Bloomberg News

Kodak, Solar Millennium, Xanadoo, St. Vincent: Bankruptcy

July 02, 2012

Kodak, Solar Millennium, Xanadoo, St. Vincent Swift

Kodak ended the month with $574.2 million cash, a decline of $43.4 million from April, according to a comparison of the two months’ operating reports. Photographer: Brady Dillsworth/Bloomberg

Eastman Kodak Co. (EKDKQ:US) lost $88.3 million in May and depleted cash by $43.4 million.

In other developments at the end of last week, the bankruptcy judge in Manhattan refused to appoint an official committee to represent shareholders, while the company filed papers telling a federal district judge why the bankruptcy court is qualified to handle all aspects of the sale of digital imaging technology.

The operating report for May filed with the bankruptcy court shows that the $88.3 million net loss would have been greater were it not for a $54.5 million tax benefit.

The $191.9 million cost of sales in May exceeded $173.6 million of revenue by $18.2 million. Interest expense and reorganization costs were $12.7 million and $16.3 million, respectively.

Kodak ended the month with $574.2 million cash, a decline of $43.4 million from April, according to a comparison of the two months’ operating reports.

U.S. Bankruptcy Judge Allan L. Gropper wrote a 9-page opinion on June 28 where he declined to appoint an official shareholders’ committee, saying “there is no substantial evidence that equity will be entitled to a meaningful distribution in this case.” Should it later appear that Kodak is solvent, Gropper said shareholders can renew their request for an official committee.

For now, Gropper said the interests of creditors and shareholders are “generally aligned” in terms of seeking the highest price for the assets. If there were an equity committee now, “the costs appear unreasonable in light of the possible benefits,” Gropper said.

The shareholders filed their motion for a committee in March. The motion was argued in Gropper’s court in April.

Kodak is in bankruptcy court today asking Gropper to approve sale procedures culminating in a technology auction in August. As required by the bankruptcy judge, Kodak filed a lawsuit in bankruptcy court to decide whether it or Apple Inc. (AAPL:US) owns 10 disputed patents.

Apple responded to the lawsuit by filing papers telling U.S. District Judge George B. Daniels he should remove the suit from bankruptcy court because it requires decisions on complicated patent-law issues. Kodak’s papers filed June 28 provide the company’s opinions explaining why the bankruptcy court is entitled to decide questions involving patent ownership.

Kodak told Daniels that Apple’s claims to ownership are “merely tactical” and were made some 10 years or more after the patents were issued. As to nine of the patents, Kodak points out that Apple didn’t make ownership claims until three months after the Chapter 11 case began.

The bankruptcy judge will be able to throw out Apple’s ownership claims because they are barred by the so-called statute of limitations, according to Kodak’s theory. The crux of the dispute, Kodak says, are issues regarding enforcement of a contract under California law where the bankruptcy court is fully competent. To the extent there are patent issues, the law is “well settled,” not requiring removal of the suit to district court, Kodak argues.

Kodak contends that Apple’s claim to a jury trial is specious because an inventorship claim is an equitable claim decided by a judge and not a jury.

Even if Apple might be entitled to a jury trial later, it’s the custom in New York, Kodak says, for suits to remain in bankruptcy court until ready for trial.

If the ownership dispute remains in bankruptcy, all questions regarding ownership and sale of the technology can be handled by one court, Kodak says.

Other companies contending the bankruptcy court doesn’t have the right to make decisions on patent law include Intel Corp. (INTC:US), Ricoh Co. Ltd. (7752), Nikon Corp. (7731) and Motorola Solutions Inc. (MSI:US)

Kodak’s $400 million in 7 percent convertible notes due 2017 traded on June 29 for 15 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Rochester, New York-based Kodak filed for Chapter 11 reorganization in January, listing $5.1 billion in assets and $6.75 billion in debt. Liabilities for borrowed money, totaling $1.6 billion, included $100 million on a first-lien revolving credit and $96 million in outstanding letters of credit. Other liabilities include $750 million in second-lien notes, $406.1 million in convertible notes, and $252.4 million in senior unsecured notes. Kodak said trade debt is $425 million.

