Bloomberg News

Paulson Resorts, ATP, Madoff, Slavery Museum: Bankruptcy

August 20, 2012

Paulson & Co. and Winthrop Realty Trust (FUR:US) gave up on trying to retain ownership of the remaining four resorts they foreclosed in early 2011. Instead, they will sell the properties to secured lender Government of Singapore Investment Corp. for $1.5 billion, including $1.12 billion in cash and $360 million in debt.

After foreclosing last year, Paulson and Winthrop put all five resorts into bankruptcy in February 2011 to prevent foreclosure of $1 billion in mortgages and $525 million in maturing mezzanine debt. After selling Doral Golf Resort and Spa in Miami to Donald Trump, Paulson and Winthrop retain ownership of the Grand Wailea Resort Hotel and Spa in Hawaii; the La Quinta Resort and Club and the PGA West golf course in La Quinta, California; the Arizona Biltmore Resort and Spa in Phoenix; and the Claremont Resort & Spa in Berkeley, California.

The $1.12 billion in cash from the Singapore investment fund, known as Gic, will provide full payment for $850 million in mortgages along with $115 million in first-level mezzanine debt owing to MetLife Inc. (MET:US) Interest on the mortgages will be paid at the non-default rate.

Gic’s $360 million in second- and third-level mezzanine debt, along with interest, will be exchanged for ownership as part of the purchase price.

Gic will pay as much as $10.7 million of unsecured debt in full.

The resorts’ papers initiating the sale process were filed not long before midnight on Aug. 17. There will be an auction to determine whether another buyer will pay more. At a Sept. 10 hearing, the U.S. Bankruptcy Court in Manhattan will approve sale procedures. The hotels want other offers by Oct. 23 followed by an auction on Oct. 25. The sale to Gic would be approved and carried out through implementation of a Chapter 11 plan acceptable to Gic.

The existing owners will receive nothing on their $50 million in fourth-level mezzanine debt unless the auction brings a higher price.

The agreement gives Gic the option of retaining Hilton Worldwide Inc. as a hotel manager. Or, Gic can have the existing Hilton contract terminated by the bankruptcy court, in which case Gic will pay the damages in full. There is ongoing litigation in bankruptcy court, where the judge is near the point of deciding exactly how much Hilton would be owed were the contract terminated.

Gic became what the resorts called their “most vocal critic” by demanding a quick conclusion to the reorganization. To win a reprieve from Gic’s opposition, the resorts agreed in September 2011 to pay interest each month and to file a plan paying Gic in full. Unless paid sooner, the settlement required beginning an auction process by Sept. 1 and confirming a plan by Dec. 15.

The resorts didn’t make an interest payment on Aug. 1, prompting the lender to file papers in bankruptcy court allowing Gic to file its own plan. Allowing Gic to file a plan in the event of default was part of last year’s settlement.

When Trump agreed to buy the Doral property, the resorts said the price indicated the remaining four hotels would have a value sufficient for more than full payment on the $1.5 billion in debt.

The properties listed assets of $2.2 billion and liabilities of $1.9 billion. An affiliate of Morgan Stanley (MS:US) purchased the five resorts in 2007 for $4 billion. Revenue in 2010 was $465 million.

The case is In re MSR Resort Golf Course LLC, 11-10372, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

New Filings

ATP’s Chapter 11 Filing Brings New $250 Million Loan

ATP Oil & Gas Corp. (ATPG:US), a producer and developer of oil and gas wells mostly in the Gulf of Mexico, filed a Chapter 11 petition on Aug. 17 in its Houston hometown to land $250 million in new borrowing power.

Although ATP listed assets of $3.6 billion and $3.5 billion of liabilities on the March 31 balance sheet, the company began bankruptcy reorganization with only $10 million in cash. ATP blamed financial problems on the offshore drilling moratorium imposed after the 2010 blowout of a well operated by BP Plc.

ATP owes $365 million on a first-lien loan with Credit Suisse Group AG (CSGN) as agent. There is $1.5 billion on second-lien notes with Bank of New York Mellon Trust Co. (BK:US) as agent.

