Extended Stay, Aleris, St. Vincent, Lehman, Citadel, Firstgold: Bankruptcy

The creditors’ committee for Extended Stay Inc. asked the bankruptcy judge on April 23 for permission to bring lawsuits, which the examiner said may have merit.

In his 436-page report made public on April 8, the examiner detailed how Extended Stay was acquired in an $8 billion leveraged buyout in 2007 that the parties “knew or should have known” would result in saddling the company “with unserviceable debt for which Extended Stay received nothing of value.”

The examiner, former bankruptcy Judge Ralph R. Mabey, also said that the LBO left Extended Stay with “unreasonably small capital” and an inability to “pay their debts as they came due.”

As a result of his factual conclusions, Mabey said Extended Stay, the operator of more than 680 long-term lodging properties in 44 states, could file fraudulent transfer claims, though he noted “significant hurdles” will arise from a defense that bars recoveries resulting from transfers of securities. Mabey also said there may be claims for “illegal” dividends and distributions, breaches of fiduciary duty, and unjust enrichment.

In the committee’s motion, to be argued on May 13 in bankruptcy court in Delaware, the creditors’ panel recites how Extended Stay in the LBO took on $1.7 billion in debt above previously existing obligations. The committee had one month after the report was filed to seek authority to bring claims on behalf of Extended Stay. The committee says that the company itself is “hopelessly conflicted” and has already said it won’t pursue claims.

Mabey also found that the estate doesn’t have any “viable claims” for events that took place after the LBO was completed and prior to the bankruptcy filing.

Last week the bankruptcy judge gave formal approval for procedures governing an auction on May 27 to determine who will provide financing for the reorganization plan. To read about the auction process and the opening bid of $905 million from Centerbridge Partners LP and Paulson & Co., click here for the April 26 Bloomberg bankruptcy report.

Extended Stay’s Chapter 11 petition in June 2009 listed assets of $7.1 billion against debt totaling $7.6 billion, including $4.1 billion in mortgage loans and $3.3 billion in 10 different mezzanine loans.

Based in Spartanburg, South Carolina, Extended Stay says it’s the largest operator of mid-priced extended stay hotels in the U.S. The properties are almost all managed by non-filed affiliate HVM LLC.

The case is In re Extended Stay Inc., 09-13764, U.S. Bankruptcy Court, Southern District New York (Manhattan).

Updates

Las Vegas Monorail Eligible for Chapter 11, Judge Rules

Las Vegas Monorail Co. isn’t a municipality and is therefore eligible for reorganization in Chapter 11, U.S. Bankruptcy Judge Bruce A. Markell ruled in a 42-page opinion yesterday.

Markell, in Las Vegas, denied a motion to dismiss the bankruptcy that was filed by the bond insurer Ambac Assurance Corp. on the first day of the Chapter 11 case in January. New York-based Ambac argued unsuccessfully that the monorail is a governmental instrumentality that could only file bankruptcy under Chapter 9, designed specifically for municipal bankruptcies.

Had Ambac prevailed, there would have been no bankruptcy reorganization for the monorail because Nevada state law doesn’t allow municipalities to file in Chapter 9.

Ambac began its argument by pointing out how the monorail established its status to fund the project with tax-exempt municipal bonds by signing a certificate saying that it is “an instrumentality of the state.” Markell ultimately overcame the characterization in the certificate by looking at several other factors indicating whether the monorail is a municipal entity.

Markell pointed to Nevada law saying that any monorail in the state is a “person” and not a municipality. The judge also noted that the monorail has no power of eminent domain, no taxing power, and no sovereign immunity. Of most importance, Markell said that the “low level of state control” shows that the monorail is not a municipality. The bankruptcy judge said that state control is in the nature of regulation or oversight, like casinos or taxicabs. He noted that creditors have no ability to look to the state for payment.

Markell did say that Ambac’s argument does have “some merit.” For other Bloomberg coverage of yesterday’s decision, click here.

The monorail, which began operation in 2004, is a not-for- profit corporation created to finance and operate the 3.9-mile driverless transportation system running behind the Las Vegas Strip to the convention center. The system is in bankruptcy because revenue was never sufficient to service debt. Markell said the revenue has been “disappointing.”

