Valukas Lehman Release, American Capital, Doubletree, Neenah: Bankruptcy

Anton Valukas, the examiner who wrote a 2,209-page report about the downfall of Lehman Brothers Holdings Inc., will ask the bankruptcy judge at a June 17 hearing to give him a release, prevent anyone from suing him and his lawyers, and prohibit anyone from calling him as a witness.

Valukas also wants to work out arrangements where he can provide assistance when requested.

In his report filed in February, Valukas concluded there were what he called colorable claims against senior executives, auditor Ernst & Young LLP, and some banks. All of the report was unsealed in March. To read Bloomberg coverage, click here.

Lehman sold the rights to manage its real estate investment funds to the funds’ top managers. To read Bloomberg coverage, 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 London-based 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).

Prepack Possible

American Capital Short of Votes for Prepacked Plan

American Capital Ltd., finding itself short of the votes necessary to push through a prepackaged Chapter 11 reorganization, extended the expiration of the exchange offer from June 1 to June 8.

The Bethesda, Maryland-based publicly traded private-equity investor and asset manager began an exchange offer in early May for all of its $2.35 billion in unsecured, funded debt to be completed through an out-of-court exchange offer or a prepackaged filing in Chapter 11.

Although all holders of the $1.4 billion on the existing credit agreement support the reorganization, only 6 percent in amount of $550 million in 6.85 percent senior notes voted for the Chapter 11 plan to be implemented if the restructuring can’t be completed out of court.

Among the $406 million in private notes, approximately 60 percent in amount voted for the plan. Bankruptcy law requires an affirmative vote of two-thirds in amount for a class to approve a plan.

In the exchange offer, holders of all of the $2.35 billion in publicly and privately held debt are being offered $960 million cash, $1.39 billion in new secured debt, plus cash representing unpaid interest and a fee equal to 2 percent of the new debt.

The terms of the offer provided that it would be implemented out of court if it were accepted by 85 percent of the holders of the public debt and holders of all of the privately held debt.

The new debt is to mature at the end of 2013.

The prepackaged reorganization would have essentially the same terms except that holders of $100,000 or less in public debt would be paid in full in cash.

Violations of loan covenants required initiating the exchange offer.

American Capital had an investment grade rating until March 2009. The stock closed yesterday at $5.22, up 10 cents a share on the Nasdaq Stock Market. The three-year closing high was $36.25 on June 4, 2007.

New Filing

Doubletree in Carson, California, Files Chapter 11

The operator of the Doubletree Hotel Carson Civic Center in Carson, California, filed under Chapter 11 on May 28 in Los Angeles to halt foreclosure scheduled for June 1.

The hotel was unable to remain current on $22 million owing to Shinhan Bank America, the secured lender, a court filing says.

The hotel has 224 rooms. The financial decline was due to the “slowdown in the general economy,” the company said in a court paper.

Assets were on the books for $28.7 million on March 31, with liabilities totaling $30.7 million.

The case is In re Harvard Grand Investment Inc., 10-31833, U.S. Bankruptcy Court, Central District California (Los Angeles).

Updates

Neff Decides to Disclose Lenders’ $5.475 Million Fees

Neff Corp., a closely owned equipment rental company, decided to disclose that it’s paying $5.475 million in fees to lenders offering to provide $175 million financing for the prepackaged reorganization begun May 16.

Originally, Neff didn’t disclose the fees, saying the lenders wanted the information kept confidential. The U.S. Trustee objected to approval of the loan unless the fees were disclosed in a court filing as opposed to being disclosed orally at a court hearing.

Neff said that the lenders decided to allow disclosure of the fees. The financing is scheduled for final approval at a June 8 hearing. Neff also has a July 12 hearing for approval of a disclosure statement explaining the Chapter 11 plan. The plan is designed to reduce debt by more than $400 million while giving most of the new equity to first-lien lenders owed $90 million on a term loan. For details on the company’s finances and the plan, click here for the May 17 Bloomberg bankruptcy report.

Miami-based Neff, with 63 branches in 14 states, listed assets of $299 million and debt totaling $609 million.

The case is In re Neff Corp., 10-12610, U.S. Bankruptcy Court, Southern District New York (Manhattan).

RPM Wins Temporary Stay of Asbestos Suits

RPM International Inc., the parent of Specialty Products Holding Corp. and Bondex International Inc., won at least a temporary victory yesterday when the bankruptcy court in Delaware stopped asbestos-related lawsuits against RPM and its subsidiaries until another hearing on June 15.

RPM, a specialty-chemical producer based in Medina, Ohio, put subsidiaries Specialty Products and Bondex into Chapter 11 on May 31 in Delaware to deal with 10,000 asbestos claims. Neither RPM nor any of its operating subsidiaries are in bankruptcy. Neither Specialty Products nor Bondex has any operations.