The motion to remove the new lawsuit from bankruptcy court is Eastman Kodak Co. v. Apple Inc., 12-04881, U.S. District Court, Southern District of New York (Manhattan). The lawsuit in bankruptcy court is Eastman Kodak Co. v. Apple Inc., 12-01720, U.S. Bankruptcy Court, Southern District of New York (Manhattan). Kodak’s Chapter 11 case is In re Eastman Kodak Co., 12-10202, in the same court.

Updates

Jefferson County Ruling Is Win for All Bondholders

Bondholders won a resounding victory over Jefferson County, Alabama, when the bankruptcy judge ruled that the bond indenture limits what the county may deduct from sewer revenue before paying the remainder to bondholders.

The county filed for municipal reorganization in November, taking the position that the U.S. Bankruptcy Code allowed taking deductions for depreciation, amortization and reserves for future expenses, before paying the remainder to holders of the $3.1 billion in defaulted sewer bonds. The bankruptcy judge in Birmingham held a trial in April to resolve the dispute.

U.S. Bankruptcy Judge Thomas B. Bennett handed down his 43- page, single-spaced opinion on June 29, rejecting the county’s contention. The dispute revolved around Section 928(b) of the Bankruptcy Code, which says that holders of revenue bonds are entitled to receive income after payment of “necessary operating expenses.” The county took the position that Section 928 allows taking larger deductions for operating expenses than the indenture would permit.

Bank of New York Mellon Corp. (BK:US), as indenture trustee, contended that only those operating expenses could be deducted that were permitted under the indenture. Bennett agreed, giving bondholders a victory worth $54 million more a year than the county was offering, the judge said.

The sewer bonds are the type where bondholders are only entitled to be paid from sewer revenue and have no other claim against the county. Bennett’s decision is important for the municipal bond market in general because it shuts off an avenue for using bankruptcy to divert income streams from bondholders to capital expenses for municipal operations.

The language of the indenture prohibits deductions from sewer revenue for depreciation, amortization and reserves for future expenses, Bennett said. Section 928 doesn’t permit deductions greater than those allowed by the indenture, and the county may not pay Chapter 9 professional costs from sewer revenue, he said.

Bennett reasoned that depreciation and amortization aren’t current expenses because they weren’t paid. Including charges for those items would reduce the amount bondholders would receive by $100 million over the life of the bonds, the judge said in his opinion.

The judge noted that the failure of the county to raise sewer rates since 2008 contributed to the inability to pay the bonds. He said that Section 928 cannot be used as a loophole for shortchanging bondholders by refusing to raise rates. He said that the drafters didn’t intend for Section 928 to be used to “second guess” the governing bond indentures’ rules governing the revenue to which their liens attach.

Assured Guaranty Municipal Corp., one of the bond insurers, said in papers before the trial that no court yet had ruled on what the statute means.

The county said it wasn’t attempting to deduct the entire $10 million in monthly deprecation, which would wipe out all sewer income. Instead, the county said it only wanted to withhold the annualized cost of the next 10 years’ projected capital budgets.

Bennett said that future costs should be covered by new borrowings or revenue increases.

The dispute over how much bondholders are entitled to receive became an issue when Bennett ruled in January that the county’s Chapter 9 municipal bankruptcy filing automatically ousted the receiver who had been appointed at the bondholders’ behest to take over the system and its revenue. Under an interim agreement, the bondholders have been receiving $5.5 million a month. Bennett said he will sign a separate order that may lay out exactly how much the bondholder are to be paid.

For more background on the dispute, click here for the April 5 Bloomberg bankruptcy report.

For a Bloomberg feature story on municipal bankruptcies, including those for Jefferson County and Stockton, California, click here. The story discusses how Stockton’s bankruptcy may be the first where holders of general obligations bonds end up with less than full payment.