Ambac insured $451 million in first-tier bonds. In addition to the $451 million in first-tier debt, the monorail has $149.2 million in second-tier bonds and $48.5 million in subordinated debt, for a total of almost $650 million.

The monorail, which makes seven stops, takes 15 minutes for the entire trip. The monorail winds behind hotels and casinos on the east side of the Strip. There were plans for extending the monorail to the airport.

The case is In re Las Vegas Monorail Co., 10-10464, U.S. Bankruptcy Court, District of Nevada (Las Vegas).

Track Owner Magna Entertainment Has Confirmed Plan

The reorganization plan for racetrack owner Magna Entertainment Corp. will be approved, the bankruptcy judge said yesterday when she agreed to sign a confirmation order.

Magna revised the plan in March, just before the judge approved the disclosure statement, to provide for the existing owners to keep the Pimlico and Laurel tracks in Maryland in return for larger payments to creditors.

Although Magna arranged auctions to sell the more valuable tracks, acceptable offers weren’t received although the auctions were adjourned multiple times to accommodate negotiations.

By retaining the two Maryland tracks, the owners will pay $89 million to unsecured creditors, up from $75 million under the previous version of the plan where the tracks were to be sold. Unsecured creditors of the Maryland tracks, owed from $23 million to $25 million, will be paid in full.

The owners will also pay the expenses of the Chapter 11 case, including $1.5 million in fees of the creditors’ committee spent pursuing a fraudulent transfer suit against the owners. A settlement of the suit laid the foundation for the original version of the plan in February.

Magna’s owners also will retain Santa Anita, Golden Gate Fields and Gulfstream Park.

Thistledown and Lone Star Park are still to be sold, with the first $20 million from Thistledown going to the owners. Anything more goes to unsecured creditors.

The first $20 million in proceeds from Lone Star Park goes to creditors, with excess staying with Magna.

The court-approved disclosure statement says that unsecured creditors, including holders of the 8.55 percent and 7.25 percent notes, should recover 42 percent, compared with 39 percent under the prior version of the plan.

The plan, settlement and confirmation ended a lawsuit by the creditors’ committee against the company’s officers and directors, including Frank Stronach who had been the chief executive. To read other Bloomberg coverage of the confirmation hearing, click here.

Magna owned 10 tracks at the outset of bankruptcy. In the Chapter 11 petition in March, it listed 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 case is In re Magna Entertainment Corp., 09-10720, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Creditors and Visteon Line Up against Stock Committee

Creditors and shareholders of auto-parts maker Visteon Corp. are forming battle lines in advance of an April 30 hearing where stockholders will be asking for an official committee to represent equity.

Having an official committee is significant because Visteon would pay professional fees for an equity committee’s lawyers and financial professionals.

In response to the motion filed earlier this month by Cypress Management Master LP, Lenado Capital Advisors LLC and Goshawk Capital Corp., the company said there is no “credible evidence” that Visteon is solvent.

The official unsecured creditors’ committee said there are already three ad hoc shareholder groups owning some 20 percent of the stock. Consequently, the creditors’ panel believes the stockholders have already shown themselves capable of advocating their position in bankruptcy court without an official committee. The secured term loan lenders also oppose having an additional official committee.

Shareholders fired back with arguments of their own, on a different subject. They contend that incumbent management is incapable of making dispassionate business decisions because they are in line for 10 percent of the stock of the reorganized company under the plan-support agreement also coming to bankruptcy court for approval.

The objecting shareholders, affiliates of Aurelius Capital Management, say that the shares for managers will be worth from $148 million to $237 million based on the company’s “inexplicably low valuation.” To read other Bloomberg coverage, click here.

Visteon said this month that it’s “seriously exploring” what it called a “toggle” reorganization plan as a substitute for the plan the company filed on March 15. The toggle plan would allow unsecured creditors to confirm a plan if noteholders deliver promised cash. If creditors can’t fund their own plan, Visteon would have the court confirm the company’s March plan.

The March 15 Visteon plan predicts recoveries between 19 percent and 57 percent for unsecured creditors who would have received nothing on $1.3 billion in claims under the prior version of the plan filed in December. For details about the March plan, where secured lenders owed $1.63 billion are to have 85 percent of the stock, click here for the March 16 Bloomberg bankruptcy report.

