Delphi, Lehman, Nortel, Buffets, Magna: Bankruptcy

Auto-parts maker Delphi Corp. filed a formal motion to carry out the transfer of the global steering business to former parent General Motors Corp. (GM) that was announced in a statement earlier this week.

In moving the steering operations to GM by April 30, Delphi said it will avoid $50 million of the $72 million cash loss that would have been consumed during the second quarter in the one business segment alone.

In return for taking back control of the business, GM increased its previous commitment by $100 million, to $450 million, for supplying liquidity to Delphi as part of an overall settlement.

To enable the transfer to GM, Delphi and Platinum Equity LLC mutually agreed to cancel the contract approved in February 2008 for the sale of the global steering and halfshaft business. In papers filed this week, Delphi explained that that sale never closed partly because Platinum never reached a supply agreement with GM.

Delphi said that disposing of the steering business will enable it to “manage its liquidity into May 2009.” The former parent and subsidiary are also negotiating to transfer other plants to GM that are “dedicated principally” to supplying the Detroit automaker.

Delphi filed a separate motion precluding the official creditors’ committee from proposing a competing reorganization plan at least until May 31. Both the exclusivity motion and the motion on the steering transfer to GM are on the bankruptcy court calendar for March 24.

Delphi currently has an April 23 hearing for approval of disclosure material relating to the modified reorganization plan. After confirming a Chapter 11 plan in January 2008, Delphi was unable to implement the restructuring and emerge from bankruptcy in April when a group led by Appaloosa Management LP wouldn’t make a $2.55 billion equity investment called for in their commitment.

The plan Delphi couldn’t put into effect claimed to pay unsecured creditors in full with the distribution of new stock.

Troy, Michigan-based Delphi began the Chapter 11 reorganization in October 2005. The annual report for 2008 has assets for $10.3 million against liabilities of $24.6 billion. Revenue in 2008 was $18.1 billion. Delphi said in a recent court filing that the value of the business may no longer be enough to cover outstanding liabilities arising during the reorganization plus the secured debt funding the Chapter 11 case.

The case is In re Delphi Corp., 05-44481, U.S. Bankruptcy Court, Southern District New York (Manhattan).

New Filings

Horse-Track Operator Files in Delaware

Magna Entertainment Corp., the Ontario-based operator of seven horseracing tracks, filed for bankruptcy reorganization yesterday in Delaware in the face of what the company described in court papers as the “near-term maturity on substantially all of its debt.” Magna also was in default on a $12.1 million loan from PNC Bank NA.

Magna has assets of $1.05 billion and $959 million in debt. Liabilities include $500 million in senior and junior secured financings and $255 million in subordinated notes. Trade debt is about $10 million, a court paper said.

The majority shareholder and largest secured creditor is affiliate MI Developments Inc. MI is owed $372 million, it said in a statement yesterday.

Among the tracks Magna owns are Pimlico Race Course in Baltimore and Santa Anita Park in Arcadia, California. Magna generated $593 million of revenue in 2008, with $413 million attributable to pari-mutuel wagering.

The reorganization is to be financed with a $62.5 million loan provided by an affiliate of Ontario-based MI. Both MI and Magna are controlled by Frank Stronach. The financing requires beginning the process this month of selling the assets.

MI is intended to be the initial bidder for assets including three racetracks and two training facilities. The buyer will acquire the assets for $44.3 million cash and the exchange of $135.6 million in debt.

Magna blamed the filing on declining attendance, the recession, and growing competition from other gambling outlets.

To read Bloomberg coverage, click here.

The case is In re Magna Entertainment Corp., 09-10720, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Monaco, Mobile-Home Maker, Files in Delaware

Monaco Coach Corp., calling itself the largest U.S. manufacturer of diesel-powered motor homes, filed a bare-bones Chapter 11 petition yesterday in Delaware. The Coburg, Oregon-based company listed assets of $442 million against debt totaling $209 million.

Most of the workers were laid off earlier this month, the company said in a statement accompanying the filing. Monaco said it intends to sell the business to one or more buyers and is negotiating with lenders for financing.

Although the company said it will make the “customary” motions ordinarily filed on the first day of a reorganization, none were yet on file by early this morning.

