R.H. Donnelley, Chrysler, Metaldyne: Bankruptcy

Yellow-page publisher R.H. Donnelley Corp. filed a Chapter 11 petition late yesterday in Delaware along with agreement on a reorganization plan reducing debt by $6.4 billion and giving all of the new stock and $300 million in unsecured notes to holders of 11 issues of unsecured notes.

Donnelley said the plan is supported by more than two- thirds of secured creditors and a majority of unsecured bondholders. The Cary, North Carolina-based company blamed the filing on declining advertising revenue.

The petition listed assets of $11.9 billion against debt totaling $12.4 billion. Debt includes $3.64 billion on term loans and revolving credits in addition to the $6.33 billion in unsecured notes. Revenue from continuing operations in 2008 was $2.62 billion.

After reorganizing, Donnelley expects to have $3.1 billion in secured debt and $300 million in unsecured notes.

Donnelley had missed a $55 million interest payment due April 15 on one issue of unsecured notes. The company then didn’t make $78 million in interest payments due May 15 on four other note issues. Donnelley was also facing the 2010 maturity of $1.2 billion in debt.

R.H. Donnelley shouldn’t be confused with Chicago-based R.R. Donnelley & Sons Co., which this month made an unsolicited offer for Quebecor World Inc., the reorganizing commercial printer. R.R. Donnelley provides printing services for R.H. Donnelley, as does Quebecor.

R.H. Donnelley had revenue of $602 million in the first quarter, resulting in $164 million of operating income and a $401 million net loss. Interest expense in the quarter was $199 million.

The case is In re R.H. Donnelley Corp., 09-11833, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Updates

Chrysler Sale Hearing Continues Today

The hearing to decide whether Chrysler LLC can spin off the core business continued for a second day yesterday, with Chrysler witnesses being cross-examined by objecting creditors.

Optimistically, the judge may hear closing arguments from the lawyers today. If the judge approves the government- sponsored transaction, the “new” company will be 20 percent owned by Fiat SpA. Secured lenders owed $6.9 billion are to receive $2 billion in cash.

Chief Executive Robert Nardelli testified yesterday. To read Bloomberg coverage of yesterday’s hearing, click here.

Chrysler filed under Chapter 11 on April 30, listing assets of $39.3 billion and debt totaling $55.2 billion. Revenue in 2008 was $48.5 billion.

The case is In re Chrysler LLC, 09-50002, U.S. Bankruptcy Court, Southern District New York (Manhattan).

RHJ, Carlyle to Buy Most Assets of Newly Bankrupt Metaldyne

Metaldyne Corp., one of two auto-parts makers to file under Chapter 11 in the late evening of May 27, disclosed the identity of the two leading bidders for a majority of the business.

The maker of parts for automobile transmissions, engines and chassis said Brussels-based RHJ International signed a non- binding letter of intent to buy the sintered products, vibration control, power train and European forging businesses for $25 million in cash, a $50 million note, the rollover of a $20 million note owed by a German subsidiary and the assumption of debt.

RHJ is the majority owner of Metaldyne’s Japan-based parent Asahi Tec Corp.

Carlyle Group signed a separate letter of intent to buy some of the chassis business in the U.S., Mexico and Spain. The price wasn’t mentioned.

Metaldyne’s petition in New York listed assets of $977 million against debt totaling $927 million.

Metaldyne was acquired for $1.2 billion in January 2007 by Asahi, which will “no longer continue its economic support,” the company statement said. Instead, Metaldyne arranged $18.5 million in financing funded through “economic participations” by some of the company’s customers.

Debt includes $408 million on a senior secured term loan, $10 million on a revolving credit, $35.5 million on an asset- backed loan, $29.3 million on senior notes, and $65 million owed to trade suppliers.

In addition, Metaldyne owes $27.5 million to Chrysler, $22.7 million to Ford Motor Co. and $9.75 million to General Motors Corp. for money borrowed last year to finance part of a tender offer that reduced debt by $360 million.

Foreign operations didn’t file, nor did the parent Asahi.

Plymouth, Michigan-based Metaldyne generated $1.5 billion revenue in 2008 from 34 plants in 14 countries. Sales for the fiscal year ended March 29 were $1.32 billion.

The case is In re Metaldyne Corp., 09-13412, U.S. Bankruptcy Court, Southern District New York (Manhattan).

Primus Creditors’ Committee Wants to Sue for Fraudulent Transfer

The official creditors’ committee of Primus Telecommunications Group Inc. believes that an exchange offer for noteholders in May 2008 was a fraudulent transfer. The committee filed papers this week asking for authorization to file suit against the noteholders and to delay the confirmation hearing currently scheduled for June 12.