Visteon filed for reorganization in May 2009, listing assets of $4.6 billion against debt totaling $5.3 billion. Sales in 2008 were $9.5 billion, including $3.1 billion to Ford Motor Co. Visteon was spun off from Ford in 2000. Van Buren Township, Michigan-based Visteon at the outset owed $2.7 billion for borrowed money, including $1.5 billion on a secured term loan, $862 million on unsecured bonds, and $214 million on other debt obligations.

The case is In re Visteon Corp., 09-11786, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Aleris Has Commitment for $500 Million Exit Loan

Aleris International Inc. has a commitment for a $500 million asset-backed loan to kick in when the producer of rolled and extruded aluminum products emerges from Chapter 11 reorganization sometime after the confirmation hearing currently scheduled for May 13.

Aleris filed a motion on April 23 seeking authority to enter into the commitment agreement with the lenders and pay fees. The interest rate is to range between 3 percent and 3.75 percent above the London interbank offered rate.

The commitment provides that the loan could be increased by $200 million under specified circumstances.

The hearing to approve the financing commitment is set for May 11. To read about Aleris’s reorganization plan, click here for the March 29 Bloomberg bankruptcy report.

Aleris filed under Chapter 11 in February 2009, listing assets of $4.2 billion against debt totaling $4 billion, including $472 million on revolving credit and related facilities, plus more than $1.1 billion on secured term loans. In addition, there are $1.1 billion in unsecured notes.

The case is In re Aleris International, 09-10478, U.S. Bankruptcy Court, District of Delaware (Wilmington).

St. Vincent to Sell Staff Housing for $48 Million

St. Vincent Catholic Medical Centers is beginning the process of selling real estate associated with its 727-bed acute care hospital in Manhattan’s Greenwich Village.

On May 13 the bankruptcy court will hold a hearing to approve auction and sale procedures for a residential building at 555 Avenue of the Americas (6th Avenue) and 15th Street in Manhattan. The building, commonly known as Staff House, currently houses 160 young doctors serving their residencies at St. Vincent.

The opening bid of $48 million cash will come from an affiliate of Taconic Investment Partners LLC.

The hospital wants other bids by May 27, followed by a June 4 auction and a hearing on June 17 for approval of the sale.

The sale would pay off a $40 million mortgage owing to Sun Life Assurance Co. of Canada resulting from the hospital’s prior trip through Chapter 11. Staff House also has a second mortgage securing $113 million owing to three medical malpractice trusts created in the prior reorganization. Finally, the building is subject to a third mortgage owing to General Electric Capital Corp. on a $270 million term loan and $50 million revolving credit dating from the end of the prior reorganization.

St. Vincent filed again under Chapter 11 on April 14. The new petition listed assets of $348 million against debt totaling $1.09 billion. The hospital concluded the prior reorganization in July 2007 with a Chapter 11 plan at the time claimed to have “a realistic chance” of paying all creditors in full. The prior reorganization left the medical center with more than $1 billion in debt.

The primary asset sales are yet to come. The main hospital has 941,000 square feet in 10 buildings.

Other secured debts include a $40.3 million mortgage held by the New York State Dormitory Authority.

The not-for-profit hospital is sponsored by the Catholic Diocese of Brooklyn and the Sisters of Charity. It was founded in the mid-19th century.

When the prior bankruptcy began in July 2005, St. Vincent had seven operating hospitals. Five were sold.

The new case is In re Saint Vincent Catholic Medical Centers of New York, 10-11963, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The prior case was In re Saint Vincent Catholic Medical Centers of New York, 05-14945, in the same court.

Accredited Home Has Short Exclusivity Extension

Creditors of Accredited Home Lenders Holding Co. objected to the sixth motion by the former home mortgage originator and securitizer seeking an extension of the exclusive right to propose a Chapter 11 plan until Nov. 1.

Listening to creditors, the bankruptcy judge on April 21 gave the company an extension of so-called exclusivity until the next major hearing on May 20, when the court will revisit the idea of allowing more exclusivity.