The mobile homes are sold under the brand names Monaco, Holiday Rambler, Safari and Beaver. Monaco’s stock topped out at $30.68 in April 2004.

To read other Bloomberg coverage, click here.

The case is In re Monaco Coach Corp., 09-10750, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Lambertson Truex, Handbag Maker, Files in Delaware

Lambertson Truex LLC, a New York-based manufacturer and retailer of designer handbags, filed a Chapter 11 petition yesterday in Delaware, saying assets are less than $10 million while debt is more.

Before filing, the company closed stores in Las Vegas and Los Angeles. The store in New York remains in operation at the request of Samsonite Corp., the majority shareholder, which also guaranteed the New York lease. The company is looking to sell the lease.

Lambertson blamed the filing on the pullback in spending by high-end consumers. The company hopes to sell the wholesale business.

The case is In re Lambertson Truex LLC, 09-10747, U.S. Bankruptcy Court, District of Delaware (Wilmington).

California Real-Estate Developer Files in Santa Ana

Nineteen affiliates of real-estate developer Bethany Group filed Chapter 11 petitions on March 4 in Santa Ana, California. The affiliates have property in Houston, Baltimore and Laurel, Maryland, according to court documents.

To read Bloomberg coverage, click here.

The first-filed case is In re Bethany Austin Mezzanine Apartments LLC, 09-11874, U.S. Bankruptcy Court, Central District of California (Santa Ana).

Other Updates

Tropicana Plan Going to Creditors for Vote

The bankruptcy judge told casino operator Tropicana Entertainment LLC at a hearing yesterday that he would approve disclosure statements explaining the two Chapter 11 plans and schedule a confirmation hearing to begin April 27.

The disclosure statement is designed to give creditors enough information about the plans so they can decide whether to vote “yes” or “no.” If a class of creditors votes the plan down but at least one class of creditors votes in favor by the required majorities, the bankruptcy judge still has power to approve the plan in a confirmation order using the so-called cramdown process.

One plan covers the so-called OpCo debtors that own the Atlantic City property while the second plan deals with the LandCo debtors who own the casinos everywhere else, including Las Vegas.

The LandCo loan facility secured creditors are to receive the reorganized company’s new stock plus the ability to participate in a rights offering. LandCo unsecured creditors, with claims up to $9.4 million, may see nothing and could split up $400,000 if they accept a settlement.

At OpCo, the secured creditors financing the Atlantic City casino likewise are to receive the new stock or proceeds from the sale of the casino. Unsecured OpCo noteholders owed almost $1 billion would recover less than 1 percent, according to the revised disclosure statement. Other unsecured creditors with claims of up to $330 million would see the same negligible payment.

Existing stock is canceled. Unsecured creditors are opposing the plans.

New Jersey regulators took away the gaming license for the Atlantic City property in late 2007 and gave control to a conservator. The takeover of the property began a series of events that ended with the company’s filing under Chapter 11 in May. Tropicana is attempting to recover control from the conservator.

Aside from Las Vegas and Atlantic City, Tropicana’s casinos are in Evansville, Indiana; Vicksburg and Greenville, Mississippi; Baton Rouge, Louisiana; and Laughlin and Lake Tahoe, Nevada. Debt includes $960 million in subordinated notes, $1.3 billion secured by a first lien on most of the assets except the Las Vegas casino where there’s effectively a second lien, and a $440 million secured loan with first lien on the Las Vegas property.

The case is In re Tropicana Entertainment LLC, 08-10856, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Elliott Associates May Force Lehman to Hedge

Lehman Brothers Holdings Inc. originally filed papers in late January for authority to enter into trading and hedging transactions to protect against losses on valuable derivative contracts. Lehman adjourned the motion when it was first on the calendar because it hadn’t reached agreement with the creditors’ committee regarding oversight, according to a court filing this week by Elliott Associates LP.

When the motion for permission to hedge comes before the bankruptcy judge at a hearing on March 11, Elliott will urge the court to give creditors oversight regarding the hedging transactions and estate property pledged in the process.

