Extended Stay, WaMu, Zayat, Escada, Worldspace, Salander, RPM: Bankruptcy

Extended Stay Inc. said it sees no reason to allow the creditors’ committee to sue now over claims arising from the company’s acquisition in 2007.

The operator of more than 680 long-term lodging properties in 44 U.S. states said in a court filing that the proposed Chapter 11 plan will create a litigation trust funded with $5 million to bring any lawsuits that the examiner found to have sufficient merit.

The committee’s motion for authorization to investigate and file the lawsuit is scheduled to be heard in bankruptcy court on June 17.

Extended Stay, based in Spartanburg, South Carolina, contends that the mezzanine lenders owed $3.3 billion, who helped finance the 2007 acquisition, have no right to profit from a lawsuit attempting to find defects in the transaction. The company argues that creditors with some $9 million in claims are the only ones with the right to benefit from any perceived defects in the 2007 transaction.

Affiliates of Blackstone Group LP, who were sellers in 2007, similarly argue against allowing the committee to sue when the forthcoming litigation trust can make the claim if the trustee for the trust believes it has merit.

Extended Stay filed a revised reorganization plan and explanatory disclosure statement last week to implement the auction in May where the winning bidders were Centerbridge Partners LP, Paulson & Co. and Blackstone with an offer of $3.93 billion. If the plan is confirmed, the buyer will take all the equity in the reorganized Extended Stay.

For details on the sale and the plan, click here to read the June 10 Bloomberg bankruptcy report. The disclosure statement is set for approval at the June 17 hearing. Before the auction, Extended Stay was hoping for a confirmation hearing for approval of the plan on July 20.

Extended Stay’s Chapter 11 petition in June 2009 listed assets of $7.1 billion against debt totaling $7.6 billion, including $4.1 billion in mortgage loans and $3.3 billion in 10 different mezzanine loans. The company’s properties are almost all managed by HVM LLC, an affiliate that didn’t file in Chapter 11.

The case is In re Extended Stay Inc., 09-13764, U.S. Bankruptcy Court, Southern District of New York (Manhattan).


WaMu Plan Enforcing Subordination Clauses in Bonds

Although Washington Mutual Inc. hasn’t resolved all objections to the disclosure statement up for approval on June 17, the holders of $2.3 billion in bonds say they understand the plan is being changed to enforce subordination agreements. Once the disclosure statement is cleared by the bankruptcy judge in Delaware, creditors can begin voting on the reorganization plan that would implement a global settlement some creditors and shareholders oppose.

The judge also will decide at the June 17 hearing whether to appoint an examiner. Shareholders want an examiner to evaluate the merits of the proposed settlement. Holders of $3.6 billion in pre-bankruptcy secured debt announced their opposition to the accord even before it was formally disclosed.

The settlement and plan confirmation would enable WaMu to distribute more than $7 billion to creditors. To read about the settlement, click here for the May 24 Bloomberg bankruptcy report. Click here to read the May 18 Bloomberg bankruptcy report for a summary of WaMu’s plan.

Shareholders and bank bondholders believe WaMu and the Federal Deposit Insurance Corp. are giving up too cheaply and should continue lawsuits with JPMorgan Chase & Co.

The WaMu holding company filed under Chapter 11 in September 2008, one day after the bank unit was taken over. The bank was the sixth-largest depository and credit-card issuer in the U.S. and the largest bank failure in the country’s history. The holding company filed formal lists of assets and debt showing property with a total value of $4.49 billion against liabilities of $7.83 billion.

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

Zayat Stables Reorganization Plan Heads for Creditor Vote

Zayat Stables LLC’s creditors can vote on the reorganization plan in advance of a July 15 confirmation hearing, after the bankruptcy judge approved the explanatory disclosure statement last week.

The plan calls for paying creditors in full over time, allowing Ahmed Zayat to retain ownership.

The disclosure statement was approved over the objection of secured lender Fifth Third Bank, which is owed about $34.5 million. The bank will have interest brought current when the plan becomes effective, at the contract rate of 1 percent below prime. Thereafter, interest will be paid at the London Interbank Borrowed Rate plus 3 percent.

The Cincinnati-based bank will receive a $5 million payment of principal on at the end of December. At the end of 2011 through 2013, Zayat will pay down principal by the greater of $3 million or 40 percent of proceeds from the sale of horses. The remaining principal and interest will come due Dec. 31, 2014.

Unsecured creditors, with $1.2 million in claims, are to be paid in full without interest over two years. A $2.45 million loan from a Zayat family member used to finance the Chapter 11 case will be forgiven.

Zayat sued the bank for what it called “predatory lending.” The bank says it holds personal guarantees given by Ahmed Zayat for as much as $38.7 million. Zayat said he personally invested $40 million in the business.

The stables, based in Hackensack, New Jersey, filed under Chapter 11 in February in Newark as the bank sought the appointment of a receiver.

The stables have more than 200 horses, representing collateral for the bank. The horses are valued at $37 million, according an appraisal cited in a court paper. Revenue in 2009 was $21 million.