Along with the Chapter 11 petition for the two subsidiaries, RPM asked for a temporary injunction to stop asbestos lawsuits against the entire family of companies, including those not in bankruptcy. The bankruptcy judge granted the temporary injunction yesterday. By early this morning, the formal written injunction was not on the court’s docket.

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

The bankruptcy judge yesterday gave interim approval for a $5 million loan. The final hearing on a $40 million financing package will take place June 28. Wachovia Financial Corp. (New England) is as agent for the lenders.

The U.S. Trustee at yesterday’s hearing questioned whether RPM was entitled to use special provisions in bankruptcy law for dealing with asbestos liability.

Specialty Products, one of the companies in Chapter 11, does have non-bankrupt subsidiaries that produce approximately $330 million in annual revenue, according to a court filing. Bondex, which is no longer operating, is a Specialty Products subsidiary that is chiefly responsible for the asbestos claims from Reardon Co., a company acquired in 1966.

RPM’s annual revenue was $3.37 billion for the fiscal year ended May 31, 2009. RPM’s consolidated assets were $3.34 billion with $2.13 billion in liabilities as of Feb. 28. The Specialty Products and Bondex Chapter 11 petitions both said assets and debt exceed $100 million.

RPM rose 2 cents yesterday to $19.14 in New York Stock Exchange trading. The three-year high was $25.07 on June 5, 2008, and the low was $9.24 on March 6, 2009.

The case is In re Specialty Products Holding Corp., 10- 11780, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Deep Marine Vessel Sales Approved, Plan Confirmed

Deep Marine Technology Inc., a provider of subsea services for the offshore oil and gas industry, has an approved Chapter 11 plan with the signature of the bankruptcy judge on a confirmation order yesterday.

Plan confirmation included sale of the company’s four vessels to four buyers for a total of $94.8 million. Before the auction in May, Oceaneering International Inc. was under contract to buy all four for $74.5 million.

The other buyers are Seacor Marine LLC, Otto Marine Ltd. and Ezram LLC. The plan creates a liquidating trust and basically provides for a distribution of sale proceeds according to the priorities outlined in bankruptcy law.

To read Bloomberg coverage of confirmation, click here.

The Houston-based company filed under Chapter 11 in its hometown in December, saying assets and debt both exceed $100 million.

The case is In re Deep Marine Holdings Inc., 09-39313, U.S. Bankruptcy Court, Southern District of Texas (Houston).

Hartmarx Settles With Lenders for $750,000 Cash

The remainder of Hartmarx Corp. negotiated a settlement with secured lenders that will bring in $750,000 cash while releasing $2.25 million being held aside for professional fees.

The Hartmarx creditors’ committee sued Wachovia Capital Finance Corp. as agent for the lenders, alleging that the banks’ lien didn’t extend to $12 million generated from ending a lease in New York. There were also claims against Moelis & Co. LLC, the financial advisers for Hartmarx.

Under the settlement, Moelis will pay $150,000 of the $750,000 cash payment. There will also be a waiver of $2 million in claims against the Hartmarx bankrupt estate.

A hearing to approve the settlement is scheduled for June 7.

Any creditor will be entitled to file a Chapter 11 plan after July 23, when the former Chicago-based men’s suit maker will have been in reorganization for 18 months. The creditors’ committee already won the right to file a plan if it wishes.

The bankruptcy judge in June 2009 authorized the sale of the business to Emerisque Brands U.K. Ltd. and SKNL North America Ltd. for $119 million, including $70.5 million cash, the assumption of $33.5 million in debt, and a junior secured note for $15 million.

Hartmarx filed under Chapter 11 in January 2009, listing assets of $483 million and debt totaling $261 million as of October 2008. Debt at filing included $114 million on a revolving credit, $15.5 million in industrial revenue bonds, $12 million in mortgages, and $70 million owing to trade suppliers. Manufacturing was performed in the company’s own facilities and by contractors. The brand names included Hart Schaffner Marx and Hickey Freeman.

The case is In re XMH Corp., 09-02046, U.S. District Court, Northern District Illinois (Chicago).

Watch List

Truvo Misses June 1 Interest Payment on $684 Million

Truvo Subsidiary Corp., a Belgium-based international publisher of directories, didn’t make payments due June 1 on two senior note issues totaling $684 million. Standard & Poor’s said it’s “unlikely” the payment will be made during the 30-day grace period.

Moody’s Investors Service said last week there may be a “distressed exchange in the very near future.” The notes will have a “very low recovery,” according to Moody’s opinion.

The capital structure is “unsustainable,” Moody’s said.

Truvo is the leading directory publisher in Belgium, Ireland and Romania. Through a joint venture, it is the leading directory publisher in Portugal.

