Aug. 14 (Bloomberg) -- Taro Properties Arizona LLC, an Arizona home developer, filed for bankruptcy, blaming a decline in the real estate market and the insolvency of its primary building partner, Trend Homes Inc.

Taro listed assets and debts of as much as $500 million in its Chapter 11 petition filed in U.S. Bankruptcy Court in Phoenix. The company, which calls itself a ``land bank,'' said it tried unsuccessfully to sell itself earlier this year.

Taro, based in Scottsdale, Arizona, made a profit by providing raw land to builders, the company said in court papers. The company ran into liquidity problems when ``a significant number'' of homebuilders ``began to default on their obligations to complete construction on the projects.''

Arizona had the third-highest rate of home foreclosures in the U.S., affecting one of every 70 households, a more than threefold increase from the second quarter of 2007, according to RealtyTrac Inc., a real estate data company. Taro had net income of $4.2 million on revenue of $103 million in 2006, the company said in court papers.

Taro owes its bank lenders $102 million and other creditors whose debts aren't guaranteed with any collateral as much as $60 million, including $45 million in notes.

The company said it plans to use the bankruptcy filing to win new terms on its bank debt with lenders who previously ``refused to negotiate,'' Taro said in court papers.

The case is In re Taro Properties Arizona, 08-10427, U.S. Bankruptcy Court for the District of Delaware (Wilmington).

Other New Filings

Urban Files for Bankruptcy With $2.35 Billion in Debt

Urban Corp., Japan's worst-performing real-estate stock in 2008, filed for protection from creditors with debt of 255.8 billion yen ($2.35 billion), making it the largest bankruptcy among listed companies in Japan this year.

The Tokyo District Court accepted the filing for civil rehabilitation, Hiroshima-based Urban said in a statement yesterday.

Urban's petition, following filings by builders Zephyr Co. and Kyoei Sangyo Co. last month, may herald more bankruptcies of real-estate companies, according to Credit Suisse Group and Shinsei Securities Co. Real-estate companies in Japan are facing difficulty in obtaining funds to buy new properties and refinance existing ones as banks curtail lending.

Urban's filing prompted Hiroshima Bank Ltd., a lender based in southwestern Japan, to reduce its net income forecast by 54 percent because it may not be able to collect loans from the company.

The largest Japanese banks may have less ``obligation'' to support Urban because the builder has not been a client for decades, said Yasuhiro Matsumoto, a credit analyst at Shinsei Securities in Tokyo. He said other newly established real estate companies could follow Urban.

The number of bankruptcies among property companies more than doubled to 60 in July from 27 a year earlier, researcher Tokyo Shoko Research Ltd. said.

For Bloomberg coverage, click here.

Wachovia's BluePoint Re, Financial Insurer, Files Bankruptcy

Wachovia Corp.'s BluePoint Re Ltd. unit, which insures structured finance and municipal transactions, filed for bankruptcy protection in New York and Bermuda courts, citing defaults on securitized mortgages.

BluePoint filed for Chapter 15 bankruptcy in New York yesterday, saying it has more than $100 million in debt. The insurer said it had also filed a primary bankruptcy case in Bermuda, where it is based, on Aug. 7.

BluePoint asked the New York court to recognize the Bermuda bankruptcy proceeding and to protect it from claims in the U.S.

Wachovia reported a $330 million charge related to BluePoint in the second half of 2007. The losses stemmed from credit default swaps on collateralized debt obligations, or CDOs. No losses were recorded this year and Wachovia has no obligation to inject capital into BluePoint, the company said in an Aug. 11 regulatory filing.

BluePoint sought protection from creditors after failing to negotiate a restructuring with Deutsche Bank AG, Royal Bank of Scotland Group PLC, UBS AG and Societe Generale and other banks that were counterparties to the credit default swaps, the insurer said in court papers.