Jefferson County began the country’s all-time largest Chapter 9 municipal bankruptcy in November, saying long-term debt is $4.23 billion, including about $3.1 billion in defaulted sewer debt.

The lawsuit over control of the sewers and revenue is Bank of New York Mellon v. Jefferson County, Alabama (In re Jefferson County, Alabama), 12-00016, U.S. Bankruptcy Court, Northern District of Alabama (Birmingham). The bankruptcy case is In re Jefferson County, Alabama, 11-05736, in the same court.

AMR Committee Can’t Propose US Air Merger this Year

AMR Corp. (AAMRQ:US), the parent of American Airlines Inc., said last week that the official creditors’ committee agreed to an extension of the company’s exclusive right to propose a Chapter 11 plan until Dec. 27.

AMR’s statement didn’t say whether there were any conditions accompanying the committee’s consent to pushing out exclusivity from the current September expiration.

An extension of exclusivity, if approved by the bankruptcy judge, would mean precluding the committee for the remainder of the year from filing a competing plan proposing a merger between AMR and US Airways Group Inc. (LCC:US)

For other Bloomberg coverage, click here.

Based at the airport midway between Dallas and Fort Worth, Texas, AMR listed assets of $24.7 billion and debt totaling $29.6 billion in the Chapter 11 reorganization begun in November. American Airlines entered bankruptcy with 600 aircraft in the mainline fleet and another 300 with American Eagle, the feeder airline.

The case is In re AMR Corp., 11-15463, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

CME, MF Global Settlement Put Off Until Aug, 8

Even though the Commodity Futures Trading Commission and the Securities Investor Protection Corp. filed papers in support, the trustee liquidating MF Global Inc. put off the hearing that would have been held on July 11 for approval of a settlement with CME Group Inc. (CME:US) The new hearing date is Aug. 8.

The settlement would dispose of the entire $175 million of MF Global funds held at CME, the owner of the world’s largest commodity and futures exchanges. Of the total, $130 million would be divided evenly between MF Global’s foreign and domestic customers. In addition, CME is subordinating $30 million of its claims.

SIPC and the CFTC both say the settlement falls within the range of reasonableness and should therefore be approved to avoid the uncertainties of litigation over an interplay between federal law and exchange rules.

The settlement provides for the sale of the shares of CME that MF Global owns, with the proceeds going to the MF Global trustee.

The MF Global Holdings Ltd. (MFGLQ:US) parent and the commodity brokerage subsidiary went into separate bankruptcies on Oct. 31. The holding-company parent is under control of a Chapter 11 trustee, while the broker is under control of a separate trustee selected by the Securities Investor Protection Corp.

The holding company’s Chapter 11 case is In re MF Global Holdings Ltd., 11-15059, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The liquidation of the broker is In re MF Global Inc., 11-02790, in the same court.

Solyndra Provides No Hints about Liquidating Plan

Solar-panel maker Solyndra LLC for a third time is seeking an expansion of the exclusive right to propose a liquidating Chapter 11 plan.

If approved by the bankruptcy judge at an Aug. 8 hearing, the new deadline will be Aug. 31. Solyndra didn’t say when a plan would be filed or what the plan could mean in terms of recoveries by creditors.

Compared with the amount of investment and debt, the liquidation so far has generated little. Unable to locate a buyer to acquire the plant and restart production, the assets were sold in four piecemeal auctions.

An auction in June generated $1.79 million from the sale of 7,200 lots of equipment. Two auctions late last year brought in a total of $8 million. A three-day auction in February generated another $3.8 million.

Solyndra halted manufacturing in August and filed under Chapter 11 in September. The Fremont, California-based company filed definitive lists showing property with a claimed value of $854.1 million against debt of $867.1 million.

Liabilities include $783.8 million in secured claims and $74.1 million of unsecured debt. In addition to the $535 million government-guaranteed loan, financing came from $709 million in eight issues of preferred stock, plus $179 million in convertible notes.

