Philly Papers, Barcalounger, Tronox, WaMu: Bankruptcy

Philadelphia Newspapers LLC, the publisher of the Philadelphia Inquirer and Philadelphia Daily News, will be the subject of a June 24 confirmation hearing for approval of the reorganization plan where pre-bankruptcy secured lenders will take ownership.

Yesterday the bankruptcy judge in Philadelphia approved supplemental disclosure materials telling creditors how much they can expect to receive as a result of the auction in late April. The cash portion of the purchase price paid by the secured lenders is $105 million, according to the disclosure statement.

To confirm the plan, $22.3 million must be spent to pay priority claims and expenses of the Chapter 11 case, including professional fees. The secured lenders, owed almost $319 million, are predicted to have a 36 percent recovery.

The lenders are entitled to split $86 million cash. In addition, they receive title to real property where the newspapers operate. The real estate is estimated to be worth $29.5 million, for a $115.5 million total recovery by the lenders. The lenders waive the deficiency claims resulting when the assets didn’t have enough value to cover their secured claims.

Lenders who provided financing commitments for the auction elected to take equity rather than cash. As a result, at least $41 million will be returned to the purchasers.

The holders of $110 million in pre-bankruptcy unsecured mezzanine claims are slated for a 1.5 percent recovery from 2.3 percent of the new equity and a sharing in recoveries by a liquidating trust.

General unsecured creditors with $4.8 million in claims could recover nothing to 23 percent, the disclosure statement says. The discrepancy depends largely on how much in unsecured claims are ultimately found valid.

The newspapers commenced 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 centerpiece of the case was a dispute over whether the lenders could bid their secured claims rather than cash at auction, a process known as credit bidding. Although the bankruptcy judge would have allowed the lenders to credit bid, appellate courts disagreed. The 3rd U.S. Circuit Court of Appeals in Philadelphia ruled that bankruptcy law doesn’t give secured creditors the absolute right to make a credit bid.

Consequently, the lenders bid cash at auction in late April.

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

New Filings

Barcalounger Files for Sale to Owner Hancock Park

Barcalounger Corp., a furniture maker from Martinsville, Virginia, filed a Chapter 11 petition yesterday in Delaware to sell the business for $1.5 million plus forgiveness of $32.5 million in debt to an affiliate of the current owner, private-equity investor Hancock Park Associates.

The company, which ceased operations, owes $1.2 million on two commercial factoring agreements plus $32.5 million on subordinated debt owing to a fund managed by Los Angeles-based Hancock Park. Barcalounger decided that the business is worth less than the debt, a court filing says.

The company is asking the bankruptcy court to require competing bids by July 1, with an auction on July 6.

The petition says assets are less than $10 million while debt exceeds $10 million.

Hancock Park acquired the business in March 2006 in a $20 million transaction, according to data compiled by Bloomberg.

The case is In re Barcalounger Corp., 10-11637, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Utah’s Copper King Mining Files Chapter 11 in Nevada

Copper King Mining Corp. and subsidiary Western Utah Copper Co. filed bare-bones Chapter 11 petitions on May 18 in Reno, Nevada. The companies own a mine and mill in Milford, Utah.

The bankruptcy reorganization will be “important” in returning the mine and mill to operation, company spokesman Charles Moskowitz said in an interview yesterday.

Western Utah’s petition said assets are less than $100 million while debt exceeds $500 million.

The petitions were accompanied by none of the motions and requests for relief ordinarily filed along with a petition in major a Chapter 11 case.

The cases are In re Copper King Mining Corp. and In re Western Utah Copper Co., 10-51912 and 10-51913, both in U.S. Bankruptcy Court, District of Nevada (Reno).

Updates

Orleans Drops NVR Sale, Working on Plan with Lenders

Orleans Homebuilders Inc. yesterday officially terminated an agreement whereby NVR Inc. (NVR) would have purchased its assets for $170 million.

Instead, Orleans said it will “pursue negotiations of a plan of reorganization” with senior lenders. The company said it anticipates filing a Chapter 11 plan in “late summer,” allowing for an emergence from bankruptcy in “late fall.”

Orleans, a builder of homes and condominiums in seven states, had filed a motion aiming to set up auction procedures testing whether anyone would top the bid from NVR, a homebuilder based in Reston, Virginia. Yesterday, a hearing on the procedures was canceled.

