Bloomberg News

Patriot Coal, AMR, Tri-Valley, Contec, Ritz: Bankruptcy

September 26, 2012

Patriot Coal Corp. (PCXCQ:US) reported a $29.8 million net loss in August as it awaits a ruling on whether its bankruptcy case will remain in New York or be moved to suit the wishes of thousands of workers.

The St. Louis-based coal producer filed an operating report with the U.S. Bankruptcy Court in Manhattan showing revenue of $168.9 million in August. The operating loss in the month was $19.3 million.

Contributing to the net loss was $4.2 million in interest expense and $6.9 million in “reorganization items.”

Patriot is waiting for U.S. Bankruptcy Judge Shelley C. Chapman to decide if the bankruptcy will stay in Manhattan or be moved to West Virginia, where eight of 12 mines are located, or to St. Louis, site of the head office. Chapman held two days of hearings earlier this month on the question of whether the case belongs somewhere else. Chapman said she will rule later.

A retired truck driver at a Patriot mine wrote Chapman a letter noting that the judge had said she was skeptical of reports there “were thousands marching in the streets of Charleston, calling for this case to be moved here.” The retiree sent Chapman copies of news articles and pictures “that prove there were thousands of us.”

Patriot’s $200 million in 3.25 percent senior convertible notes due 2013 traded on Sept. 21 for 13 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The $250 million in 8.25 percent senior unsecured notes due in 2018 traded yesterday for 50 cents on the dollar.

Patriot is one of the largest coal producers in the U.S. In the Chapter 11 filing July 9, Patriot listed assets of $3.57 billion and debt of $3.07 billion as of May 31.

The case is In re Patriot Coal Corp., 12-12900, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Appeals Court News

Edith Jones Stepping Down as Fifth Circuit Chief Judge

Chief Judge Edith H. Jones will step down as chief judge of the U.S. Court of Appeals in New Orleans effective Oct. 1.

Jones’s early retirement as chief judge is a result of “various family problems,” she told U.S. Supreme Court Chief Justice John G. Roberts Jr. in a letter obtained by Bloomberg News.

Jones, an expert on bankruptcy law before appointment as a judge, was the author of many bankruptcy opinions by the Fifth Circuit in New Orleans.

Jones, who will continue as a judge on the appeals court, said that she will be replaced as chief judge by Circuit Judge Carl E. Stewart, a 1994 appointment by President Bill Clinton.

The circuit court in New Orleans hears appeals from Texas, Louisiana and Mississippi.

Updates

ResCap Junior Secured Notes’ Liens Claimed to Be Partly Invalid

The Residential Capital LLC creditors’ committee said it found more than $1 billion in assets that aren’t properly collateral for the $2.1 billion in junior secured notes.

The creditors’ panel arranged an Oct. 24 hearing where they will ask the U.S. Bankruptcy Court in New York for permission to sue, void parts of the noteholders’ liens, and settle.

ResCap itself can’t sue because the company agreed the liens are valid in accepting financing for the Chapter 11 case begun in May as a prepackaged reorganization, the committee said. The financing required the committee to raise formal objection to lien validity by Sept. 24.

A lawsuit “may yield hundreds of millions of dollars for unsecured creditors,” the committee said.

Upon investigation, the committee said it quickly noted that ResCap published a Dec. 31 balance sheet showing $1.3 billion in collateral for the junior noteholders. When bankruptcy arrived, ResCap said the collateral was actually $2.4 billion.

If the collateral were the larger amount, the noteholders would be paid in full. The day of bankruptcy, the third-lien 9.625 percent secured notes due 2015 traded for 94 cents on the dollar. As the bankruptcy progressed, the notes rose in price, sometimes trading above par. Yesterday, they last traded at 101.25 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

The committee found defects in smaller amounts of collateral. In addition to finding a failure to complete the security interest in about $80 million in cash and other assets, the committee said that the noteholders were given $350 million in new collateral within 90 days of bankruptcy that can be voided as a so-called preference.

ResCap, the mortgage-servicing subsidiary of non-bankrupt Ally Financial Inc. (ALLY:US), filed under Chapter 11 in May, already having negotiated a reorganization plan that would give Ally a release of claims without being in bankruptcy itself.

The bankruptcy court scheduled auctions for Oct. 23 where Fortress Investment Group LLC (FIG:US) will make the first bid for the mortgage-servicing business. Berkshire Hathaway Inc. is to be the stalking horse for the remaining portfolio of mortgages. A hearing to approve the sales is set for Nov. 5.

The $473.4 million of ResCap senior unsecured notes due in April last traded yesterday for 28.9 cents on the dollar, according to Trace.

The case is In re Residential Capital LLC, 12-12020, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Senior American Airlines Pilots Seek Stay on Appeal

A group of 130 American Airlines Inc. pilots hired before 1983 filed papers yesterday asking the bankruptcy judge to hold up implementation of his ruling early this month allowing the unit of AMR Corp. to modify the pilots’ union contract.