The case is In re Zayat Stables LLC, 10-13130, U.S. Bankruptcy Court, District of New Jersey (Newark).

Escada USA Confirms Liquidating Chapter 11 Plan

The bankruptcy judge signed a confirmation order on June 10 approving the liquidating Chapter 11 plan for Escada USA. The disclosure statement said that unsecured creditors with claims of $370 million are expected to receive 3 percent to 8 percent. Tax claims of $2.9 million are to be paid in full.

The judge deleted provisions from the confirmation order that would have given releases to officers and directors.

The U.S. business was sold for $6 million to an affiliate of the Mittal Family Trusts. In December, the same buyer bought the parent, German luxury apparel maker Escada AG.

Escada USA filed under Chapter 11 with 27 retail and outlet stores in the U.S. It also distributed through specialty retailers like Saks Fifth Avenue and Neiman Marcus.

Escada’s definitive lists of assets and debt show property on the books for $51.2 million and liabilities totaling $361.5 million. Debt includes $14.2 million in priority claims, with the balance representing unsecured claims. The Escada companies filed for reorganization in Germany and the U.S. in August.

The case is In re EUSA Liquidating Inc., 09-15008, U.S. Bankruptcy Court, Southern District New York (Manhattan).

Point Blank Bonuses Approved After Changes Made

Point Blank Solutions Inc. won approval for a bonus program last week after making changes to resolve objections from the U.S. Trustee and the creditors’ committee.

The U.S. Trustee argued that the program would have given prohibited retention bonuses because employees and executives would earn payments solely by selling the assets before March 2011. Point Blank changed the program by establishing minimum prices that must be realized before bonuses are earned.

The minimum sale prices to justify bonuses weren’t disclosed publicly so as not to chill bidding.

The program will cost a maximum of $381,000, from which $294,000 would go to the 10 executives.

Point Blank filed under Chapter 11 in April with a plant and head office in Pompano Beach, Florida, and a second plant in Jacksboro, Tennessee. Revenue in 2009 was more than $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 the financing. Point Blank said it also owes $28.2 million to trade suppliers. Three former officers were indicted on charges of securities fraud.

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

Liberty Satellite Drops $116 Million WorldSpace Claim

WorldSpace Inc., the owner of two geostationary satellites, has an approved settlement in which Liberty Satellite Radio LLC waives most of its secured claim for $116 million.

Earlier this month, the bankruptcy court in Delaware authorized selling the assets for $5.5 million to Yazmi USA LLC, a company controlled by WorldSpace Chief Executive Noah Samara.

WorldSpace was prepared to contend that Liberty breached an agreement to purchase the asset. In return for a release of all claims, Liberty waived its right to receive all but $250,000 from the sale proceeds from Yazmi. In addition, Liberty will receive $370,000 cash it lent to WorldSpace that was never spent.

WorldSpace, a Maryland-based provider of satellite radio and data broadcasting services, had two sales fall through. The first sale, for $28 million, was to have been to Yenura Pte, a company Samara controlled. WorldSpace terminated the contract, contending Yenura was in breach for failure to pay the agreed price.

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

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

Retailer Old Time Pottery Confirms Full Payment Plan

Old Time Pottery Inc., a home decor retailer, is a testament to how some smaller companies can avoid liquidating in Chapter 11.

Last month the company confirmed a reorganization plan where the secured lender is paid off in cash, and unsecured creditors will be paid in full by the end of the year. Stockholders retain ownership.

Old Time Pottery filed for reorganization in Nashville in August last year with 37 stores. Eight were closed.

SunTrust Bank, the secured lender owed $15 million at the outset of bankruptcy, will have the remainder of its claim paid with a new $20 million revolving credit from FirstMerit Bank NA from Cincinnati. SunTrust’s loan was paid down in part with proceeds from inventory in the stores that closed.

Unsecured creditors, who were listed as having $23 million in claims, will receive payment of 75 percent of their approved claims when the plan is implemented. The remaining 25 percent, plus interest on the deferred portion, will be paid by Dec. 25.

The Murfreesboro, Tennessee-based company originally said assets were more than $50 million while debt is less than $50 million.

The case is In re Old Time Pottery Inc., 09-09548, U.S. Bankruptcy Court, Middle District Tennessee (Nashville).

Gart Capital Buys Swoozie’s Store Leases, Name

Swoozie’s Inc., once a 43-store specialty retailer, was authorized on June 11 by the bankruptcy judge in Atlanta to sell the name, intellectual property, customer lists, and leases for 30 stores to an affiliate of Gart Capital Partners.

The price was $100,000. There were no competing bids, the judge said in the approval order.

Hilco Merchant Resources LLC won the auction for the right to liquate inventory in going-out-of-business sales that will be completed no later than June 15. Although Hilco had the right to sell leases, it didn’t. The agreement called for Hilco to pay a guaranteed $7.43 million.

Swoozie’s filed under Chapter 11 in March. Financing required a quick sale of assets.

Swoozie’s stores are in the Southeast, Northeast, Texas and California. An affiliate of Wells Fargo Bank NA, the secured lender owed $3.1 million, provided $3.5 million in financing. The petition says assets were less than $10 million while debt exceeded $10 million.

