Nortel Networks, ProtoStar, Black, RPM, PFF, ABC, FairPoint: Bankruptcy

Nortel Networks Corp., once North America’s largest communications equipment provider, wants a bankruptcy judge to settle a dispute over Avaya Inc.’s $915 million purchase of the corporate networks business that was completed last year.

When the sale closed in December, $30 million was placed in escrow with a bank to cover purchase-price adjustments to be made later. Nortel contends that Basking Ridge, New Jersey-based Avaya is claiming $22.1 million too much as an adjustment for excess inventory.

According to Nortel’s calculations, the most Avaya can properly claim is $19.2 million. Consequently, Nortel wants the judge to direct that $10.8 million be released from escrow immediately, even before a decision is made about the excess inventory.

A hearing on the dispute with Avaya is set for July 19 in the U.S. Bankruptcy Court in Wilmington, Delaware.

Nortel raised $2.6 billion from the sale of various businesses. Patents and patent applications could bring another $750 million to $1.1 billion, the company said.

Ericsson AB, the world’s largest producer of wireless networks, bought the primary wireless carrier business for $1.13 billion. It was also part of a group that made the $103 million high bid for Nortel’s so-called GSM business. Ericsson offered to pay $242 million for Nortel’s half interest in a South Korean joint venture named LG-Nortel Co.

Other sales include the optical networking and carrier Ethernet networks business bought by Ciena Corp. in December for $769 million. Nortel also sold the internet telephony business for $182 million after adjustments.

The Toronto-based Nortel companies filed for bankruptcy reorganization in January 2009 in the U.S., Canada, and London. The Nortel companies reported $11.6 billion in consolidated assets against debt totaling $11.8 billion as of Sept. 30. Revenue was $9.7 billion in 2007. For the first nine months of 2008, sales were $6.8 billion.

The Chapter 11 case is In re Nortel Networks Inc., 09- 10138, and the parent’s Chapter 15 case is In re Nortel Networks Corp., 09-10164, both in U.S. Bankruptcy Court, District of Delaware (Wilmington).

Updates

ProtoStar Committee Opposes Longer Plan Exclusivity

The creditors’ committee for ProtoStar Ltd. is opposing an extension of the exclusive right for the provider of digital television and broadband service in Asia to propose a Chapter 11 plan. A hearing on ProtoStar’s third exclusivity motion is scheduled for July 7.

The stumbling block to a plan is a lawsuit the committee is pursuing against secured lenders to invalidate their lien on the ProtoStar I satellite. The company said it wants longer exclusivity to “broker a consensual resolution of these Chapter 11 cases.”

The committee countered in papers filed on June 25 by saying the case is “in a state of limbo” with no settlement “imminent.” The creditors’ panel contends that a longer exclusivity period “would likely retard efforts to reach a global settlement.”

The committee characterizes the bankruptcy judge as having said there could be a plan in which the proceeds from the ProtoStar I satellite sale are held in escrow until the validity of the lien is decided. If they lose the lawsuit, the committee says unsecured creditors will receive nothing.

The committee accuses ProtoStar of holding out for a plan that will give releases to managers while making a partial distribution to secured lenders even before the lien-validity issue is decided.

ProtoStar sold its two satellites after the committee filed suit to invalidate the lien on one. The committee argues that the lenders filed notice of the security interest in the wrong place. If the committee is correct, liens would be invalid representing security for $242 million on the so-called Credit Suisse facility, a $10 million working capital loan and $183 million in 12.5 percent and 18 percent secured notes.

According to the disclosure statement, unsecured creditors would receive nothing if the liens turn out to be valid, and secured creditors would recover 85 percent to 93 percent. If the liens are invalid, unsecured creditors would have an 85 percent recovery.

The ability to move ahead with the plan is also being held up by objections that ProtoStar is making to four major claims.

