Chrysler, Frontier Air, Genmar, Getrag: Bankruptcy

The U.S. Commodity Futures Trading Commission proposed a new “account class” to protect the derivatives positions and collateral of customers of bankrupt commodity brokers.

The proposal would permit the extension of bankruptcy protections to positions a commission-regulated broker holds in over-the-counter derivatives markets that are handled by certain clearing organizations. It would also cover collateral for those positions.

The commission said in a Federal Register notice yesterday that it was proposing the changes “because of increased interest” in clearing OTC derivatives through commission- regulated organizations.

There is also “the need to enhance certainty regarding the treatment of cleared OTC derivatives in the bankruptcy of a commodity broker,” the agency said.

Other Updates

Chrysler Judge Allows Creditors to Sue Daimler Over Transfers

Chrysler LLC’s creditors won permission to sue Daimler AG over $9 billion in transfers, saying law firm Susman Godfrey LLP will take the case on contingency after the U.S. Treasury said creditors can’t use the estate’s assets for funding.

U.S. Bankruptcy Judge Arthur Gonzalez in Manhattan said yesterday that creditors can bring the lawsuit, though it’s undecided how they would share any proceeds with the U.S. and Chrysler’s bank lenders. Thomas Mayer, a lawyer for creditors, told Gonzalez that three law firms competed to take the lawsuit on contingency, indicating the case may have merit.

Creditors previously won the right to probe Chrysler’s 1998 acquisition by Daimler-Benz AG and 2007 sale to an affiliate of Cerberus Capital Management LP. The creditors claim Stuttgart, Germany-based Daimler moved $9 billion out of Chrysler in fraudulent transfers, driving the U.S. automaker into bankruptcy.

The lawsuit will be filed in a redacted version no later than Aug. 18, Mayer said.

The U.S. Treasury, which gave Chrysler $4.9 billion to reorganize, has said creditors can’t use funds from the bankrupt estate to finance the lawsuit because its loan gives it a lien on all of the estate’s assets.

The case is In re Old CarCo LLC f/k/a Chrysler LLC, 09- 50002, U.S. Bankruptcy Court, Southern District of New York (Manhattan)

For more of this story, click here.

Southwest Bid for Frontier Falters on Lack of Pilot Agreement

Southwest Airlines Co., the world’s biggest discount carrier, lost its bid to buy low-fare Frontier Airlines Holdings Inc. in a bankruptcy auction after an impasse between the carriers’ pilots over seniority.

Republic Airways Holdings Inc., an operator of regional flights for larger airlines, was declared the winner with a $108.8 million offer and a pledge not to seek repayment of a $150 million unsecured claim. Dallas-based Southwest went into yesterday’s auction in New York with a $170 million plan.

Seniority is crucial to pilots because it sets pay, benefits and schedules. Southwest, whose pilots are the best- paid among U.S. peers flying Boeing Co. 737s, had said its offer depended on an accord between its pilots and Frontier’s, and Frontier’s union rejected being given the lowest seniority.

Republic’s purchase of Frontier requires the approval of creditors and U.S. Bankruptcy Judge Robert Drain. Indianapolis- based Republic was the 11th-largest U.S. carrier by traffic last year, compared with No. 5 Southwest, according to data compiled by Bloomberg. Frontier, which filed for bankruptcy in April 2008, is the 13th-biggest U.S. airline.

Southwest declined to comment beyond the statement issued after the auction in which Chief Executive Officer Gary Kelly said the carrier “chose not to amend our bid” to remove the condition regarding a pilot agreement.

The Southwest Airlines Pilots’ Association also declined to comment, and calls to the Frontier Airlines Pilots Association weren’t returned.

Under the plans offered beforehand, Southwest would have paid Frontier’s creditors 12 cents on the dollar, while Republic would have paid 8.7 cents. Frontier and Republic didn’t specify a payout figure after the auction.

The purchase will give Republic a fourth regional airline. It will have to compete in Denver against Southwest and UAL Corp.’s United Airlines, which holds the largest share of passengers there and is the third-largest U.S. carrier. United is among the airlines for which Republic does contract flying.

In exchange for accepting lower seniority, Southwest would have guaranteed that Frontier pilot pay would revert to pre- bankruptcy levels or Southwest rates, whichever was higher. Frontier first officers would have received about a 40 percent pay raise, said Carl Kuwitzky, president of the Southwest union.