El Pollo Loco May be ‘Unsustainable’ Says Moody’s

El Pollo Loco Inc., an operator or franchiser of 412 flame- grilled chicken restaurants, is “likely” to have insufficient liquidity sources to make principal and interest payments due next year, in the opinion of Moody’s Investors Service.

Moody’s pointed to mandatory redemption and interest due in May 2011 on unsecured notes due in 2014.

The capital structure “may not be sustainable in its current form absent a restructuring,” Moody’s said in a downgrade issued yesterday. In lowering the corporate rating one notch to Caa2, Moody’s noted how the declining comparable store sales “worsened” in 2009.

Revenue for a year ended in March was about $275 million, Moody’s said.

Costa Mesa, California-based El Pollo Loco was part of the prepackaged Chapter 11 filing in late 1997 by its then parent Flagstar Cos.

Briefly Noted

Tousa Ending 401(k); Cash Almost $490 Million in April

Liquidating homebuilder Tousa Inc., whose 1,000 workers have been trimmed to 29, is terminating the 401(k) savings plan for employees. The company had been matching contributions as much as 6 percent of a worker’s wages. Tousa reported cash of $489.7 million on April 30, an increase of $700,000 over the month.

Additional recoveries for creditors may come from a lawsuit the creditors’ committee successfully brought against lenders, contending that a bailout and refinancing in mid-2007 of a joint venture in Transeastern Properties Inc. resulted in fraudulent transfers. To take an appeal, the bankruptcy judge required the banks to post $700 million in bonds to hold up enforcement of the judgment pending appeal.

Tousa filed for bankruptcy reorganization in January 2008. The Hollywood, Florida-based company listed assets of $2.1 billion against debt totaling $2 billion. At the outset of the reorganization it was 67 percent-owned by Technical Olympic SA.

The case is In re Tousa Inc., 08-10928, U.S. Bankruptcy Court, Southern District of Florida (Fort Lauderdale).

Point Blank Has $2.4 Million April Operating Loss

Point Blank Solutions Inc., a manufacturer of soft body armor for the military and law enforcement, incurred a $2.4 million operating loss in April on net sales of $12.6 million. The net loss of $1.4 million resulted from a $747,000 tax benefit.

Point Blank filed under Chapter 11 on April 14. It has a plant and head office in Pompano Beach, Florida, and a second plant in Jacksboro, Tennessee. Revenue in 2009 exceeded $153 million. The petition listed assets of $64 million against debt totaling $68.5 million. Debt includes a $10.5 million secured loan to be paid off by financing for the reorganization. Point Blank said it also owes $28.2 million to trade suppliers. Three former officers were indicted on charges of securities fraud. The company said it received a so-called Wells Notice in August where securities regulators said they intended to bring civil injunctive actions.

The case is In re Point Blank Solutions Inc., 10-11255, U.S. Bankruptcy Court, District of Delaware.

Orleans Has Plan Exclusivity Extended to Sept. 27

Orleans Homebuilders Inc., a builder of homes and condominiums in seven states, was granted its request and had the bankruptcy judge extend the exclusive right to propose a Chapter 11 plan until Sept. 27. Orleans says it’s working on a plan with secured lenders after dropping an agreement for rival homebuilder NVR Inc. to purchase the assets for $170 million. NVR is suing for breach of contract. Orleans previously said it anticipates filing a Chapter 11 plan “in late summer.”

The Chapter 11 filing on March 1 by Bensalem, Pennsylvania- based Orleans resulted from the maturity of a revolving credit in February. Approximately $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).

Black Crow Has Final Approval for $1.2 Million Loan

Black Crow Media Group LLC, a closely held owner of 22 radio stations, obtained final bankruptcy court-approval on May 28 to take down a $1.5 million loan, over objection from General Electric Capital Corp., the secured lender owed $38.9 million. The judge required Black Crow to pay GECC $1.88 million from cash representing collateral for the loan.

Black Crow filed for Chapter 11 protection in January, two days before a hearing in U.S. district court for the appointment of a receiver following default on the term loans and revolving credit owing to GECC. Black Crow’s stations are in five markets in Florida, Alabama, Georgia and Tennessee. In addition to the GECC debt, there is another $6 million owing to unsecured creditors. Daytona Beach, Florida-based Black Crow had $12.9 million of revenue in 2009, a 23 percent decline from 2008.

The case is In re Black Crow Media Group LLC, 10-00172, U.S. Bankruptcy Court, Middle District Florida (Jacksonville).

Taylor Bean Selling Reverse Mortgages for 41% or More

Taylor Bean & Whitaker Mortgage Corp., once the largest independent mortgage originator in the U.S., will sell 23 reverse mortgages for $1.135 million unless a better offer is made by June 17. The mortgages have a combined principal balance of $2.763 million. Fourteen are guaranteed by the Federal Housing Administration.