The Protostar I satellite was sold for $210 million to an affiliate of Intelstat Holdings Ltd., with most of the proceeds being held in escrow. The ProtoStar II satellite was sold for $185 million to an affiliate of SES SA.

Hamilton, Bermuda-based ProtoStar and five subsidiaries filed under Chapter 11 in July 2009, listing assets of $528 million and debt of $463 million as of Dec. 31. Debt includes $10 million on a first lien, plus $183 million in 12.5 percent and 18 percent secured notes and $242 million on the so-called Credit Suisse facility secured by all the assets. The satellites were launched in 2008 and 2009.

The case is In re ProtoStar Ltd., 09-12659, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Montauk Pioneer, Dan’s Papers Auction Set for July 19

Brown Publishing Co., the publisher of the largest- circulation local newspaper on eastern Long Island, will hold an auction on July 19 to learn who will make the highest or best offer for the businesses, under bidding procedures approved yesterday by the bankruptcy judge in Central Islip, New York.

The opening bid of $15.9 million will come from a group including Roy Brown, the president and chief executive officer. Other bids are due initially by July 16. The hearing for approval of the sale will take place July 22.

Brown publishes Dan’s Papers, the weekly newspaper with the largest circulation on eastern Long Island, New York. It also publishes the Montauk Pioneer.

The Roy Brown group is required to make a 5 percent cash deposit to qualify as a bidder. The secured lenders, with PNC Bank NA as agent, aren’t required to make a deposit and may bid secured debt rather than cash at the auction.

Dolan Media Co., publisher of the Long Island Business News, previously filed papers in the case saying it’s a potential bidder.

Based in Cincinnati, closely owned Brown listed assets of $94 million against debt totaling $104.6 million. First-lien lenders are owed $70.2 million on a revolving credit and term loan. Second-lien lenders are owed $24.3 million.

Brown has 15 daily, 32 weekly, 11 business and 41 free publications. There are also 51 websites. Seventy-eight of the publications are in Ohio. The business publications are in seven states.

The case is In re Brown Publishing Co., 10-73295, U.S. Bankruptcy Court, Eastern District New York (Central Islip).

Black Gaming From Mesquite Confirms Plan in Las Vegas

Black Gaming LLC, the operator of three gaming establishments in Mesquite, Nevada, negotiated a reorganization plan in advance of a Chapter 11 filing on March 1. The bankruptcy judge in Las Vegas approved the plan with a confirmation order yesterday, the company said in a statement.

The plan was negotiated with holders of 70 percent of the $125 million in senior notes who receive a new $62.5 million credit facility plus excess cash under the plan that reduces debt by $143 million.

Holders owed $76.4 million on 12.75 percent subordinated notes take home warrants for 5 percent of the new equity.

The existing secured credit facility, with $14.8 million outstanding, and general unsecured creditors are being paid in full.

Robert R. Black Sr. and other investors from Newport Global Advisors are contributing $18.25 million cash to retain ownership. Black keeps his position as chief executive.

While Black Gaming’s petition listed assets as being worth $11.2 million, a court filing says the enterprise value of the company is $85 million. Debts were listed at $253.4 million in total, with $158 million of that secured.

The properties are known as Casa Blanca, Oasis, and Virgin River.

The case is In re Black Gaming LLC, 10-13301, U.S. Bankruptcy Court, District of Nevada (Las Vegas).

Philly Newspapers Plan Confirmed Over Union Objection

Philadelphia Newspapers LLC, the publisher of the Philadelphia Inquirer and Philadelphia Daily News, prevailed over objections from labor unions and persuaded the bankruptcy judge at yesterday’s confirmation hearing to approve the Chapter 11 plan.

The newspapers will be purchased by secured lenders in a $139 million transaction.

The buyers have an Aug. 31 deadline for completing the purchase. They still need to negotiate new contracts with the labor unions. The judge ruled yesterday that the buyers aren’t obligated to take over existing pension plans.