The stores sell housewares and party goods and make personalized invitations.

The case is In re Swoozie’s Inc., 10-66316, U.S. Bankruptcy Court, Northern District of Georgia (Atlanta).

Watch List

Trico Loan Agreement Requires Chapter 11 by Sept. 8

Trico Marine Services Inc., a provider of support vessels for the offshore oil and natural-gas industry, signed a revised loan agreement on June 11 requiring the company to file under Chapter 11 no later than Sept. 8.

The agreement with Tennenbaum Capital Partners LLC provides for converting the existing $25 million revolving credit commitment into a $25 million term loan commitment. Although Trico drew down the entire loan when the revised agreement was signed, the money was placed into a blocked account to assure compliance with conditions of the loan.

The loan requires that Trico “diligently” pursue negotiations on a so-called prepackaged Chapter 11 reorganization. In addition, there must be a forbearance agreement governing the 8.125 percent convertible notes. Trico won’t be making the $8 million interest payment on the convertible notes. The grace period expires June 17.

Trico, based in The Woodlands, Texas, said in a regulatory filing today that Tennenbaum will provide $50 million in secured financing for the Chapter 11 case.

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 the year 2009, the operating and net losses were $125.3 million and $144.8 million, respectively. Revenue last year 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 on June 11 at $52, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Daily Podcast

British Petroleum, National Envelope, Rule 2019: Podcast

The Bloomberg terminal and Bloomberglaw.com have daily podcasts about bankruptcy. Click here to listen to the June 11 podcast dealing with British Petroleum, National Envelope, and recommended changes in Bankruptcy Rule 2019 dealing with informal and ad hoc committees in bankruptcy cases.

Briefly Noted

Specialty Products Committee Are Asbestos Claimants

Specialty Products Holding Corp. and Bondex International Inc., two non-operating subsidiaries of RPM International Inc., have an official creditors’ committee composed of 11 asbestos claimants. Each is represented by a different law firm. The companies filed under Chapter 11 on May 31 to deal with 10,000 asbestos claims. The bankruptcy judge in Delaware has temporarily halted lawsuits against RPM and all subsidiaries, not just those in Chapter 11.

Specialty Products has non-bankrupt subsidiaries that produce approximately $330 million in annual revenue. Bondex, which is no longer operating, is a Specialty Products subsidiary that is chiefly responsible for the asbestos claims from a company acquired in 1966 named Reardon Co. Medina, Ohio-based RPM had consolidated assets of $3.34 billion and $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.

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

National Envelope Has Interim Borrowing Approval

National Envelope Corp., the largest closely held envelope manufacturing company in the U.S., was given interim permission by the bankruptcy judge on June 11 to borrow $10 million from a $139 million loan for the Chapter 11 reorganization that began June 10. The final financing hearing will take place July 13. General Electric Capital Corp. is agent for the lenders. To read Bloomberg coverage of the hearing, click here. The company’s lawyer said there should be a contract for the sale of the business signed within a few weeks. The loan agreement requires having a sale agreement by July 2 and approval of sale procedures by July 16.

NEC, based in Uniondale, New York, has 14 manufacturing plants in 11 states, plus three warehouses. Net sales in 2009 were $676 million, resulting in a $44.2 million net loss. The petition says assets and debt are both less than $500 million. 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 case is In re NEC Holdings Corp., 10-11890, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Salander Gallery’s Christie’s Auction Disappoints

The Christie’s International auction of artworks belonging to bankrupt Salander-O’Reilly Galleries LLC brought in $2.1 million, below the pre-sale low estimate of $2.3 million. One- third of the lots didn’t sell at all. To read Bloomberg coverage of the auction, click here. Lawrence Salander, the gallery’s proprietor, was indicted in March 2009 by the Manhattan District Attorney on charges relating to an $88 million fraud going back 13 years. He pleaded guilty in March 2010 and will be sentenced to six to 18 years in prison. He must also pay $120 million in restitution to his defrauded customers.

The gallery went into Chapter 11 in November 2007 after being sued for alleged improper dealings with artworks. The liquidating gallery is being run by an independent chief restructuring officer. Lawrence Salander and his wife filed under Chapter 11 in November 2007. Their cases were converted to liquidation in Chapter 7 in May 2008, automatically bringing the appointment of a trustee.

The individuals’ case is In re Lawrence B. Salander and Julie D. Salander, No. 07-36735, and the gallery’s case is In re Salander-O’Reilly Galleries LLC, No. 07-30005, both in the U.S. Bankruptcy Court, Southern District of New York (Poughkeepsie).

Bank Failure

Seattle Bank is Year’s 82nd Bank Failure

Washington First International Bank from Seattle was the only bank to fail last week. The takeover on June 11 will cost the Federal Deposit Insurance Corp. $158.4 million.

To read Bloomberg coverage, click here.

There have been 82 U.S. bank failures this year. Last year there were 140, five times more than 2008. The failures in 2009 were the most since 1992, when 179 institutions were taken over by regulators.

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

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