Orleans didn’t provide details on the contemplated plan with the lenders.

The Chapter 11 filing on March 1 by Bensalem, Pennsylvania-based Orleans resulted from the maturity of a revolving credit the previous month. About $325 million was owing to the banks at maturity, not including $15 million on letters of credit. The March 31 balance sheet listed assets of $591 million against total liabilities of $560 million.

The case is In re Orleans Homebuilders Inc., 10-10684, U.S. Bankruptcy Court, District of Delaware (Wilmington).

WorldSpace’s Samara Bids $5.5 Million for Satellites

WorldSpace Inc. won’t be sending its two satellites crashing to earth after all, if a $5.5 million sale works out.

WorldSpace, a Maryland-based provider of satellite radio and data broadcasting services, had won permission in March to bring the two satellites out of orbit after two asset sales fell through.

Yazmi USA LLC, the new buyer, is owned and controlled by WorldSpace Chief Executive Officer Noah Samara, according to a report in Rapid TV News, a trade publication. Samara’s Yenura Pte in October 2009 defaulted on a court-approved contract to buy the assets for $28 million cash.

WorldSpace says that Yazmi has demonstrated financial ability to complete the purchase. Yazmi’s agreement provides $100,000 to de-orbit the satellites should the sale not be completed. Yazmi will also advance $500,000 against the purchase price to pay operating expenses before the sale closes.

Destroying the satellites became necessary after Liberty Satellite Radio LLC terminated negotiations where there had been an agreement in principle after six months of talks. In February, the bankruptcy judge approved an additional $1 million loan from Liberty, on top of $4.3 million already lent by the would-be buyer.

To facilitate the sale to Yazmi, WorldSpace put subsidiary WorldSpace Satellite Co Ltd. into Chapter 11 on May 18.

The Chapter 11 petition filed in October 2008 listed assets of $307 million and debt of $309 million, including $36.1 million on senior secured notes and $53.1 million of convertible debt. WorldSpace has two geostationary satellites serving 170,000 paying customers in 10 countries outside the U.S.

The case is In re WorldSpace Inc., 08-12412, U.S. Bankruptcy Court, District of Delaware (Wilmington).

St. Vincent Sets Procedures for 6th Avenue Hospital Sale

St. Vincent Catholic Medical Centers, a shuttered 727-bed acute-care hospital in New York’s Greenwich Village, will sell a residential building at 555 6th Avenue. The sale processes are different from those originally proposed.

Under procedures approved by the bankruptcy court in New York this week, Taconic Investment Partners LLC will make the first bid at $48 million cash. Other bids are due June 15. Originally, St. Vincent wanted competing offers by May 27.

The hospital will negotiate with prospective buyers who make competing bids and require final bids by June 25. St. Vincent will announce the highest or best offer on June 28 and hold a hearing on July 1 for approval of the sale.

The property, commonly known as Staff House, housed 160 doctors serving their residencies at St. Vincent. The April 27 Bloomberg bankruptcy report runs down mortgages on the property.

The bankruptcy court also approved the sale of St. Vincent’s Pax Christi hospice to Visiting Nurse Service of New York Hospice Care for $9 million plus assumption of specified liabilities.

The hospital concluded a bankruptcy reorganization in July 2007 with a Chapter 11 plan it said at the time had “a realistic chance” of paying all creditors in full. The prior reorganization left the medical center with more than $1 billion in debt. 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 primary asset sales are still to come. The main hospital has 941,000 square feet in 10 buildings. The not-for-profit hospital, founded in the mid-19th century, is sponsored by the Catholic Diocese of Brooklyn and the Sisters of Charity.

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, SDNY.

Age Refinery Auction Put on Hold Following Accident

Age Refining Inc., a refiner of jet fuel and diesel products, was to be sold at auction May 5. The sale was pushed back to May 19, and this week the company said the sale was being put on hold.

Age explained in a court filing that there was an accident at the refinery on May 5. Since then, the company’s “attention has been diverted from the sale process,” a court filing says. The company said that new deadlines will be published “within the next 10 days.”

Age is required by its financing agreement either to sell the business or confirm a plan where the lenders take ownership. Age filed a plan this month.

Age filed for reorganization in February in San Antonio, where the refinery is located. The formal lists of assets and debt show properties with a value of $134.9 million against liabilities totaling $104.6 million. Debt includes $69.8 million in secured claims.