A year ago, noteholders were given the ability to exchange unsecured notes for secured notes with a higher interest coupon. The committee says the company was insolvent at the time, making the granting of the security interest a so-called constructively fraudulent transfer that can be voided in bankruptcy.

The committee points out how exchanging noteholders stand to receive almost full payment in some cases while those who didn’t are to see nothing to 32 percent, maximum.

The committee’s tactic flies in the teeth of the company’s strategy of confirming a reorganization plan that was negotiated before the Chapter 11 filing in March. The committee previously filed a preliminary objection to the plan, saying it undervalues the company and may discriminate unfairly against some unsecured creditors.

To justify slowing down the confirmation process by 60 days, the committee says it’s impossible to perform necessary investigations in time to begin the confirmation hearing on June 12.

The bankruptcy court approved the disclosure statement in late April allowing creditors to begin voting. The plan reduces $575 million of loans by $315 million. It was negotiated before bankruptcy with “significant majorities” of the holders of the second-lien secured notes, $23.3 million of 5 percent exchangeable senior notes and $186 million of 8 percent senior notes due 2014.

The plan for the McLean, Virginia-based holding company would give the second-lien noteholders, owed $173.2 million, half of the new stock plus $123 million in new second-lien debt, for a recovery estimated at 92 percent to 100 percent.

The holders of the 8 percent senior notes and the 5 percent exchangeable notes are to get the other half of the new stock plus warrants, for a recovery of 22 percent to 32 percent.

The holders of $34.2 million of 3.75 percent convertible senior notes, $8.6 million in step-up convertible debentures and $14.2 million of 12.75 percent senior notes are to receive warrants that could be worth almost nothing.

Existing stockholders are slated to receive “contingent value rights” that could be exchanged for 15 percent of the new stock when the value of the company rises sufficiently. The contingent rights don’t currently have any value, the disclosure statement says.

Primus also has a $96.25 million first-lien term loan to be reinstated under the reorganization plan.

The Primus operating companies didn’t file. The balance sheet for Sept. 30 listed assets of $393 million and total liabilities of $827 million.

The case is In re Primus Telecommunications Group Inc., 09- 10867, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Source Interlink Confirms Plan in One Month and One Day

Publisher and distributor Source Interlink Cos. confirmed its prepackaged reorganization plan one month and one day after filing in Chapter 11.

The plan, negotiated and voted on before the petition was filed April 27, reduces debt by $1 billion and provides $400 million in new liquidity. It extinguishes $465 million in senior unsecured notes and gives the new stock to secured lenders.

While trade suppliers will be paid in full under the plan, holders of the $465 million in unsecured senior notes receive nothing.

The plan calls for the existing secured term loan and revolving credit lenders to receive all of the new stock of the holding company to the extent the existing debt isn’t paid off or converted into new debt after the reorganization. The lenders will have a $200 million unsecured loan owing by the holding company and $315 million in a new secured term loan owing by the operating company. They will also receive one dollar of debt for each dollar of financing provided during the bankruptcy reorganization.

After reorganization, the capital structure will consist of a $300 million secured revolving credit, an $85 million secured term loan A, and a $400 million term loan B.

The petition listed assets of $2.4 billion and debt totaling $2 billion. Annual revenue is $2.4 billion.

The shareholders who will lose their interest in the company include an affiliate of Ron Burkle’s Yucaipa Cos., currently the owner of 48 percent of the stock.

Motor Trend and Soap Opera Digest are among the magazines in the publishing division. Bonita Springs, Florida-based Source publishes 75 magazines and 90 related Web sites. It also distributes CDs and DVDs in the U.S.

The case is Source Interlink Companies Inc., 09-11424, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Fortunoff Creditors Aiming to Sue Lenders for Improper Default

Although Fortunoff Holdings Inc. filed bankruptcy a second time in February and was liquidated, the official creditors’ committee believes the bank lenders improperly declared a default, precipitating the liquidation.

When the remnants of Fortunoff were authorized in March to use cash representing collateral for the secured creditors, the committee was given a May 31 deadline for investigating the validity of the lenders’ security interest.

The committee reported in papers filed this month with the bankruptcy court that Wells Fargo Retail Finance LLC improperly excluded inventory from the borrowing base determination. As a result, Fortunoff had borrowed more than the loan permitted, the bank contended. As a result of the ensuing declaration of default, Fortunoff was back in bankruptcy.

The committee believes the lenders saw the business as declining and were looking for an excuse to exit the credit.

