North American Petroleum Corp., Lehman, Hawkeye, UTGR, Abitibi: Bankruptcy

Lehman Brothers Holdings Inc. and its creditors’ committee filed a complaint yesterday in bankruptcy court against JPMorgan Chase Bank NA, alleging that the New York-based bank “stripped a faltering Lehman Brothers of desperately needed cash” in the days and weeks before the commencement of Lehman’s bankruptcy in September 2008.

Using its position as Lehman’s clearing bank and the inside information it gained in the course of business, JPMorgan was able to “leapfrog” over other creditors, “not just for clearing obligations, but for any and all possible obligations” owing by Lehman and its subsidiaries, the complaint says.

The complaint contends that the bank “took billions more” than it needed, thereby accelerating Lehman’s “freefall into bankruptcy by denying it an opportunity for a more orderly wind- down.”

Lehman says it’s pursuing billions of dollars in “assets that JPMorgan illegally converted and continues to hold.” Lehman also wants compensation for “all damages that flow directly from JPMorgan’s misconduct.”

JPMorgan spokesman Joe Evangelisti characterized the lawsuit as an “ill conceived and costly litigation.” He predicted it “will cause a further drain on the limited resources available to the Lehman bankruptcy estate.” Lehman’s operating report for April show a cash balance of almost $17.4 billion.

To read Bloomberg coverage, click here.

Lehman is paying $11.9 million for a one-year extension of the directors’ and officers’ liability insurance policy while settling a dispute with State Street Bank & Trust Co. over a repurchase agreement.

Lehman’s current $250 million D&O insurance policy expired May 16. So far, only $200,000 has been paid out under the policy, Lehman said in a court filing yesterday.

If the bankruptcy court agrees at a June 16 hearing, Lehman will pay $11.9 million for a so-called tail that will extend expiration of the claims-made policy until May 16, 2011.

Lehman and Boston-based State Street have been in a dispute over a repurchase agreement. The bank contends it became the owner of a $31 million loan because Lehman defaulted on the repo. The loan is secured by an office building at 340 Madison Avenue in Manhattan.

To settle the dispute over the Madison Avenue loan, Lehman will give State Street a 50 percent participation in ownership of the loan, plus half of anything received on it to date. The settlement also will be up for approval in court on June 16.

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).

Updates

Texas Rangers Get $21.5 Million Financing from League

The Texas Rangers professional baseball club ended up with $21.5 million in financing from Major League Baseball, thanks to an unscheduled auction that took place in bankruptcy court yesterday on the team’s third day in Chapter 11.

Originally, the league had agreed to provide $11.5 million in financing. Secured lenders, owed $525 million, ultimately offered $41.5 million, enough to pay off $20 million already owing to the league plus $20 million in new money.

At the end of the hearing which began May 25, U.S. Bankruptcy Judge Michael Lynn gave interim approval for $6 million in financing from the league, enough to cover a $3.8 million payroll this week. Lynn will hold another hearing June 15 for approval of the entire package of $21.5 million.

To read Bloomberg coverage of yesterday’s hearing, click here.

The Rangers began what the team calls a prepackaged reorganization on May 24 in Fort Worth, Texas. The judge tentatively scheduled a July 9 confirmation hearing for approval of the Chapter 11 plan. Because all of the team’s debts are to be paid in full, the Rangers believe the plan may be approved without a vote of creditors.

The plan would pay $75 million to the secured lenders. Other companies controlled by owner Thomas Hicks are liable for the remainder. The lenders believe there is a better offer than the team’s proposed sale to a group led by Rangers’ President Nolan Ryan.

The Ryan group, which includes sports lawyer Chuck Greenberg, is signed to an agreement the team values at $575 million, including less than $300 million cash plus debt assumption. The buyers will also acquire real estate adjacent to the ballpark for $5 million cash, a $53.2 million 4 percent note and 1 percent of the equity in the team. The property is owned by a company controlled by Hicks. The buyers will take over the lease for the 49,170-seat stadium halfway between Dallas and Fort Worth.

The team was forced into filing under Chapter 11 because the lenders wouldn’t consent to the sale.

The Rangers moved from Washington to Texas in 1972. Hicks is the fifth owner since the move. He bought the team in 1998. The team defaulted on payments owing to the lenders in March 2009. This writer’s brother is a lawyer for an agent for the lenders.

The partnership that owns the team, Texas Rangers Baseball Partners, said in the petition that it had both assets and debt of less than $500 million.