After the Chapter 11 filing in August, Taylor Bean sold 1,046 parcels of repossessed real estate for $81.2 million to Selene Residential Mortgage Opportunity Fund LP. The bankruptcy came three weeks after federal investigators searched the offices of the Ocala, Florida-based company. The day following the search, the Federal Housing Administration, Ginnie Mae and Freddie Mac prohibited the company from issuing new mortgages and terminated servicing rights. Taylor Bean managed an $80 billion mortgage servicing portfolio. The petition said assets and debt both exceed $1 billion.

The case is Taylor Bean & Whitaker Mortgage Corp., 09- 07047, U.S. Bankruptcy Court, Middle District of Florida (Jacksonville).

Neenah Narrows Net Loss in April to $982,000

Neenah Foundry Co., a producer of cast-iron products such as man-hole covers and sewer grates, reported a $982,000 net loss in April on net sales of $31.4 million. The operating loss in the month was $801,000, due to $975,000 in restructuring costs. In March, the net loss was $3.5 million.

Neenah’s reorganization plan is scheduled for approval at a June 23 confirmation hearing. The plan was negotiated with holders of 55 percent of secured notes and all the subordinated notes before the Chapter 11 filing in February. To read details on the plan click here for April 29 Bloomberg bankruptcy report. Neenah, from a Wisconsin town of the same name, reported a $150 million net loss for the year ended Sept. 30 on net sales of $333 million.

The case is In re Neenah Enterprises Inc., 10-10360, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Advance Sheets

EnerSys Wins Back Exide Trademark in Circuit Court

EnerSys won back the right to use the Exide trademark on industrial batteries as the result of a June 1 victory in the 3rd U.S. Circuit Court of Appeals in Philadelphia.

EnerSys, a Reading, Pennsylvania-based maker and distributor of industrial batteries, bought the business from Exide Technologies in 1991 for $135 million. As part of the arrangement, Exide granted EnerSys a perpetual, exclusive license for use of the trademark on industrial batteries. The agreement required payment of no royalties.

Exide filed for Chapter 11 reorganization in 2002 and filed a motion to reject the license agreement as a so-called executory contract. The bankruptcy judge granted the motion, and a district judge affirmed on appeal.

EnerSys appealed again, and the 3rd Circuit reversed this week, finding that the license agreement wasn’t an executory contract and therefore couldn’t be rejected, a bankruptcy term that basically means terminated.

To decide the controversy, the Circuit Court said it continues to follow the so-called Countryman definition of what is or isn’t an executory contract. Essentially, if enough performance remains so that either side could breach, the contract remains executory.

The 3rd Circuit said that the bankruptcy judge failed to apply the Countryman test properly. The appeals court said the contract was not executory because EnerSys has “substantially performed” and any remaining unperformed obligations “do not outweigh the substantial performance rendered.”

The unperformed obligations that didn’t matter to the circuit court included an obligation to maintain the quality of the product, restrictions on use, indemnification obligations, and a so-called further assurances clause.

While the 3rd Circuit appears to have continuing adherence to the Countryman doctrine, it’s possible that the Exide case actually represents a departure to a more flexible standard. The circuit court looked to state law for a definition of what constitutes substantial performance.

The case is Exide Technologies v. EnerSys Delaware Inc., 08-1872, 3rd U.S. Circuit Court of Appeals (Philadelphia).

Fifth Third Stuck With Filing Date for SIPA Closeout

Fifth Third Structured Large Cap Plus Fund lost a dispute with the trustee for the brokerage subsidiary of Lehman Brothers Holdings Inc. and as a result will recover $18.2 million less than were it successful.

The Fifth Third fund, an affiliate of the Cincinnati-based bank, used the Lehman brokerage as its prime broker for short selling. The Lehman trustee took the position that the account should be valued as of the bankruptcy date in September 2008. Fifth Third wanted to use a date in March 2009 when the account was finally closed as the result of an interim settlement agreement.

Given the changes in market prices between the two dates, Fifth Third would have recovered $18.2 million more using the later date. Apart from the increase in value, Fifth Third didn’t suffer a loss because collateral it was seeking to recover was held by a third party in escrow.

U.S. Bankruptcy Judge James M. Peck wrote a 14-page opinion on June 1 saying that the bankruptcy filing date is the “immutable element” of every liquidation under the Securities Investor Protection Act. Peck rejected Fifth Third’s argument that the later date should be used on account of the so-called safe harbor provisions in bankruptcy law that exempt certain securities accounts and transactions from the operation of the automatic stay.

Peck said that the safe harbor didn’t apply because Fifth Third’s agreement with Lehman barred closing out the accounts without Lehman’s permission.

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).

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

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