The May 20 hearing is also the adjourned date for hearings on a motion by secured lenders’ for conversion of the case to liquidation in Chapter 7 and a motion by the unsecured creditors’ committee for authority to sue owner Lone Star Funds.

Accredited Home said in late March that discussions on a Chapter 11 plan were at “impasse.”

The indenture trustee for junior subordinated noteholders already sued the owner Lone Star Funds, contending that fraudulent representations were made in connection with the $300 million acquisition in 2007.

Accredited sold the mortgage servicing business in July after the Chapter 11 filing in May. Most of the mortgage loans were sold later. 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).

Pacific Ethanol Plan Set for June 8 Confirmation

Four ethanol plants owned by Pacific Ethanol Inc. will be the subject of a confirmation hearing on June 8 where the bankruptcy judge will be asked to approve the Chapter 11 reorganization plan.

The bankruptcy judge on April 23 approved the disclosure statement explaining the amended plan. The plan was modified by giving the parent Pacific Ethanol an option to buy as much as 25 percent of the reorganized company from the secured lenders for $30 million.

Secured lenders are predicted to have a 17 percent to 37 percent recovery. Unsecured creditors, owed $1.4 million, are to have a 21.4 percent recovery. To read details on the plan, click here for the April 20 Bloomberg bankruptcy report.

The ultimate owner of the plants, Pacific Ethanol, isn’t itself in Chapter 11 nor is the marketing affiliate Kinergy Marketing LLC. The Sacramento, California-based company wasn’t operating three plants when the reorganization began in May. One was returned to service. At full production, annual capacity would be more than 200 million gallons.

At the outset of Chapter 11, debt included $270 million owing to the secured creditors on a term loan, revolving credit, construction financing, and other liabilities.

The case is Pacific Ethanol Holding Co. LLC, 09-11713, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Citadel Reports 4% Revenue Growth in First Quarter

Citadel Broadcasting Corp., a Las Vegas-based owner of 224 radio stations, said that net revenue for the March 31 quarter was $165 million, a four percent increase from the same quarter in 2009.

Citadel said that stations in “larger metropolitan markets performed better” than those in smaller markets.

Citadel filed a prepackaged Chapter 11 petition in January and has a May 12 confirmation hearing for approval of the plan. To read about the plan, click here for the March 16 Bloomberg bankruptcy report.

Operating in more than 50 markets, Citadel filed the original version of the plan in February to carry out an agreement negotiated before the Chapter 11 filing in December. The secured lenders and the creditors’ committee support the plan following a settlement improving treatment of unsecured creditors.

Citadel and subsidiaries listed assets of $1.4 billion against debt totaling $2.46 billion.

The company is the third-largest radio station owner in the U.S., with 166 FM and 58 AM stations. The 24 stations in large markets were acquired in a June 2007 merger transaction with The Walt Disney Co. where Disney shareholders received 57.5 percent of Citadel’s stock and Disney received $1.35 billion cash. Citadel also distributes programming to 4,000 stations. The plan originally was negotiated with holders of 60 percent of the senior debt.

The case is Citadel Broadcasting Corp., 09-17442, U.S. Bankruptcy Court, Southern District New York (Manhattan).

Watch List

Bankruptcy Management Late in With Financials

Bankruptcy Management Solutions Inc. may be approaching the time it needs its own bankruptcy consulting services.

The Irvine, California-based company didn’t deliver a financial statement within 105 days of the end of the year, as the loan agreement requires, according to an April 23 report by Standard & Poor’s. S&P said BMS is in discussions with the lenders.

S&P also said it’s “concerned” about BMS’ compliance with financial covenants in loan agreements at the end of the June quarter. Although S&P maintained the CCC+ corporate rating, it turned negative on the outlook.

BMS’ financial concerns include a portfolio of auction-rate securities that currently are illiquid.

BMS provides paralegals, technical support, software, and experts for insolvency cases. The services include products for case administration for individual and corporate bankruptcies and reorganizations. Consolidated debt is around $905 million, according to S&P.

It was acquired for $384 million in 2006 by Ocwen Financial Corp.

Harrisburg Politicians Discuss Municipal Bankruptcy

Harrisburg, Pennsylvania’s capital, will miss a $425,282 interest payment due May 1 on $17 million in bonds issued in 2002 to finance an incinerator operated by the Harrisburg Authority. The default will come on top of $6 million in debt service already missed this year.