In addition, there is $35 million outstanding on convertible notes and $23.4 million owing to third parties for their shares of production revenue. Trade suppliers are owed $147 million, ATP said in a court filing.

Credit Suisse is agent for a group of lenders that have agreed to supply $617.6 million in first-lien financing for the reorganization. The loan includes $250 million of fresh cash in a delayed-draw term loan along with refinancing the existing first-lien debt.

An intercreditor agreement prohibits the second-lien noteholders from objecting to the new financing, ATP said in a court filing. The agreement also limits the demands that the junior lenders can make for so-called adequate protection. ATP said the senior lenders’ collateral is worth more than enough to pay the first-lien debt in full.

The agreement for the new loan provides for $80 million to be loaned and the existing debt refinanced when the new financing is given interim approval.

ATP reported a net loss of $145.1 million in the first quarter on revenue of $146.6 million. Income from operations in the quarter was $11.8 million. For 2011, the net loss was $210.5 million on revenue of $687.2 million. The year’s operating income was $152.7 million.

The second-lien notes last traded on Aug. 17 for 29.625 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The notes lost 61 percent of their value since May 1.

During the past three years, ATP’s stock traded as high as $23.97 on April 15, 2010. The closing price on Aug. 17 was about 46 cents in trading on the Nasdaq Stock Market.

The case was assigned to U.S. Bankruptcy Judge Marvin Isgur in Houston.

For other Bloomberg coverage of the filing, click here.

The case is In re ATP Oil & Gas Corp., 12-36187, U.S. Bankruptcy Court, Southern District Texas (Houston).

Manhattan’s Eastgate Hotel Files for Swap with Lender

The owner of the Eastgate Hotel on East 39th Street in Manhattan filed a Chapter 11 petition on Aug. 17 together with a reorganization plan turning ownership over to the secured lenders.

The plan already received unanimous “yes” votes enabling the bankruptcy judge to hold one hearing in four to six weeks approving the plan.

The $69 million mortgage was acquired by Atlas Capital Group LLC and Rockpoint Group. The plan calls for them to obtain ownership in exchange for the debt. Unsecured creditors owed $154,000 are to be paid in full.

The current owners will be entitled to receive some of the hotel’s profits in future years, if conditions are met.

The petition listed assets of $64.3 million and debt totaling $69.2 million. A planned renovation of the hotel wasn’t completed. The mortgage went into default in July 2011 and matured in December. No debt service has been paid on the mortgage since last year.

There will be a hearing in bankruptcy court this afternoon where the judge may set a schedule for the confirmation hearing to approve the plan.

The case is In re Eastgate Tower Hotel Associates LP, 12-13539, U.S. Bankruptcy Court, Southern District New York (Manhattan).

Updates

Slavery Museum Reorganization Dismissed at Donor’s Request

The U.S. National Slavery Museum is no longer in bankruptcy. The Chapter 11 reorganization was dismissed on Aug. 17 by the U.S. Bankruptcy Court in Richmond, Virginia.

The museum, which exists only as architect’s drawings, filed for Chapter 11 protection in September to halt tax foreclosure.

The museum had its genesis in 2002 with the gift of 38 acres in Fredericksburg, Virginia, from Celebrate Virginia South LLC. The deed contained a restriction prohibiting use of the property for anything other than a museum related to slavery.

The museum owes $3.2 million to unsecured creditors and $6.1 million to secured creditors including the architects and the local taxing authority, Celebrate Virginia said in a court filing. The architect is Pei Partnership Associates LLP.

Although the museum filed a proposed reorganization plan, Celebrate Virginia called it “vague and speculative” without demonstrating how the necessary $5 million in contributions could be raised.

Celebrate Virginia also opposed the plan because it was based on the idea of selling off 20 acres and breaking the deed restriction requiring use as a museum. Celebrate Virginia argued at length that the deed restriction couldn’t be broken under Virginia law.

Celebrate Virginia filed and won a motion to have the case dismissed or converted to liquidation in Chapter 7. The museum recommended that the judge dismiss if he was inclined to grant the motion. The judge obliged by dismissing last week.