The case is In re Petition of John C. McKenna, as Provisional Liquidator of BluePoint Re Ltd., 08-13169, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Updates

Steve & Barry's Landlords Oppose Sale, Citing Overdue Rent

Steve & Barry's LLC's landlords objected to the sale of the bankrupt retailer, saying the proposed buyer hasn't proven it will pay rent and asking that stores stay open before holiday sales.

Landlords holding leases for 14 shopping-mall locations said in court papers filed in Manhattan bankruptcy court Aug. 11 that Steve & Barry's is in rent arrears by about $376,000. They asked that Bay Harbour Management LC guarantee payment on the leases and provide them with its financial documentation before being approved as a buyer.

The landlords want the stores to stay open until the end of the holiday shopping season on Jan. 31, and asked that the debtor be barred from rejecting leases during that time.

Steve & Barry's, based in Port Washington, New York, won court approval to auction its assets on Aug. 18 after Bay Harbour placed an initial bid of $163 million.

The case is Steve & Barry's Manhattan LLC, 08-12579, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Whitehall Jewelers to Liquidate $750 Million of Inventory

Whitehall Jewelers Holdings Inc., the bankrupt Chicago-based owner of specialty jewelry stores founded in 1895, received court approval to liquidate $750 million of retail inventory. The sales began yesterday.

U.S. Bankruptcy Judge Kevin Gross in Wilmington, Delaware, approved the going-out-of-business sales at all 373 locations. Gross also gave the retailer permission to enter into an agreement for the liquidation with consultants Great American Group LLC, Hudson Capital Partners LLC, Silverman Consultants LLC and Gordon Brothers Retail Partners LLC.

The case is In re Whitehall Jewelers Holdings Inc., 08- 11261, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Death Row Records Auction Bidders Make Peace to Close Rap Deal

A fight for control of the assets of Death Row Records Inc., the bankrupt rap label, ended in a truce with two companies saying they'll work together to close a $24 million sale that includes the rights to popular artists.

Global Music Group Inc. of Delaware dropped a lawsuit against Global Music Group of New York after reaching an agreement to be equal partners, said Ron Goldberg, head of the Delaware group. Last month, the groups traded accusations of death threats and falsifying documents in a dispute in a Los Angeles bankruptcy court over who won an auction to buy the record label. The two companies are now ``virtually 50-50 partners'' said Goldberg in a telephone interview.

Trustees for the bankruptcy case postponed a July 23 deadline to close the sale after members of the New York group alleged in court papers that Goldberg threatened them with extortion and death, prompting a lender to back out of a financing agreement.

Goldberg, who through his lawyer denied making threats, had accused former business partner Anthony Marotta and others of cutting him out of the deal by changing the company's location on bidding documents from Delaware to New York.

Goldberg's attorney, Michael Collesano, said he expects to file the terms of the settlement with the bankruptcy court.

A lawsuit filed by Goldberg in July in California state court to stop Marotta and other former partners from claiming they own Death Row Records' assets had been transferred to the federal bankruptcy court.

U.S. Bankruptcy Judge Vincent Zurzolo refused to hold up the sale because of the suit, saying in a July 24 order that Goldberg's allegations do not attack the validity of the sale, but instead reflect an ownership dispute.

Death Row Records, founded in 1991, signed some of rap's biggest names, including 2Pac, Dr. Dre and Snoop Dogg. It filed for bankruptcy in April 2006 after owner Marion ``Suge'' Knight failed to pay a $107 million legal judgment to former partners Lydia and Michael Harris.

The bankruptcy case is Death Row Records, 06-11205, U.S. Bankruptcy Court, Central District of California (Los Angeles).

Vertis and American Color Get Final Court Approval of Loans

Vertis Inc. and American Color Graphics Inc., which filed coordinated bankruptcies with prepackaged plans, won final court approval of individual financing agreements to fund operations.

U.S. Bankruptcy Judge Kevin Gross in Wilmington, Delaware, yesterday gave permission for Vertis to borrow $380 million and American Color to borrow $135 million. The companies plan to merge through the reorganization approved by vote of creditors before the July 15 filings.