Pilots generally can’t retain seniority when they move voluntarily to another carrier. Southwest has 5,900 pilots, and Frontier has about 700.

For more of this story, click here.

Briefly Noted

Genmar Holdings Inc., the bankrupt maker and seller of recreational power boats, asked the U.S. Bankruptcy Court in St. Paul, Minnesota, for permission to sell three parcels of real property free and clear of all liens and other interests, court files show. The parcels Genmar wants to sell are in Sarasota, Florida, at 1651 Whitfield Ave., 1715 67th Ave. East and 7150 15th Ave. The properties “had been used to manufacture various brands of boats” and their use ceased after manufacturing operations were consolidated, according to papers. A hearing will be held Sept. 3 on the request. Objections must be filed by Aug. 31.

The case is In re Genmar Holdings, 09-43537, U.S. Bankruptcy Court, District of Minnesota (St. Paul).

Old GM’s Chief Koch Paid $835 an Hour in June for Restructuring

General Motors Corp. Chief Executive Officer Albert Koch, in charge of liquidating the old GM in bankruptcy, billed the company $835 an hour in June, according to a court filing yesterday.

Koch and his restructuring firm AlixPartners LLC charged GM $20 million for the first 40 days of work, according to a previous filing.

The case is Motors Liquidation Co. (GM), 09-50026, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Polaroid Corp., or PBE Corp., as it is now known, asked the U.S. Bankruptcy Court in Minneapolis on Aug. 12 to sell its stock in a foreign subsidiary free of all liens and other claims, according to court records. PBE wants to sell Nippon Polaroid Kabushiki Kaisha to Frontiers Corp., a Japanese company owned by Yuta Ito, its current manager, court papers said. Nippon Polaroid was one of the assets excluded from PBE’s April 16 bankruptcy auction. The debtor needs to sell the excluded assets “as promptly and efficiently as possible in order to maximize the value of the bankruptcy estate,” PBE said in court papers. A hearing was set before U.S. Bankruptcy Judge Gregory F. Kishel on Aug. 27. Objections must be filed by Aug. 24.

The case is In re Polaroid Corp., 08-46617, U.S. Bankruptcy Court, District of Minnesota (Minneapolis).

Getrag Transmission Manufacturing LLC, a U.S. unit of Germany’s Getrag Group, met with an objection to its reorganization plan. Walbridge Aldinger Co. asked that Getrag’s case be kept open, citing issues related to a dispute over a Tipton, Indiana, manufacturing facility.

Getrag filed under Chapter 11 in November and sued Chrysler LLC over a dual-clutch transmission plant the two companies were building in Tipton.

The case is In re Getrag Transmission Manufacturing LLC, 08-68112, U.S. Bankruptcy Court, Eastern District of Michigan (Detroit). The Chrysler lawsuit is Chrysler LLC v. Getrag Transmission Manufacturing LLC, 08-cv-14592, U.S. District Court, Eastern District of Michigan (Detroit).

The official committee of unsecured creditors in Chrysler LLC’s bankruptcy case now has a Web site, www.chryslercommittee.com, where it posts information for the public, according to a statement by the law firm representing the committee. Creditors can use the site to submit questions to the committee and its advisers and obtain “material information” about the automaker’s bankruptcy case, such as deadlines for filing proofs of claim, key documents and names of primary parties, according to the statement.

The case is In re Old CarCo LLC f/k/a Chrysler LLC, 09- 50002, U.S. Bankruptcy Court, Southern District of New York (Manhattan)

Eurofresh Inc., the Arizona hydroponics-tomato grower, won court approval to seek a creditors’ vote on its reorganization plan. U.S. Bankruptcy JudgeCharles G. Case II granted Eurofresh permission to send its disclosure statement, an outline of the recovery plan, to creditors so they can decide whether to accept the repayment plan, according to papers filed yesterday in U.S. Bankruptcy Court in Phoenix.

The case is In re Eurofresh Inc., 09-07970, U.S. District Court, District of Arizona (Phoenix).

For more about the plan, click here.

Watch List

Bank of America Wins Restraining Order Against Colonial

Bank of America Corp. won a restraining order barring Colonial Bank, the Alabama lender under federal criminal investigation, from selling or otherwise disposing of $1 billion in cash and loans.