The committee’s motion asks for permission from the bankruptcy court to sue the lenders. The committee’s motion comes up for hearing in Manhattan bankruptcy court on June 4.

Finding itself back in Chapter 11 in less than one year, the 20-store jewelry and outdoor goods retailer has conducted going-out-of-business sales to be concluded this month. The liquidators guaranteed a recovery of not less than 88.8 percent of the cost of inventory.

The new Chapter 11 petition listed assets of $154.7 million against debt totaling $139.5 million. With 23 stores at the time, Fortunoff first entered Chapter 11 on Feb. 4, 2008, and sold the business a month later to NRDC Equity Partners LLC, a joint venture among principals of National Realty & Development Corp. and Apollo Real Estate Advisors LP. NRDC is the owner of the Lord & Taylor department stores.

Last year’s case was formally dismissed in December without confirming a Chapter 11 plan or converting the case to liquidation in Chapter 7. The New Chapter 11 filing took place on Feb. 5.

The new case is In re Fortunoff Holdings Inc., 09-10497, and the previous case was In re Fortunoff Fine Jewelry and Silverware LLC, 08-10353, both in U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Frontier Reports Third Monthly Profit Since Filing

Frontier Airlines Inc. yesterday reported a $2.3 million net profit for April on revenue of $86.5 million. Operating income for the month was $5 million.

Until last month, November and December had been the only profitable months since Frontier filed under Chapter 11 more than a year ago.

The Denver-based airline had a $161 million net loss in the first quarter on revenue of $264 million. The operating profit for the quarter was $25.1 million.

From the inception of the bankruptcy reorganization in April 2008, the cumulative net loss is $235.4 million on combined revenue of $1.27 billion

Cash at the end of April was $70 million, compared with $71.8 million at March 31.

Flying 62 aircraft to 70 destinations when it began reorganizing in April 2008, Frontier now has 51 mainline aircraft and 10 regional jets serving 50 destinations. It reduced capacity by 20 percent in the past year.

Frontier is the second-largest carrier operating from Denver, where it competes with United Airlines Inc.

The petition listed assets of $1.1 billion against liabilities totaling $546 million. Debt includes $454 million in secured claims and $89 million in unsecured claims. Among seven passenger airlines seeking bankruptcy protection since late 2007, Frontier and Sun Country Airlines Inc. are the only ones still operating.

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

PwC Wins BearingPoint Commercial Services for $44 Million

Business consultant BearingPoint Inc. was authorized by the bankruptcy judge yesterday to sell significant portion of the commercial-services business to PricewaterhouseCoopers LLP for $44 million, subject to adjustment.

At the auction this week, the price rose from PwC’s initial offer of $25 million.

BearingPoint already was authorized to sell the public services group for $350 million to Deloitte LLP. The prior sale represented the majority of the operations.

On filing for reorganization in February, BearingPoint intended to reorganize by giving new stock to unsecured creditors and holders of $690 million in subordinated notes. In March, the company decided to sell the businesses.

Once the consulting arm of KPMG LLP, BearingPoint was spun off in 2000 and went public in 2001. The petition listed assets of $1.76 billion against debt totaling $2.23 billion.

The case is In re BearingPoint Inc., 09-10691, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Tronox Slows Sale With Cure Fees for Lenders Approved

Tronox Inc., the world’s third-largest producer of the white pigment titanium dioxide, was authorized yesterday by the bankruptcy judge to pay fees to its lenders to cure non-monetary defaults on the $125 million loan for the Chapter 11 case.

Objections from creditors were resolved before the hearing with a modification allowing another month to sell the business. The earlier May 31 deadline was delayed to July 31 with the possibility of a further one-month extension.

To read Bloomberg coverage, click here.

The Tronox Chapter 11 petition listed assets of $ 1.56 billion against debt totaling $1.22 billion. Debt includes $213 million on a secured term loan and revolving credit, $350 million in 9.5 percent senior notes and a $40.7 million accounts receivable securitization facility.

Tronox’s products are used in paints, coatings, plastics, paper and consumer products. The operations outside of the U.S. didn’t file.

The case is In re Tronox Inc., 09-10156, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

White Energy Committee Has Archer-Daniels and Oxy Chemical

White Energy Inc., the owner of three ethanol plants that filed under Chapter 11 on May 7 in Delaware, has an official creditors’ committee with five members.

Two are Archer-Daniels-Midland Co. and Occidental Chemical Corp.

The plants have a combined production capacity of 240 million gallons of ethanol a year. White says it’s one of the 10 largest ethanol producers in the U.S. and the second-largest gluten maker. Two plants are in Texas, with the third in Kansas.