The pilot group explained how they gave concessions to AMR in 1983 to avoid bankruptcy at the time. In return, the contract provided that the company in the future would take no action to reduce pay or retirement benefits for pilots hired before Nov. 1, 1983.

The senior pilots contend AMR began violating the 1983 agreement even before the bankruptcy judge approved additional concessions over objections from the pilots’ union.

The senior pilots want the bankruptcy judge to freeze his ruling pending appeal, thus avoiding “irreparable injury” when AMR implements changes in retirement and health benefits on Nov. 1. The pilots contend the bankruptcy court had no ability to override grievance procedures and mandates of the Railway Labor Act.

The pilots’ union filed a motion last week also seeking a stay of contract modifications pending appeal. The union’s request and the senior pilots’ motions will both come to court for hearing on Oct. 9.

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).

Freeh to Pay MF Global Lawyers’ Fees When Cash is Available

In a typical Chapter 11 reorganization, the bankruptcy judge within the first month of the case will approve procedures for paying lawyers and professionals every four weeks. For Louis Freeh, the trustee for MF Global Holdings Ltd., fee-payment procedures weren’t a priority because there was no cash to pay professionals.

Freeh disclosed in a court filing last week that $39.2 million in professional fees have accrued and are unpaid for lack of cash. Freeh nonetheless prevailed on the bankruptcy judge yesterday to approve procedures to pay fees once cash becomes available.

The approximately 10 professional firms representing Freeh and the official creditors’ committee would be paid 80 percent of fees every month. Freeh said he will file another set of papers to begin the fee-payment process “at such time as there are available funds.”

Freeh is in charge of the bankruptcy for the holding company-parent of MF Global Inc., the liquidating commodity broker with a $1.6 billion shortage in supposedly segregated customer funds. The separate trustee for the brokerage pays professional fees with advances from the Securities Investor Protection Corp.

MF Global Holdings and the brokerage subsidiary went into separate bankruptcies on Oct. 31.

The holding company’s Chapter 11 case is In re MF Global Holdings Ltd. (MFGLQ:US), 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.

Lehman Parent to Make Second Distribution of $10.5 Billion

Lehman Brothers Holdings Inc. announced yesterday that the second distribution to be made Oct. 1 under the confirmed Chapter 11 plan will be about $10.2 billion. A court filing lists the percentage distribution for each class under the plan.

In addition, Lehman will pay an additional $328 million on claims that were in dispute when the first distribution was made.

There will be a third distribution in March 2013, Lehman said. About $1.7 billion is being held back on account of disputed claims. The first distribution was about $22.5 billion. For Bloomberg coverage, click here.

The Chapter 11 plan for the Lehman companies other than the brokerage subsidiary was confirmed in December and implemented in March, with a first distribution in April. The Lehman brokerage is yet to make a first distribution to non-customers.

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).

Opus Equity Panel Opposes New Loan for Tri-Valley

The official equity holders’ committee for TVC Opus I Drilling Program LP, an affiliate of bankrupt Tri-Valley Corp. (TVLYQ:US), is urging the bankruptcy judge to hold off for two weeks in approving financing for the Chapter 11 reorganization begun on Aug. 7 in U.S. Bankruptcy Court in Delaware.

The Opus equity committee, appointed Sept. 15, contends the proposed loan will improperly convert $7.2 million of pre- bankruptcy debt into a post-bankruptcy loan, when Opus was never liable on the old debt. The Opus owners also don’t like having liability for $3.85 million in fresh cash because “only a portion” might be used for Opus.

The Opus owners point out that Tri-Valley is the manager of Opus under a partnership agreement. As manager, Tri-Valley isn’t an equity partner in Opus, the owners say.

If the bankruptcy judge isn’t inclined to postpone the financing hearing for two weeks beyond tomorrow’s scheduled hearing, the equity committee wants the judge to sever Opus from the loan and collateral package.

Opus is “by far” the largest unsecured creditor of Tri- Valley, resulting from millions of dollars in expenses improperly charged to Opus over the years, the equity committee said.

An oil and natural gas production and development company, Tri-Valley is scheduled to sell the assets at auctions on Oct. 17 and Dec. 5, under procedures approved on Sept. 5 by the bankruptcy court.

The company filed for Chapter 11 protection in early July, promising to sell the assets promptly. Bids are due by Oct. 10 or Oct 17, depending on which package of assets a bidder hopes to buy. A hearing to approve the sales is set for Dec. 6.

Tri-Valley, based in Bakersfield, California, has 21 wells in California and exploration rights in Alaska. The petition listed assets of $17.6 million and liabilities totaling $14.1 million.