The case is In re U.S. National Slavery Museum, 11-36013, U.S. Bankruptcy Court, Eastern District Virginia (Richmond).

AMR Modifies Pilots’ Contract to Satisfy Judge’s Objections

AMR Corp. (AAMRQ:US), the parent of American Airlines Inc., modified the proposal for altering the pilots’ union contract and scheduled a hearing on Sept. 4 where it will ask the bankruptcy judge to impose a new collective bargaining agreement on the Allied Pilots Association.

Last week, Bankruptcy Judge Sean H. Lane declined to allow AMR’s proposed changes to the contract because it contained two provisions beyond what he saw the airline as needing. Lane ruled that unlimited pilot furloughs and code-sharing were beyond AMR’s business plan and more than the company demonstrably needed to reorganize successfully.

AMR responded on Aug. 17 by filing a revised union contract where new provisions on pilot furloughs were withdrawn “entirely.” The airline also trimmed back the proposal on code-sharing, where AMR would sell seats on flights flown by other airlines, and vice versa. For details on Lane’s opinion last week, click here for the Aug. 16 Bloomberg bankruptcy report.

In his opinion last week, Lane said AMR could return to court when it made changes in the contract to comply with his ruling.

On code-sharing, AMR’s new proposal would allow selling tickets on flights operated by other airlines so long as the other airlines’ flights have no more than 50 percent of the available seat miles on AMR’s own schedule. It would also allow an expansion of existing code-sharing with Alaska Airlines and Hawaiian Airlines.

Last week the official creditors’ committee filed papers for authority to intervene in the lawsuit between AMR and the official committee representing the company’s retirees. In the suit, AMR claims it has the unilateral right to terminate retiree health benefits because they aren’t vested.

Given that retiree health benefits represent a $1.4 billion liability, the creditors’ panel contends it has a right to participate in view of the “gravity of the issue presented.”

The retirees’ committee and AMR already filed their first set of papers asking the judge to rule one way or the other. The dispute is scheduled for hearing in bankruptcy court in December after more papers are filed.

Headquartered at the airport midway between Dallas and Fort Worth, 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 New York (Manhattan).

SIPC Cuts Fee Request by Madoff Trustee’s Lawyers

In large corporate reorganizations, professionals often receive almost 100 percent of requested fees. The trustee liquidating Bernard L. Madoff Investment Securities LLC isn’t so lucky because he has the Securities Investor Protection Corp. looking over his shoulder.

Separately, the trustee is trying to avoid dismissal of fraudulent-transfer lawsuits against foreigners and has an agreement to hold up completion of a settlement by the New York Attorney General.

To receive the Madoff assignment, trustee Irving Picard and his principal lawyers from Baker & Hostetler LLP agreed with SIPC to cut their standard rate by 10 percent. When the time came for seeking final approval for fees covering the period Oct. 1, 2011, through Jan. 31, 2012, the firm voluntarily cut the fees by an additional $723,000 on top of the 10 percent reduction that amounted to $5.3 million.

SIPC reviewed the fee request and decided that it should be reduced by another $1.2 million. In addition, SIPC told the bankruptcy judge in a filing last week that an additional 10 percent should be held back and paid only later in the case.

Totaling all the deductions and holdbacks, SIPC recommended that Picard and his firm be paid $43.3 million. SIPC recommended that $16 million held back from previous fee requests be paid at this time.

SIPC told the judge that he is obliged to pay the recommended amounts under a provision in the Securities Investor Protection Act giving SIPC the right to determine fees in cases where there is no reasonable expectation for SIPC to recover the costs of the brokerage liquidation. The hearing on payment of fees is set for Aug. 29.

In a brokerage liquidation, expenses are paid by the SIPC fund and don’t come out of the money collected for distributions to creditors.

On Aug. 17, Picard filed his brief in district court opposing dismissal of dozens of lawsuits filed against foreigners. The foreigners contend fraudulent transfer law can’t be applied outside the U.S., thus immunizing them from being required to return fictitious profits that Madoff paid out before bankruptcy.

