It’s unclear whether Washington Mutual Inc. (WM) or its stockholders scored a victory yesterday when a bankruptcy judge in Tacoma, Washington, sent back to Delaware a dispute over whether WaMu should convene a shareholders’ meeting.
The saga began in April when U.S. Bankruptcy Judge Mary F. Walrath in Delaware allowed shareholders of the bank holding company to file suit to compel holding a meeting. The shareholders oppose WaMu’s Chapter 11 plan and the global settlement it includes. Presumably, they would elect a new slate of directors who could abandon the plan and settlement.
Allowing a move toward a shareholders’ meeting is unusual in bankruptcy cases. Judges often deny similar efforts for fear new managers will disrupt an advanced reorganization.
With Walrath’s permission, shareholders sued in Washington state court to compel the meeting. WaMu responded by having the suit removed to U.S. district court in Washington where the case was then referred to a bankruptcy judge.
In a courtroom ruling yesterday, the Washington bankruptcy judge granted WaMu’s motion and transferred the case to Walrath, court records show.
Significantly, the Washington judge did not decide a motion the shareholders made to remand the case to the Washington state court. With the remand motion undecided, Walrath conceivably could send the dispute back to state court on the theory that it’s governed by state law. Or, WaMu could ask Walrath to put the suit on hold because she’s close to approving a disclosure statement and allowing creditors to vote on the reorganization plan.
At a hearing yesterday, Walrath was to decide a separate motion by shareholders seeking appointment of an examiner to investigate the merits of the proposed settlement with the Federal Deposit Insurance Corp. and JPMorgan Chase & Co. (JPM) Walrath put off the hearing while the parties discuss documents to turn over to the shareholders.
Walrath also postponed a hearing for approval of the disclosure statement until July 8. For Bloomberg coverage on yesterday’s hearing, click here.
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.
The WaMu holding company filed under Chapter 11 in September 2008, one day after the bank subsidiary 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 $4.485 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).
Starwood May Be Out of the Running for Extended Stay
The fight to take over Extended Stay Inc. may be over as a result of a hearing yesterday in New York bankruptcy court.
Hotel operator Starwood Capital Group LLC participated in the auction and lost to the $3.93 billion cash offer from Centerbridge Partners LP, Paulson & Co. and Blackstone Group LP. (BX) Attempting to keep its takeover hopes alive, Starwood described a rival plan this week it valued at some $4.8 million, although it would include only $700 million cash.
At yesterday’s hearing, the bankruptcy judge said he was “not inclined” to allow Starwood to file a competing plan.
The bankruptcy judge yesterday ruled in favor of approving the disclosure statement explaining Extended Stay’s plan incorporating the sale to the Centerbridge group. The judge settled on July 20 as the date for the confirmation hearing to approve the plan.
Before the hearing, Starwood and the creditors’ committee filed a motion for permission to file a plan. The judge said he would hear the motion on July 20, the same day as the confirmation hearing.
Starwood’s lawyer said during the hearing that it was dropping its contention that the auction was conducted improperly. To read Bloomberg coverage of the hearing, click here. To read details of Starwood’s plan, click here for the June 17 Bloomberg bankruptcy report. The Starwood plan would allow a greater recovery for holders of $3.3 billion in mezzanine debt, who would receive little to nothing under the Extended Stay plan.
The Starwood plan also would provide eventual full recovery on $175 million in subordinated mortgages whose holders would get little under the company plan.
For details about the company’s plan and the auction that the Centerbridge group won, click here to read the June 10 Bloomberg bankruptcy report.
Extended Stay’s Chapter 11 petition last June 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.
Based in Spartanburg, South Carolina, Extended Stay says it’s the largest operator of mid-priced extended-stay hotels in the U.S. The 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 New York (Manhattan).
Lenders to Be Paid $256 Million under Rangers Plan
The Texas Rangers professional baseball club filed an amended reorganization plan yesterday to satisfy objections raised by the official creditors’ committee. The accompanying disclosure statement, also revised, tells secured lenders they can expect eventually to recover $256 million on their $525 million in claims.
The papers were revised in part to be utilized if the bankruptcy judge decides that creditors are entitled to vote. Even if there must be a ballot, the papers still anticipate a confirmation hearing for approval of the plan on July 9.
The Rangers take the position that the plan pays all creditors in full, so no one is entitled to vote. The revised plan provides for paying post-bankruptcy interest on secured and unsecured claims, thus removing an objection raised by the creditors’ committee who said they were entitled to vote for lack of interest.
