Bloomberg News

Savient Drug Auction Doubles Price: Bankruptcy

December 12, 2013

Savient Pharmaceuticals Inc., a developer of a treatment for gout, held an auction this week where the price more than doubled, with the winning bid of $120.4 million made by Crealta Pharmaceuticals LLC.

A hearing to approve the sale will take place tomorrow in U.S. Bankruptcy Court in Delaware.

Before the auction, senior secured noteholders worked out a global settlement with the unsecured creditors’ committee allowing the sale to go forward without objection. The settlement gives unsecured creditors a minimum of $1.775 million.

Had there been no competitive bidding, an affiliate of US WorldMeds LLC would have bought the business for $55 million and $3 million in escrow. The purchase price to be paid by Crealta will be reduced by the cost to cure contracts that are behind in payment.

Because the sale topped $60 million, the creditors may be entitled to an additional $750,000. For details on the settlement, click here for the Dec. 11 Bloomberg bankruptcy report.

Savient filed for Chapter 11 protection in October. The petition listed assets of $73.8 million against liabilities totaling $260.4 million. Bridgewater, New Jersey-based Savient owes $145 million to secured noteholders.

The case is In re Savient Pharmaceuticals, 13-12680, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Updates

ResCap Confirms Plan After Noteholder Settlement

For Residential Capital LLC, what would have been a tortuously contested plan-approval hearing turned into a relative walk in the park, as the result of a settlement with junior secured noteholders.

The bankruptcy judge in New York signed a confirmation order yesterday approving ResCap’s Chapter 11 reorganization plan.

With most other creditors on board supporting the plan, junior secured noteholders were the holdouts. They contended their collateral was worth more than the debt, thus giving them the right to post-bankruptcy interest along with reimbursement of fees.

A settlement last week gave the noteholders an extra $125 million on top of what they were already offered in the plan.

During bankruptcy, the noteholders received $1.1 billion to pay down their bonds. Given their claims for $2.22 billion plus the $125 million, the revised plan will give them an additional payment of about $1.25 billion.

The junior noteholders were in a position where settlement made sense because the bankruptcy judge tentatively ruled last month that they were several hundred million dollars short in collateral value before reaching a threshold where they would be entitled to post-bankruptcy interest. For a rundown on the opinion, click here for the Nov. 18 Bloomberg bankruptcy report.

ResCap is the mortgage-servicing subsidiary of non-bankrupt Ally Financial Inc. (ALLY:US) The plan is based in part on a $2.1 billion settlement contribution from Ally. The plan and related settlements gives Ally “releases for all mortgage-related claims,” the parent said in a statement yesterday.

The disclosure statement explaining the plan told holders of ResCap’s $2.15 billion in general unsecured claims they should have a 36.3 percent recovery. Unsecured creditors with $2 billion in claims against the so-called GMACM companies are expected to receive 30.1 percent.

The $1.1 billion in third-lien 9.625 percent secured notes due in 2015 traded at 4:02 p.m. yesterday for 110.938 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The bonds sold for almost 120 cents in August.

The $473.4 million of ResCap senior unsecured notes due in April 2013 last traded on Dec. 9 for 36.875 cents on the dollar, a 57 percent increase since Dec. 19, 2012, according to Trace.

ResCap filed for Chapter 11 protection in May 2012.

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

OSG Noteholders’ Plan to Include Rights Offerings

The Overseas Shipholding Group Inc. (OSGIQ:US) creditors’ committee is becoming impatient with the company’s progress toward proposing a Chapter 11 reorganization plan.

The committee and an ad hoc group of unsecured noteholders both developed term sheets for reorganization plans. According to the committee, the noteholders’ proposal would include a “multi-party rights offering” along with third-party financing.

OSG, the committee says, is currently trying to determine whether financing for the noteholder plan is feasible. Meanwhile, the company wants the bankruptcy judge to extend exclusive plan-filing rights until Feb. 28.

At a hearing on Dec. 19 in U.S. Bankruptcy Court in Delaware, the committee will tell the judge that an extension of exclusivity until Jan. 31 is sufficient. The indenture trustee for secured lenders also believes exclusivity shouldn’t go beyond the end of January.

The market is predicting a good outcome for noteholders. The $300 million in 8.125 percent senior unsecured notes due 2018 traded at 1:57 p.m. on Dec. 11 for 102 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The notes brought as little as 18.75 cents on the day of bankruptcy.

The stock market also indicates OSG is solvent. The shares yesterday closed up 15 cents at $4.40 in over-the-counter trading. The stock sold for about 55 cents on the day of bankruptcy last year and marked a post-bankruptcy high of $5.03 on Nov. 12.

OSG filed for Chapter 11 protection in November 2012, operating 90 vessels. It is one of the largest publicly-owned transporters of crude oil and petroleum products.

It has the largest fleet of Jones Act tankers, the only vessels permitted to operate between U.S. ports. The perceived value of the Jones Act fleet explains market prices for the stock and bonds.