The case will turn on the interpretation given by U.S. District Judge Jed Rakoff to a 2010 U.S. Supreme Court decision called Morrison v. National Australia Bank. Rakoff removed the lawsuit from bankruptcy court to decide threshold issues such as the extraterritorial applicability of U.S. fraudulent transfer law.

Picard contends Morrison isn’t applicable because it involved a lawsuit where a foreign plaintiff was suing foreign and U.S. defendants regarding securities sold on foreign exchanges. He says that the Supreme Court didn’t intend to immunize foreigners entirely from being sued under U.S. securities laws.

Picard also points to Section 541 of the Bankruptcy Court where the trustee has power over property of the estate “wherever located.” Courts, Picard says, have interpreted the language as an as indication of congressional intent for U.S. bankruptcy law to have foreign application.

If foreign defendants are granted dismissal, Picard argues that foreigners will be able to receive distributions from U.S. bankruptcies while being absolved from being required to return fraudulently transferred property.

The foreign defendants will file another set of papers on Aug. 31. Rakoff hold a hearing for oral argument on Sept. 21.

Last week, Picard won an agreement where New York Attorney General Eric Schneiderman won’t attempt go to ahead with a $410 million settlement with a Madoff investor named J. Ezra Merkin.

Picard sued Schneiderman in bankruptcy court on Aug. 1 contending that New York State’s top lawyer is recovering on claims that belong to all Madoff customers and that only the Madoff trustee can pursue. Schneiderman told Picard that he intends to have the suit moved from bankruptcy court to U.S. district court.

The agreement requires Schneiderman to file his transfer papers by Aug. 31. The attorney general agreed that he will not take any steps to carry out the settlement or transfer any of the $410 million. In return, Picard agreed not to go ahead with a scheduled Aug. 22 hearing for a preliminary injunction preventing Schneiderman from completing the settlement.

The Madoff firm began liquidating in December 2008, with the appointment of the trustee under the Securities Investor Protection Act. Bernard Madoff individually went into an involuntary Chapter 7 liquidation in April 2009. His bankruptcy case was consolidated with the firm’s liquidation. Madoff is serving a 150-year prison sentence following a guilty plea.

The lawsuit with Schneiderman is Picard v. Schneiderman, 12-01778, in the same court. U.S. Bankruptcy Court, Southern District of New York (Manhattan). The Madoff liquidation case is Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities Inc., 08-01789, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The criminal case is U.S. v. Madoff, 09-cr-00213, U.S. District Court, Southern District of New York (Manhattan).

Birmingham City Council to Have Own Lawsuit on Sewers

The city council in Birmingham, Alabama, will have its own lawsuit attempting to prove that bondholders’ liens on sewer revenues are invalid.

In February, the bondholders’ indenture trustee filed suit in bankruptcy court against Jefferson County, claiming the right to control the sewer system and its revenue. The bankruptcy judge ruled that the county’s filing for Chapter 9 municipal bankruptcy ousted the receiver appointed before bankruptcy in state court at the bondholders’ behest. The dispute is on appeal to the U.S. Court of Appeals in Atlanta.

In June, the city council members filed what they styled as a class proof of claim against the county for $1.6 billion in overcharges from the sewer system arising from what they called “misconduct and criminal activity by managerial personnel and others acting in collusion.” They followed up in June with papers asking the judge to allow them to intervene in the lawsuit as a class representing sewer customers.

The city council intends to prove that the bondholders’ lien on sewer revenue is void. The city council believes the county has a conflict of interest and can’t adequately represent citizens who pay what they claim are inflated sewer bills resulting from criminal activity.

At a hearing last week, the bankruptcy judge declined to allow the sewer customers to intervene in the lawsuit. Instead, he told the sewer customers to prosecute a separate lawsuit of their own in bankruptcy court challenging the validity of the bondholders’ liens.

The judge instructed the city council, wearing the hats of sewer customers, to file a revised complaint by Sept. 7. The judge said the customers might be given an extra two weeks if they request.