At the outset of the Chapter 11 case, Age said debt included $29.6 million owing on a construction loan where JPMorgan Chase Bank NA (JPM) is agent. The bank is also agent for a $50 million revolving credit that was undrawn at the outset of the reorganization. Letters of credit totaling $26.6 million were undrawn when the Chapter 11 petition was filed.

The case is In re Age Refining Inc., 10-50501, U.S. Bankruptcy Court, Western District Texas (San Antonio).

Great American Wins Auction to Liquidate Movie Gallery

The last 1,028 movie-rental stores belonging to Movie Gallery Inc. will be liquidated in going-out-of-business sales by Great American Group Inc. (GAMR), the winner of the auction conducted yesterday in bankruptcy court in Richmond, Virginia.

Great American’s top bid was $74.2. It had made the opening bid of $62.3, touching off an auction with two other liquidators. Hilco Merchant Resources LLC and affiliate of Gordon Brothers Group LLC dropped out at $74 million. The third liquidator quit at $64 million. To read Bloomberg coverage, click here.

Before the auction, the bankruptcy judge denied Great American a breakup fee if it were outbid. Hilco and Gordon brothers objected to the fee, saying they were willing to bid without protection from a higher offer.

Movie Gallery filed under Chapter 11 in February less than two years after the previous Chapter 11 case. It decided this month to liquidate. In a settlement with the secured lenders, the unsecured creditors’ committee will give up claims in return for $5 million placed in trust for unsecured creditors under a liquidating Chapter 11 plan.

Movie Gallery had approximately 2,600 stores in operation on filing under Chapter 11 again in February. Since then, more than 1,400 closed, plus another 270 that are almost liquidated.

At the outset of the new Chapter 11 case, debt included $100 million on a secured revolving credit, $394 million on a first-lien facility, and $146 million in claims held by second-lien creditors.

Movie Gallery operates under the names Movie Gallery, Hollywood Video and Game Crazy. It had 3,490 stores before the first bankruptcy, which concluded with a confirmed Chapter 11 plan in May 2007. For details on the second filing, click here.

The new case is In re Movie Gallery Inc., 10-30696, U.S. Bankruptcy Court, Eastern District Virginia (Richmond). The prior case is In re Movie Gallery Inc., 07-33849, in the same court.

Judge Formally Confirms Citadel Reorganization Plan

The bankruptcy judge signed a confirmation order yesterday formally approving the reorganization plan for Citadel Broadcasting Corp., a Las Vegas-based owner of 224 radio stations.

U.S. Bankruptcy Judge Burton R. Lifland decided that the company is worth $2.04 billion, not enough to cover debt. As a result, Lifland ruled that that existing “equity is out of the money.” Lifland concluded that the valuation testimony offered by stockholders wasn’t persuasive.

Contending they shouldn’t be wiped out, shareholders unsuccessfully objected to the plan, arguing the reorganized company would be worth more than the company said.

Operating in more than 50 markets, Citadel filed a prepackaged Chapter 11 petition in January. The creditors’ committee supported the plan after a settlement improving treatment of unsecured creditors.

The predicted recovery for secured creditors is 82 percent, while it’s 36 percent for unsecured creditors. For details on the plan, click here for the May 18 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).

Spheris Has Buyer for $17.5 Million Subordinated Note

Spheris Inc., a transcriber of dictation for doctors and hospitals, sold its business in April for $98.83 million, a price that included a $17.5 million subordinated note from the purchasers, subsidiaries of CBay Holding Ltd.

Spheris, now formally named SP Wind Down Inc., on May 18 agreed to sell the note to Riva Ridge Master Fund Ltd. for an undisclosed price. The five-year note starts off paying interest at 8 percent, rising to 12.5 percent.

CBay, which also provides medical transcription services, has the right to prepay the note within six months for 77.5 percent of outstanding principal.

The official creditors’ committee supports the sale. A hearing to approve the deal is scheduled for June 8.

Spheris, based in Franklin, Tennessee, listed assets of $61 million against debt totaling $225 million. Liabilities included $75.6 million on a senior secured credit and $125 million on subordinated notes. For the nine months ended in September, revenue was $120 million.

The case is In re SP Wind Down Inc., 10-10352, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Distressed Exchange

Three-Quarters of Distressed Exchanges May Default

About three-quarters of the 100 distressed-debt exchanges in 2009 by non-financial companies “remain at high risk of near- to medium-term default,” Moody’s Investors Service said in a report yesterday.