The company has said it is considering splitting up the U.S. flag and international fleets as part of a reorganization plan.

OSG listed assets of $4.15 billion against $2.67 billion in liabilities, including $1.49 billion on an unsecured credit agreement with DNB Bank ASA as agent.

In addition to the $312 million in loans made by the Export-Import Bank of China for construction of five tankers, there is $518 million in unsecured notes and debentures plus $267 million on ship mortgages to finance nine vessels.

The case is In re Overseas Shipholding Group Inc., 12-bk-20000, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Centerbridge Plan in the Works for LightSquared

LightSquared Inc. filed a notice in bankruptcy court canceling yesterday’s auction for the developer of a satellite-based wireless communications system. The special committee of LightSquared’s board is pursuing an “alternative transaction,” the filing said.

People familiar with the matter said that Centerbridge Capital Partners LLC is teaming with Fortress Investment Group LLC (FIG:US) and Philip Falcone’s Harbinger Capital Partners LLC, LightSquared’s controlling shareholder, to make a $3.3 billion bid that would best the $2.2 billion offer from Charles Ergen’s Dish Networks Corp. (DISH:US)

The Centerbridge offer entails the assumption of $1.7 billion in debt. For Bloomberg coverage, click here.

The confirmation hearing for approval of one of the four competing plans is scheduled to begin Jan. 9.

The plans include one each by LightSquared, Harbinger and a group of secured lenders, plus one from Mast Capital Management LLC. Dish would take control under the secured lenders’ plan.

LightSquared filed for bankruptcy reorganization in May 2012, listing assets of $4.48 billion and debt of $2.29 billion. U.S. regulators blocked the service after makers and users of global positioning system devices, including the U.S. military and commercial airlines, said LightSquared’s signals would disrupt navigation systems.

The case is In re LightSquared Inc., 12-bk-12080, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Park Cities Bank Heading for Contested Sale Hearing

Park Cities Bank in Dallas seems headed for a contested sale-approval hearing tomorrow because the official creditors’ committee disagrees about who won the auction on Dec. 9.

When the bankruptcy court in Delaware approved auction procedures, the first bid of about $7.4 million was to be made by Park Cities Financial Group Inc. If outbid, Park Cities Financial was to receive $750,000 in a breakup fee and expense reimbursement.

At conclusion of the all-day auction, Park Cities Financial’s high bid was $11.8 million. Olney Bancshares of Texas Inc. made an offer of $11.44 million.

After deducting the stalking horse bidder’s breakup fee, the net from Olney would be $10.7 million, according to a court filing by the official creditors’ committee.

The bank tapped the Olney, Texas-based bank as having the best offer based on concern that Park Cities Financial “might not be able to close the transaction,” according to the committee’s court filing. The bank “had never before hinted in these proceedings” that there was any concern about the stalking horse’s ability to close, the committed said.

The committee wants the judge to declare Park Cities Financial to be the winning bidder and hold Olney’s offer open until January in case the sale at the higher price isn’t completed.

The bank had more than $396 million in deposits, four branches and 71 employees as of Sept. 30, according to a court filing.

The holding company listed debt of $39.3 million, including some $34 million on trust preferred securities. North Texas Bancshares owes Providence Bank about $5.2 million in secured debt.

The case is In re North Texas Bancshares of Delaware Inc., 13-bk-12699, U.S. Bankruptcy Court, District of Delaware (Wilmington).

New Filings

Military Radar Maker Star Dynamics Files in Columbus

Star Dynamics Corp., a developer and provider of radar systems for the military, filed a petition for Chapter 11 protection on Dec. 10 in Columbus, Ohio, in part to halt a lawsuit by BAE Systems Plc. (BA/)

Hilliard, Ohio-based Star makes radar systems for use on missile test ranges. Customers include militaries in the U.S., Sweden, South Korea and Israel.

Assets are on the books for $28.5 million, against debt totaling $50.9 million. Revenue through Nov. 30 was $8.1 million, according to a court filing.

London-based BAE alleged that Star misappropriated trade secrets. Although some of the suit was dismissed, the state court enjoined Star from negotiating to acquire some projects in Europe.

The case is In re Star Dynamics Corp., 13-59657, U.S. Bankruptcy Court, Southern District of Ohio (Columbus).

Bay Area Financial Files to Sell Loans, Properties

Mortgage lender Bay Area Financial Corp. filed a petition for Chapter 11 protection on Dec. 9 in Los Angeles to assist in what it called the “orderly liquidation” of the remaining loan portfolio and owned real property.

The company ceased making new loans in 2008. Managing the portfolio since then, Bay Area decided to liquidate early this year and hoped to do so without bankruptcy.

Most of the mortgages are secured by junior liens, according to a court filing.

The company said it believes it can generate $16.1 million through disposing of the remaining loans and properties.

There is no secured debt, although $141,000 is owing on a priority tax claim.

Cash on entering Chapter 11 was about $1.4 million, to be supplemented by almost $700,000 from an upcoming property disposition.