Vertis, an advertising-services provider, has commitments for an additional $650 million in exit financing, which will be available when the prepackaged bankruptcy plan is completed. An Aug. 26 hearing is scheduled to consider approval of the plans.

American Color, the third-largest insert printer in North America, listed assets of $100 million to $500 million and debt of $500 million to $1 billion when it filed. Vertis listed $523 million in assets and more than $1.4 billion in debt.

The cases are In re Vertis Holdings Inc., 08-11460, and In re ACG Holdings Inc., 08-11467, both filed in U.S. Bankruptcy Court, District of Delaware (Wilmington).

Coudert Retired Partners Can't Subpoena Witnesses, Judge Rules

Retired partners of Coudert Brothers, the bankrupt 153-year- old New York law firm, lost their bid yesterday to subpoena former partners to testify at a hearing to confirm the plan of reorganization in the firm's bankruptcy case, a judge ruled.

U.S. Bankruptcy Judge Robert Drain approved in Manhattan bankruptcy court yesterday a motion by Coudert to quash the subpoenas, saying the retired partners hadn't clarified what information they were seeking. Drain said he was ``particularly troubled by conflicting representations of what the subpoenas are for.''

The retired partners had demanded in court documents that former partners testify regarding ``the facts and circumstances surrounding the dissolution of Coudert.'' The law firm had objected to the request, saying it was too broad and was unnecessary as well as irrelevant.

The retired partners, who hold $20 million in claims, also objected to Coudert's bankruptcy plan, which calls for the law firm to liquidate.

The case is In re Coudert Brothers, 06-12226, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

SemGroup Scrambled to Raise $583 Million Pre-Bankruptcy Filing

SemGroup LP, the pipeline and energy-storage company that went bankrupt last month, scrambled to raise $583 million to fund money-losing commodity trades before going bust.

The cash was obtained through the swap of an asphalt business with the company's publicly traded subsidiary, SemGroup Energy Partners LP, and loans from two hedge funds and General Electric Capital Corp., according to regulatory filings and shareholder and creditor lawsuits.

On Feb. 14, SemGroup Energy sold new shares, handing about $138 million in proceeds, plus $241 million it borrowed, to its parent for an asphalt-storage business, according to the prospectus. SemGroup needed the cash to meet margin calls and cover losses on short positions in oil, shareholder Craig Carson said in a complaint filed in federal court in Oklahoma on July 22.

SemGroup ``used the offering as a vehicle to provide much needed cash to the parent,'' the investor said in the complaint. The company this year ``began to suffer margin calls which it had trouble meeting, and had to cover transactions that had declined, and which began to severely impact its business and cause liquidity problems.''

``Massive'' margin calls on trades in energy futures and options sank the Tulsa, Oklahoma-based company, according to its bankruptcy filings. Rising prices forced SemGroup to put up $1.96 billion in the first quarter to cover its bets, more than double the amount it needed a year earlier. While the company said the trading was essential to its business, lenders said it may have been improperly speculating, filings show.

The SEC and a federal grand jury have asked SemGroup Energy for documents related to its bankrupt parent's liquidity, according to a July 24 SEC filing. The unit isn't in bankruptcy.

SemGroup sought protection on July 22 from creditors who are owed about $3 billion.

The U.S. Justice Department asked for a court examiner to investigate SemGroup's bankruptcy, saying the lack of information on its trading strategy is causing ``significant unrest'' to interested parties, according to court papers filed on Aug. 12.

For more about the request for an examiner, click here.

The bankruptcy case is In re SemCrude LP, 08-11525, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Friedman's Seeks Approval of Settlement

Friedman's Inc. and affiliate Crescent Jewelers Inc. have sought court approval of an accord with World Financial Network National Bank, which provided certain credit-card-processing services to the jewelry retailers.

A hearing has been set on the request for Sept. 5.