The case is In re Texas Rangers Baseball Partners, 10- 43400, U.S. Bankruptcy Court, Northern District of Texas (Fort Worth).

Taylor-Wharton Confirms Reorganization Plan in Delaware

The reorganization plan for Taylor-Wharton International LLC was approved when the bankruptcy judge in Delaware signed a confirmation order yesterday that cuts debt in half.

Approval of the plan for the manufacturer of propane and cryogenic pressure tanks, valves and gauges, was held up until settlement of disputes with labor unions.

Taylor-Wharton filed under Chapter 11 in November with an agreement in principle on a plan. The plan was negotiated with holders of all of the $73.9 million in senior secured debt and the $73.3 million senior subordinated mezzanine notes.

Senior secured creditors receive a new $20 million revolving credit loan and a $30 million term loan. The holders of the $74.8 million in subordinated notes take home 7 percent of the new equity, subject to dilution by 16.5 percent of the stock that may be given to managers.

Investors are buying $12 million in pay-in-kind notes in return for 93 percent of the stock. The subordinated noteholders have the right to purchase half of the new so-called PIK notes. For accepting the plan, general unsecured creditors split $100,000 cash.

The Mechanicsburg, Pennsylvania-based company was unable to service debt incurred following acquisition of the business from Harsco Corp. in November 2007 in a $340 million transaction.

Taylor-Wharton at the outset of Chapter 11 had 11 facilities in the U.S. and six abroad. Revenue of $404 million in 2008 was estimated by the company to shrink to $237 million 2009.

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

Crdentia Confirms Plan in Delaware Bankruptcy Court

Crdentia Corp., a provider of health-care staff in 11 states, filed a Chapter 11 petition on March 17 in Delaware and won the signature of the bankruptcy judge on a confirmation order yesterday allowing the sale of the business in exchange for debt due ComVest Capital LLC, the secured lender owed $19 million.

Court papers say assets are $7.5 million while debt totals $22.5 million. Intangible assets were written down by $12 million. Cash flow was negative for two years, according to a court filing by Chief Financial Officer Rebecca Irish. Revenue of $40.1 million in 2008 declined to $23 million in 2009.

The ComVest loan was in default since late 2008.

Crdentia was created through 12 acquisitions over a space of five years.

The case is In re Crdentia Corp., 10-10926, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Tribune Proposes 2010 Bonus Plan for 640 Workers

Newspaper publisher Tribune Co. is proposing a 2010 bonus program covering 640 employees, including top management. If operating cash flow is 132 percent of target, the bonus pool would be $42.9 million, including $5.7 million for the highest executives.

The program is scheduled for consideration by the bankruptcy judge at a June 16 hearing.

If targeted operating cash flow is achieved, the bonus pool will be $30.8 million, with $2.2 million for top executives. To read other Bloomberg coverage, click here.

Tribune filed a proposed Chapter 11 plan in April to implement a settlement negotiated with some creditors. Holders of $3.6 billion in pre-bankruptcy secured debt immediately came out opposing the plan and the settlement. To read about the plan, the proposed settlement, and the parties’ arguments, click here for the April 13 Bloomberg bankruptcy report. A hearing will be held tomorrow to consider approving a disclosure statement explaining the plan.

Tribune is the second-largest newspaper publisher in the U.S. It listed $13 billion in debt for borrowed money and assets of $7.6 billion in the Chapter 11 reorganization begun in December 2008. It owns the Chicago Tribune, Los Angeles Times, six other newspapers and 23 television stations.

The case is In re Tribune Co., 08-13141, U.S. Bankruptcy Court, District Delaware (Wilmington).

Hawkeye Lenders Settle, Opening Door to Confirmation

Hawkeye Renewables LLC, the owner of two ethanol plants, negotiated a settlement between first- and second-lien creditors aimed at enabling confirmation of a Chapter 11 plan that would modify the reorganization proposed as part of the prepackaged reorganization that began Dec. 21.

Originally, the first-lien lenders, owed $593 million, were to get all the equity and a new $25 million secured term loan. The second-lien creditors, who opposed the plan at three days of confirmation hearings in March and April, were offered a profit participation equivalent to 7.5 percent of distributions over $435 million.

The settlement increases the take of the second-lien holders by giving them 1 percent of the equity and 10 percent above distributions of $435 million. The first-lien’s distribution drops from 100 percent to 99 percent of the new equity.