The petition lists assets and debt both exceeding $10 million.

The case is In re Bay Area Financial Corp., 13-38974, U.S. District Court, Central District of California (Los Angeles).

Downgrades

Carlyle’s Sequa Demoted to B3 Corporate by Moody’s

Sequa Corp., acquired by Carlyle Group LP in a $2.66 billion leveraged buyout in 2007, was downgraded one step yesterday by Moody’s Investors Service to a B3 corporate rating.

Moody’s based the downgrade on “low free cash flow” and liquidity that’s “only adequate.”

The $350 million in senior unsecured notes were lowered one grade to a Caa2 rating.

For the year ended in September, revenue for the Tampa, Florida-based company was $1.35 billion, according to Moody’s.

Sequa provides products for the aerospace and metal-coating industries.

Defense Contractor Artel Downgraded to CCC+ by S&P

Artel LLC, a provider of satellite network services for the military, had one grade removed from its Standard & Poor’s corporate rating yesterday.

The new corporate rating is CCC+.

S&P said the Reston, Virginia-based company isn’t likely to remain in compliance with loan covenants “in the next few quarters” as a result of Defense Department budget cuts.

Revenue of $55 million in the September quarter was down 27 percent from the year before, S&P said.

Advance Sheets

Chapter 15 Requires Property in the U.S., Circuit Rules

The U.S. Circuit Court of Appeals in New York ruled yesterday that liquidators in a foreign bankruptcy can’t use Chapter 15 under the U.S. Bankruptcy Code unless the bankrupt company resides or has a place of business or property in the U.S.

The opinion, reversing the bankruptcy court, means that foreign liquidators can’t use the U.S. bankruptcy court to conduct investigations or take discovery without first establishing there is property in the U.S.

The case involved an Australian bankruptcy where the liquidators filed a Chapter 15 petition and sought to take discovery from a hedge fund in the U.S. Over the hedge fund’s objection, U.S. Bankruptcy Judge Shelley C. Chapman in Manhattan ruled that the Australian proceedings were entitled to recognition as the so-called foreign main proceeding.

Chapman’s ruling meant creditor actions in the U.S. were halted automatically. It also meant the liquidators could use the bankruptcy court for discovery.

Recognizing the importance of the issue and the dearth of authority, Chapman authorized a direct appeal to the Second Circuit. Meanwhile, she granted the liquidators’ request to take discovery from the hedge fund.

The primary issue involved Section 109(a) of the Bankruptcy Code and its requirement that a bankrupt must reside, have a place of business, or assets in the U.S. The liquidators argued that the section doesn’t apply in Chapter 15 cases.

Writing for the three-judge appeals court, Circuit Judge Chester J. Straub concluded that the plain meaning of the statute makes Section 109 applicable in a Chapter 15 case because that section is incorporated in Chapter 15 cases by Section 103(a).

Beyond plain meaning, Straub said a textual analysis supports making Section 109 applicable. He noted that the Collier treatise on bankruptcy and two law review articles took the position that the section applies in Chapter 15.

Straub said that the venue provision for Chapter 15, Section 1410 of the Judiciary Code, is “purely procedural” and its lack of a requirement of U.S. property doesn’t excuse compliance with Section 109.

The opinion contained several notable procedural twists. Straub said that the hedge fund wasn’t a “person aggrieved” and thus lacked standing to appeal from the recognition order because there was no direct and adverse pecuniary effect.

The hedge fund nonetheless was aggrieved by and could appeal from the discovery order, Straub ruled. The discovery order brought up the recognition order for appellate review.

The case is Drawbridge Special Opportunities Fund LP v. Barnet (In re Barnet), 13-612, U.S. Second Circuit Court of Appeals (Manhattan).

Defensive Appellate Rights are Property in Texas Law

“Defensive appellate rights” are property that a bankruptcy trustee can sell, thus precluding an individual bankrupt from appealing.

Before filing in Chapter 7, an individual lost a lawsuit in state court and was saddled with sanctions. Over objection from his state court adversary, the bankrupt persuaded the bankruptcy judge to modify the automatic stay so he could pursue an appeal he filed before bankruptcy.

On a first appeal, district court reversed the bankruptcy court and ruled that defensive appellate rights are property of the estate under Texas law that could be sold to the adversary. The U.S. Court of Appeals in New Orleans reached the same result in an unsigned opinion on Dec. 10.

The Fifth Circuit in New Orleans said only two lower courts reached the same issue. A California state court ruled that defensive rights are property, while a bankruptcy court in Iowa ruled they aren’t.

The New Orleans court said appellate rights are property under Texas law because they are “valuable in nature.”

The circuit court noted that lawsuits and appellate right previously have been held to be property.

The case is Croft v. Lowry (In re Croft), 13-50020, U.S. Fifth Circuit Court of Appeals (New Orleans).

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

To contact the editor responsible for this story: Andrew Dunn at adunn8@bloomberg.net


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