Concerned that Lehman’s investments are exposed to adverse changes in market value, Elliott says it will file an emergency motion if the March 11 hearing is put off. In the motion, it will ask the court to give the creditors’ committee authority to direct Lehman to enter into hedging transactions. To read other Bloomberg coverage, click here.

In a separate development, Lehman asked Barclays Plc (BARC) to explain how it booked a $3.2 billion gain on the purchase of Lehman’s North American brokerage operation. To read Bloomberg coverage, click here.

The Lehman holding company filed under Chapter 11 in New York on Sept. 15 and sold office buildings and the North American investment banking business one week later. The Lehman brokerage operations went into liquidation on Sept. 19 in the same court. The brokerage is in the control of a trustee appointed under the Securities Investor Protection Act.

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 operations is Securities Investors Protection Corp. v. Lehman Brothers Inc., 08-01420, U.S. Bankruptcy Court, Southern District New York (Manhattan).

Frontier Lands Replacement Financing from Republic

Frontier Airlines Inc. has a commitment from Republic Airways Holdings Inc. (RJET) to provide $40 million in financing to replace the $30 million credit expiring in April.

Frontier says the new loan has a lower interest rate, an additional $10 million, and better terms than the expiring facility. The new loan is scheduled for approval at a March 20 hearing in U.S. Bankruptcy Court in Manhattan.

The loan agreement requires the bankruptcy court to approve two $150 million claims in favor of Republic, one against Frontier and the other against its holding company. The claims arose in May when Frontier rejected the arrangement under which Republic was operating regional aircraft for Frontier.

Republic filed $215 million claims against both the airline and the holding company. The terminated arrangement required Republic to park six aircraft and precluded putting an additional five regional jets into operation for Frontier.

Republic operates regional aircraft for other airlines like American, Delta, Continental, United and US Airways.

Among seven passenger airlines seeking bankruptcy protection since late 2007, Frontier and Sun Country Airlines Inc. are the only ones still operating.

Frontier listed assets of $1.1 billion against liabilities totaling $546 million. Debt includes $454 million in secured claims and $89 million in unsecured claims.

With 62 aircraft serving 70 destinations when it began reorganizing, Frontier now has 54 mainline aircraft and 10 regional jets serving 50 destinations. It is the second-largest carrier operating from Denver, where it competes with United Airlines Inc.

The case is In Frontier Airline Holdings Inc., 08-11298, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Buffets Revises Plan for Lack of Exit Financing

Buffets Holdings Inc., the second-largest family restaurant operator in the U.S., decided it would be impossible to land a $120 million loan to finance the pending Chapter 11 plan. Even though the bankruptcy judge in Delaware approved an explanatory disclosure statement in December, Buffets modified the plan and will attend a hearing March 11 for approval of revised solicitation materials.

The new iteration of the plan gives secured creditors the ability to participate in a new exit loan facility. If it’s fully subscribed by existing creditors, the company will leave reorganization with a $200 million second-lien credit just as the prior plan assumed.

In that event, secured lenders would have 93 percent of the new stock, senior noteholders would have 5.7 percent, and unsecured creditors would receive 1.3 percent.

To the extent existing secured creditors decide not to participate in the new loan, they will instead receive stock valued at an assumed price of almost $23 a share for what is still considered by the plan to be full payment. The new stock issued in that circumstance would dilute the stock being received by other creditors.

Even if no secured creditors elect to make the new loan, the company contends that the plan is worth the same amount to everyone else because there would be proportionally less of the new $200 million second-lien loan. Thus, the revised disclosure statement, like the predecessor, says senior noteholders will recover 4.8 percent while other unsecured creditors will see 4 percent. The recovery by pre-bankruptcy secured creditors is still pegged at 65.1 percent.

Were exit financing available, Buffets would have confirmed the original plan in early February after creditors accepted by the requisite voting majorities.

Buffets filed an operating report for the month ended Feb. 11 showing a $3.98 million net loss on $101.5 million revenue.

The bankruptcy judge extended the company’s exclusive right to solicit acceptances of a reorganization plan until April 30.

Of the 626 stores operating at the outset of the Chapter 11 case, Buffets closed 87 of 603 leased locations and in December had 560 owned or franchised stores in operations.