Where bondholders lost in January when the judge said bankruptcy ousted them from direct control of the sewer system and its revenue, they won on June 29 when the judge wrote an opinion saying that the bond indenture limits what the county may deduct from sewer revenue before paying the remainder to bondholders.

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 where the debt holders can look only to the sewer system for payment. The sewer debt default is at the core of the county’s financial ills.

The Chapter 9 case is In re Jefferson County, Alabama, 11-05736, U.S. Bankruptcy Court, Northern District Alabama (Birmingham). 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 Alabama (Birmingham).

San Bernadino’s Pivotal Hearing May Come at Year End

Whether San Bernardino, California, is eligible for municipal bankruptcy may not be decided until late this year, if then, under a schedule laid down at an Aug. 17 hearing in U.S. Bankruptcy Court in Riverside, California.

The firefighter’s union and other creditors wanted a more deliberate schedule leading to a hearing where the bankruptcy court is required to determine whether the city has satisfied conditions under state and federal law to qualify for municipal debt adjustment under Chapter 9 of the federal Bankruptcy Code.

U.S. Bankruptcy Judge Meredith A. Jury instructed the city to file papers by Aug. 31 explaining why San Bernardino qualifies for Chapter 9. Opponents’ papers are due Oct. 24 in advance of a status conference on Nov. 5. There will also be a Sept. 21 hearing to resolve disputes if creditors contend the city failed to turn over relevant documents and information.

For Bloomberg coverage of the hearing, click here.

Holding a status conference in November implies that a final hearing on Chapter 9 eligibility may not begin until December. It’s possible the city and creditors may call multiple witnesses, requiring the judge to hold several days of hearings before all the evidence is taken.

Unlike a Chapter 11 reorganization for companies, Chapter 9 requires the judge to make a threshold determination of eligibility. San Bernardino will be required to show the judge there was a fiscal emergency allowing the city to forgo 60 days of mediation required by state law.

San Bernardino filed for Chapter 9 debt adjustment on Aug. 1, making it the third California city to have sought bankruptcy protection in less than five weeks.

The case is In re City of San Bernardino, California, 12-28006, U.S. Bankruptcy Court, Central District California (Riverside).

Wasendorf Pleads Not Guilty at Three-Minute Arraignment

Russell R. Wasendorf Sr., the founder and former chief executive of Peregrine Financial Group Inc., pleaded not guilty at a three-minute arraignment on Aug. 17. He didn’t oppose being held without bail.

With his assets frozen by a receiver and lacking funds to pay for private counsel, Wasendorf will be defended by a federal public defender. Trial is tentatively scheduled for the last week in October.

He was indicted on Aug. 13 by a federal grand jury in Iowa on 31 counts of making false statement to the U.S. Commodity Futures Trading Commission. The indictment says the reports overstated the amount of segregated customer funds by tens of millions dollars. Precise amounts weren’t given. Wasendorf already confessed to conducting a fraud for 20 years at Peregrine, a futures broker.

For Bloomberg coverage of the arraignment, click here.

The fraud came to light when Wasendorf unsuccessfully attempted suicide outside the firm’s head office in Cedar Falls, Iowa, on July 9. He left behind a suicide note disclosing the fraud. The CFTC alleged that more than $200 million in supposedly segregated customer funds was misappropriated.

The CFTC initiated a receivership action on July 10 in U.S. District Court in Chicago, where the judge appointed a receiver and froze the assets the same day. The company itself filed a liquidating Chapter 7 petition later that day and a trustee was appointed.

The criminal case is U.S. v. Wasendorf, 12-cr-2021, U.S. District Court, Northern District of Iowa (Eastern Waterloo). The bankruptcy case is Peregrine Financial Group Inc., 12-27488, U.S. Bankruptcy Court, Northern District of Illinois (Chicago). The CFTC receivership case is U.S. Commodity Futures Trading Commission v. Peregrine Financial Group Inc., 12-cv-5383, U.S. District Court, Northern District of Illinois (Chicago).