Hawkeye asked the bankruptcy judge in a motion to rule that the changes aren’t material so a new vote by creditors isn’t necessary. The company hopes the judge will entertain the motion at a June 1 hearing where the court might also confirm the revised plan.

Hawkeye filed an operating report showing an $11 million net loss in April on net sales of $34.3 million. The operating loss in the month was $1.5 million.

The company also won an extension until June 19 of the exclusive right to propose a reorganization plan.

For details about the original plan, click here to see the Hawkeye item in the Dec. 22 Bloomberg daily bankruptcy report.

Hawkeye, based in Ames, Iowa, owes $593 million on the first-lien credit and $168 million on the second-lien facility. Hawkeye had $720 million in debt at the end of 2008 and generated $584 million in revenue that year.

The plants are capable of producing 225 million gallons a year. Hawkeye is controlled by affiliates of Thomas H. Lee Partners LP.

The case is In re Hawkeye Renewables LLC, 09-14461, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Twin River Racino Chapter 11 Plan Held up for Legislature

UTGR Inc., the operator of the Twin River racetrack-casino in Lincoln, Rhode Island, had scheduled a confirmation hearing this week for approval of a reorganization plan incorporating a settlement with unsecured creditors.

The bankruptcy judge was forced to put off the hearing until after the Rhode Island legislature passes legislation permitting the operational changes called for in the plan.

The compromise reached in January provides for unsecured creditors to recover 65 percent rather than the 5 percent originally offered. For an estimated 89 percent recovery, first- lien creditors owed $415 million are to take home all the new stock plus a $300 million secured note. The plan was negotiated in part before the Chapter 11 filing in June 2009.

Second-lien creditors, owed $145 million, are in line for half of sale proceeds between $475 million and $575 million if the facility is sold within three years. They will receive 75 percent of sale proceeds above $575 million.

The plan requires changing state law to permit gambling 24 hours a day, seven days a week. The legislature also must allow the termination of dog racing.

UTGR filed for reorganization in June 2009 after negotiating a restructuring agreement with half the first-lien debt and some second-lien debt holders.

The formal lists of creditors listed debt at $568 million for UTGR, with $564 million secured. Revenue in 2008 was $410 million. Most revenue comes from slot machines. The current owners acquired the operation in 2005 for $470 million and spent $220 million on improvements.

Twin River competes with casinos in Connecticut. It is owned by a joint venture among Kerzner International Ltd., Starwood Capital Group LLC, and Waterford Group LLC. The current owners gave up control under a provision in the pre-bankruptcy agreement.

The case is In re UTGR Inc. d/b/a Twin River, 09-12418, U.S. Bankruptcy Court, District of Rhode Island (Providence).

Cobalis Confirming Cramdown Plan on Y.A. Global

Cobalis Corp., developer of a patented vitamin B-12 supplement named PreHistin, is on the cusp of having a confirmed reorganization plan, according to a company statement.

Cobalis put itself in Chapter 11 following an involuntary Chapter 7 petition filed in August 2007 by secured creditor Y.A. Global Investments LP. After the case was quiet for two years, the company and Y.A. filed competing reorganization plans. In April, U.S. Bankruptcy Judge Theodor Albert in Santa Ana, California, wrote a 32-page opinion explaining why he was prepared to approve Cobalis’ plan.

The Cobalis plan called for paying all creditors in full over five years, with interest. The judge had previously estimated that Y.A. had a $1.5 million secured claim and a $1.09 million unsecured claim.

From listening to the testimony, Albert concluded that the proper rate of interest on the secure claim was 20 percent. On unsecured claims, he said the interest rate must be 21 percent.

Concluding that the company’s plan was feasible, Albert said there was no reason to examine the Y.A. plan which was not so favorable to creditors or shareholders.

In the statement yesterday, Cobalis said it had submitted a confirmation order in compliance with the judge’s ruling from April. Once the plan is approved with the confirmation order, Irvine, California-based Cobalis said it “will have officially emerged from bankruptcy.”

An SEC filing in August 2007 showed Cobalis with assets of $662,000 and almost $13 million in debt.

In this column today under the heading Advance Sheets, there is a discussion of another case analyzing the proper interest rate when a Chapter 11 plan is confirmed using the so- called cramdown procedure. In the Cobalis case, the judge used a cramdown because Y.A. voted against the company’s proposed reorganization.