U.S. District Judge Adalberto Jordan in Miami issued the order yesterday after Bank of America sued Colonial. The order notes that the suit relates to more than 6,000 mortgages.

“To the extent that the interests of the public are implicated in this case, they weigh in favor of requiring Colonial to honor its contractual obligations and avoiding what would amount to a $1 billion heist,” the judge said in an order posted online yesterday.

Colonial said last week it may be placed into receivership with the Federal Deposit Insurance Corp. after a meeting this week with the Alabama State Banking Board. The board met Aug. 10 and no details of the meeting have been disclosed.

Colonial said Aug. 7 that the U.S. Securities and Exchange Commission issued subpoenas for documents related to the bank’s accounting for loan loss reserves and its participation in the Troubled Asset Relief Program, or TARP.

Bank of America’s lawsuit alleges Colonial is holding the cash and loans as a custodian for Ocala Funding Inc. Ocala is a commercial-paper vehicle sponsored by Taylor, Bean & Whitaker Mortgage Corp., the 12th-largest U.S. home lender, which received funding from Colonial.

The commercial paper, or short-term IOUs, was backed by residential mortgages. Taylor Bean closed its lending business last week after being suspended by U.S. agencies and Freddie Mac. Spokespersons for Colonial and Bank of America declined to comment.

The case is Bank of America v. Colonial Bank, 09-CV-22384, U.S. District Court, Southern District of Florida (Miami).

For more of this story, click here.

Pennsylvania Considers State Takeover of Municipal Pensions

Pennsylvania is considering a state takeover of poorly funded local pension systems in Pittsburgh and about 30 other communities.

Under the plan, municipalities with less than half the assets needed to cover their pension obligations would turn over the retirement plans. Pennsylvania would set up a new program limiting benefits for current employees and imposing less- generous provisions on new hires, James McAneny, executive director of the Pennsylvania Public Employee Retirement Commission, told a Senate committee Aug. 12. Without action, “we’re going to have a lot of municipalities defaulting on their payments,” McAneny said.

Legislators became concerned in July that requirements under current law to cover investment losses will force local governments to double or triple their pension payments next year, which could bankrupt communities, according to Amy Sturges, director of government affairs for the Pennsylvania League of Cities and Municipalities.

The Pennsylvania Municipal Retirement System would operate the new program. Local officials would lose the power to set benefits for employees in these plans.

For more of this story, click here.

CIT Group Must Give Fed Capital, Liquidity, Credit Plans

CIT Group Inc., the 101-year-old lender fighting to avoid collapse, reached an agreement with the Federal Reserve to submit proposals on how it will maintain adequate capital and improve risk management.

The board of directors also adopted a “tax benefits preservation” plan to protect assets that could be lost in the event of a major change in ownership, the New York-based company said yesterday in a statement.

CIT got $2.33 billion from the Treasury’s bank rescue fund last year. Efforts to obtain more U.S. help collapsed July 15 after federal regulators expressed concern that CIT’s worsening prospects would put more taxpayer money in jeopardy.

The Fed set deadlines ranging from 15 to 75 days for the small-business lender to turn over plans, the central bank said in a separate statement released in Washington. The lender, which has reported $3 billion of losses in the past eight quarters, will need to provide daily reports on its cash position and provide plans for a cash reserve, capital, and a longer-term funding plan that doesn’t include reliance on U.S. government funding programs or related waivers and exemptions, the Fed said.

The plan won’t “impede the company’s ability to pursue restructuring or strategic opportunities,” CIT said in a statement yesterday.

For more of this story, click here.

Commercial Loan Activity

Jarden Seeks Three-Year Extension on $600 Million of Term Loans

Jarden Corp., the maker of K2 skis and Coleman lanterns, asked lenders to extend $600 million of its existing bank debt by three years in exchange for a higher interest rate, according to a person familiar with the deal.

Deutsche Bank AG is leading the negotiations with lenders, who would get an interest rate that is 3.25 percentage points more than the London interbank offered rate, said the person, who declined to be named because negotiations are private. The Rye, New York-based company is proposing to extend portions of three term loans due Jan. 24, 2012, according to the person.

