Rubicon, Cooper-Sandard, Fremont, Bigler, Xerium, Penn-Hilco: Bankruptcy

Rubicon US REIT Inc. is making a last-ditch effort at stopping a noteholder takeover at next week’s plan-confirmation hearing by alleging that the creditors engaged in “shockingly unethical and reprehensible conduct.”

Rubicon, a Chicago-based real estate investment trust, also said in its May 11 motion that the noteholders didn’t disclose a higher offer that would pay all creditors in full and enable making a distribution even to common shareholders.

Rubicon said there is a written offer to buy the assets for $405 million cash, enough to pay all creditors in full with something left for equity. Rubicon didn’t identify the prospective buyer. Rubicon contends the noteholders didn’t disclose the existence of the better offer.

At a May 17 hearing, the noteholders, owed $82.3 million, are aiming for the bankruptcy judge to approve a disclosure statement explaining the reorganization plan they were allowed to file when the bankruptcy judge in March ended Rubicon’s exclusive right to file a Chapter 11 plan. The noteholders also want the bankruptcy judge to approve the plan at the May 17 hearing by signing a confirmation order.

Rubicon wants the judge to appoint a Chapter 11 trustee and hold up the plan-confirmation hearing. The company wants a trustee to investigate whether the noteholders filed the plan in good faith and whether there are grounds for refusing confirmation of the plan based on “ethically questionable conduct.”

If the bankruptcy judge calls for a trustee, Rubicon also wants the judge to preclude noteholders from voting to elect the trustee. Rubicon is asking the bankruptcy judge to hold a hearing on the motion for a trustee on May 17 before beginning the hearing on the disclosure statement.

Rubicon said in the motion that the entire board will resign regardless of whether the judge appoints a trustee.

Gary Ticoll, a lawyer from Greenberg Traurig LLP in New York representing the noteholders, in an interview said “we totally dispute the allegations in the debtor’s papers.”

The explanatory disclosure statement for the noteholders’ plan projects that they will recover 68.7 percent by exchanging the notes for all the new common stock plus a $50 million note. The plan would reinstate $311 million in mortgages while extinguishing existing common stock. Unsecured creditors, owed $1 million, would be paid in full.

The Class A preferred equity would remain in place under the noteholders’ plan. The Class B equity holders could receive $100,000 in cash, although only for supporting the plan.

Noteholders filed a motion to end exclusivity when the Chapter 11 case was less than three weeks old. The noteholders said they wanted a plan of their own so they wouldn’t be cashed out involuntarily in a sale they believed Rubicon was planning.

The Chapter 11 filing in January by Rubicon and affiliates came more than a year after the bankruptcy of the Australian parent Allco Finance Group. Rubicon was required by the parent’s liquidator to attempt to sell the assets. Bankruptcy court papers say assets and debt exceed $100 million.

The case is In re Rubicon US REIT Inc., 10-10160, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Trends

Junk Covenants Regress to 2006-2007 Levels: Moody’s

Companies are now able to sell junk-rated debt “using investment-grade covenant packages,” according to a report yesterday from Moody’s Investors Services.

Moody’s said the trend “reflects a weakening in covenant protections even below those existing at the peak of the market in 2006 and 2007.” “Abundant cash seeking a home” is one of the reasons companies are able to sell debt with comparatively little protection, Moody’s said.

Moody’s also observed that some new bonds in the Caa or single B range have collateral that provides investors with “little added protection” given senior liens on the same collateral.

As an example, Moody’s cited a $250 million note offering by Lennar Corp. that has a B3 rating. Except for a change-of- control covenant, Moody’s says the new debt has the same covenants that the Miami-based homebuilder used when it sold debt in prior years with an investment grade rating of Baa3, or six notches higher than the current rating.

Updates

Plan Confirmed for Auto-Parts Maker Cooper-Standard

Auto parts maker Cooper-Standard Automotive Inc. has an approved Chapter 11 plan. The bankruptcy judge in Delaware signed a confirmation order yesterday given unanimous support for the plan by noteholders.

The reorganization is financed in part by a $355 million equity commitment from a group including senior secured noteholders and a substantial majority of holders of the senior subordinated notes. The plan, supported by the creditors’ committee, reduces debt by $650 million, to $480 million.

General unsecured creditors of the operating company owed $22.2 million, secured financing for the Chapter 11 case, and the $658 million pre-bankruptcy secured credit will be paid in full. General unsecured creditors of the holding company owed $69.1 million will receive nothing.

Senior noteholders providing a backstop for the rights offering are to receive 20.95 percent of the new stock in exchange for their notes. The remainder of the senior noteholders will be paid in full in cash.

The backstop parties are buying 11.75 percent of the new common stock, $100 million in convertible preferred stock, and warrants for 7 percent of the new common stock.