The case is In re Cobalis Corp., 07-12347, U.S. Bankruptcy Court, Central District California (Santa Ana).

Mesa Continuing to Fly for Delta Until Aug. 31

Regional airline Mesa Air Group Inc. lost a lawsuit early this month when a federal judge ruled that Delta Air Lines Inc. had the right to cancel a contract where Mesa was flying 22 aircraft as Delta Connection. The judge determined that Mesa’s substandard performance permitted Delta to cancel.

The two airlines reached a temporary agreement where Mesa will continue flying specified aircraft for Delta until the end of August.

The agreement was approved this week by the bankruptcy court in New York. The temporary arrangement allows for an orderly wind down of the relationship between the two airlines and assures Mesa of being paid for the flights its operates.

Mesa filed under Chapter 11 in January with a fleet of 178 aircraft. At the time, 130 were operating to provide 700 daily departures serving 127 cities in 41 states, Canada and Mexico. Mesa now operates 99 aircraft, with 580 daily flights serving 104 cities. Revenue in 2009 was $968 million.

Phoenix-based Mesa listed assets of $976 million against debt totaling $869 million. Liabilities include $393 million on loans secured by 24 owned aircraft, $26 million on three note issues, and $33.6 million secured by 20 other aircraft. In addition, there is $1.62 billion in potential liability on aircraft leases. Mesa operates regional aircraft under code- sharing agreements with US Airways Group Inc., UAL Corp.’s United Airlines and Delta.

Mesa’s subsidiary in Hawaii, go! Mokulele, didn’t file.

The case is In re Mesa Air Group Inc., 10-10018, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Remedial May Sell Support Vessels to Bondholders

Remedial (Cyprus) Public Co. Ltd. was given authority by the bankruptcy judge yesterday to sell its two elevated support vessels for the offshore oil and gas industry. There were no bids submitted topping the offer from secured bondholders, owed $230 million, to purchase the vessels in exchange for $120 million in debt plus whatever is outstanding on the $5 million post-bankruptcy loan. The bondholders are also paying costs to cure contract defaults.

After deducting money in an escrow fund for their benefit, bondholders are owed a net of $177 million, according to a court filing.

Remedial resorted to Chapter 11 when a restructuring couldn’t be implemented out of court. To read Bloomberg coverage of the hearing, click here.

The two vessels are under construction in China. They are scheduled for delivery this year. Where the cost originally was projected to be $269 million, the price rose to $318 million. The company said that assets were on the books for $157 million with liabilities totaling $237 million. Unsecured creditors are owed $11 million.

The case is In re Remedial (Cyprus) Public Co. Ltd., 10- 10782, U.S. Bankruptcy Court, Southern District New York (Manhattan).

New Filings

Petroflow’s N.A. Petroleum Files on Enterra Dispute

North American Petroleum Corp. USA and subsidiary Prize Petroleum Corp. filed Chapter 11 petitions on May 25 in Delaware owing $103 million on a term loan and revolving credit provided by Texas Capital Bank NA.

The independent exploration and production company drills unconventional natural gas wells in Oklahoma under a so-called farmout agreement with Enterra Energy Corp.

Alleging it was owed $15 million on a secured claim resulting from a cost recovery agreement, Houston-based Enterra filed liens against gas wells, North American said in a court filing. Enterra alleged North American was in default for missing deadlines on drilling wells and had previously directed customers to send payments to them rather than North American,.

Customers’ holdbacks totaling $7 million precipitated the Chapter 11 filing, a court paper says.

Under farmout agreements, North American drills wells on leases owned by Enterra. Once a well is completed, Enterra operates the well while giving North American 70 percent of revenue.

North American’s petition says assets and debt both exceed $100 million. Denver-based North American is wholly owned by Petroflow Energy Corp. Petroflow, also from Denver, isn’t in Chapter 11.

The case is In re North American Petroleum Corp. USA, 10- 11707, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Australia’s ABC Learning Files Chapter 15 in Delaware

ABC Learning Centres Ltd., an Australia-based operator of childcare centers, filed a petition yesterday in Chapter 15 soliciting assistance from the U.S. Bankruptcy Court in Delaware.

ABC had 1,045 childcare centers in Australia when it began administration proceedings in November 2008. The company is now the subject of both receivership and administration proceedings. It also had operations in the U.K., U.S., and New Zealand.