The companies at risk of another default emerged from the exchange offer with ratings of Caa1 or below, Moody’s said.

Moody’s said there will be “many fewer” distressed exchanges in 2010. There will be a “huge peak” in 2012 to 2014 due to maturities resulting from offerings from 2005 to 2007.

Companies sponsored by private-equity investors tended to emerge from exchanges with higher credit ratings, Moody’s said.

Moody’s defines a distressed exchange as one where debt is swapped for something worth less than face amount and the issuing company is able to avoid bankruptcy or payment default.

Briefly Noted

WaMu Disclosure Statement Hearing Pushed Back to June 3

Washington Mutual Inc. (WM) told a bankruptcy judge yesterday that there should be agreement with the Federal Deposit Insurance Corp. by tomorrow on a global settlement over deposits and tax refunds.

The hearing for approval of a disclosure statement explaining the bank’s Chapter 11 plan was pushed back to June 3.

The settlement with the FDIC, JPMorgan Chase & Co. and creditor groups splits up $5.4 billion to $5.8 billion in tax refunds. The settlement will also end disputes over who is entitled to $4 billion on deposit at WaMu’s bank subsidiary when it was taken over by regulators and sold to JPMorgan.

Click here to read the May 18 Bloomberg bankruptcy report for a summary of the latest draft of the settlement and WaMu’s Chapter 11 plan, designed to distribute $7 billion. Click here for Bloomberg coverage of yesterday’s hearing.

WaMu’s holding company filed under Chapter 11 in September 2008, one day after the bank subsidiary was taken over in the largest bank failure in U.S. history. WaMu was once the sixth-largest depository and credit-card issuer in the U.S.

The holding company filed formal lists of assets and debt showing property with a total value of $4.485 billion against liabilities of $7.832 billion.

The holding company Chapter 11 case is Washington Mutual Inc., 08-12229, U.S. Bankruptcy Court, District of Delaware (Wilmington).

RathGibson Plan Unopposed at Tomorrow’s Confirmation

RathGibson Inc., a manufacturer of welded tubing products, will be in bankruptcy court tomorrow for a confirmation hearing where the agenda says the Chapter 11 plan is unopposed. All creditor groups voted in favor of the plan. For details about the plan, click here for the March 11 Bloomberg daily bankruptcy report. To buy the business, no one bid against the $93 million cash offer from a group including some of the existing secured lenders and holders of 70 percent of the $209.5 million in 11.25 percent unsecured notes. The sale finances the plan incorporating a settlement with creditor groups. The original plan was negotiated with holders of 73 percent of the senior unsecured notes before the Chapter 11 filing in July.

The Lincolnshire, Illinois-based company listed assets of $305 million against debt totaling $319 million. In addition to $209 million in senior notes, debt included $55.3 million on secured credit agreements and $10.4 million owing to trade suppliers. The holding company was also liable on $115 million in pay-in-kind notes. A group including management and an affiliate of DLJ Merchant Banking Partners acquired control of RathGibson in June 2007.

The case is In re RathGibson Inc., 09-12452, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Smurfit in Court After Submitting Last Confirmation Briefs

Smurfit-Stone Container Corp. and opponents of the containerboard maker’s bankruptcy reorganization plan filed their final post-trial briefs on May 18.

The judge will have an opportunity at a hearing today in Wilmington, Delaware, to indicate when or whether he will approve the reorganization plan.

Shareholders oppose the plan, saying a reorganized Smurfit will be worth more than the company and creditors have said. To read a summary of the plan, click here for the Feb. 1 Bloomberg bankruptcy report.

The Chapter 11 petition filed in January 2009 by Chicago-based Smurfit listed assets of $7.45 billion against debt totaling $5.58 billion as of Sept. 30, 2008. Debt at the time included $1.2 billion under secured revolving-credit and term-loan agreements; five issues of unsecured notes totaling $2.275 billion; $388 million under an accounts-receivable securitization facility; and $284 million owing on tax-exempt bonds.

The case is In re Smurfit-Stone Container Corp., 09-10235, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Pigment Maker Tronox Reports $4.6 Million Profit in April

Tronox Inc. (TRX), the world’s third-largest producer of the white pigment titanium dioxide, filed an operating report for April showing $4.6 million of net income on net sales of $55.7 million. Operating income was also $4.6 million.