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

NextEra, BrightSource Approved to Buy Solar Projects

NextEra Energy Inc. (NEE:US) received formal authority last week to buy the 1,000-megawatt facility in Blythe, California, owned by Solar Millennium Inc. (S2M) It will be the world’s largest solar power plant when completed.

At the end of the week, the U.S. Bankruptcy Court in Delaware also approved selling the 500-megawatt project under development in Desert Center, California, to BrightSource Energy Inc. (BRSE:US) for a price that could be as much as about $30 million, if all contingent payments are made.

For the larger project, NextEra is paying $10 million cash plus contingent payment of as much as an additional $40 million when the project is completed.

There is no buyer as yet for the 500-megawatt project still in the planning stage in Amargosa Valley, Nevada. Global Finance Corp. started a lawsuit in bankruptcy court in June contending that Solar Millennium lost its ownership interest in the project by not moving forward with development.

Solar Millennium is a U.S. subsidiary of Germany’s Solar Millennium AG. Mason Capital Management LLC is providing financing for the Chapter 11 case with a $25 million working capital term loan along with an $18.3 million letter of credit. As a secured lender, New York-based Mason can bid at auction with debt rather than cash.

Oakland, California-based Solar Millennium filed in Chapter 11 on April 2 when rent was coming due on the 7,000-acre Blythe project.

The company’s solar-power projects are all in the development stage and generate no income. There is only $200,000 in secured debt. Financing had been provided by the German parent and Ferrostaal AG, the owner of a 30 percent interest in the joint venture developing the U.S. projects. Ferrostaal provided no financing in two years, and the German parent suspended financing in late 2011 after initiating its own insolvency proceedings in Germany.

The petition listed assets of less than $100 million and liabilities exceeding $100 million.

The case is In re Solar Trust of America LLC, 12-11136, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Xanadoo Frequency Auction Scheduled for Aug. 20

Bankrupt subsidiaries of Xanadoo Co. (XAND:US) were authorized to conduct an Aug. 20 auction for the sale of their most valuable frequency assets if they don’t land an agreement to refinance the business and pay secured lenders in full.

Auction and sale procedures approved last week by the U.S. Bankruptcy Court in Delaware authorize the lenders to purchase assets not already under contract with a $30.5 million credit against secured debt. The lenders will be the so-called stalking horse bidder at one or two auctions to be held Aug. 20. If the assets are sold through the auction rather than through a refinancing coupled with a reorganization plan, there will be a hearing on Aug. 22 for approval of the sale.

If the company finds a new lender to pay existing lenders in full, the Chapter 11 plan must be filed by Aug. 21.

The company previously said there is “potential” for distribution to unsecured creditors.

The assets to be sold include 23 licenses in the 700 megahertz frequency band that were purchased in 2000 and 2001 for $96 million. In addition, the companies will sell licenses they lease in the 2.5 gigahertz spectrum. From the lenders’ credit bid, $30 million is attributed to the 700 megahertz frequency band.

The bankruptcy court last week approved the sale of tower facilities for $3 million to Rhino Communications Inc., according to court records.

The companies filed a proposed reorganization plan in February, predicting the sale of licenses in the 700 megahertz spectrum would pay all secured and unsecured creditors in full, with interest. For details on the original plan filed in February, click here for the Feb. 9 Bloomberg bankruptcy report.

The Chapter 11 filing in June 2011 followed the maturity in May 2011 of almost $60 million in secured notes owing to Beach Point Capital Management LP.

The Bala Cynwyd, Pennsylvania-based companies previously said their total current liabilities were $66.3 million. The parent isn’t in Chapter 11. One of the petitions says assets and debt both exceed $100 million.

The case is In re Pegasus Rural Broadband LLC, 11-11772, U.S. Bankruptcy Court, District of Delaware (Wilmington).

St. Vincent Hospital Confirms Liquidating Chapter 11

St. Vincent Catholic Medical Centers, whose flagship was a shuttered hospital in Manhattan’s Greenwich Village, is prepared to emerge from Chapter 11 for a second time. The second visit to bankruptcy court was a liquidation.

