National Envelope, Tousa, New Rules, Taylor-Wharton, Crescent: Bankruptcy

National Envelope Corp., the largest closely held U.S. envelope manufacturer, filed a Chapter 11 petition yesterday in Delaware along with affiliates after failing to land a buyer quickly enough to suit the secured lenders.

NEC, based in Uniondale, New York, has 14 plants in 11 states, plus three warehouses. Sales declined to $676 million last year from $867 million in 2007. Net losses were $44.2 million in 2009 and $6.1 million in the first four months of this year.

The company blamed its financial problems on the “global recession” and rising postal rates that reduced mail volume. NEC also said more consumers are paying bills electronically.

Assets and debt are both less than $500 million, according to the petition. Liabilities include $74.3 million on a secured term loan, $70.6 million on a secured revolving credit and $89 million owing on unsecured debts to trade suppliers.

The company is controlled by members of the Ungar family of Frisco, Texas, and family trusts.

NEC began defaulting on the bank loan agreement in 2007. In May, the lenders called a default on the latest forbearance agreement when a buyer wasn’t signed to a letter of intent before the May 12 deadline. NEC received four bids in early May after extensive marketing, according to court papers.

The Chapter 11 case will be financed with a $135 million loan, NEC said.

The case is In re NEC Holdings Corp., 10-11890, U.S. Bankruptcy Court, District of Delaware (Wilmington).


Wall Street Urges Reversal of Tousa Fraud Ruling

Two financial industry organizations are urging a U.S. district court in Florida to reverse a judgment against secured lenders obtained by the creditors’ committee for liquidating homebuilder Tousa Inc.

U.S. Bankruptcy Judge John K. Olson in Fort Lauderdale, Florida, ruled that a bailout and refinancing in mid-2007 of a joint venture in Transeastern Properties Inc. resulted in fraudulent transfers.

To appeal, Olson required the banks to post $700 million in bonds to hold up enforcement of the judgment from October 2009. The appeal will be argued in late October in the district court.

The Commercial Finance Association, in a friend-of-the- court brief, argued that Olson was in error when he refused to enforce a so-called fraudulent transfer savings clause. The CFA said the failure to reverse Olson would “adversely impact the availability and cost of credit for businesses, not only in Florida, but throughout the U.S.”

The savings clause is used in an effort to keep a loan transaction from being a so-called constructively fraudulent transfer. It operates by taking enough debt out of the transaction so the company that grants a lien on its assets isn’t made insolvent in the process.

The Loan Syndications and Trading Association likewise said that the bankruptcy judge was in error when he didn’t uphold the savings clause. The LSTA contends Olson made another mistake by judging the solvency of each of Tousa’s units individually. The group said Olson “disregarded standard commercial loan practices” by not evaluating the solvency of the entire family of Tousa companies.

If Olson isn’t reversed, there may be a “profoundly chilling effect on public credit markets,” the LSTA said in its friend-of-the-court brief.

The LSTA is a trade association representing institutions involved in the origination, syndication and trading of commercial loans. The CFA calls itself a trade association for “financial institutions that provide asset-backed financing.”

Tousa had almost $500 million cash on hand in April from proceeds of asset sales. It 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).

Station Casinos Committee Seeking Stay Pending Appeal

The official creditors’ committee for casino operator Station Casinos Inc. isn’t going down without a fight.

The committee appealed the June 4 order of the bankruptcy court in Reno, Nevada, setting up an Aug. 6 auction for some of the casinos. The first bid of $772 million will come from a group including current owners Frank and Lorenzo Fertitta.

The committee scheduled a hearing on June 21 where it will ask the bankruptcy judge to hold up the auction while there’s an expedited appeal of the order authorizing it.

The committee claims that the auction rules were concocted by Station to “confer distinct advantages to insiders to the detriment of third-party bidders.” The panel also says auction rules will unnecessarily chill bidding from outsiders and are “tainted by self-dealing.” In addition, the insiders don’t meet the standards for being a qualified bidders that are imposed on outsiders, the committee said.

If the committee fails to persuade the bankruptcy judge to delay the auction, they can next ask the district judge for a stay pending appeal.

The hearing for approval of Station Casinos’ disclosure statement explaining the Chapter 11 plan originally was scheduled for June 10. The hearing was pushed back to July 15- 16. A revised disclosure statement is to be filed by June 15.

The existing reorganization plan, modified in April, incorporates an agreement structured around the auction with the first bid from the Fertitta group. Approval of auction procedures consumed three days of hearings in May.

Station Casinos filed under Chapter 11 in July 2009. It has 13 properties in Las Vegas, plus five joint ventures, and operates casinos for American Indian tribes. Station’s debt was the result of a leveraged buyout in November 2007 by Fertitta Colony Partners LLC.