Georgia Prison Inducted Into Chapter 11 in Las Vegas

A privately operated prison in Georgia finds itself in Chapter 11 reorganization in Las Vegas, at least for the next month.

The prison was expanded with proceeds from two issues of municipal bonds on which $54 million is owing. Although the prison had 1,200 beds, the census averaging 700 to 800 covered only operating expenses, the indenture trustee said in a court filing.

Both the bonds and real estate taxes were in default. Irwin County, Georgia, where the prison is located, scheduled a foreclosure auction in view of $1.8 million in delinquent taxes.

The indenture trustee and two bondholders filed an involuntary Chapter 7 petition in February in Las Vegas. The prison’s operator, Terry O’Brien, admitted that Las Vegas is a technically correct venue because that’s the state where his company is located. O’Brien’s company operates the prison under lease from the county, which is the owner.

O’Brien didn’t oppose being in bankruptcy. Instead, he filed papers seeking to have the bankruptcy moved to Georgia for the parties’ convenience.

The Las Vegas bankruptcy judge went ahead and put the prison operator officially into a Chapter 11 reorganization last week. The motion for moving the case to Georgia is scheduled for Sept. 21.

The bondholders are allowing the prison operator to use cash income pledged as part of the security for the bonds.

The case is In re Municipal Corrections LLC, 12-12253, U.S. Bankruptcy Court, District of Nevada (Las Vegas).

Lumber Producer Potomac Supply Sets Sept. 19 Auction

Potomac Supply Corp., a family-owned producer of treated lumber, will auction the business on Sept. 19. There is no buyer as yet under contract, although the company has authority from the bankruptcy court to grant a breakup fee if a purchaser signs a contract in advance of the auction.

Last week, the U.S. Bankruptcy Court in Richmond, Virginia, approved auction and sale procedures. There will be a Sept. 24 hearing for sale approval to whoever made the best bid at auction.

The company filed for Chapter 11 protection in January after the lender Regions Bank (RF:US) cut off access to cash and forced the business to shut down, laying off 158 workers.

The Kinsale, Virginia-based company said it produced 68 percent of income from making treated lumber. Another 22 percent is generated from a sawmill on the property.

The company said the bank had the plant appraised for $17.5 million in July 2011, not including the $4.3 million appraised value of machinery and equipment.

The bank is owed about $17.4 million. In addition, there is $6.4 million owing to trade suppliers, according to a court filing.

The case is In re Potomac Supply Corp., 12-30347, U.S. Bankruptcy Court, Eastern District Virginia (Richmond).

Hawker Seeks Longer Exclusivity During Superior Talks

Hawker Beechcraft Inc. filed papers seeking an extension of the exclusive right to propose a Chapter 11 plan while it conducts 45 days of exclusive discussions with Superior Aviation Beijing Co. Ltd. about a transaction to underlay reorganization.

In mid-July the bankruptcy court in Manhattan gave Superior exclusive negotiating rights. Forty percent owned by the Beijing municipal government, Superior offered to buy most of the aircraft manufacturer for $1.79 billion.

There will be a hearing in bankruptcy court on Aug. 30 for an extension of exclusive plan-filing rights. If the judge approves, so-called exclusivity will be pushed out by four months to Dec. 29.

Before the Chapter 11 filing, Hawker negotiated a reorganization plan with creditors calling for a stand-alone restructuring by converting secured and unsecured debt to equity while reducing debt by $2.55 billion. The plan itself was filed in late June.

Creditors are allowing Hawker to pursue a transaction with Superior that might be more advantageous than a debt-for-equity swap. For details on the swap plan, click here for the July 3 Bloomberg bankruptcy report.

Hawker’s $183 million in 8.5 percent senior unsecured notes due 2015 traded on Aug. 16 for 16.5 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The $302 million in 8.875 percent senior unsecured notes due 2015 traded on Aug. 9 for 17.25 cents, Trace said.

A Wichita, Kansas-based designer and manufacturer of light and medium-sized jet, turboprop and piston aircraft, Hawker generated revenue of $2.34 billion in 2011. Total debt for borrowed money is $2.55 billion, according to the proposed disclosure statement. Other claims include pensions under funded by $493 million, according to a court filing.