Holders of the $330 million in subordinated notes will receive 8 percent of the new common stock plus warrants for 3 percent. They may purchase 39.6 percent of the new common stock through the rights offering. Assuming a subordinated noteholder participates in the rights offering, the disclosure statement says the recovery is 25.8 percent. Not participating in the rights offering should mean a 15.4 percent return, the disclosure statement said.

The plan is also being financed with a $150 million working capital loan, a $450 million note offering and the backstopped $355 million equity rights offering.

The Novi, Michigan-based company makes auto fluid-handling, body-sealing, and noise, vibration and harshness-control systems. Revenue in 2008 was some $2.6 billion. The Chapter 11 petition filed in August listed assets of $1.73 billion against debt totaling $1.79 billion.

The case is In re Cooper-Standard Holdings Inc., 09-12743, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Visteon Shareholders Rebuffed Three Times at Hearing

Shareholders of Visteon Corp., who say the auto-parts maker is worth more than enough to pay creditors in full, lost three skirmishes in bankruptcy court yesterday.

U.S. Bankruptcy Judge Christopher S. Sontchi denied shareholders’ motion for the appointment of an official committee. He also denied a motion for the appointment of an examiner to determine if the company is solvent while he extended the company’s exclusive right to file a reorganization plan until June 29.

Visteon’s valuation, the primary factual question in the case, should be decided at the plan confirmation hearing, Sontchi said. To read Bloomberg coverage of yesterday’s hearing, click here.

Visteon brought creditors on board with a Chapter 11 plan filed last week where bondholders can own the company by providing $1.25 billion cash in return for all the new stock. If the cash isn’t forthcoming, Visteon intends on confirming a plan similar to the March version where term loan lenders owed $1.63 billion would receive about 85 percent of the stock, with noteholders splitting the remainder.

For details on the newest plan, click here for the May 7 Bloomberg bankruptcy report. For specifics the March plan, 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).

Signature Wins Nod to Reorganize Fremont General

Creditors of Fremont General Corp. at one time had the choice of voting for approval of five competing reorganization plans. The plan sponsored by Signature Group Holdings Inc. ended up being the plan that won the judge’s nod, court documents say.

Brea, California-based Fremont filed under Chapter 11 in June, 2008, immediately after regulatory approvals were given for the sale of the bank subsidiary Fremont Investment & Loan to CapitalSource Inc. The bank itself never was in bankruptcy. Each of the plans reflected a proposal for how best to take advantage of the company’s tax losses.

Signature’s plan pays all creditors in full and allows existing shareholders to retain their stock, although diluted by new shares issued under the plan.

Multiple competing plans were possible when the bankruptcy court in Santa Ana, California, ended Fremont’s exclusive right to propose a reorganization in July. Multiple plans cropped up after the company failed in its own yearlong attempt at finding a third-party investor.

Holders of $176.4 million in 7.875 percent senior notes will be paid in full, with interest. The holders of $107.4 million in so-called TOPrS are to receive $45 million cash, $39 million in notes, and 21 million shares of common stock. Other unsecured creditors will be paid in full.

Signature Group is to pay $10 million for 12.5 million shares of common stock. It will also pay $300,000 for warrants for 15 million more shares.

Signature intends to operate the company as a commercial finance business focusing on the middle-market.

Fremont filed lists saying assets were $362 million and debt totaled $327 million.

The case is In re Fremont General Corp., 08-13421, U.S. Bankruptcy Court, Central District California (Santa Ana).

Petrochemical Maker Bigler Intends to Auction Assets

Bigler LP, a diversified petrochemical producer, filed for Chapter 11 reorganization in October and intends on holding an auction on June 16 to sell all the assets. No buyer is yet under contract.

If the bankruptcy judge in Houston agrees with the timetable, bids initially would be due June 11. The hearing for sale approval is requested for June 23.

In a motion filed this week, Houston-based Bigler said it intends on selling the assets in three lots, composed of the petrochemical business, the terminals, and a tract of 145 acres of unimproved land.

The petition listed assets of $233 million against debt totaling $151 million. Liabilities include $67 million owing to secured lender Amegy Bank NA which has a lien on all assets. Almost $40 million is owing to contractors with liens on the newly completed plant that produces high purity isobutylene.

The new plant began operations in April 2009 and stopped production in August 2009 due to economic conditions. The plant was $40 million over budget in construction.

Bigler has production and storage facilities on 271 acres on the Houston Ship Channel.

The case is In re Bigler LP, 09-38188, U.S. Bankruptcy Court, Southern District of Texas (Houston).

Xerium Confirms Prepackaged Plan in Six Weeks

The bankruptcy judge at yesterday’s confirmation hearing signed an order approving the prepackaged reorganization for Xerium Technologies Inc., a manufacturer of consumable products for paper manufacturers.