Eagan, Minnesota-based Buffets operates under the names Old Country Buffet, HomeTown Buffet, Ryan’s and Fire Mountain. Twelve-month revenue was $1.55 billion. The filing listed $964 million in assets against debt of $1.16 billion.

The case is In re Buffets Holdings Inc., 08-10141, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Non-Executive Nortel Bonuses Approved

Nortel Networks Corp. (NRTLQ) on short notice was given permission yesterday to adopt a retention bonus program for 880 key workers not including 92 senior executives. The program is to cost as much as $22 million.

At a hearing on March 20, Nortel is aiming for the court to approve a separate incentive bonus program for the 92 senior managers. If they achieve performance goals, they would receive $23 million, with half not paid until reorganization plans are confirmed. The awards would range from 20 percent to 183 percent of a year’s earnings.

To read Bloomberg coverage, click here.

The Toronto-based Nortel companies, North America’s largest communications equipment providers, filed for bankruptcy reorganization on Jan. 14 in the U.S., Canada and London. Taking all the Nortel companies together, there are $11.6 billion in consolidated assets against debt totaling $11.8 billion as of Sept. 30. Revenue was $9.7 billion in 2007. For the first nine months of 2008, sales were $6.8 billion.

The Chapter 11 case is In re Nortel Networks Inc., 09-10138, and the parent’s Chapter 15 case is In re Nortel Networks Corp., 09-10164, both in U.S. Bankruptcy Court, District of Delaware (Wilmington).

Yellowstone Files New Plan and Disclosure Statement

Yellowstone Mountain Club LLC, a private ski and golf resort for the ultra-wealthy in Big Sky, Montana, was scheduled to hold a March 4 hearing for approval of the disclosure statement explaining the Chapter 11 plan where the project would be sold to private-equity investor CrossHarbor Capital Partners LLC or whoever made the highest offer at auction. As often happens in bankruptcy, unfolding events altered the schedule.

Yellowstone amended the plan and disclosure statement on March 2 and again on March 4. Consequently, the bankruptcy judge in Butte, Montana, rescheduled the disclosure statement hearing for April 1.

Before the hearing, Credit Suisse Group AG (CSGN), as agent for existing secured lenders owed $307 million, filed a motion asking the bankruptcy court to determine the amount and validity of its claim. Credit Suisse says the disclosure statement can’t be approved until it’s known how much of the claim is valid.

The bankruptcy judge scheduled an April 1 hearing to fix the amount of the secured Credit Suisse claim. Credit Suisse also said in a court filing that the proposed plan isn’t confirmable because it assumes the claim is invalid.

The creditors’ committee filed a lawsuit on March 3 aimed at invaliding the Credit Suisse claim while recovering $146 million Yellowstone paid on what was originally $375 million in loans. The committee’s complaint cites the loan agreement as saying $352 million of the loan, made in September 2005, wouldn’t be used for Yellowstone itself. The complaint contends Credit Suisse knew the loan would be used for the personal benefit of the owners, Timothy Blixseth and his wife Edra Blixseth, or companies they controlled.

The bankruptcy judge previously terminated Yellowstone’s exclusive right to file a Chapter 11 plan.

Yellowstone’s plan is based on a sale to CrossHarbor for $100 million, consisting of $30 million cash and a note for $70 million.

A court filing by the Rancho Mirage, California-based developer says the property was appraised in June for $778 million, not including the value of unsold club memberships.

The club is a 13,600-acre property just outside Yellowstone National Park.

The case is In re Yellowstone Mountain Club LLC, 08-61570, U.S. Bankruptcy Court, District of Montana (Butte).

Spectrum Brands Has Final Financing Approval

Consumer-products manufacturer Spectrum Brands Inc. received final approval yesterday for a $235 million loan to support what it hopes is a quick trip through reorganization. A hearing is set for March 19 to consider approving the disclosure statement explaining the pre-negotiated Chapter 11 plan that was filed along with the bankruptcy filing on Feb. 3 in San Antonio.

The plan calls for noteholders to take new stock and $218 million in new notes in exchange for a $1.05 billion debt. Unsecured creditors are to be paid in full just like the holders of $160 million under the existing asset-backed loan. The existing secured credit of $1.35 billion is to be reinstated. Existing stock is to be canceled.