Click here to read Bloomberg coverage of a meeting where local political leaders heard the pros and cons of a municipal bankruptcy filing under Chapter 9.

The city this year is facing $68 million in debt payments for the incinerator that converts trash into energy.

The bonds are insured by Assured Guaranty Municipal Corp.

New Filings

REIT American Mortgage Files Chapter 11 in New York

American Mortgage Acceptance Co., a real estate investment trust that had $666 million of assets in 2007, filed for reorganization yesterday in Manhattan after working out agreement on a Chapter 11 plan with the two remaining secured creditors, Taberna Preferred Funding I Ltd. and C-III Capital Partners LLC.

The petition listed assets of $6.4 million and debt totaling $120 million, all unsecured.

New York-based AMA invested in commercial and residential mortgages, financed with repurchase agreements and collateralized debt obligations.

Most of the assets have been sold, leaving $25 million in debt to Taberna and $93 million to C-III. By late yesterday afternoon, details about the reorganization plan weren’t on the court file.

AMA’s stock topped out over the last five years at a $19.82 closing high on Nov. 21, 2006.

The case is In re American Mortgage Acceptance Co., 10- 12196, U.S. Bankruptcy Court, Southern District New York (Manhattan).

Tampa Broker GunnAllen Closes Down, Files Chapter 11

Former broker-dealer GunnAllen Financial Inc. filed a Chapter 11 petition yesterday in its Tampa, Florida, hometown, saying assets and debts are both less than $50 million.

The firm couldn’t comply with capital requirements and halted operations on April 19, the company said on the Web site. The statement said that customers’ accounts were “not at risk” and could be accessed through the clearing broker, Ridge Clearing.

Brokers are ineligible for filing in Chapter 11 so long as they have “customers.” GunnAllen presumably could file in Chapter 11 because all customer accounts were transferred to another broker or the customer accounts were held at the clearing broker in the first place.

The Web site said there would be an “orderly shut-down of the company.”

The case is In re GunnAllen Financial Inc., 10-09635, U.S. Bankruptcy Court, Middle District Florida (Tampa).

Briefly Noted

Lehman Begins $11 Billion Trial Against Barclays

The bankruptcy judge began hearing witnesses yesterday in the trial where Lehman Brothers Holdings Inc. contends that Barclays Plc received $11 billion more in assets than it was entitled to receive on buying assets one week after the Chapter 11 filing on Sept. 15, 2008. To read Bloomberg coverage of yesterday’s hearing, click here.

Earlier this month the bankruptcy judge denied Barclays’ motion to dismiss the lawsuit begun in November. Lehman contends the sale “was secretly structured from the outset to give Barclays an immediate and enormous windfall profit.”

Also involved in the trial are the Lehman creditors’ committee and the trustee for the Lehman brokerage subsidiary which sued Barclays at the same time in separate complaints in bankruptcy court. The Lehman holding company filed under Chapter 11 in New York on Sept. 15, 2008, and sold office buildings and the North American investment banking business to Barclays one week later.

The Lehman brokerage operations went into liquidation on Sept. 19, 2008, 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 operation is Securities Investors Protection Corp. v. Lehman Brothers Inc., 08-01420, U.S. Bankruptcy Court, Southern District New York (Manhattan).

General Growth Moves Back Hearing on Investor Choice

Shopping mall owner General Growth Properties Inc. said it’s pushing back to May 5 the hearing scheduled for April 29 where the bankruptcy judge would approve procedures for selecting investors to provide the equity and debt financing required for implementing a Chapter 11 plan. The company said it would use the additional time to consider “the full range of offers, proposals, and commitments.” To read other Bloomberg coverage, click here. For a rundown on the offers from Simon Property Group Inc., Brookfield Asset Management Inc. and others, click here for the April 23 Bloomberg daily bankruptcy report.

General Growth began the largest real estate reorganization in history by filing under Chapter 11 in April 2009. The books of Chicago-based General Growth had assets of $29.6 billion and total liabilities of $27.3 billion as of Dec. 31, 2008. It owns or manages more than 200 shopping-mall properties.