Creditors having already voted, Xerium filed a Chapter 11 petition on March 30 along with the reorganization plan converting $620 million of secured debt into 82.6 percent of the new stock, $10 million cash, and $410 million in new term loans to mature in 2015.

Existing shareholders keep 17.4 percent of the stock while being given warrants for another 10 percent. Unsecured creditors are being paid in full.

The plan ultimately was approved without objection when shareholders Privet Fund Management LLC and Tiburon Capital Management Inc. withdrew their arguments against confirmation. Early this month, they contended the company was undervalued.

The Raleigh, North Carolina-based company listed assets of $693.5 million against debt totaling $813.2 million. For nine months ended Sept. 30, the net loss was $15.2 million on net sales of $368 million. For the three quarters, interest expense of $48.9 million exceeded $43 million of income from operations.

The case is In re Xerium Technologies Inc., 10-11031, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Bi-Lo Implements Reorganization Plan, Lone Star Keeps Control

Supermarket operator Bi-Lo LLC implemented the Chapter 11 reorganization plan yesterday that the bankruptcy court in South Carolina approved in an April 29 confirmation order.

Bi-Lo’s owner, Lone Star Funds, retains control thanks to a $150 million equity investment. Other financing comes from a new $200 million term loan and a new $150 million working capital loan.

The term-loan lenders, owed $260 million not including interest, are receiving $260 million cash, for a 94.5 percent recovery, according to the disclosure statement.

Unsecured creditors, with claims of $65 million to $85 million, will divide $40 million, for an estimated recovery between 43.7 and 57.8 percent. If the business is sold within six months for more than $175 million, they receive another $4 million.

The plan reduces funded debt by about $60 million, the company said in a statement.

Confirmation of the plan was made possible by a settlement between the creditors’ committee, the term-loan lenders, and Dallas-based Lone Star. The lenders and the committee withdrew their competing plan after the settlement.

Greenville, South Carolina-based Bi-Lo filed under Chapter 11 in March 2009, with maturity looming on the $260 million term loan. The 207 currently operating stores are in South Carolina, North Carolina, Georgia and Tennessee.

Lone Star Funds bought the business in 2005 from Koninklijke Ahold NV, a Netherlands-based supermarket operator. Lone Star also owns Bruno’s Supermarkets LLC, a chain of 66 supermarkets that filed under Chapter 11 in February 2009 in Birmingham, Alabama.

The case is In re Bi-Lo LLC, 09-02140, U.S. Bankruptcy Court, District of South Carolina (Spartanburg).

Penn Traffic Settles With Hilco Over Bustup Agreement

Supermarket operator Penn Traffic Co. agreed to pay $50,000 in settlement with Hilco Merchant Resources LLC over a disputed $300,000 breakup fee.

At a hearing in March the bankruptcy judge in Delaware ruled that Hilco wasn’t entitled to the breakup fee. Hilco appealed. In consultation with the creditors’ committee, Penn Traffic decided it would be wise to settle for $50,000 in return for releases.

Hilco had agreed to liquidate 57 stores for Penn Traffic. Before the bankruptcy judge could approve the agreement, Penn Traffic landed a better offer where Tops Markets LLC eventually purchased nearly all the stores as a going concern. Tops paid $85 million cash and structured the acquisition so Penn Traffic avoided a $72 million claim for pension plan termination. The Tops sale also avoided a $27 million claim by the principal supplier.

The Hilco settlement will be up for approval at a June 16 hearing.

Penn Traffic filed under Chapter 11 again in November, listing assets of $150 million against debt totaling $137 million. The company was intending to sell all 79 stores from the outset. Based in Syracuse, New York, Penn Traffic was in Chapter 11 twice before. Debt at the outset of the newest bankruptcy included $63.2 million owing to secured creditors, including $41.8 million to General Electric Capital Corp. on a senior secured facility and $10 million on a supplemental real estate credit with Kimco Capital Corp. serving as agent.

Penn Traffic operates stores Pennsylvania, upstate New York, Vermont and New Hampshire using the names BiLo, P&C and Quality.

The case is In re Penn Traffic Co., 09-14078, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Dallas Logistics Hub Seeks Exclusivity Until July 22

Allen Capital Partners LLC and subsidiary DLH Master Land Holding LLC told the bankruptcy court in Dallas that 15 potential investors have signed confidentiality agreements enabling receipt of detailed financial information that could lay the basis for a reorganization or acquisition.

The developers of a 6,000-acre multimodal logistics park 12 miles (19 kilometers)from downtown Dallas want the bankruptcy court to extend the exclusive right to propose a Chapter 11 plan until July 22.