Dallas-based White spent $323 million building the plants in Texas.

The principal debt is $294 million owed to secured lenders. The petition said asset and debt both exceed $100 million.

The case is In re White Energy Holding Co., 09-11601, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Mervyn’s Wants Bonuses for Seven Remaining Workers

Mervyn’s LLC, the liquidated 177-store retailer, is proposing to pay the sole remaining officer a one-month salary of some $44,000 if administrative claims end up being $95 million or less.

Mervyn’s wants to pay the other six remaining employees a bonus equal to one month’s wages for staying on the job through August. The bonuses would cost $42,500 in total.

A hearing on the bonus program is scheduled for June 25.

The official creditors’ committee is suing Sun Capital Partners Inc., contending it doesn’t have a valid $30 million secured claim as the result of filing a required document in the wrong state.

Sun Capital was previously sued for being part of the investor group that bought the Mervyn’s chain from Target Corp. in 2004 for $1.175 billion. Sun Capital and some 35 others were sued by Mervyn’s in September for what the earlier complaint calls a “fraudulent transfer.”

Mervyn’s listed assets of $681 million against debt of $585 million in the Chapter 11 petition filed in July. Claims of secured creditors total $398 million, including $329 million on a credit facility secured by all of the assets.

Based in Hayward, California, Mervyn’s generated sales of $2.5 billion in the 2008 fiscal year. The stores were in California and six other states.

The case is In re Mervyn’s Holdings LLC, 08-11586, U.S. Bankruptcy Court, District of Delaware (Wilmington).

New Filing

Valve Maker Robert Manufacturing Files in Riverside, California

Robert Manufacturing Co., a maker of float valves, filed for Chapter 11 reorganization on May 27 in Riverside, California.

The Rancho Cucamonga, California-based company has been in business for 70 years. The petition listed assets of $10.6 million and debt of $10.3 million.

The case is In re Robert Manufacturing Co., 09-21395, U.S. Bankruptcy Court, Central District of California (Riverside).

Briefly Noted

Collecting the assets and making distributions to defrauded investors of Bernard L. Madoff Investment Securities Inc. could take 10 years, according to Stephen Harbeck, the chief executive of the Securities Investor Protection Corp. To read Bloomberg coverage, click here. The firm’s founder, Bernard Madoff, pleaded guilty in March to defrauding investors of as much as $65 billion and faces a prison term of up to 150 years. The firm’s liquidation in U.S. Bankruptcy Court began in December with the appointment of trustee under the Securities Investor Protection Act. Madoff went into an involuntary Chapter 7 liquidation in April. The trustee for the firm is seeking to consolidate Madoff’s individual Chapter 7 bankruptcy into the SIPA liquidation of the broker. The SIPA 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). Madoff’s individual Chapter 7 bankruptcy is In re Bernard Madoff, 09-11893, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Trump Entertainment Resorts Inc., the owner of three casinos in Atlantic City, New Jersey, won’t be able to file a reorganization plan within the first four months of the current Chapter 11 case that began in February. The company wants so- called exclusivity extended for three months, until Sept. 15. Trump says it’s been working on locating a buyer or investor interested in the Atlantic City market. The hearing on exclusivity will be held on June 17. The Trump casinos are in bankruptcy a second time. The new petition listed consolidated assets of $2.06 billion against debt totaling $1.74 billion. Liabilities include $1.25 billion in second-lien notes, $489 million in first-lien bank debt with Beal Bank as agent, $33.2 million in trade debt and $6 million in liabilities on leases, according to a court filing. The companies own the Trump Taj Mahal Casino Resort, the Trump Plaza Hotel & Casino, and the Trump Marina Hotel Casino. The casinos’ new filings came less than four years after emerging from a previous bankruptcy reorganization. The case is In re TCI 2 Holdings LLC, 09-13654, U.S. Bankruptcy Court, District of New Jersey (Camden).

Bruno’s Supermarkets LLC, which was authorized earlier this month to sell its 56 stores to C&S Wholesale Grocers Inc., was given an extension of the exclusive right to propose a liquidating Chapter 11 plan, though the extension given by the bankruptcy judge was one week shorter than requested. So-called exclusivity will now expire June 19. The sale to C&S was for $45.8 million. C&S will operate 31 stores and liquidate the remainder. The Chapter 11 reorganization begun in February is Bruno’s second. It had four owners since 1995. The current owner is Lone Star Funds, a Dallas-based investor. On entering Chapter 11, Bruno’s owed $10.8 million on a revolving credit, $22.5 million to trade suppliers and other unsecured creditors and $6.8 million to tax authorities. The case is In re Bruno’s Supermarkets LLC, 09-00634, U.S. Bankruptcy Court, Northern District Alabama (Birmingham).