When the pension plans are terminated, the Pension Benefit Guaranty Corp. will have claims that may dilute recovery for unsecured creditors. The buyers are looking for concessions in the new collective bargaining agreements. For Bloomberg coverage on the confirmation hearing, click here. For details on the plan, click here for the May 20 Bloomberg bankruptcy report.

The newspapers started their Chapter 11 reorganization in February 2009 in their hometown after defaulting on a term loan and revolving credit totaling $296.6 million and on $98.5 million in subordinated notes.

The largest dispute in the case was litigation over whether the lenders could bid their secured claims rather than cash at auction, a process known as credit bidding. The bankruptcy judge would have allowed credit bidding. The district judge disagreed and reversed. On the next level of appeal, the 3rd U.S. Circuit Court of Appeals in Philadelphia upheld the district court while ruling that bankruptcy law doesn’t give secured creditors an absolute right to make a credit bid.

As a result the lenders bid cash at auction in late April.

The case in bankruptcy court is In re Philadelphia Newspapers LLC, 09-11204, U.S. Bankruptcy Court, Eastern District Pennsylvania (Philadelphia).

RPM Insurance Companies Want Coverage Appeal Finished

RPM International Inc. was appealing a losing lawsuit when non-operating subsidiaries Specialty Products Holding Corp. and Bondex International Inc. filed Chapter 11 petitions at the end of May to create a trust taking over liability for asbestos claims. Three insurance companies filed a motion on June 25 asking the bankruptcy judge at a July 14 hearing to let the appeal go ahead.

The insurance companies say that some of the policies were exhausted in 1997 and 2000. RPM sued the insurance companies in 2003, contending that insurance remained in force. According to the story told by the insurance companies, a U.S. District Court in Ohio ruled in late 2008 that the policies were exhausted by payments that the insurers made on asbestos claims.

RPM appealed to the U.S. Court of Appeals in Cincinnati. The main briefs were filed when the RPM subsidiaries filed in Chapter 11. The insurance companies want the bankruptcy judge to rule that the circuit court may complete the appeal.

The insurance companies argue it’s important to have a ruling from the Court of Appeals to know whether any additional insurance money will be available to fund a trust under the contemplated Chapter 11 plan.

The insurance companies wanting the appeal to be completed are Continental Casualty Co., Columbia Casualty Co. and Century Indemnity Co.

At the request of the RPM subsidiaries in Chapter 11, the bankruptcy judge has stopped lawsuits for the time being against the entire family of companies. After a hearing on Aug. 9, the bankruptcy judge will decide whether to put a hold on lawsuits against non-bankrupt affiliates until the conclusion of the Chapter 11 case.

Specialty Products and Bondex sought Chapter 11 relief to deal with 10,000 asbestos claims. The companies presumably will attempt to utilize a process in bankruptcy law where non- bankrupt affiliates make a contribution to an asbestos claimants’ fund so the plan will absolve the entire family of companies from liability on asbestos claims.

Non-bankrupt subsidiaries of Specialty Products generate about $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 list assets and debt of more than $100 million.

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

Hilly Kristal Estate Wants CBGB Name Back from Ch 11

The secured creditor of CBGB Holdings LLC wants the Chapter 11 case dismissed or permission to complete foreclosure of the assets. The hearing on the motion to dismiss or modify the so- called automatic stay is scheduled for July 20.

CBGB was a music club at Bowery and Bleecker streets in New York that opened in 1973 by Hillel Kristal, known as Hilly. The name stood for Country, Blue Grass and Blues. It closed in October 2006, less than a year before Kristal’s death.

Kristal’s estate sold the CBGB trademarks and other intellectual property to the company that filed under Chapter 11 in New York on June 11. The price was $3.5 million, with $1,112,500 paid in cash and the remainder covered by a secured note with a lien on the assets.

Kristal’s estate says the remaining debt is $2.58 million. Although the Kristal estate says it recovered ownership of most of the assets before the Chapter 11 filing, it nonetheless wants the case dismissed or permission given to foreclose.