The newly revised disclosure statement breaks down the uses of cash under the acquisition where a group led by team President Nolan Ryan will buy the club in a transaction valued at $575 million. At closing, the cash consideration is nominally $304 million.
After adjustment, the actual cash payment is $287.6 million. From that amount, $30 million will be held in escrow for one year to cover any indemnification obligations owing to the purchasing group.
The secured lenders will receive $75 million plus interest when the plan is implemented, directly on account of their secured claims. The lenders also hold liens on the general and limited partnership interests in the team. The disclosure statement says that the lenders when the plan becomes effective will initially receive $123 million on account of the equity interest, plus the $30 million one year later if there are no claims on the escrow. The total amount secured lenders are expected ultimately to receive under the plan is $256 million, according to the disclosure statement.
At a hearing yesterday, the bankruptcy judge said he would decide later if the team’s lawyers, Weil Gotshal & Manges LLP, and financial advisers, Perella Weinberg Partners, have conflicts of interest that bar their representing the company in Chapter 11. The U.S. Trustee argued to the judge that the two firms’ representations of team affiliates and participation in transactions before bankruptcy render them ineligible in Chapter 11.
The judge also deferred ruling on whether he would approve a $1.5 million fee for Perella Weinberg on completion of a sale or restructuring. The argument was made that the firm performed most of the work before bankruptcy so the success fee should be a pre-bankruptcy claim rather than a cost of the Chapter 11 case. It won’t matter if the plan eventually gives complete payment on unsecured claims because Perella Weinberg would be paid in full no matter what.
The judge, Michael Lynn, didn’t say at yesterday’s hearing when he would rule on several contested issues that were argued at a hearing earlier this week. The judge will decide whether creditors are entitled to vote and whether the lenders are entitled to oppose the plan by standing in the shoes of the general and limited partners. He will also rule on the adequacy of the disclosure statement.
For Bloomberg coverage of yesterday’s hearing, click here. For details on the proposed plan and sale, click here for the May 26 Bloomberg bankruptcy report.
The team filed under Chapter 11 on May 24 to complete the sale to the Nolan Ryan group since the lenders wouldn’t consent. The Rangers moved from Washington to Texas in 1972. 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 assets and debt are both 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).
Chemtura Files Potential Full-Payment Chapter 11 Plan
Specialty-chemical maker Chemtura Corp. (CEM) filed a reorganization plan yesterday, supported by the official creditors’ committee. The plan may pay all creditors in full while holding the potential for providing some value to existing shareholders, the company said in a statement. The plan is designed to reduce debt for borrowed money to about $750 million from $1.3 billion, according to the accompanying disclosure statement.
If existing shareholders vote in favor of the plan, they will receive 5 percent of the new stock, plus the right to participate in a $100 million rights offering to buy more stock. The disclosure statement says that the official committee representing stockholders isn’t in agreement on the plan. Talks nonetheless continue, the company statement said.
The pool of unsecured claims is made up of general unsecured creditors with claims totaling a maximum of $249 million. In addition, there are $120.2 million in unsecured lenders’ claims and $1.03 billion in unsecured notes.
Unsecured creditors as a group will receive the new stock, less 5 percent if shareholders go along with the plan. If stockholders fully participate in the rights offering, unsecured creditors also will receive the $100 million in cash proceeds.
Given an assumed enterprise value of $2.05 billion for the reorganized company, unsecured creditors should be paid in full with the stock and cash. If stockholders vote against the plan, unsecured creditors are anticipated to realize about 83 percent of their recoveries through the stock, with the remainder coming from available cash.
If stockholders provide the $100 million through the rights offering, unsecured creditors’ recovery through stock would be reduced to the neighborhood of 80 percent, with the remainder in cash.
Chemtura also signed a plan-support agreement with the creditors’ committee and an ad hoc group composed of holders of $770 million of the notes. The bankruptcy judge in New York is scheduled to consider approving the agreement at a July 13 hearing.
The agreement precludes a participating creditor from selling a claims unless the buyer agrees to support the plan. The company will pay the noteholders $7 million to reimburse their costs. The company also agree not to modify the plan unless the creditors’ committee consents, along with holders of at least 50 percent of the participating notes.
Chemtura received an extension until Sept. 18 of the exclusive right to propose a reorganization plan.