Former Chairman G. Thomas Gamble, who is financing the bankruptcy case, is owed $7.2 million on several secured notes. There is an unsecured note for $528,000 and $9.4 million in unsecured debt owing to suppliers, according to a court filing.

Revenue in 2011 was $2.6 million, resulting in a $1.7 million net loss. In the first quarter this year, revenue of $863,000 produced a $1.5 million net loss.

The case is In re Tri-Valley Corp., 12-12291, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Contec Has Loan Approval; Prepack Approval Set for Oct. 4

Contec Holdings Ltd. secured final approval for a $35 million loan to finance the prepackaged Chapter 11 reorganization begun on Aug. 29 in Delaware.

The pivotal day in bankruptcy court will take place at the confirmation hearing on Oct. 4, when U.S. Bankruptcy Judge Kevin J. Carey will decide whether to approve the reorganization plan where $201 million in senior secured debt will be exchanged for 80 percent of the new equity and $27.5 million in new second-lien notes.

Contec was given interim approval for a $20 million loan in early September.

Acquired in a $525 million transaction in 2008 by funds affiliated with Bain Capital Partners LLC, Contec repairs cable boxes in customers’ homes.

The plan was accepted by the required percentages of affected creditors before the Chapter 11 filing. Unsecured trade suppliers are being paid in full. For details on the plan and Contec’s financial profile, click here for the Aug. 30 Bloomberg bankruptcy report.

Contec is based in Schenectady, New York. The balance sheet at the end of the first quarter showed assets of $494.6 million, including goodwill of $252 million. Total liabilities were $372.6 million.

The case is In re CHL Ltd., 12-12437, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Ritz Camera’s Boater’s World Mark Sold for $140,000

Ritz Camera & Image LLC, once the operator of 265 camera stores and an Internet business, held an auction this week for non-core intellectual property and emerged with a high bid of $140,000.

The winning bidder was Central Florida Yamaha Inc. from Lake Placid, Florida. The opening bid at auction was $25,000.

The auction was for the right to use the name Boater’s World and related trademarks and Internet names. The bankruptcy court in Delaware will hold a hearing tomorrow to approve the sale.

Ritz is liquidating entirely. Unable to find a buyer to acquire the remaining camera stores as a going concern, liquidators were hired to run going-out-of-business sales through the end of October.

Based in Beltsville, Maryland, Ritz called itself the largest camera-store chain in the U.S., with sales of $254 million for the year ended in April. Pre-bankruptcy debt included $16.3 million owing to Crystal Financial LLC, a secured lender with liens on all assets.

The camera stores and the Internet business were both in bankruptcy before. The stores currently operate under names including Ritz Camera, Wolf Camera and The Camera Shop.

The new case is Ritz Camera & Image LLC, 12-11868, U.S. Bankruptcy Court, District of Delaware (Wilmington). The prior case for the camera stores was In re RCC Liquidating Corp., 09-10617, U.S. Bankruptcy Court, District of Delaware (Wilmington). The prior case for the websites was In re Ritz Interactive Inc., 11-21690, U.S. Bankruptcy Court, Central District of California (Santa Ana).

New Filings

Dickinson Theatres Files Chapter 11 along with Plan

Dickinson Theatres Inc., an operator of 18 movie theaters in seven states, filed a proposed reorganization plan along with a Chapter 11 petition on Sept. 21 in Kansas City, Kansas.

Based in Overland Park, Kansas, the company’s theaters have 210 screens. The petition listed assets of $2.2 million and liabilities totaling $7.6 million, including $5.1 million in secured debt.

All of the theaters are leased.

The proposed Chapter 11 plan is designed to pay as much as $840,000 of unsecured claims in full over five years with 4.5 percent interest. Secured claims and leases will be paid according to their terms or restructured.

The case is In re Dickinson Theatres Inc., 12-22602, U.S. Bankruptcy Court, District of Kansas (Kansas City).

Truck-Body Maker Beall Files in Portland, Oregon

Beall Corp., a manufacturer of tank and dump bodies for trucks, filed a petition in Portland, Oregon, on Sept. 24 for Chapter 11 reorganization.

The company, based in Portland, operates five factories. Beall sought Chapter 11 relief in the face of “working capital constraints,” according to court papers.

Beall said its major creditor is “supportive” and negotiating financing for the Chapter 11 case.

Assets and debt both exceed $10 million, Beall said. Chapter 11 will be used to obtain new working capital or form partnerships, the company said in a statement.

The case is In re Beall Corp., 12-37291, U.S. Bankruptcy Court, District of Oregon (Portland).

Get-Rich-Quick Marketer Ends Up in Chapter 11

John N. Beck II, who made millions of dollars selling supposedly fool-proof schemes to get rich quick, filed a Chapter 11 petition this week in Oakland, California.