Nortel Networks Corp., North America’s largest communications-equipment provider, is selling its research and development operation in France, over objection from the workers. To read Bloomberg coverage, click here. The Toronto- based Nortel companies filed for bankruptcy reorganization on Jan. 14 in the U.S., Canada and London. All of the companies together listed $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).

The 3,000-square-foot New York apartment that indicted lawyer Marc Dreier purchased for $10.4 million two years ago will be sold at auction July 21 as part of his individual Chapter 7 bankruptcy. The unit is located in a high-rise condominium on East 58th Street in Manhattan, above the headquarters of Bloomberg LP, the parent of Bloomberg News. To read Bloomberg coverage, click here. Dreier, the founder of the law firm bearing his name, pleaded guilty this month to charges of money laundering, conspiracy, securities fraud and wire fraud in a scheme that cost victims $400 million, prosecutors alleged. Not having a plea agreement, Dreier faces the possibility of life in prison at sentencing on July 13. He remains under house arrest with a $10 million bond. The firm he founded, Dreier LLP, once had 250 lawyers and now is being liquidated in bankruptcy court under Chapter 11. Dreier himself is in a Chapter 7 liquidation. The Chapter 11 case for the firm is In re Dreier LLP, 08-15051, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The criminal case is U.S. v. Dreier, 08-mag- 2676, U.S. District Court, Southern District of New York (Manhattan). The civil case is SEC v. Dreier, 08-cv-10617, U.S. District Court, Southern District of New York (Manhattan). Dreier’s individual Chapter 7 case is 09-10371, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Downgrades

Citadel Broadcasting Rating Lowered to CCC on Covenant Problems

The corporate debt rating of Citadel Broadcasting Corp., owner of 165 FM and 58 AM radio stations in 50 markets, was lowered yesterday to CCC when Standard & Poor’s concluded that the company may be unable to comply with a loan covenant requiring a $150 million cash balance in January.

The company’s cash totaled $25.4 million in March, Moody’s reported.

The new S&P rating lines up with the downgrade issued in February by Moody’s Investors Service.

First-quarter revenue fell to $159 million from $206 million in the same period of 2008.

Stanadyne, Diesel Engine Parts Maker, Downgraded on Lower Sales

Stanadyne Holdings Inc., a maker of fuel injectors for diesel engines, was downgraded by Moody’s Investors Service after the company reported that first-quarter revenue fell 43 percent from the year-earlier period.

Operating income turned negative, Moody’s said, in the course of lowering the corporate rating by one grade to Caa1.

The Windsor, Connecticut-based company previously generated almost $250 million in annual revenue.

Verso Paper’s Rating Cut on Projected 25% Decline in Revenue

Verso Paper Holdings LLC, the second-largest coated paper maker in the U.S., was demoted yesterday by one notch to a B- corporate rating by Standard & Poor’s, based on projections that declining demand will depress revenue by 25 percent this year to $1.3 billion.

S&P expects the Memphis, Tennessee-based company will increase cash balances this year and end 2009 with more than $100 million in cash.

Advance Sheets

Lender Must Automatically Return Repossessed Auto

The U.S. Court of Appeals in Chicago joined four other circuit courts in ruling that a lender who repossesses an auto before bankruptcy must return the car automatically, even before the bankruptcy court rules on whether the lender’s interest in the auto is adequately protected.

The Seventh Circuit held in the May 27 opinion that the lender must first return the car and then file papers in bankruptcy court demanding adequate protection for its interest in the auto.

Until this week’s decision, it had been the practice in Illinois for a lender to be allowed to retain the auto while requiring the debtor to file papers in bankruptcy court demanding return of the car and providing so-called adequate protection.

The appeals court in Chicago said the previous practice in Illinois was in violation of the plain language of two provisions in bankruptcy law. The court also said the procedure in Illinois violated a U.S. Supreme Court decision known as Whiting Pools.

The ruling Chicago federal appeals court agrees with the Sixth Circuit in Cincinnati, the Eighth Circuit in St. Louis, the Ninth Circuit in San Francisco, and the 10th Circuit in Denver.

The case is Thompson v. General Motors Acceptance Corp., 08-2077, U.S. Court of Appeals for the Seventh Circuit (Chicago).

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

To contact the editor responsible for this story: David E. Rovella at drovella@bloomberg.net.

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