Grupo Mexico SAB (GMEXICOB) might not succeed after all in buying back Arizona copper producer Asarco LLC in view of the sweetened offer made last week by competing bidder Sterlite Industries (India) Ltd., a subsidiary of India’s Vedanta Resources Plc. (VED)
In ruling on Aug. 31 that Asarco’s parent, Grupo Mexico, made the “superior” offer, U.S. Bankruptcy Judge Richard Schmidt relied in significant part on how creditors would be paid in full in cash on confirmation under the parent’s plan.
Last week Sterlite improved its offer by raising the cash price to $2.565 billion, coupled with a commitment to provide whatever more might be necessary to pay creditors in full when the plan is implemented. Sterlite takes the position that Asarco is entitled to amend its plan because it hasn’t yet been formally confirmed.
Sterlite’s offer was the underpinning for Asarco’s plan. Grupo Mexico had a competing plan.
Creditors voted to confirm both plans, although they “overwhelmingly” preferred the Asarco plan, Schmidt said in his 133-page opinion in August. Although Schmidt recommended approval of the Grupo Mexico plan because he concluded it was more likely to pay creditors in full, Sterlite said it’s unprecedented to ignore creditors’ preferences.
At the time, Schmidt concluded that Grupo Mexico would pay $2.48 billion while Sterlite was offering $2.17 billion.
Whoever wins Asarco will avoid liability on a lawsuit. If Sterlite comes out on top, it will have absolved itself from liability for breaching a contract last year to buy the company for $2.6 billion.
If Grupo Mexico prevails and retakes control of Asarco, it will release itself from a $7.5 billion judgment for fraudulently taking away an Asarco subsidiary.
The final say will be made by U.S. District Judge Andrew S. Hanen in Texas, who previously took away the ability of Schmidt to confirm a plan. Consequently, Schmidt’s August opinion was a recommendation. Ultimately, Hanen will decide which of the two full-payment plans to confirm. Hanen was the judge who entered the judgment against Grupo Mexico.
Grupo Mexico acquired Asarco for $1.2 billion in stock in 1999 and lost control in December 2005 when the bankruptcy judge set up a board of three, giving Grupo Mexico only one seat.
Phoenix-based Asarco filed under Chapter 11 in August 2005 to deal with asbestos claims.
The Chapter 11 case is In re Asarco LLC (AR), 05-21207, U.S. Bankruptcy Court, Southern District of Texas (Corpus Christi).
Madoff Claim-Determination Method to Be Decided Globally
The trustee liquidating Bernard L. Madoff Investment Securities Inc. was correct in advocating a procedure for first determining the methodology to be used later in fixing the amount of creditors’ claims, U.S. Bankruptcy Judge Burton R. Lifland ruled in a 17-page decision handed down Sept. 11.
Since early in the case, the formula proposed by the trustee has been drawing criticism from Madoff’s victims. While the trustee proposes to calculate the amount of a claim by subtracting funds taken out from money invested, some customers are arguing for a system taking into account the time value of money or allowing claims for the amounts shown on the most recent account statements, even if the transactions shown in the accounts never took place.
In last week’s ruling, Lifland barred an individual customer from filing a lawsuit to determine the proper amount of a claim. Instead, customers must adhere to the claims-determination procedure set up by the court early in the case.
Customers already filed their claims. Under a schedule that Lifland will approve in the coming days, the trustee will file papers outlining the rationale for his theory of damages. Customers can respond, in advance of a hearing where Lifland will decide which method is correct.
The trustee’s method, if adopted by the bankruptcy court, would disadvantage longtime customers who took little out of their accounts over the years.
The Madoff firm began liquidating in December with the appointment of a trustee under the Securities Investor Protection Act. Bernard Madoff is serving a 150-year prison sentence following a guilty plea. He went into an involuntary Chapter 7 liquidation in April. His bankruptcy case was consolidated with the firm’s liquidation.
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). The criminal case is U.S. v. Madoff, 09-cr-00213, U.S. District Court for the Southern District of New York (Manhattan).
Cygnus Business Confirms Prepackaged Plan in Five Weeks
Cygnus Business Media Inc., an event organizer and business-to-business publisher, confirmed a prepackaged reorganization plan last week, five weeks after filing a Chapter 11 petition to implement a restructuring blocked by one of 24 lenders.
The plan gives the new stock and a second-lien $60 million term loan to holders of $173 million in first-lien debt. Their projected recovery is not more than 70 percent, according to the court-approved disclosure statement.
The holders of $35 million in existing second-lien debt would receive warrants amounting to a recovery of as much as 4 percent.
Unsecured creditors with claims up to $2.2 million are to be paid in full.