The Federal Trade Commission said that almost everyone lost money in the investment schemes described in his $39.95 books. He has been enjoined by a court from advertising that people make money from his systems and is partly responsible for repaying $478 million to almost 1 million consumers.

Beck listed assets of less than $10 million and liabilities exceeding $100 million. For the Bloomberg story, click here.

The case is In re John N. Beck II, 12-47882, U.S. Bankruptcy Court, Northern District of California (Oakland). The FTC case is Federal Trade Commission v. John Beck Amazing Profits LLC, 09-CV-4719, U.S. District Court for the Central District of California (Los Angeles).

Watch List

Diamond Castle’s Bonten Media Falls to CCC Corporate

Bonten Media Group Inc., the owner of 24 television stations in eight markets, might be unable on its own resources to repay the revolving credit maturing in May 2013 and cover interest due the next month on subordinated notes, Standard & Poor’s said in a report yesterday.

S&P lowered the corporate credit another grade to CCC. S&P previously downgraded in January 2011.

Bonten, based in New York, was formed in 2006 and is controlled by Diamond Castle Holdings LLC. About two-thirds of its revenue comes from Tennessee, Virginia and North Carolina.

Alion Science at Caa2 Faces Refinancings in 2014-2015

Alion Science & Technology Corp. was lowered by one step on Sept. 24 to a Caa2 corporate rating by Moody’s Investors Service.

“Liquidity sources are not expected to be sufficient to meet the maturity of the company’s entire debt structure coming due in the 2014-2015 time period,” Moody’s said.

Alion, based in McLean, Virginia, provides scientific research and engineering services for the defense, homeland security, energy and environmental industries. The company is being affected by uncertainty regarding defense budgets.

The $243 million of unsecured notes due in 2015 were reduced to a Caa3 rating.

Revenue for the year ended June 30 was $790 million, Moody’s said. For the nine months ended June 30, revenue of $598.5 million resulted a $29.4 million operating profit and a $31.9 million net loss.

The balance sheet was upside down on June 30, with assets of $640.2 million and liabilities totaling $779.4 million.

The $245 million in 10.25 percent senior unsecured notes due in 2015 last traded yesterday for 57.375 cents on the dollar, to yield 39.8 percent, according to Trace, the bond- price reporting system of the Financial Industry Regulatory Authority.

Atwater Could Be Fourth Bankrupt California City

Atwater could be the fourth California city to seek municipal bankruptcy protection this year.

Located about 100 miles (160 kilometers) southeast of San Francisco, the city of 28,000 has a $3.8 million budget deficit brought on by lower revenue and rising costs.

There is a $2 million bond payment due in November and an Oct. 3 vote on a fiscal emergency by the city council.

For the Bloomberg story, click here.

Downgrades

Chapter 11 Veteran Atrium Demoted to CCC+ Corporate

Atrium Cos., which implemented a Chapter 11 plan in April 2010, has been downgraded two years in a row by Standard & Poor’s.

Yesterday, S&P dropped the corporate rating one step to CCC+ in view of tightening loan covenants and weaker demand for replacement windows and doors. S&P also lowered the $185 million term loan to CCC+.

S&P previously downgraded last September. The new S&P rating lines up with the evaluation given that month by Moody’s Investors Service.

Atrium, a Dallas-based manufacturer of aluminum and vinyl windows, implemented a Chapter 11 plan in April 2010 under which existing investors Kenner & Co. and Golden Gate Capital Corp. retained 92.5 percent of the equity by making new investments. For details on the plan, click here for the April 29 2010 Bloomberg bankruptcy report.

The Chapter 11 case was In re Atrium Corp., 10-10150, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Deltek Software Being Downgraded on Thoma Bravo LBO

Deltek Inc. (PROJ:US), a software developer and marketer from Herndon, Virginia, is being downgraded as a consequence of a leveraged buyout by private-equity firm Thoma Bravo LLC.

The increased debt load prompted Standard & Poor’s to lower the corporate rating by two grades on Sept. 24 to B. The proposed $225 million in second-lien debt will have a CCC+ rating.

Daily Podcast

Lehman Brokerage, AMR, K-V, Lien Stripping: Bankruptcy Audio

The trustee for the brokerage unit of Lehman Brothers Holdings Inc. is using a due process argument in hopes of reviving a $1.5 billion judgment against Barclays Plc (BARC), as Bloomberg Law’s Lee Pacchia and Bloomberg News bankruptcy columnist Bill Rochelle discuss on their podcast. There won’t be a resolution anytime soon if there’s a dispute between AMR Corp. and holders of special facility revenue bonds related to the Dallas-Fort Worth airport. Pharmaceutical distributor K-V Pharmaceutical Co. is in a life-or-death struggle with Hologic Inc. (HOLX:US) The last item on the podcast talks about a 1992 U.S. Supreme Court decision on the subject of “lien stripping” that one day might be set aside by the high court itself. 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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