The case is In Re Station Casinos Inc., 09-52477, U.S. Bankruptcy Court, District of Nevada (Reno).

Tribune Bridge Lenders, U.S. Trustee Oppose Bonuses

Newspaper publisher Tribune Co. won’t receive approval for a $42.9 million 2010 bonus program without overcoming an objection from the U.S. Trustee at a June 16 hearing. The agent for the $1.6 billion so-called bridge loan also objects.

The 2010 bonus plan would cover 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. If targeted operating cash flow is achieved, the bonus pool will be $30.8 million, with $2.2 million for top executives.

Both the U.S. Trustee and the agent asked the bankruptcy judge not to consider approving the 2010 bonus program next week because other bonuses are engrafted into the Chapter 11 plan that’s scheduled for approval at an Aug. 16 confirmation hearing. They want all bonuses considered together at the confirmation hearing.

The U.S. Trustee noted that $100 million in bonuses will have been handed out in the Tribune Chapter 11 case if the new requests are granted.

The agent reminded the judge that the bridge lenders will only recover 1.5 percent if they accept the plan. If they vote against the plan, they argue that the bonuses will violate one of the rules for cramming down a plan.

Also noting that the plan has “next-to-nothing for various classes of Tribune creditors,” the U.S. says “now is not the time for yet another round of bonuses.”

The plan was filed in April to implement a settlement negotiated with some creditors. It is opposed by holders of $3.6 billion in pre-bankruptcy secured debt who announced their opposition even before the settlement was formally disclosed. To read about the plan, the proposed settlement, and the parties’ arguments, click here for the April 13 Bloomberg bankruptcy report.

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. The company 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 of Delaware (Wilmington).

Bankruptcy Rules Update

Vultures Win and Lose on Disclosures in Bankruptcy

The Advisory Committee on Bankruptcy Rules published proposed changes to Bankruptcy Rule 2019 that would clear up a disagreement among judges about whether unofficial committees are obligated to disclose claim holdings by their members.

The Advisory Committee in its report on May 27 came down on the side of requiring disclosure by every group of creditors or equity holders, “even if the group does not call itself a committee.”

Investors in distressed debt succeeded in persuading the Advisory Committee not to require disclosure of the amount paid for a security or claim. Still, members of groups must disclose the face value of the securities or claims they hold.

The Advisory Committee says that disclosure requirements include more than holdings of claims or bonds. Disclosure also must cover “other types of holdings,” such as “short positions, credit default swaps, and total return swaps.”

If adopted, the revised rule would also require disclosing the quarter and year when the investment was made. No disclosure is required for claims or securities acquired more than a year before bankruptcy. Originally, the rule would have required disclosure of the precise date on which a claim or security was acquired.

The proposed rule eases disclosure requirements for law firms representing more than one creditor. Under the current rule, a law firm is required to disclose multiple clients whether or not the firm appears in court. The proposed revised rule would require disclosure by a law firm only if the firm appears in court or solicits action in the case by other interested parties.

The recommendation on rule changes went from the Advisory Committee to the Standing Committee on Rules of Practice and Procedure. The rule will go into effect if the Standing Committee agrees and the changes are adopted by the Judicial Conference of the U.S.

Watch List

Barneys New York Has ‘Unsustainable’ Structure, S&P Says

Luxury retailer Barneys New York Inc. has a capital structure that is “unsustainable,” in the opinion of Standard & Poor’s. In a report yesterday, S&P said “some sort of restructuring is a likely outcome.”

S&P maintained the corporate credit rating at CCC. The rating is one notch more favorable than the downgrade issued in July by Moody’s Investors Service.

Barneys’s debt can be traced to the $942 million leveraged buyout in September 2007 by Istithmar PJSC, the Dubai government investment agency.

Barneys went through a three-year reorganization, concluding with a Chapter 11 plan confirmed in December 1998.

Trico Marine in Talks to Finance Chapter 11 Reorganization

Trico Marine Services Inc., a provider of support vessels for the offshore oil and natural-gas industry, said it lacks enough cash to make the $8 million interest payment within the 30-day grace period that was due May 15 on the 8.125 percent convertible notes.

Trico, based in Woodlands, Texas, said it’s in talks with some creditors about a forbearance agreement. It also is in talks about financing a Chapter 11 reorganization, the company said in a regulatory filing yesterday.

Trico reported a $78.5 million net loss and an $18.4 million operating loss for the first quarter. Revenue in the quarter was $95.7 million. For 2009, the operating and net losses were $125.3 million and $144.8 million, respectively, and revenue was $642.2 million.

Trico’s balance sheet had assets of $1.01 billion and total liabilities of $985.9 million on March 31.