The Chapter 11 petition in March 2009 by Middlebury, Connecticut-based Chemtura listed assets of $3.06 billion against debt totaling $2.6 billion, including $1.02 billion owing on three issues of notes and debentures. Sales declined to $2.5 billion in 2009 from $3.5 billion a year earlier. The subsidiaries outside of the U.S. didn’t file.
The case is Chemtura Corp., 09-11233, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
Ciena, SBA Settle with Ares Capital, Allowing Plan
Ciena Capital LLC, its creditors’ committee, and the U.S. Small Business Administration reached a settlement with the parent Ares Capital Corp. (ALD) that will fund a 50 percent payment to Ciena’s unsecured creditors.
Allied Capital Corp., a Washington-based lender that merged with New York-based Ares in March, was sued in January 2009 by Ciena’s creditors and the SBA. Among other things, the suit sought to invalidate Allied’s claimed lien on $200 million of Small Business Administration loans.
The settlement compromises the $325 million secured claim originally asserted by Allied that now belongs to Ares as a result of the merger. Ares will subordinate its claim and security interest so collateral can be used for full payment on $9 million in administrative, tax, and priority claims in Ciena’s Chapter 11 case.
The hearing for approval of the settlement will be held June 30 in U.S. bankruptcy court in Manhattan.
Ares will also allow about $16 million from the collateral to be used to fund a 50 percent dividend for unsecured creditors under a Chapter 11 plan.
Ciena was once the third-largest loan originator for the SBA. It filed under Chapter 11 in September 2008 after discovery that a Michigan employee was recording fraudulent loans. The filing was designed to stop the SBA from terminating loan- servicing rights.
The complaint alleged that Ciena, also a provider of commercial factoring and financing for commercial real estate, was holding $250 million of loans that had not yet been securitized. Among them, $200 million were SBA loans that allegedly secured $325 million of loans outstanding on the Chapter 11 filing date.
Ciena and the SBA contended that federal law prohibited giving a security interest in an SBA loan or servicing rights unless the SBA consents.
Ciena and the committee extol the settlement as being more beneficial than invalidating Ares’ security interest. Even if the claim were unsecured, it would dwarf other unsecured creditors and give Ares 85 percent of distributions under a Chapter 11 plan.
Allied involuntarily became Ciena’s lender when it was called on its guarantee and paid $320 million to the banks that were then the lenders under Ciena’s revolving credit agreement.
Ciena’s formal lists of assets and debt showed assets of $361 million against liabilities totaling $397 million, including $325 million in secured claims.
The Ciena case is In re Ciena Capital LLC, 08-13783, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
Visteon Financing Approved, Disclosure Hearing June 21
Auto parts maker Visteon Corp. (VC) won approval from the bankruptcy judge yesterday for an agreement where bondholders will raise $1.25 billion cash needed for confirmation of a reorganization plan. The judge put off a ruling until June 21 on whether he will approve the disclosure statement and allow creditors to vote on the plan.
To read about the plan Visteon revised this week, click here for the June 15 Bloomberg bankruptcy report. The newest plan would give shareholders 1.94 percent of the stock if they vote in favor of the reorganization. The remainder of the plan is much the same as before, although the amount of stock received by other constituencies is changed to account for the shareholders’ piece.
To read about the positions being taken by various parties going into the hearing for approval of the disclosure statement, click here for the May 25 Bloomberg bankruptcy report. To read about yesterday’s hearing, click here.
Visteon filed for reorganization in May 2009, listing assets of $4.6 billion against debt totaling $5.3 billion. Sales in 2008 were $9.5 billion, including $3.1 billion to Ford Motor Co. (F) Visteon was spun off from Ford in 2000. Van Buren Township, Michigan-based Visteon at the outset owed $2.7 billion for borrowed money, including $1.5 billion on a secured term loan, $862 million on unsecured bonds, and $214 million on other debt obligations.
The case is In re Visteon Corp., 09-11786, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Remedial Says Yantai Raffles Slowing Sale of Vessels
Although Remedial (Cyprus) Public Co. Ltd. was given authority by the bankruptcy judge in late May to sell its two elevated support vessels for the offshore oil and gas industry, the completion of the sale is being held up by a dispute with a builder of one of the vessels.
Secured bondholders owed $230 million were authorized to purchase the vessels in exchange for $120 million in debt plus whatever is outstanding on the $5 million post-bankruptcy loan. The bondholders must also pay costs to cure contract defaults.