Fort Atkinson, Wisconsin-based Cygnus was headed toward bankruptcy when it didn’t repay the first-lien revolving credit facility and delayed-draw term loan facility when they matured in January. Cygnus previously violated covenants on the loan agreements. Cygnus had $167 million in debt maturing between January and July.
The case is In re CommerceConnect Media Holdings Inc., 09-12765, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Energy Partners Plan Deadline Pushed Back to Sept. 25
Energy Partners Ltd. won confirmation of its reorganization on Aug. 3 and obtained an extension of the Sept. 10 deadline for nailing down exit financing and implementing the plan.
Creditors agreed to extend the deadline until Sept. 25. The plan was confirmed after noteholders reached a settlement with the equity holders’ committee.
The reorganization plan by the independent oil and natural gas exploration and production company, as originally formulated, was to carry out a restructuring negotiated before the Chapter 11 filing on May 1. Until modified by the settlement, all of the new stock was headed for holders of the $300 million in 9.75 percent senior unsecured notes due 2014 and the $150 million of senior float-rating notes due 2013.
The settlement carved out 5 percent of the stock for existing shareholders, leaving the remaining 95 percent for the noteholders. Originally, existing stockholders were to receive warrants for 12.5 percent of the stock.
Unsecured creditors owed $5 million are to be paid in full, as are the secured lenders owed $83 million.
Opposition to the initial plan was spearheaded by stockholder Birch Run Capital Partners LP.
The case is In re Energy Partners Ltd., 09-32957, U.S. Bankruptcy Court, Southern District Texas (Houston).
Frivolous Suits Bring $92,500 in Sanctions from Judge
In a case appropriately named Creative Desperation, a bankruptcy lawyer was hit with sanctions of $92,500 and suspension from practice in bankruptcy court for six months as the result of failing to disclose conflicts of interest and filing frivolous lawsuits, according to a Sept. 11 opinion by U.S. Bankruptcy Judge John K. Olson in Fort Lauderdale, Florida.
The lawyer, Charles D. Franken from Plantation, Florida, may have made his biggest mistake in naming Olson as a defendant in one of the lawsuits the bankruptcy judge called frivolous.
Before Franken can reapply for authority to practice in bankruptcy court, he must take 30 hours of courses on legal ethics, Olson ruled.
“We intend to take all action necessary to respond to Olson’s opinion,” Franken said in a telephone interview.
The opinion is In re Creative Desperation Inc., 08-19067, U.S. Bankruptcy Court, Southern District Florida (Fort Lauderdale).
Simmons Extends Forbearance Agreement Until Sept. 30
Simmons Bedding Co., the mattress-making subsidiary of Simmons Co., received another forbearance agreement good through Sept. 30 with regard to interest payments first missed in January on $200 million in 7.875 percent subordinated notes. The company also received a forbearance until the same date from its bank lenders.
The parent company reported a net loss of $9 million for six months ended in June on sales of $441 million. The balance sheet has assets of $895 million against total liabilities of $1.26 billion.
Coyotes Sale Hearing Ends, No Winner Declared Yet
The two-day hearing to pick the winning bidder for the Phoenix Coyotes of the National Hockey League concluded on Sept. 11 without the judge saying exactly when he will rule. The two bidders, the NHL and Jim Balsillie, one of the founders of the BlackBerry inventor Research In Motion Ltd. (BB), both improved their offers so almost all creditors would be paid in full except Wayne Gretzky, the coach and part owner, and Jerry Moyes, the owner who says he provided the team with more than $300 million. To read Bloomberg coverage, click here. The Coyotes filed under Chapter 11 in May in Phoenix with a contract to sell the team to Balsillie. The team moved to Phoenix in 1995. The case is In re Dewey Ranch Hockey LLC, 09-09488, U.S. Bankruptcy Court, District of Arizona (Phoenix).
Fee Committee Wants $2.5 Million Cut on Lehman Fees
Lehman Brothers Holdings Inc. should cut fee payments by $2.5 million for four months ended May 31, according to a recommendation last week by the committee appointed by the bankruptcy judge to review fee requests by all the professionals in the case. The recommended deductions are about 2 percent of fee requests aggregating almost $120 million for the period. To read Bloomberg coverage, click here. The professionals can negotiate with the committee before the recommendations go to the judge for final review. The Lehman holding company filed under Chapter 11 in New York on Sept. 15, 2008. The brokerage business went into liquidation four day later in the same court, although under the Securities Investor Protection Act. The brokerage liquidation is under the supervision of a trustee selected by the Securities Investor Protection Corp. 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 operation is Securities Investors Protection Corp. v. Lehman Brothers Inc., 08-01420, U.S. Bankruptcy Court, Southern District New York (Manhattan).
