcy. The team sought the e-mails to bolster a case that the commissioner is treating the Dodgers unfairly.
The judge delayed the trial so the warring factions would have a chance to settle through mediation, according to two people who declined to be identified because the talks are private.
At the trial, the Dodgers will seek permission to sell broadcasting rights while overriding provisions in the existing television contract with Fox. The judge will also rule on the commissioner’s motion to strip the club of the exclusive right to propose a Chapter 11 plan. For a discussion of the issues to be decided at the trial, click here for the Oct. 3 Bloomberg bankruptcy report.
Faced with missing payroll, the team filed for bankruptcy protection in late June when the commissioner refused to approve a sale of television broadcasting rights beginning with the 2014 season. The team’s proposal calls for holding an auction, which Fox says violates the existing broadcasting license.
The case is In re Los Angeles Dodgers LLC, 11-12010, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Picard Prevails on Procedural Clash in Rakoff’s Court
After the trustee for Bernard L. Madoff Investment Securities LLC sustained several defeats from the pen of U.S. District Judge Jed Rakoff, the judge granted the trustee a meager victory in a procedural skirmish with a customer named James Greiff. Yesterday, the Madoff trustee filed papers aimed at preventing dismissal of hundreds of suits to recover fictitious Profits.
Rakoff took the Greiff suit out of bankruptcy court where the customer was being sued for receiving fictitious profits. Greiff’s lawyer followed up with a motion asking Rakoff to dismiss the suit.
In his brief arguing for dismissal, Greiff argued that the Madoff firm “was not a Ponzi scheme.” Greiff’s lawyer, Helen Davis Chaitman, contended the firm was “a legitimate trading business which operated a fraudulent investment business on the side to fund the trading operation.”
Irving Picard, the Madoff trustee, responded by saying that Chaitman was raising questions beyond those Rakoff said he would decide. Rakoff agreed in part, telling Picard on Oct. 25 that he need not counter the notion that the Madoff firm wasn’t a Ponzi scheme. Rakoff also allowed Picard to disregard the argument that the Madoff firm never obtained title to customers’ funds because they were stolen.
The judge is having Picard brief the question of how to calculate the amount taken out within two years of bankruptcy. Picard already briefed the same issue in the Wilpon lawsuit also pending before Rakoff. To read about the question, click here for the Oct. 25 Bloomberg bankruptcy report.
Picard filed his brief yesterday opposing the motion to dismiss. If Picard loses and the Greiff suit is dismissed, it would be the death knell for hundreds of other similar Madoff suits. Chaitman will file reply papers Nov. 2. The dismissal motion will be argued before Rakoff on Nov. 10.
In yesterday’s papers, Picard argued that fictional profits shown on account statements don’t represent valid debt customers can use to counter a fraudulent transfer claim. Although he lost on the same issue in the Wilpon suit, Picard preserved a question for later appeal by contending that the so-called safe harbor in bankruptcy law shouldn’t be applied to protect a broker that was a thoroughgoing fraud.
Chaitman contended that Picard has no standing, or right to prosecute fraudulent transfer claims. Picard’s brief yesterday cited the Securities Investor Protection Act as authority for the proposition that the trustee for a defunct broker has the same right as an ordinary bankruptcy trustee to sue for fraudulent transfers.
Picard’s losses in Rakoff’s court include the ruling on Sept. 27 in the Wilpon case that the trustee can only seek to recover fictitious profits going back two years rather than six. Rakoff also dismissed the largest part of Picard’s $9 billion suit against HSBC Holdings Plc. For details on the Wilpon opinion, which involves the owners of the New York Mets baseball club, click here for the Sept. 28 Bloomberg bankruptcy report. For a rundown on how the Wilpon opinion cuts back how much Picard can sue to recover, click here for an Oct. 26 Bloomberg story.
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.
Greiff case in district court is Picard v. Greiff, 11- 03775, U.S. District Court, Southern District of New York (Manhattan). The Wilpon suit in district court is Picard v. Katz, 11-03605, 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 LLC, 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).