Yantai Raffles Shipyard Ltd., the builder of one vessel, claimed that the contract was terminated for breach. The contract was to be one of the assets transferred in the sale.
The dispute is delaying completion of the sale.
Remedial said in a court filing that the buyers may take advantage of a provision in the contract to complete one purchase before the other.
In the meantime, Remedial says it needs an extension of the exclusive right to propose a Chapter 11 plan. The hearing on the exclusivity motion will be held June 30.
At the June 30 hearing Remedial will also ask the judge to approve an increase in financing from $5 million to $6.5 million. Financing for the Chapter 11 case comes from the bondholders who are owed a net of $177 million, according to a court filing.
Remedial needed Chapter 11 when a restructuring couldn’t be implemented out of court.
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).
Publisher American Media Working on Noteholder Deal
American Media Inc., publisher of the Star and National Enquirer, didn’t make the interest payment due May 1 on the 14 percent senior subordinated notes. Standard & Poor’s reported that holders of 75 percent of the notes agreed to extend the due date until June 21.
American Media disclosed a “pending confidential transaction,” S&P said, without providing details. S&P said that holders of the subordinated debt can expect a recovery from nothing to no more than 10 percent.
Twice last year, the Boca Raton, Florida-based company obtained relief from subordinated noteholders who allowed the payment of interest with more notes. S&P said at the time that the subordinated debt represented 32 percent of balance sheet liabilities.
Las Vegas Shopping Center Files in Wilmington
Charleston Associates LLC, the owner of part of the Shops at Boca Park shopping center in Las Vegas, filed a Chapter 11 petition yesterday in Delaware, blaming problems on the “current and prolonged economic recession.”
The center, located at the intersection of Charleston and Rampart in Las Vegas, lost two anchor tenants in the last two years. In addition to lower rent basic collections, decreased mall traffic reduced revenue by depressing so-called percentage rent.
Charleston’s property is situated 20.4 acres. Currently, 85.2 percent of the space is rented, although some is vacant.
The petition listed the property as being worth $92.3 million, against $65.1 million liabilities. Debt includes $60.1 million in mortgages. The ownership of the mortgage is in a so- called securitization. The nominal owner of the mortgage is Mortgage Electronic Registration Inc.
The case is In re Charleston Associates LLC, 10-11970, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Sam Zell to Be Deposed in Fight over Tribune Plan
Sam Zell will be examined under oath by lawyers for holders of $1.6 billion in debt owing by newspaper publisher Tribune Co. They are among creditors opposing Tribune’s Chapter 11 plan, which would settle fraudulent transfer claims allegedly arising from the $13.8 billion leveraged buyout that Zell led in December 2007. To read Bloomberg coverage, click here. Creditors are voting on the plan in advance of an Aug. 16 confirmation hearing.
The plan, filed in April, is opposed by holders of $3.6 billion in pre-bankruptcy 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. 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 of Delaware (Wilmington).
BP, Extended Stay, Las Vegas Strip Property: Audio
BP Plc (BP/), Extended Stay Inc. and FX Luxury Las Vegas I LLC are the bankruptcy cases covered in the latest bankruptcy podcast on the Bloomberg terminal and Bloomberglaw.com. To listen, click here.
A&P Demoted to CCC+ Corporate on Refinancing Risk
Great Atlantic & Pacific Tea Co. was downgraded one notch yesterday by Standard & Poor’s to a CCC+ corporate grade, in part due to concern about debt maturities in 2011.
S&P in addition is concerned about multiemployer pension debt, “limited free cash flow generation, and geographic concentration.” The new S&P rating is one level higher than the demotion issued in April by Moody’s Investors Service.
S&P predicts that senior secured noteholders would recover up to 50 percent in the event of payment default. For unsecured debt, the new rating is CCC- coupled with a judgment that the recovery will range between nothing and 10 percent.
S&P calculates A&P as having $3.5 billion of adjusted debt in February.
A&P reported a $876 million net loss and an $802 million loss from continuing operations for the fiscal year ended in February, on sales of $8.81 billion. The loss from operations in the year was $600.6 million.
The balance sheet is upside down, with total assets of $2.82 billion and total liabilities of $3.22 billion in February.
Montvale, New Jersey-based A&P had 429 stores in February, mostly in New York, New Jersey, and Pennsylvania.
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