Accredited Home’s Exclusivity Is Sept. 30 Not Oct. 30
Accredited Home Lenders Holding Co., a home mortgage originator and securitizer in Chapter 11 since May, made a mistake and originally gave the bankruptcy judge the wrong order extending the exclusive right to propose a Chapter 11 plan. While the company wanted an Oct. 30 deadline, the creditors’ committee would only agree to Sept. 30. The mistake was rectified when the judge signed a new order making the deadline Sept. 30. Accredited Home filed under Chapter 11 to sell the assets. It was acquired by Lone Star Funds for $300 million in October 2007. Lone Star also owns Bruno’s Supermarkets LLC and Bi-Lo LLC, two grocery retailers in Chapter 11. The Chapter 11 petition said assets are less than $50 million while debt exceeds $100 million. The case is In re Accredited Home Lenders Holding Co., 09-11516, U.S. Bankruptcy Court, District of Delaware (Wilmington).
R.H. Donnelley Wants to Pay Bonuses at Online Subsidiary
R.H. Donnelley Corp., the Yellow Pages publisher that entered Chapter 11 on May 28, is proposing an incentive bonus program for 140 workers at subsidiary Debtor Business.com Inc. that would cost a maximum of $4.9 million. Donnelley said that targets under the previous plan became “completely unattainable” given the company’s financial condition. The hearing on the proposal will be held Sept. 30. R.H. Donnelley’s Chapter 11 filing was accompanied by agreement on a reorganization plan to reduce debt by $6.4 billion and give all the new stock and $300 million in unsecured notes to holders of $6.33 billion on 11 issues of unsecured notes. The petition listed assets of $11.9 billion against debt totaling $12.4 billion. The case is In re R.H. Donnelley Corp., 09-11833, U.S. Bankruptcy Court, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Broadstripe’s Settlement with NCTC Approved by Judge
Broadstripe LLC, the St. Louis-based broadband cable operator, was authorized last week by the bankruptcy judge to implement a settlement with National Cable Television Cooperative Inc., a provider of programming and hardware purchasing. The settlement calls for Broadstripe to pay $3.5 million, plus $500,000 for NCTC attorney’s fees while paying NCTC in advance for services. Broadstripe filed a reorganization plan to carry out an agreement reached before the Chapter 11 filing in January with holders of the first- and second-lien debt. Obstacles to confirming the plan include the pending suit by the creditors’ committee against the lenders, claiming their debt should be subordinated or characterized as equity. The committee won’t support a plan until the suit is resolved, and the lenders won’t allow confirmation until the validity of their claims is set in stone. Broadstripe has 93,000 customers in Maryland, Michigan, Washington and Oregon. It was created through four acquisitions in 1998 and 1999 and filed for Chapter 11 reorganization in January. The case is In re Broadstripe LLC, 09-10006, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Chicago’s Corus Lead Last Week’s Bank Failures
Corus Bankshares Inc. from Chicago was one of three banks to be taken over Sept. 11, bringing the year’s total to 92, compared with 28 for all of 2008.
Corus had 80 branches and $7 billion in deposits that were transferred to MB Financial Inc. (MBFI) in a transaction that will cost the Federal Deposit Insurance Corp. $1.7 billion. Corus’s downfall resulted in part from $3.9 billion in condominium loans.
To read Bloomberg coverage, click here.
Koosharem Will Violate Loan Covenants, S&P Predicts
Koosharem Corp., a staffing-services provider also known as SelectRemedy, was demoted to a CCC rating on Sept. 11 by Standard & Poor’s, two clicks lower than the ding issued 10 days earlier by Moody’s Investors Service.
S&P predicts that the recession “will cause” a loan-covenant violation in the “near term,” requiring payment of fees and higher borrowing costs resulting in “negative discretionary cash flow” that will “exacerbate the company’s already thin liquidity.”
The $100 million in second-lien debt was reduced to a CC rating, where recovery in a default would be “negligible,” in S&P’s judgment.
Total debt was $559 million in July, S&P said.
The Santa Barbara, California-based company is one of the 10 largest temporary-staffing providers in the U.S. It has 420 offices in 40 states, with a concentration in California.
Riverstone’s Titan Specialties Lowered to CCC+ by S&P
Titan Specialties Ltd., a provider of perforating guns for the oilfield-services industry, received a Sept. 11 downgrade from Standard & Poor’s on account of the “significant decline in drilling activity by exploration and production companies.”
S&P also cited the “highly leveraged financial profile” in lowering the corporate rating two clicks to CCC+.
The second-lien rating for the Pampa, Texas-based company went to CCC-, accompanied by a prediction that holders wouldn’t recover more than 10 percent in a payment default.
Titan had $183 million in total debt in June, S&P said.
Titan is controlled by New York-based private-equity investor Riverstone Holdings LLC.
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