The petition listed assets of $10.1 billion against debt of $4.4 billion.

Brands belonging to Atlanta-based Spectrum include Rayovac batteries and Remington razors.

The case is In re Spectrum Jungle Brands Corp., 09-50455, U.S. Bankruptcy Court, Western District of Texas (San Antonio).

Publishers Ask Trustee for Anderson News

The four publishers who filed an involuntary Chapter 7 petition on March 2 against Knoxville, Tennessee-based book and magazine wholesaler Anderson News LLC filed a motion two days later for the appointment of an interim trustee.

The publishers say they learned on Feb. 19 that Anderson was shutting down and the assets would be applied to a secured loan from Sun Trust Bank. The creditors say the bank loan is $60 million.

The publishers want a trustee to take over immediately because they don’t know what’s happening with $200 million of inventory. They have been given “no accounting of what happened,” their court papers say.

The creditors asking for the trustee are Hachette Book Group Inc., Harper Collins Publishers LLC, Simon & Schuster Inc. and Random House Inc.

The creditors say they are owed $37.5 million.

To read Bloomberg coverage, click here.

The case is In re Anderson News LLC, 09-10695, U.S. Bankruptcy Court, District of Delaware (Wilmington).


Junk Default Rate Rises to 5.2% in February, Says Moody’s

The default rate on speculative-grade companies rose in February to 5.2 percent from 4.8 percent in January, according to a report this week by Moody’s Investors Service regarding bonds it rates.

Measured by dollar amount, the default rate in February was 6.7 percent. Thirteen of the 17 defaulters were in the U.S.

Moody’s predicts that the junk default rate will top out at 15.3 percent in the fourth quarter.

Beltway News

Home Mortgage ‘Cramdown’ Passes House

The House of Representatives yesterday passed legislation by a vote of 234-191 allowing bankruptcy judges to cut down the amount of debt and interest on home mortgages.

At the behest of some lawmakers, the bill was amended before passage to add provisions requiring a homeowner to attempt negotiating with the lender before resorting to a bankruptcy “cramdown.”

The measure goes to the Senate for consideration as early as next week. The bill would permanently increase insurance coverage on bank deposits to $250,000.

The Congressional Budget Office in a report last month estimated that a million Americans could avail themselves of the opportunity to cut down mortgage debt. Remembering that almost 2.1 million Americans filed bankruptcy in 2005 before the law was changed to make discharge more difficult to obtain, this writer believes bankruptcy courts could be swamped with millions more unless lenders head off bankruptcies by voluntarily reducing mortgages.

To read Bloomberg coverage discussing important feature of the House bill, click here.

Hearing on 7-Month Lease Rule Set for March 11

A congressional hearing on whether to modify or eliminate the requirement for assuming or rejecting real-estate leases within 210 days of a Chapter 11 filing was rescheduled to March 11 from March 3.

Under bankruptcy law as it was changed by Congress in October 2005, a company in bankruptcy reorganization must assume real-estate leases within seven months. Any lease not assumed within 210 days is automatically rejected, and the bankrupt company must vacate the premises.

Given how four months are needed to plan and complete going-out-of-business sales, many retailers have begun GOB sales after approximately three months in Chapter 11. The congressional hearing will look into the question of whether the seven-month rule is causing some retailers to liquidate that might have survived at least in part.

The hearing will also examine whether the change in law ended up hurting landlords it was intended to benefit by causing them to lose tenants forced by their creditors into GOB sales.

To read other Bloomberg coverage, click here.

Watch List

Eurofresh Negotiating with Debt Holders

Eurofresh Inc., a producer of tomatoes grown in greenhouses, is negotiating a restructuring with secured lenders and noteholders as a consequence of missing the Jan. 15 interest payment on the 11.5 percent senior notes of 2013, according to Moody’s Investors Service.

The grace period for payment has been extended to March 18.

The debt of Willcox, Arizona-based Eurofresh includes the $170 million in senior notes and $44.2 million in subordinated notes, plus $69.9 million on revolving and term loans, according to Moody’s and Standard & Poor’s.