This month a plaintiff named RCS Capital Development LLC won a $47 million verdict against ABC from a jury in state court in Arizona related to development contracts for locations in the U.S. ABC is asking the bankruptcy judge to stop all suits in the U.S. and preclude collection actions when a judgment is entered in favor of RCS.

Chapter 15 is not a full-blown bankruptcy reorganization like Chapter 11. If ABC prevails, the U.S. court will assist the Australian court by stopping lawsuits and creditor actions in the U.S. and facilitating the collection of any assets in the U.S. Success in Chapter 15 means that creditors in the U.S. will be obliged to fight out their disputes in the Australian courts.

The case is In re ABC Learning Centres Ltd., 10-11711, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Briefly Noted

Flying J’s Exclusivity Will Expire June 22

Flying J Inc., a vertically integrated oil producer, refiner, and marketer, received the last extension of the exclusive right to propose a plan that bankruptcy law allows. After June 22, any creditor or interested party may file plan because Flying J by that time will have been in Chapter 11 for 18 months. Flying J filed a reorganization plan in February to pay creditors in full, with the excess going to existing shareholders. For details on the plan and the underlying financing, click here for the Feb. 12 Bloomberg bankruptcy report.

At the outset of the Chapter 11 reorganization in December 2008, Flying J had a $53 million revolving credit along with a $395 million secured term loan. Pipeline-owner Longhorn Partners Pipeline LP owed $45 million on a revolving credit and $166 million on a secured note. The companies also owed $90 million on an unsecured revolving credit with Zions Bank.

The case is In re Flying J Inc., 08-13384, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Abitibi Approved for Sale of Dam, Pipeline, Mill

AbitibiBowater Inc., the largest newsprint maker in North America, was authorized by the bankruptcy judge this week to sell a dam and pipeline to the provincial government in New Brunswick, Canada, for C$6 million ($5.6 million) after it received no objections to the sale. The judge also approved selling 107 acres and a non-operating sawmill in Marshall County, Alabama, for $4.1 million cash. For more on the sales, click here and here for the May 11 and May 7 Bloomberg bankruptcy reports.

This week Abitibi filed a revised reorganization plan and accompanying disclosure statement telling creditors of each of the more than 30 affiliated companies how much they stand to recover. For details on the plan, click here for the May 25 Bloomberg bankruptcy report.

AbitibiBowater was formed in October 2007 through a merger between Montreal-based Abitibi-Consolidated Inc. and Greenville, South Carolina-based Bowater Inc. Abitibi is a producer of newsprint, uncoated mechanical paper and lumber. Bowater also makes newsprint along with papers, bleached kraft pulp and lumber. The Montreal-based company began reorganizing with 24 pulp and paper mills plus 30 wood-product plants. Revenue in 2008 was $6.8 billion. In Chapter 11 petitions filed in April 2009, the combined AbitibiBowater companies listed assets of $9.9 billion and debt totaling $8.8 billion as of September 2008.

The case is AbitibiBowater Inc., 09-11296, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Advance Sheets

Default Interest Rate Acceptable in Chapter 11 Cramdown Plan

In a cramdown on a secured lender in a Chapter 11 case paying all creditors in full, the bankruptcy judge did not err in requiring payment of the 15 percent default rate of interest called for in the contract, a U.S. district judge in Sherman, Texas, ruled on March 30.

U.S. District Judge Richard Schell said he couldn’t upset the choice of interest rate unless the factual finding by the bankruptcy judge was “clearly erroneous.” Schell said that neither the Bankruptcy Code nor the 5th U.S. Circuit Court of Appeals prescribes the method that bankruptcy judges must use in picking cramdown interest rates.

The bankruptcy judge said it was appropriate to use the rate called for in the contract in selecting the terms of a loan to be imposed on the secured lender, which didn’t consent to the Chapter 11 reorganization plan. Because the loan was in default at the outset of bankruptcy, the lower court judge selected the 15 percent default rate contained in the original contract. The new 15 percent loan should have a three-year maturity, the judge ruled.

The bankruptcy judge also used the default rate because it would not diminish the recovery by other creditors. The default rate would only cut down the surplus left over for the owners after creditors were fully paid.

Schell said that the Till v. SCS Credit Corp. decision by the U.S. Supreme Court, which dealt with the cramdown interest rate in Chapter 13 cases, does not prescribe an interest rate in a Chapter 11 cramdown.

The case is Good v. RMR Investments Inc., 09-319, U.S. District Court, Eastern District of Texas (Sherman).

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

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