The case is In re Hawker Beechcraft Inc., 12-11873, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

TCIM Call Centers Fetch $5.4 Million in Approved Sale

TCIM Services Inc., an operator of six call centers for the banking and telecommunications industries, was authorized last week by the U.S. Bankruptcy Court in Delaware to sell the business for about $5.4 million to Ipacesetters LLC.

The buyer signed a contract before the auction that was canceled because there were no competing offers.

TCIM filed for Chapter 11 protection on June 3 and submitted papers 17 days later for approval of auction and sale procedures. Based in Wilmington, Delaware, TCIM needed Chapter 11 after revenue declined more than 45 percent since January 2011.

The petition stated that assets are less than $10 million while debt is $11.6 million. Liabilities include $7.8 million owing to Manufacturers & Traders Trust Co. on a revolving credit facility. The lender consented to the sale.

The case is In re TCIM Services Inc., 12-11711, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Ruden McClosky Plan to Pay 5 Percent to Unsecured Creditors

Ruden McClosky PA, a law firm that once had eight offices in Florida, is scheduled to hold a confirmation hearing on Sept. 28 for approval of a liquidating Chapter 11 plan with a 5 percent recovery for unsecured creditors.

The firm filed a Chapter 11 petition on Nov. 1 and was authorized on Nov. 30 by the bankruptcy judge in Fort Lauderdale to sell the firm to Greenspoon Marder PA, a six-office Florida firm.

Greenspoon paid $5.6 million cash plus the assumption of $2 million in debt. The sale paid off the secured claim of about $4.6 million owing to Wells Fargo Bank NA. (WFC:US) Shareholders of the firm, often called partners at other firms, had guaranteed the debt.

Last week, the bankruptcy judge approved disclosure materials so creditors can vote on the plan. From the $2.2 million the firm had left after the sale and expected to collect later, some $350,000 will remain for distribution to unsecured creditors once expenses of the Chapter 11 case and claims with higher priority are paid, according to the disclosure statement.

Shrunken in size, the Ruden firm had 67 attorneys and 148 total employees on entering Chapter 11, court papers said.

The case is In re Ruden McClosky PA, 11-40603, U.S. Bankruptcy Court, Southern District Florida (Fort Lauderdale).

Watch List

Newly Opened Revel Casino Isn’t Covering the ’Nut’

The newly-opened Revel casino in Atlantic City, New Jersey, generated gaming revenue “well below expectations” in the first four months of operations, Standard & Poor’s said in an Aug. 17 report.

“Unless operating performance is significantly better than we expect, Revel’s capital structure is not sustainable in its current state and management may need to restructure its debt obligations,” S&P said.

S&P lowered the corporate credit rating by two grades to CCC while the $900 million senior secured term loan was given the same rating.

S&P said it’s “questionable” whether Revel can cover fixed charges in 2013. The picture becomes more bleak in 2014, when second-lien notes begin requiring cash payments, S&P said.

S&P also expects Revel will violate loan covenants in June 2013.

The $850 million senior secured term loan of Revel Entertainment LLC traded on Aug. 17 for 75.125 cents on the dollar, to yield 16.96 percent, according to data compiled by Bloomberg.

The loan traded near par from February into April. For other Bloomberg coverage, click here.

Rotech Healthcare at CCC-; Bonds Yield More Than 24%

Rotech Healthcare Inc. (ROHI:US), the third-largest U.S. provider of home respiratory equipment and services, has “significantly depleted cash reserves” and a corporate credit rating from Standard & Poor’s that plunged on Aug. 17 by four levels to CCC- .

S&P at the same time lowered the rating on the $290 million in second-lien notes to CCC- in view of the company’s “continued negative free operating cash flows.” S&P predicts that the noteholders won’t recover more than 50 percent following payment default.

The Orlando-Florida-based company has 425 centers in 48 states, often in rural areas with less competition.