In March, Tronox largely defeated a motion to dismiss a lawsuit in bankruptcy court against former parent Kerr-McGee Corp. (KMG) to recover environmental remediation costs imposed on Tronox when it was spun off in March 2006. Anadarko Petroleum Corp. (APC), which acquired Kerr-McGee for $18.4 billion in August 2006, is also a defendant.

Tronox, whose products are used in paints, coatings, plastics, paper and consumer products, said it’s trying to broker a consensual reorganization plan. To read about the contemplated stand-alone plan, click here for the Jan. 21 Bloomberg bankruptcy report.

The Chapter 11 petition Tronox filed in January 2009 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.

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).

Taylor-Wharton Reports $1.47 Million April Operating Loss

Taylor-Wharton International LLC, a maker of propane and cryogenic pressure tanks, valves and gauges, reported an operating loss of $1.47 million for April on net revenue of $13.9 million. The net loss was $2.44 million. Restructuring costs totaled $1.89 million.

To read about Mechanicsburg, Pennsylvania-based Taylor-Wharton’s proposed reorganization plan, click here for the Jan. 12 Bloomberg daily bankruptcy report.

Taylor-Wharton at the outset of Chapter 11 had 11 facilities in the U.S. and 6 abroad. Revenue dropped to $237 million in 2009 from $404 million a year earlier.

The case is In re Taylor-Wharton International LLC, 09-14089, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Advance Sheets

Today we have two cases involving taxes. One says bankruptcy can’t be used to avoid taxes and the other says it can.

Tax Avoidance Can’t Be Sole Purpose of Chapter 11 Case

Chapter 11 can’t be used when the sole purpose is to avoid federal taxes, U.S. Judge Richard A. Posner of the 7th Circuit Court of Appeals in Chicago ruled yesterday.

The bankruptcy court, upheld by the district court, refused to confirm the reorganization plan and dismissed the case. Posner first ruled that the U.S. Trustee was a party in interest with the right to oppose the plan, even when no other creditors were active in the case.

Posner said that the U.S. Trustee could block the plan for improperly evading taxes despite a provision in bankruptcy law saying that only a governmental unit may object to tax treatment of a company in bankruptcy. The U.S. Trustee isn’t a governmental unit, Posner said.

“The object of bankruptcy is to adjust the rights of creditors of a bankrupt company; it is not to allow a solvent company to try to lighten its tax burden,” Posner said.

It was proper to dismiss the case and refuse to confirm the plan because the only creditor was a so-called insider, the judge said. Citing the Bankruptcy Code, Posner said a plan must be accepted by at least one class of creditors, not counting any creditors that are insiders.

Posner also directed the individuals who took the appeal and their lawyers to “show cause” why they shouldn’t be sanctioned for “orchestration of a scheme aimed at a palpable misuses of bankruptcy.” He said the case raised “serious ethical and perhaps legal concerns.”

The case is Appeal of Scattered Corp. (In re Scattered Corp.), 09-3079, U.S. 7th Circuit Court of Appeals (Chicago).

Bankruptcy Amendments Help Farmers Avoid Gains Taxes

While amendments to federal bankruptcy law in 2005 were generally favorable to creditors and lenders, Congress made a change in Chapter 12 that’s helpful for so-called family farmers.

Before the change, the sale or foreclosure of a farmer’s property often resulted in large capital gains or income stemming from depreciation recapture. As a result, farmers often had large tax liabilities making them unable to confirm Chapter 12 plans because priority tax claims must be paid in full.

Congress changed section 1222(a)(2)(A) of the Bankruptcy Code to provide that the claims of governmental units resulting from the sale of farm property won’t be treated as a priority claim so long as the farmer receives a discharge.

The Internal Revenue Service took the position that the provision didn’t apply to property sold after bankruptcy. In an opinion on May 7, the Bankruptcy Appellate Panel for the U.S. 10th Circuit disagreed.

The appellate panel, in line with the 8th U.S. Circuit Court of Appeals, ruled that the provision applies to property sold both before and after bankruptcy. The panel said it’s unhelpful to look at the IRS Code when interpreting bankruptcy law.

The appellate panel said that the same issue is pending on appeal to the 10th Circuit in Denver.

The case is Internal Revenue Service v. Ficken (In re Ficken), 09-042, Bankruptcy Appellate Panel for the 10th Circuit.

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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