The U.S. Bankruptcy Court in Manhattan signed a confirmation order on June 29 approving a liquidating Chapter 11 plan. The disclosure statement didn’t venture a guess about the recovery by unsecured creditors. There were no secured creditors left after settlements.

Some $9.5 billion in unsecured claims were filed, according to disclosure materials accompanying the plan that was accepted by the requisite vote of creditors. The hospital estimates that unsecured claims eventually will be cut to about $1 billion. The work to reduce claims will take place after confirmation, the hospital said.

The hospital was authorized in August 2011 to sell the 300- bed St. Elizabeth Ann’s skilled nursing facility on Staten Island, New York for $34 million. St. Vincent previously received court approval to sell the main facilities for $260 million to the Rudin family and North Shore-Long Island Jewish Health System.

St. Vincent was a 727-bed acute-care hospital before it shut down and filed in Chapter 11 a second time in April 2010. The petition listed assets of $348 million and debt totaling $1.09 billion.

The first bankruptcy began in July 2005. At the time, St. Vincent had seven operating hospitals. Five were sold. The not- for-profit hospital was sponsored by the Catholic Diocese of Brooklyn and the Sisters of Charity. It was founded in the mid-19th century.

The second case is In re Saint Vincent Catholic Medical Centers of New York, 10-11963, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The prior case was In re Saint Vincent Catholic Medical Centers of New York, 05-14945, in the same court.

Ashapura Minechem Chapter 15 Upheld on Appeal

Ashapura Minechem Ltd. (ASMN), a mining company based in Mumbai, won a victory last week in U.S. District Court in Manhattan upholding the company’s right to have Chapter 15 protection from creditors in the U.S.

In November, U.S. Bankruptcy Judge James M. Peck ruled that Ashapura qualified for Chapter 15 protection, even though the company committed “a strategic error of colossal portions.” In last week’s 28-page opinion, U.S. District Judge Shira A. Scheindlin found that Peck was correct in giving the company protection in the U.S.

Peck said that the Chapter 15 filing in October was the “latest example” of “coordinated efforts” by the company and its managing directors indicating that they “are not acting in good faith.”

Ashapura filed the Chapter 15 petition to stop collection in the U.S. on more than $100 million in judgments handed down in arbitrations commenced in London by two shippers. For details on the tongue-lashing that Peck gave the company, click here for the Nov. 25 Bloomberg bankruptcy report.

Peck and Scheindlin both concluded that Ashapura’s bankruptcy proceedings in India qualified as a “foreign main proceeding,” thus entitling the U.S. courts to use powers in Chapter 15 to halt creditors actions in the U.S.

Scheindlin concluded that Peck was correct when he found the law in India complied with the requirements for Chapter 15 protection. To read Scheindlin’s opinion, click here.

Ashapura mines iron ore, bentonite and bauxite. It said it owes $70.1 million to secured lenders. Unsecured claims, not including the arbitration awards, total $29 million, according to a court filing. The petition claims assets are worth more than $100 million.

The company filed for reorganization in India in May 2011 with the Board of Industrial and Financial Reconstruction.

The appeal is Armada (Singapore) Pte Ltd. v. Shah (In re Ashapura Minechem Ltd.), 12-257, U.S. District Court, Southern District of New York (Manhattan). The Chapter 15 case is In re Ashapura Minechem Ltd., 11-14668, U.S. Bankruptcy Court, Southern District New York (Manhattan).

Nebraska Book Implements Plan Confirmed on June 1

College bookseller Nebraska Book Co. implemented the Chapter 11 reorganization plan on June 29 that the bankruptcy judge in Delaware approved with a June 1 confirmation order. The plan reduces debt by $270 million.

The plan approved last month was in substitution for the original version that didn’t work because banks wouldn’t lend $250 million. The confirmed plan is financed with a $80 million secured loan.

Holders of the existing $200 million in second-lien debt were given the new stock plus a new $100 million second-lien note, for a projected 81 percent recovery. Holders of subordinated debt ultimately supported the plan when second-lien noteholders allowed them to have a larger recovery.