The court filing also refers to the “massive fight” to approve financing.

The builder of the Dallas Logistics Hub filed for reorganization in January in Dallas. ACP’s $137 million in listed unsecured debt includes $73.8 million on guarantees of DLH’s secured debt owing to three banks. DLH owes another $49 million on guarantees of affiliates’ debt. Court papers say almost $500 million already has been invested or committed to the project. The Chapter 11 filings were intended to stop one of the lenders from taking over the equity interest of ACP.

The case is In re DLH Master Land Holding LLC, 10-30561, U.S. Bankruptcy Court, Northern District Texas (Dallas).

Briefly Noted

Citadel Broadcasting Confirmation Continues May 17

Citadel Broadcasting Corp., a Las Vegas-based owner of 224 radio stations, began a contested confirmation hearing yesterday. To decide if he will approve the Chapter 11 plan, the judge is hearing witnesses testify about whether the company is worth less than debt, thus justifying cancellation of existing stock. To read Bloomberg coverage of yesterday’s hearing, click here. The confirmation hearing was adjourned to May 17. Operating in more than 50 markets, Citadel filed the prepackaged Chapter 11 petition in January. Secured lenders and the creditors’ committee support the plan following a settlement improving treatment of unsecured creditors. To read about the plan, click here for the March 16 Bloomberg bankruptcy report.

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

Lehman Settlement with Fenway Capital Approved

Lehman Brothers Holdings Inc. was authorized by the bankruptcy judge yesterday to settle with Fenway Capital LLC by buying back assets under a repurchase agreement with Fenway, terminating the repurchase agreement, and canceling a commercial paper program. The assets in the repo transaction include $1 billion in loans to SunCal Cos., a California developer where Lehman is a part-owner and lender. To read Bloomberg coverage of the hearing, click here. 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 Plc 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).

U.S. Concrete Has Committee for Prepacked Chapter 11

U.S. Concrete Inc., among the 10 largest producers of ready-mixed concrete in the U.S., has an official creditors’ committee with five members. One is indenture trustee Wells Fargo Bank NA. The Houston-based company has a June 3 hearing for approval of the disclosure statement explaining the prepackaged reorganization plan negotiated before the Chapter 11 filing on April 21. For details on the plan, which reduces debt by $285 million through conversion of 8.325 percent subordinated notes into the new equity, click here for the April 30 Bloomberg bankruptcy report.

The Chapter 11 petition listed assets of $389 million and debt of $399 million. Liabilities include $40 million on a pre- bankruptcy secured credit facility where JPMorgan Chase Bank NA serves as agent. There is another $17.9 million on undrawn letters of credit. U.S. Concrete’s balance sheet on Dec. 31 listed assets of $392.4 million and liabilities totaling $402.5 million. It has 125 fixed and 11 portable plants serving markets in California, New Jersey, Texas, and Michigan.

The case is In re U.S. Concrete Inc., 10-11407, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Auction of Salander-O’Reilly Galeries Set for June 9

Christie’s International will hold an auction on June 9 to sell artworks belonging to bankrupt Salander-O’Reilly Galleries LLC. The auction was made possible by settlement in March with secured lenders. Purchasers at the auction will be protected by an insurance policy guaranteeing title to the art. To read Bloomberg coverage, click here.

Lawrence Salander, the gallery’s proprietor, was indicted in March 2009 by the Manhattan district attorney on charges relating to an $88 million fraud going back 13 years. He pleaded guilty in March 2010 and will be sentenced to six to 18 years in prison. He must also pay $120 million in restitution to his defrauded customers. The gallery went into Chapter 11 in November 2007 after being sued for alleged improper dealings with artworks. The liquidating gallery is now run by an independent chief restructuring officer. Lawrence Salander and his wife also filed under Chapter 11 in November 2007. The U.S. bankruptcy judge in Poughkeepsie, New York, converted the Chapter 11 case of Salander and his wife to a liquidation in Chapter 7 in May 2008, automatically bringing the appointment of a trustee.

The individuals’ case is In re Lawrence B. Salander and Julie D. Salander, 07-36735, and the gallery’s case is In re Salander-O’Reilly Galleries LLC, 07-30005, both in the U.S. Bankruptcy Court, Southern District of New York (Poughkeepsie).

Downgrade

Defense Contractor Kratos Lowered to B3 on Bigger Loan

Kratos Defense & Security Solutions Inc., a defense contractor and security systems integrator for governments, was demoted by one notch yesterday to a B3 corporate rating because the company is increasing a secured note offering by $25 million to $225 million.

In issuing the downgrade, Moody’s Investors Service said the additional cash will be retained on the balance sheet of the San Diego-based company.

Moody’s said the extra cash accentuates “acquisition integration risks.”

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

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