The convertible notes traded yesterday at $50, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Briefly Noted

Crescent Resources Consummates Reorganization Plan

Real-estate developer Crescent Resources LLC implemented on June 9 the Chapter 11 reorganization plan that the bankruptcy judge in Austin, Texas, approved with a May 24 confirmation order. Holders of $1.55 billion in pre-bankruptcy loans took all the new stock and $265 million in two tranches of second-lien notes. For details of the plan, click here to see the May 21 Bloomberg bankruptcy report.

Crescent, based in Charlotte, North Carolina, filed under Chapter 11 last June with commercial, residential and multifamily projects in 10 southeastern and southwestern states. It listed assets of $2.2 billion against debt totaling $1.9 billion, including almost $1.5 billion on pre-bankruptcy credit agreements. Crescent was a joint venture between Duke Energy Corp. and Morgan Stanley Real Estate Fund.

The case is In re Crescent Resources LLC, 09-11507, U.S. Bankruptcy Court, Western District Texas (Austin).

Taylor-Wharton Authorized to Sell Cylinders Business

Taylor-Wharton International LLC, a manufacturer of propane and cryogenic pressure tanks, valves and gauges, received approval from the bankruptcy judge on June 8 to sell the cylinders business, TWI Cylinders LLC. The buyer, Norris Cylinder Co., will pay $11 million. There were no competing bids.

The company confirmed a Chapter 11 plan in late May that cuts debt almost in half. To read about the plan, click here for the May 27 Bloomberg bankruptcy report. 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 have shrunk to $237 million last year.

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

Lehman Examiner’s Search Techniques Disclosed

How did the Lehman Brothers Holdings Inc. examiner read 34 million pages of documents produced in his investigation? Click here for Bloomberg coverage. Examiner Anton Valukas filed his 2,209-page report in February.

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 Investor Protection Corp. v. Lehman Brothers Inc., 08-01420, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Exchange Offer News

Brookstone Tendering for Notes at 80% Cash or Debt

Specialty retailer Brookstone Inc. has an exchange offer for holders of the 12 percent second-lien notes due in 2012.

For each $1,000 in face amount of existing notes, holders can choose between 80 percent in cash or a new second-lien note for $800 due in 2017. If the offer is oversubscribed for cash, new notes will be substituted for cash.

The offering is being financed with cash supplied by shareholders. The exchange requires participation by holders of two-third of the outstanding notes. The deadline for tendering notes is June 18.

Brookstone, based in Merrimack, New Hampshire, should have received a shot in the arm when competitor Sharper Image Corp. filed under Chapter 11 in 2008 and liquidated its 184 stores.

Brookstone was acquired in October 2005 in a $422 million transaction by a group including JW Childs Associates LP, Temasek Holdings Pte and OSIM International Ltd.

REIT Spirit Finance at CCC- after Discount Repurchase

Spirit Finance Corp., a closely held real-estate investment trust that owns or finances almost 1,200 retail properties in 45 states, will continue to have “high leverage, tight covenants, and weak liquidity,” according to Standard & Poor’s, even after buying back some of the $850 million secured term loan for less than the face amount.

S&P said in a report yesterday that the corporate rating will be CCC- after the partial repurchase is completed. If there is a later default, S&P predicts that the lenders won’t recover more than 30 percent.

Spirit, based in Scottsdale, Arizona, specializes in triple-net leases where the tenant pays operating expenses and taxes. It was acquired in August 2007 in a $3.3 billion transaction. The balance sheet at the end of 2009 had assets on the books for $3.5 billion and debt totaling $2.9 billion, S&P said.

Advance Sheets

Dismissed Involuntary Cost Petitioners $745,000

Filing an involuntary bankruptcy petition and having it dismissed can be a painful experience, as shown by a Court of Appeals decision on June 9 upholding $745,000 in damages against the unsuccessful petitioners.

Thirteen companies controlled by two individuals filed involuntary bankruptcy petitions against two companies. The bankruptcy judge dismissed the petitions and ruled they were filed in bad faith. The judge eventually awarded $745,000 in damages, including $130,000 in punitive damages.

The damage award included attorneys’ fees incurred in collecting the award. The bankruptcy judge made the two individuals personally responsible for the entire award.

The 9th U.S. Circuit Court of Appeals in San Francisco upheld the $745,000 in damages. The appeals court said it is proper under section 303(i) of the Bankruptcy Code to allow the recovery of attorneys’ fees incurred in pursuit of the recovery. The circuit court also ruled it was proper to award punitive damages when there were no actual damages, only attorneys’ fees incurred in fighting the bankruptcy petition.

The 9th Circuit also ruled it was correct to hold the two individuals personally liable for everything except attorney’s fees incurred in pursuit of the monetary recovery.

The case is Orange Blossom Ltd. v. Southern California Sunbelt Developers Inc. (In re Southern California Sunbelt Developers Inc.), 08-56570, 9th U.S. Circuit Court of Appeals (San Francisco).

To contact the reporter on this story: Bill Rochelle in New York at

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