Warrants or cash of equivalent value are going to holders of subordinated debt and general unsecured creditors. Existing shareholders and holders of $77 million in notes issued by the holding company received nothing. For details on the plan, click here for the March 27 Bloomberg bankruptcy report.

Nebraska Book was unable to pass quickly through bankruptcy after filing for Chapter 11 protection in June 2011 because lenders wouldn’t put up $250 million.

Based in Lincoln, Nebraska, the company sells used textbooks and operated approximately 290 college bookstores at the outset of the reorganization. There are 251 campus locations, the company said recently.

Nebraska Book’s $598 million in sales during fiscal 2011 produced 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).

Seven Professionals for Dewey Draws U.S. Trustee Objection

Dewey & LeBoeuf LLP, the defunct law firm, will face opposition from the U.S. Trustee at a July 9 hearing for authority to hire seven professional firms to conduct the liquidation.

In a 38-page objection along with 18 pages of charts, the U.S. Trustee explains why some of the firms will duplicate one another’s services. She also contends that Proskauer Rose LLP, hired to handle employment-law issues, may have a conflict of interest because it hired 63 partners, lawyers, and staff that worked for Dewey.

Dewey is proposing to hire three law firms, one public relations firm, one firm of financial advisers and two non-law firms to assist in the liquidation and collection of accounts receivable. For Bloomberg coverage, click here.

Dewey once had 1,300 lawyers before the liquidation under Chapter 11 began in late May. There are two official committees, one representing creditors and the other for former partners. There is secured debt of about $225 million and accounts receivable the firm recently said was $217.4 million. The petition listed assets of $193 million and liabilities of $245.4 million as of April 30.

The case is In re Dewey & LeBoeuf LLP, 12-12321, U.S. Bankruptcy Court, Southern District New York (Manhattan).

Peter Madoff Pleads Guilty Three Years After Brother Sentenced

Peter Madoff, brother of Bernard Madoff, pleaded guilty on June 29 to two felony counts and agreed to ask the federal judge for a prison sentence of no less than 10 years.

His plea came exactly three years after his brother was sentence to 150 years.

Peter Madoff was the chief compliance officer for Bernard L. Madoff Investment Securities Inc. Although he said he was unaware the firm was a Ponzi scheme, he admitted to falsifying documents. For the Bloomberg story on the plea hearing, click here.

Peter Madoff’s criminal case is U.S. v. Madoff, 10- cr-00228, U.S. District Court, Southern District of New York (Manhattan).

New Filings

GameTech Files to Stop Yuri Itkis Takeover

GameTech International Inc. (GMTC:US), a Reno, Nevada-based producer of bingo, video and electronic slot-machine equipment, filed a petition for Chapter 11 protection today in Delaware to fend off a takeover by competitor Yuri Itkis Gaming Trust.

The company’s $16 million secured credit matured on June 30. Three days earlier, the loan was purchased by Yuri Itkis, which GameTech describes as a “principal competitor.” GameTech rejected an offer that Yuri Itkis made to combine the two companies.

GameTech said in a court filing that it’s holding discussions with someone else for a more favorable transaction. GameTech said that Yuri Itkis purchased the loan at discount from lenders US Bank NA and Bank of the West.

Assets are $27.3 million and liabilities total $22.9 million, according to a court filing. For the fiscal year ended Oct. 30, there was a $6.4 million net loss on revenue of $30.9 million. The operating loss for the year was $4.7 million.

In the fiscal first quarter ended Jan. 29, net income was $858,000 on revenue of $8.3 million.

The case is In re GameTech International Inc., 12-11964, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Sports Charter Operator Swift Air Files in Phoenix

Swift Air LLC, a charter airline providing service for seven professional sport teams, filed a petition for Chapter 11 protection on June 27 in Phoenix, the hometown.

Swift operates four leased aircraft. The Federal Aviation Administration is yet to give authorization to lease two more to be flown under contract with Saipan Air Inc.