A year’s revenue through September was almost $180 million, says Moody’s.

Delta Petroleum Costs Unsustainable, Moody’s Says

Delta Petroleum Corp., an independent oil and natural gas exploration and development company from Denver, received a downgrade yesterday from Moody’s Investors Service to a Caa3 corporate rating that’s one notch lower than the demotion issued the day before by Standard & Poor’s.

Moody’s now gives the $150 million in senior unsecured notes a Ca rating.

Moody’s again said Delta has “high and unsustainable costs and leverage.”

S&P said Delta “may be unable” to raise the $140 million in capital required under a forbearance agreement resulting from a loan-covenant violation.

The company’s stock closed yesterday at $1.09, down 10 cents on the Nasdaq Stock Market. The one-year closing high was $28.18 on June 17.

Briefly Noted

Young Broadcasting Inc., the owner of 10 television stations that filed under Chapter 11 on Feb. 13, won final authority to use cash representing collateral for secured lenders’ claims. Court papers said the company’s $21.4 million cash would be sufficient to support operations without a need for outside financing. The petition listed assets of $576 million and debt of $980 million. Debt includes $337 million on secured term loans and $484 million on subordinated notes. The case is In re Young Broadcasting Inc., 09-10645, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Circuit City Stores Inc., once with 721 electronics stores, will finish going-out-of-business sales at the last 567 locations by March 8. At the outset, it was thought the GOB sales might continue until March 31. To read Bloomberg coverage, click here. The Chapter 11 petition filed Nov. 10 in Circuit City’s Richmond, Virginia, hometown listed assets of $3.4 billion and debt totaling $2.3 billion as of Aug. 31. Papers list $898 million owing to the secured revolving credit lenders. Unsecured trade suppliers are owed another $650 million, the company said in a court filing. The case is In re Circuit City Stores Inc., 08-35653, U.S. Bankruptcy Court, Eastern District of Virginia (Richmond).

Hallwood Energy LP, a natural gas exploration and production company, filed a Chapter 11 petition on March 1 and yesterday received interim authorization to use cash representing collateral for secured lenders. The final hearing on cash use will be held April 1. Hallwood owes $115 million on two secured loans from Hall Phoenix Inwood Ltd. plus $30 million on convertible unsecured notes. The properties are in West Texas, Arkansas and southern Louisiana. The parent company, Hallwood Group Inc., isn’t in bankruptcy. The attorney for Dallas-based Hallwood is the brother of this writer. The case is In re Hallwood Energy LP, 09-31253, U.S. Bankruptcy Court, Northern District of Texas (Dallas).

Interlake Material Handling Inc., the largest manufacturer of heavy-duty steel storage racks in the U.S., was authorized yesterday to sell the business for $30 million to Mecalux SA, Spain’s largest maker of warehouse equipment. There were no competing bids at auction. Interlake filed under Chapter 11 on Jan. 6. Revenue in the last fiscal year was $302 million. The senior secured lender banks are owed $36 million while the debt to junior secured creditors is $11.6 million. Unsecured trade suppliers are owed another $30.1 million, according to a company court filing. The case is In re Interlake Material Handling Inc., 09-10019, U.S. Bankruptcy Court, District of Delaware (Wilmington).


Kodak Downgraded, Stock Touches Record Low

Eastman Kodak Co. received a one-notch downgrade yesterday by Standard & Poor’s to a B- corporate rating in view of the “high rate of cash consumption.”

S&P matched the demotion issued in February by Moody’s Investors Service. S&P said that the “cash balance could quickly diminish if substantial negative discretionary cash flow generation does not abate.”

Moody’s had said that Kodak “could” consume as much as $700 million in cash this year as a result of lower profitability, restructuring costs and paying stock dividends.

The Rochester, New York-based company generated $9.4 billion in sales during 2008. Kodak makes imaging products for consumers, professionals, and medicine.

The stock ended yesterday at $2.45, a record-low close on the New York Stock Exchange. During the past two years, the closing high was $29.68 on June 18, 2007.

To contact the reporter on this story: Bill Rochelle in New York at

To contact the editor responsible for this story: David E. Rovella at

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