GECC Objects to Confirmation of Stars Prepacked Plan
The Dallas Stars of the National Hockey League received two objections to confirmation of the prepackaged Chapter 11 plan in advance of the Oct. 25 deadline. One was from the Internal Revenue Service. The second was by General Electric Capital Corp.
GECC has a $6.8 million loan on the team’s practice facility owned by an affiliate not in bankruptcy. The property sustained water damage that the insurance company declined to cover.
GECC, based in Stamford, Connecticut, contends that the plan improperly cuts off claims against the insurance company and the affiliate that owns the practice facility.
The IRS believes that the plan incorrectly cuts off the taxing authority’s rights of setoff and recoupment. The IRS is also worried that its priority claims won’t be paid in full.
A combined hearing to approve a sale of the team and confirm the prepackaged reorganization plan is on the court’s calendar for Nov. 23.
To achieve status as a prepack, the team solicited acceptances of the plan from creditors before bankruptcy and signed Vancouver businessman Tom Gaglardi to a contract where he will purchase the hockey club.
To test if there is a better offer, other bids were due initially by Oct. 22. If there’s competition, an auction will be held on Nov. 21.
The contract calls for Gaglardi to pay off the $51.4 million loan from the National Hockey League and give a $100 million term loan payable to holders of the $250.9 million in first-lien debt.
The reorganization plan provides for the holders of $146.2 million in second-lien debt to share $500,000 cash. Before the bankruptcy filing, the plan was accepted by all holders of the first-lien debt and holders of 89.6 percent of the second-lien obligation.
Thomas O. Hicks, the Stars’ owner, also owned the Texas Rangers, which was sold through bankruptcy last year.
The case is In re Dallas Stars LP, 11-12935, U.S. Bankruptcy Court, District of Delaware (Wilmington).
AmTrust Financial’s Chapter 11 Plan Being Confirmed
AmTrust Financial Corp. will have its Chapter 11 plan approved when the U.S. Bankruptcy Judge in Cleveland signs an order in successful conclusion to the Oct. 25 confirmation hearing, court records show.
What creditors receive rests on the outcome of an appeal taken by the Federal Deposit Insurance Corp. from a ruling by a U.S. District Judge in Cleveland in favor of the company. The judge ruled that the FDIC failed to prove there was a commitment for AmTrust to provide $550 million in capital to the bank subsidiary that subsequently failed.
Had the FDIC won, its priority claim for a commitment would have come ahead of all AmTrust unsecured creditors. The appeal is scheduled to be fully briefed in the U.S. Court of Appeals in Cincinnati by the end of October. For details on the decision by U.S. District Judge Donald C. Nugent, click here for the June 8 Bloomberg bankruptcy report.
There is another dispute with the FDIC over the entitlement to a $194 million tax refund for 2009 that the Internal Revenue Service has yet to pay.
Based in Cleveland, AmTrust Financial said the family of companies had assets of $11.7 billion and $11.45 billion of debt before the bank was taken over and transferred by the FDIC to New York Community Bank. At the commencement of the Chapter 11 case, the assets of the companies in bankruptcy included ownership of the non-bankrupt subsidiaries, $7.3 million cash, and $23 million of fixed assets at book value. Debt of the companies in bankruptcy included $169.5 million for borrowed money, made up of $99.5 million on senior notes and $51.6 million on subordinated notes.
The Chapter 11 case is In re AmFin Financial Corp., 09- 21323, U.S. Bankruptcy Court, Northern District of Ohio (Cleveland). The lawsuit with the FDIC in the district court is Federal Deposit Insurance Corp. v. AmTrust Financial Corp., 10- 1298, U.S. District Court, Northern District of Ohio (Cleveland).
Southwest Georgia Has $1.1 Million Sept. Ebitda
Southwest Georgia Ethanol LLC, whose creditors are voting on a Chapter 11 plan in advance of a Dec. 7 confirmation hearing, reported $1.1 million of earnings before interest, taxes, depreciation and amortization in September.