The company was forced into bankruptcy when it was unable to arrange a $5 million loan to cover the slow period from April into September when the sports teams aren’t playing.

The petition states that assets are less than $1 million while debt exceeds $10 million.

The case is In re Swift Air LLC, 12-14362, U.S. Bankruptcy Court, District of Arizona (Phoenix).

Watch List

Edison Mission’s Midwest Gen Doesn’t Extend Revolver

Power producers Edison Mission Energy and subsidiary Midwest Generation Co. have a capital structure that will be “difficult to sustain” without a “a marked improvement in power prices,” Standard & Poor’s said June 29 while lowering the corporate credit by one grade to CCC.

Midwest Generating didn’t renew a $500 million revolving credit that matured on June 29, S&P said. Nothing was outstanding on the credit.

The downgrade was influenced by a $500 million bond maturity in June 2013. Capital spending requirements and weak cash flow stemming from low power prices create a “significant risk that the company will not be able to successfully refinance the 2013 debt maturity,” S&P said.

The new S&P rating lines up with the demotion issued in March by Moody’s Investors Service.

S&P didn’t change the CC rating of affiliate Homer City Funding LLC, where there is a “high potential for capital restructuring in the next few months,” S&P said.

The Irvine, California-based company had 10,377 megawatts of generating capacity at the year’s end. The about $1.2 billion in 7 percent senior unsecured notes maturing in 2017 traded on June 29 for 54.6 cents on the dollar, to yield about 23 percent, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Downgrades

AK Steel Downgraded on Difficult Industry Conditions

AK Steel Corp. (AKS:US), a steelmaker based in West Chester, Ohio, received a downgrade from Standard & Poor’s on June 29 to match the action taken in November by Moody’s Investors Service. The new corporate rating is B+, in view of what S&P called “difficult competitive conditions.”

Although there likely will be negative cash flow this year and next, S&P said liquidity is “strong.” Moody’s likewise said liquidity is “good.”

The company has seven plants in Indiana, Kentucky, Ohio and Pennsylvania.

The parent AK Steel Holding Corp. reported a net loss of $160.1 million in 2011 on sales of $6.47 billion. The operating loss for the year was $201.3 million.

Altegrity Demoted to B- on Lower Government Spending

Altegrity Inc., a provider of pre-employment screening, professional security and background investigation services, is back to a B- rating from Standard & Poor’s after having been upgraded two years ago.

S&P lowered the senior unsecured notes by one level as well, to CCC, coupled with a judgment that the holders won’t recover more than 10 percent following default.

The culprit is lower government spending for part of the business that performs background checks and is responsible for 35 percent to 40 percent of revenue.

Then named U.S. Investigations Services Inc., the Falls Church, Virginia-based company was purchased for $1.5 billion in 2007 by Providence Equity Partners Inc. The sellers were Welsh, Carson, Anderson & Stowe LP and Carlyle Group LP.

Daily Podcast

American Airlines, Vitro, Madoff, Kodak: Bankruptcy Audio

A long-term contract to provide hotel rooms for airline crews could end up being a “forward contract,” if American Airlines Inc. loses a dispute erupting in the bankruptcy court in New York. A loss by the airline would set a precedent where many companies in bankruptcy reorganization might be unable to compel performance under contracts to supply goods and services, as Bloomberg Law’s Lee Pacchia and Bloomberg News bankruptcy columnist Bill Rochelle discuss on their podcast. Vitro SAB may have an appeal heard near the end of the year where the glassmaker will try to reinstate the Mexican reorganization plan a bankruptcy judge refused to enforce in the U.S. Rochelle talks about two recent events in the liquidation of Bernard L. Madoff Investment Securities Inc., one a $1 billion victory on appeal and the other a suggestion that a district judge will extend the sweep of the safe harbor protecting swaps. The podcast wraps up describing the importance of hearings on July 2 and July 26 bearing on the sale of technology owned by Eastman Kodak Co. To listen, click here.

To contact the reporter on this story: Bill Rochelle in New York at wrochelle@bloomberg.net.

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net.


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