Under the terms of the agreement, should the court approve, World Financial would be permitted to terminate the processing service agreements and receive an administrative claim of $27,534 and an unsecured claim of $16,239. The claims would account for deterioration and destruction of collateral by World Financial, both in connection with the Friedman's agreement, according to papers filed by Friedman on Aug. 12.

On the Crescent agreement, World Financial would receive an unsecured claim of $1.25 million against the estate of Crescent and an administrative claim of $19,269 to account for returns and chargebacks.

The retailers told the judge that the claim resolutions are in the best interests of the debtors estates. Store closing sales were concluded June 28 and substantially all of the assets have been liquidated.

The bankruptcy reorganization is the second for both companies. Creditors filed an involuntary Chapter 7 bankruptcy case against Friedman's on Jan. 22. Three days later Friedman's consented to a reorganization in Chapter 11 and simultaneously put its affiliate Crescent into Chapter 11, also in Delaware.

The case is In re Friedman's Inc., 08-10161, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Boscov's Official Unsecured Creditors' Committee Appointed

Boscov's Inc., the 9,500-employee department-store chain that filed for Chapter 11 bankruptcy, has a creditors' committee with seven members appointed Aug. 12 by the U.S. Trustee in Delaware. The members are Jones Apparel Group Inc., GMAC Commercial Finance LLC, HanesBrands Inc., Philadelphia Newspapers Inc., VF Jeanswear (d/b/a Lee Co.), Phillips-Van Heusen and Kellwood Co.

The retailer, founded in 1911 in Reading, Pennsylvania, listed $538 million in assets and $479 million in debts as of May 3 in the Aug. 4 court filing. The 40 largest creditors without collateral backing their claims are owed a total of $32.6 million, court papers show.

The case is In Re Boscov's Inc., 08-11637, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Briefly Noted

The Chapter 11 plan for Gallery Corp. became effective yesterday, following approval by the bankruptcy court in a confirmation order last month. The Los-Angeles based mattress retailer sold its assets to OMG Acquisition Corp., an affiliate of Ortho Mattress Inc., last year for $7.1 million.

The case is In re Gallery Corp., 07-11628, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Greektown Casino LLC, the bankrupt gambling facility in downtown Detroit, shouldn't get an exclusive right until June 1 to file a turnaround plan, a group of creditors and a U.S. government representative told a judge. Greektown's request to block competing plans for more than eight months beyond the current Sept. 26 deadline should be denied because the company can realistically gauge its success long before then, U.S. Trustee Daniel McDermott said in an objection filed Aug. 11 in U.S. Bankruptcy Court in Detroit.

The case is Greektown Casino LLC, 08-53104, U.S. Bankruptcy Court, Eastern District of Michigan (Detroit).

SN Liquidation, formerly known as InPhonic Inc., received court approval to seek votes on a liquidation plan that includes the formation of a trust to administer the wireless-service provider's remaining assets. Under the plan, holders of unsecured claims totaling $350.7 million would receive a share of an unspecified amount of the trust, which would be funded from various sources including litigation proceeds and funds provided by buyer Adeptio INPC Funding LLC. Judge Kevin Gross of the U.S. Bankruptcy Court in Wilmington, Delaware, ruled Aug. 12 that the disclosure statement, the debtor's outline of how it proposes to exit from bankruptcy, provides adequate information for creditors to make an informed decision about the plan.

The case is In re InPhonic Inc., 07-11666, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Watchlist

United Community Plunges as Regulators Limit Lending

United Community Financial Corp., the Youngstown, Ohio-based savings and loan, fell the most in 10 years after U.S. regulators ordered it to restrict lending and raise capital. The stock of the savings and loan lost 44 percent of its value in the last 12 months.

A cease-and-desist order was issued by the Federal Deposit Insurance Corp., the Ohio Department of Financial Institutions and the U.S. Office of Thrift Supervision, the lender said in a statement yesterday. United Community must create a plan to reduce debt, improve risk management and find more capital.

The company said it was profitable in the first two quarters of 2008. United Community anticipates higher compliance costs because of the order, which will have ``short-term negative impact on earnings,'' the company said.