The case is In re General Growth Properties Inc., 09-11977, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Philadelphia Newspapers Auction Being Held Today

Philadelphia Newspapers LLC will hold an auction today to decide who buys the publisher of the Philadelphia Inquirer and Philadelphia Daily News. Click here to read Bloomberg coverage about the potential bidders. One of the cash bids is to come from secured lenders who were denied the ability to pay for the business with their liens rather than cash. The newspapers began the Chapter 11 reorganization in February 2009 in their hometown after defaulting on a term loan and revolving credit totaling $296.6 million and on $98.5 million in subordinated notes. The filing says assets and debt are both less than $500 million.

The case in bankruptcy court is In re Philadelphia Newspapers LLC, 09-11204, U.S. Bankruptcy Court, Eastern District Pennsylvania (Philadelphia).

Firstgold Allowing Secured Lenders to Foreclose

Firstgold Corp., unable to craft a reorganization plan, compromised a motion by secured lenders for conversion of the case to liquidation in Chapter 7 by agreeing to allow the lenders to foreclose, the company said in a statement. The lenders, Platinum Long Term Growth and Lakewood Group, are owed $19.3 million, the statement said. Firstgold, the owner of a non-operating gold mine near Lovelock, Nevada, filed a Chapter 11 petition on Jan. 27 in Reno, listing assets of $18 million against debt totaling $27 million. The company was unable to restart operations. The lenders have liens on most of the assets, the company said.

The case is In re Firstgold Corp., 10-50215, U.S. Bankruptcy Court, District of Nevada (Reno).

Downgrade

One Communications Lowered to B- by S&P

One Communications Corp., a competitive local exchange carrier, received a downgrade yesterday from Standard & Poor’s to match the ding issued in December by Moody’s Investors Service.

S&P lowered the corporate peg to B- in part because revenue in the fourth quarter declined 11 percent. Like Moody’s, S&P noted that financial covenants in the bank loan tighten “significantly” in March 2011.

S&P also lowered the first-lien loan to CCC+.

S&P was influenced in its ratings by litigation where Verizon Communications Inc. is claiming it was overcharged on access billing by predecessor Choice Communications for period April 2003 to September 2005.

One Communications is based in Burlington, Massachusetts.

Supreme Court News

Supreme Court to Decide on Chapter 13 Auto Deductions

The U.S. Supreme Court agreed to decide whether an individual in Chapter 13 bankruptcy may take an auto expense deduction for an auto owned free and clear. The U.S. courts of appeal are split 3-1 on the answer.

The U.S. Court of Appeals in San Francisco ruled in August that the deduction may not be taken when there is no debt on the auto. Courts of Appeals in St. Louis, New Orleans and Chicago ruled the other way. Last week, the Supreme Court decided to take the case and resolve the split of circuits. The case will be heard in the term of the Supreme Court to begin in October.

The answer to the question affects how much creditors must be repaid under a Chapter 13 plan.

The most recent decision, also in August, came from the 8th Circuit in St. Louis, where the appeals court said it was following the literal wording adopted by Congress. The two judges in the majority said they were not persuaded by contrary arguments based on “broad statements of legislative intent.”

The dissenting judge in the St. Louis case followed the San Francisco court, which believed that disallowing the expense deduction for a lien-free auto comported with Congressional intent “intended ‘to ensure that debtors repay creditors the maximum they can afford.’”

For a discussion of the issue, click here to read this column from June 17 under the heading “Advance Sheets.”

The case in the Supreme Court is Ransom v. MBNA, 09-907, U.S. Supreme Court.

The decision in the 9th Circuit is Ransom v. MBNA America Bank, NA (In re Ransom), 9th U.S. Circuit Court of Appeals (San Francisco). The 8th Circuit ruling going the other way is eCast Settlement Corp. v. Washburn (In re Washburn), 08-2023, 8th U.S. Circuit Court of Appeals (St. Louis). The prior circuit court cases also allowing the deduction are Tate v. Bolen (In re Tate), 08-60953, 5th U.S. Circuit Court of Appeals (New Orleans), and Ross-Tousey v. Neary (In re Ross-Tousey), 07-2503, 7th U.S. Circuit Court of Appeals (Chicago).

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

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