The 10.5 percent second-lien bonds due in 2018 last traded on Aug. 17 for 59.5 cents on the dollar, to yield 24 percent, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

The stock closed up 2 cents at 70 cents on Aug. 17 in over- the-counter trading. The three-year closing high for the stock was $4.85 on June 8, 2011. The low in the period was 15 cents on Aug. 17, 2009.

Downgrades

Borgata Casino Revenue Falls Less Than Competition’s, S&P Says

The Borgata casino in Atlantic City, New Jersey, is “performing weaker” than Standard & Poor’s expected. Consequently, the corporate rating slipped one level on Aug. 17 to B.

Even though S&P expects cash flow will decline about 15 percent this year, the rating company still expects the property will generate “moderate free operating cash flow,” averaging about $25 million annually.

The bad news for Borgata is that revenue has declined about 4.2 percent this year. The good news is that other casinos are performing worse, with market revenue down 7 percent, S&P said.

The Borgata, a joint venture between Boyd Gaming Corp. (BYD:US) and MGM Resorts International (MGM:US), opened in 2003. The casino’s owner is formally named Marina District Development Co. LLC.

Secure Software Maker IntraLinks Stock, Rating Down

Software provider IntraLinks Holdings Inc. (IL:US) had “meaningfully lower profitability and flat revenue” during the first half of 2012, Standard & Poor’s said Aug. 17 while lowering the corporate credit rating one grade to B+.

“EBITDA margin was about 16 percent in the first half of 2012, down from over 30 percent historically,” S&P said. S&P nonetheless said that liquidity is “adequate.”

IntraLinks, based in New York, develops software allowing customers to share information confidentially with outside parties.

The stock closed on Aug. 17 at $5.55, up 17 cents in New York Stock Exchange trading. The closing high since shares began trading in August 2010 was $31.76 on April 29, 2011. The closing low was $3.84 on June 27.

Advance Sheets

All Chapter 13 Payments May Go to Debtor’s Lawyer

There is no rule making a Chapter 13 plan automatically in bad faith if all payments under the plan go to the bankrupt’s lawyer, a panel for the U.S. Court of Appeals in New Orleans ruled on Aug. 16, reversing the district court.

The case involved an elderly individual whose only income was $1,060 a month in Social Security benefits. She owned a home worth $55,000 with a $40,600 mortgage requiring monthly payments of $327.

She had more than $7,000 in credit card debt. Her bankruptcy lawyer in effect made a loan to cover filing fees. The plan called for the lawyer to receive a $2,800 fee under a so-called no-look local rule, where the requested fee is permitted unless someone objects.

The bankruptcy court confirmed the plan over an objection from the Chapter 13 trustee, who appealed to the district court and won, overturning approval of the plan. The district judge would have sent the case back to the lower court directing the bankruptcy judge to make a finding that the plan was per se in bad faith, because all of the bankrupt’s payments under the plan would have gone to the lawyer.

Writing for the three-judge court, Circuit Judge Patrick E. Higginbotham reverse and ruled that the plan was properly confirmed. He said that the bankruptcy judge didn’t abuse his discretion in concluding that the fee was reasonable.

He also said there is no per se rule making a plan in bad faith if all payments go to the lawyer.

The case is Sikes v. Crager (In re Crager), 11-30982, U.S. Court of Appeals for the Fifth Circuit (New Orleans).

Legal Name Not Required on UCC Financing Statement

There is no requirement in the Uniform Commercial Code that a person’s legal name, or name on a birth certificate, must appear on a financing statement for the resulting security interest to be valid in bankruptcy, a U.S. district judge in Illinois ruled on Aug. 17.

The bankruptcy judge voided a security interest when the financing statement listed the debtor’s name as “Bennie A. Miller,” a variant of names the bankrupt used. His birth certificate said “Ben Miller.”

U.S. District Judge Michael P. McCuskey interpreted the Illinois UCC as only requiring use of a “correct name,” not the person’s legal name. For imposing a requirement not contained in the UCC, McCuskey reversed the bankruptcy court and held the security interest valid.

The case is State Bank of Arthur v. Miller (In re Miller), 12-02052, U.S. District Court, Central District Illinois (Urbana).

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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