Jarden owes $1.38 billion on its term loans, according to data compiled by Bloomberg. Two of the term loans, with $789 million outstanding, bear interest at 1.75 percentage points more than Libor; the third portion has $589 million outstanding and a spread of 2.50 percentage points, Bloomberg data show. The company repaid $283 million of its credit facility debt with proceeds from a $300 million sale of 8 percent notes in April.

Jarden on Aug. 10 extended a $100 million portion of its $184 million revolver by two years to Jan. 24, 2012.

For more details on Jarden’s extension request, click here.

Statistics

Florida Dirt-Bond Distress Hits 105 Districts, Newsletter Says

Florida’s housing decline pushed 105 community development districts to default on bonds or to draw on reserves, affecting $3.2 billion in securities, according to the Distressed Debt Securities Newsletter. Florida has about 600 such districts, which sell tax-exempt debt known as dirt bonds to fund construction of infrastructure for new real-estate developments. Until new homes are sold, developers are required to pay tax assessments on the land; if they can’t, the bonds are at risk of default. The foreclosure and land-sale process many districts face makes the debt harder to value, driving the gap between what bond buyers will pay and what sellers will accept into “fairy land,” wrote Jack Colombo, the editor of the monthly newsletter in Miami Lakes, Florida. “A lot of bonds are going to get sold over the next year or two and not necessarily to astute investors.”

For more of this story, click here.

U.S. Bankruptcy Filings Jumped 15 Percent in Second Quarter

Bankruptcy filings rose in the second quarter according to the Administrative Office of the U.S. Courts. Total bankruptcy filings rose by 15.3 percent, with business filings up 11.8 percent and consumer filings up 15.5 percent. Chapter 7 bankruptcy filings, which allow certain property to be kept exempt from creditors, were up 18.2 percent. Chapter 13 filings, which require creditors to be a least partially repaid in installment payments over three to five years, were up 7.8 percent.

For a table of quarterly percentage change during 2009 and 2008 using data from the Administrative Office of the U.S. Courts, click here.

Fannie, Freddie Refinance 77,876 Loans in July Through Program

Fannie Mae and Freddie Mac, the mortgage-finance companies responsible for President Barack Obama’s anti-foreclosure initiatives, refinanced 77,876 loans in July through the main U.S. government housing recovery program. The tally brings the total for the year to 190,476 loans through the Making Home Affordable Refinance Program, about 6.6 percent of the companies’ total refinance volume, according to data released by the Federal Housing Finance Agency yesterday. The program was created in April and seeks to help as many as 5 million homeowners with loans owned or guaranteed by Fannie Mae or Freddie Mac refinance into lower payments.

For more of this story, click here.

Downgrades

Advanstar’s Probability of Default Downgraded by Moody’s

Advanstar Communications Inc.’s corporate family and probability of default ratings were downgraded to Caa3 from Caa1 by Moody’s Investors Service.

Moody’s also downgraded Advanstar’s senior secured first- lien term loan due 2014 to Caa1 from B2 and the senior secured second-lien term loan due 2014 to Ca from Caa2, according to a statement by Moody’s.

The outlook for the marketing and trade publisher “remains negative,” Moody’s said.

Moody’s said it is concerned “that continuing weak market conditions will result in liquidity pressure, significantly increase the risk of default, and reduce the recovery prospects in a downside scenario.”

MXEnergy Holdings Downgraded by S&P as Defaults Anticipated

MXEnergy Holdings Inc., the natural-gas retail marketer, saw its long-term corporate credit rating lowered to CC from CCC+ by Standard & Poor’s, the ratings company said in a statement.

S&P cut the rating on the company’s senior unsecured notes due 2011 to C from CCC-. The recovery rating on MXEnergy’s notes is unchanged at 6; lenders can expect “negligible” recovery in the event of a payment default, S&P said. The ratings remain on credit watch with negative implications, S&P said.

The rating actions follow MXEnergy’s announcement of a cash tender offer to purchase any of the company’s $165 million of floating rate notes due 2011 at 50 percent of par value, which S&P sees as a “distressed exchange and, as such, tantamount to a default,” the statement said. S&P “will reassess MXEnergy’s capital structure and revise ratings based on the amount of notes successfully tendered.”

To contact the reporter on this story: Carla Main in New Jersey at Cmain2@bloomberg.net.

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

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