Revenue in the month was $26.8 million. Gross margin in the month was $1.65 million. Net income was $5.2 million, thanks to $4.85 million of net interest income.
The company has a 100 million-gallon-a-year plant in Mitchell County, Georgia. For details on the Chapter 11 plan, click here for the Oct. 13 Bloomberg bankruptcy report.
The plant began production in 2008 and sought Chapter 11 protection in February. The petition listed assets of $164.7 million and debt totaling $134.1 million. In addition to bank debt, liabilities initially included $12.6 million owing on two subordinated notes. Revenue was $168.9 million for the fiscal year ended in September 2010, resulting in a $2.2 million net loss. The company is owned by First United Ethanol LLC, which didn’t file bankruptcy.
The case is In re Southwest Georgia Ethanol LLC, 11-10145, U.S. Bankruptcy Court, Middle District of Georgia (Albany).
Covanta Seeks Dismissal of Harrisburg Municipal Bankruptcy
The affiliate of Covanta Holding Corp. that operates the incinerator at the root of financial problems for Harrisburg, Pennsylvania, filed a three-page objection yesterday to the city’s sojourn in Chapter 9 municipal bankruptcy.
Covanta cited how the filing was prohibited by Pennsylvania state law and lacked approval from the mayor, who also supports dismissal. For Bloomberg coverage, click here.
Harrisburg, the state capital, filed under Chapter 11 on Oct. 11 and two days later was hit with a motion by the state to dismiss the case as being unauthorized. In the meantime, the state adopted a law allowing the governor to appoint a receiver who may join the list seeking dismissal.
The bankruptcy judge in Harrisburg has a hearing set for Nov. 23 where she will rule on dismissing the case. Bankruptcy was purportedly authorized by a 4-3 vote of the city council, without signature of the mayor.
Court papers say the city is $65 million in default on $242 million owing on bonds sold to finance an incinerator that converts trash to energy. The bonds are insured by Assured Guaranty Municipal Corp.
The case is In re City of Harrisburg, Pennsylvania, 11- 06938, U.S. Bankruptcy Court, Middle District of Pennsylvania (Harrisburg).
Kodak Bondholders Threaten Suit for Fraudulent Transfer
Second-lien lenders turned up the heat on Eastman Kodak Co. by writing a letter reminding the board of their fiduciary duty to sell the patent portfolio for not less than fair market value.
The letter served two purposes. It warns the board that its members could face lawsuits if second-lien creditors later deem the price too low. Second, the letter similarly warns prospective purchasers that they too could be sued for receipt of a fraudulent transfer if Kodak later ends up in bankruptcy.
The letter thus could have been intended by second-lien creditors to increase the likelihood that Kodak files under Chapter 11, where creditors would make an earlier recovery on their bonds than if the company were to avoid bankruptcy court.
Kodak in response said it takes fiduciary duties “very seriously.” For Bloomberg coverage, click here.
The stock closed yesterday at $1.23, down two cents a share in New York Stock Exchange trading. In the past three years, the closing high was $11.35 on Oct. 28, 2008.
The $250 million in 7.25 percent senior unsecured notes due November 2013 traded yesterday at 45 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.
The $500 million in 9.75 percent second-lien bonds due March 2018 were bid yesterday at 73 cents on the dollar.
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 this year, the net loss was $425 million on sales of $2.81 billion. Gross profit in the half was $336 million.
Shipper Trailer Bridge Didn’t Refinance by Deadline
Trailer Bridge Inc., an ocean and truck freight carrier, is facing the maturity of $82.5 million from a total of about $100 million in debt on Nov. 15. In addition, failure to refinance by Oct. 15 was an event of default.
Senior secured debt holders signed a forbearance agreement where they committed not to take action before Oct. 31.
Standard & Poor’s yesterday lowered the rating from CCC to “selective default” based on what it called “confidential information.”
S&P said there are “imminent refinancing risks” and a “high probability of default.”