United Community subsidiaries operate more than 60 branches in Ohio, Pennsylvania and western New York.

Government Oversight

Jefferson County Wants State to Probe Debt, Newspaper Says

Jefferson County, Alabama, officials may ask the state attorney general to probe whether Wall Street banks broke laws when they persuaded the county to convert $2.2 billion of sewer debt into auction-rate securities, the Birmingham News said.

Commissioner Bobby Humphryes said he would introduce a resolution in two weeks asking Attorney General Troy King to investigate JPMorgan Chase & Co. and other firms, the paper said.

Humphryes said the state should follow New York State Attorney General Andrew Cuomo, who prodded banks to buy back more than $40 billion of auction-rate securities to settle U.S. regulatory claims relating to improper sales tactics. Unlike Cuomo's investigation, which focused on the sellers of the securities and not the issuers, Humphryes wants King to pursue whether the state can force the issuing banks to buy back the debt, the newspaper said.

Interest rates on the county's auction-rate bonds soared in February, pushing the county toward bankruptcy.

Downgrades

GM Downgraded by Moody's; $29 Billion of Debt Affected

General Motors Corp., the world's second-largest automaker, received a downgrade on $29 billion of debt from Moody's Investors Services.

The outlook is negative, the rating company said yesterday in a statement, citing ``challenges the company will face in re- establishing a competitive position in the U.S. automotive market and generating positive operating cash flow.''

Moody's reduced GM's corporate rating to Caa1, seven levels below investment grade, from B3. The downgrade doesn't affect the GMAC LLC financing arm, Moody's said.

Edison Funding Reviewed by Moody's on Concern Over Net Worth

Edison Funding Co.'s senior unsecured notes, valued at about 56 million pounds ($112 million), are under review by Moody's Investors Services for possible downgrade, according to a statement issued by the rating company yesterday.

Edison ``may breach a covenant of a minimum net worth test in its financing documents within the next several months,'' Moody's said. Edison International, Edison Funding's parent company, disclosed in a regulatory filing that it may have a write-off of about $650 million to $1.25 billion tied to cross- border leases entered into by affiliates, Moody's said.

Statistics/Economic Scene

Bankruptcies Reach Highest Level Since Passage of 2005 Law

U.S. bankruptcy filings in July reached the highest monthly level since the passage of a new federal bankruptcy law in October 2005, according to Automated Access to Court Electronic Records, a company that gathers data on court filings.

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 prompted a surge in filings that year as debtors sought protection from creditors before the previous rules were replaced.

In July, 5,664 companies sought to reorganize or liquidate, up 57 percent from 3,611 a year earlier, ACCER said on its Web site. It was only the third time in the past few years that the number had exceeded 5,000, ACCER said.

Of the total, 786 businesses and individuals sought Chapter 11 protection, the highest monthly figure this year and 12 percent more than the 699 in January, ACCER said.

Default Rise to Give Bond Buyers a `Rude Shock,' Fridson Says

Bond investors are underestimating how quickly high-yield debt defaults will rise over the next year, according to Martin Fridson, chief executive officer of Fridson Investment Advisors.

Investors aren't paying enough attention to the growth of bonds rated CCC, the lowest tier, Fridson said. Securities rated CCC account for 23.5 percent of Merrill Lynch & Co.'s U.S. High Yield Master II Index, up from 10.4 percent a decade ago.

Securities rated CCC and lower have lost 5.7 percent this year, more than double the 2.6 percent loss for the average speculative-grade bond, according to index data compiled by Merrill Lynch. High-yield bonds are those ranked below Baa3 by Moody's and BBB- by Standard & Poor's.

For Bloomberg coverage, click here.

To contact the reporters on this story: Carla Main in Jersey City, New Jersey, at cmain2@bloomberg.net; Dawn McCarty in Wilmington, Delaware, at dmccarty@bloomberg.net.

Last Updated: August 14, 2008 11:00 EDT