S&P previously predicted that holders of the maturing 9.25 percent secured notes wouldn’t recover more than 50 percent following payment default. The notes traded yesterday at 80.44 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
Based in Jacksonville, Florida, Trailer Bridge carries freight between Puerto Rico, the Dominican Republic and the U.S. mainland. Revenue for a year ended in March was $114 million, according to Moody’s Investors Service.
Maguire Engineering Firm Files Chapter 11 in Miami
Maguire Group Inc., a civil engineering firm based in Miami, filed for Chapter 11 protection in its hometown on Oct. 24 to work out issues related to the company’s acquisition in 2009.
Maguire provides architectural, engineering, planning and construction management services mostly for federal, state and local governmental entities. Revenue in 2010 was $27.8 million. So far this year, revenue has been $19.3 million, according to court filings.
There is less than $1 million in secured debt. Unsecured creditors have claims for more than $40 million, court papers say.
The company says that former owners didn’t make accurate disclosure when the company was sold. The new owners resorted to Chapter 11 to find solutions to lawsuits and claims for and against the company.
The case is In re The Maguire Group Holdings Inc., 11- 39347, U.S. Bankruptcy Court, Southern District of Florida (Miami).
Manhattan’s Mazzeo Electric Files to Reorganize
Michael Mazzeo Electric Corp., an electrical contractor working primarily in Manhattan, filed to reorganize the business on Oct. 21, a victim of the decline in construction.
At the peak, the firm employed more than 200 unionized electricians and generated $58 million of revenue in 2008. Currently, there are 80 electricians on the payroll, and the contract backlog is $20 million, according to court papers.
The company listed assets of $5.5 million against $17.5 million in debt, including $10.4 million owing to secured lender Signature Bank.
The company intends on using Chapter 11 to trim down, economize and restructure.
The case is In re Michael Mazzeo Electric Corp., 11-14888, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
TV, Newspaper Owner Media General Downgraded to CCC+
Media General Inc., a newspaper publisher and television broadcaster, received a downgrade yesterday from Standard & Poor’s in view of what S&P called “difficulties” in remaining in compliance with loan covenants near the end of 2012.
S&P demoted the corporate grade by one notch to CCC+, or one step below the ding issued in September by Moody’s Investors Service.
S&P based its action on “declining publishing revenue and the absence of meaningful political advertising.”
Revenue for Richmond, Virginia-based Media General is split about 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 2017 traded yesterday for 83.1 cents on the dollar, to yield 16.665 percent, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
Media General had a $22.6 million net loss for the fiscal year ended December 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 rose $1.01 yesterday to $3.45 in New York Stock Exchange trading. The three-year high was $13.21 on May 17, 2010. The low in the period was $1.20 on Oct. 5.
Madoff, Ambac, Paulson-Winthrop Resorts: Bankruptcy Audio
Once upon a time, recovering all of their approved claims seemed like a cakewalk for customers of Bernard L. Madoff Investment Securities LLC, as Bloomberg Law’s Lee Pacchia and Bloomberg News bankruptcy columnist Bill Rochelle explain on the bankruptcy podcast. Rochelle lays out the dollars and cents consequences of a ruling in September by U.S. District Judge Jed Rakoff only allowing the Madoff trustee to sue for fake profits taken out within two years before bankruptcy. Rochelle tells how Ambac Financial Group Inc. in one breath could say it’s about to belly up for lack of cash and in the next proclaim that cash flow is sufficient for five years. The podcast ends by laying out the battle lines for a dispute over the meaning of subordination and intercreditor agreements between lenders to the five resort hotels owned by Paulson & Co. and Winthrop Realty Trust. To listen, click here.
--With assistance from Jonathan Keehner, Jeffrey McCracken and Serena Saitto in New York; and Steven Church, Dawn McCarty and Michael Bathon in Wilmington, Delaware. Editors: Glenn Holdcraft, Mary Romano.
To contact the reporter on this story: Bill Rochelle in New York at firstname.lastname@example.org.
To contact the editor responsible for this story: John Pickering at email@example.com.