CBGB’s bankruptcy schedules list assets with a value of $133,500 against debt totaling $3.59 million.

The case is In re CBGB Holdings LLC, 10-13130, U.S. Bankruptcy Court, Southern District New York (Manhattan).

PFF Bancorp Seeks to Knock Out PGCG’s Claims Entirely

PFF Bancorp Inc., the holding company for a failed bank, is hoping to eliminate all the claims filed by the Pension Benefit Guaranty Corp. related to pension plans for bank employees.

Even though the pension plan hasn’t been terminated, the PBGC filed three claims against each of the five PFF companies in Chapter 11. Ten of the claims for funding contributions and premiums don’t claim a specified amount. The last five claims each are for $4.2 million, claiming entitlement to a priority requiring payment in full if the pension plans are terminated.

PFF will contend, at a hearing on Aug. 19, that there is no liability on the pension plan because the bank was the sponsor. According to PFF’s reading of the law, an affiliate is liable on a terminated pension plan if it was part of the so-called control group when the plan is taken over.

Because the plans were transferred when the bank was taken over, PFF said neither it nor any affiliates would be members of the control group at the time of a takeover in the future.

If the bankruptcy court doesn’t throw out the PBGC’s claims entirely, PFF wants the judge to estimate the amount of the claims so there won’t be any impediment to confirming a Chapter 11 plan.

PFF’s bank subsidiary, PFF Bank & Trust, was taken over by regulators in November 2008. The holding company’s Chapter 11 case began in December 2009. The bank’s deposits were transferred to U.S. Bank NA. The petition listed assets of $7.8 million and debt of $131.7 million.

The case is In re PFF Bancorp Inc., 08-13127, U.S. Bankruptcy Court, District of Delaware (Wilmington).

ABC Learning Creditor Protection Continued, for Now

ABC Learning Centres Ltd., an Australia-based operator of childcare centers, may not know until a hearing on Aug. 9 whether it qualifies for bankruptcy protection in the U.S. under Chapter 15, which governs cross-border insolvencies.

RCS Capital Development LLC, the holder of a $47 million jury verdict against ABC Learning, objected to the Chapter 15 petition, saying the proceedings in Australia aren’t sufficiently controlled by a court to qualify for U.S. protection.

The bankruptcy judge held an initial hearing about RCS’s objection on June 24 and scheduled another hearing for Aug. 9. The U.S. bankruptcy judge in Delaware continued the halt on lawsuits in the U.S. until July 8 “or termination by court order.”

ABC filed the Chapter 15 petition in May to stop collection after RCS obtained the judgment. The RCS suit was for breach of development contracts for locations in the U.S.

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

Chapter 15 isn’t a reorganization like Chapter 11 or a liquidation like Chapter 7. If ABC wins, the U.S. court will assist the Australian proceedings by stopping lawsuits and creditor actions in the U.S. and facilitating the collection of any assets in the U.S. If there is a valid case in Chapter 15, creditors will be obliged to fight their disputes in Australia, which also would govern distributions to creditors.

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

FairPoint Settles with Verizon on Lease Liabilities

FairPoint Communications Inc., a local exchange carrier with 1.7 million access lines, worked out a settlement that will generate $3 million from affiliates of Verizon Communications Inc. while waiving indemnification claims Verizon is making.

In purchasing telephone systems from New York-based Verizon before bankruptcy, FairPoint assumed liability on about 90 real property leases. FairPoint’s assumption of the leases didn’t remove Verizon’s liability to the landlords were FairPoint later to default. There will be a hearing on Aug. 5 to approve the Verizon settlement.

Verizon was making claims under FairPoint’s Chapter 11 plan in case there was a lease default in the future. To settle the dispute, FairPoint agreed to assume the leases formally as part of the Chapter 11 plan and to indemnify Verizon if there’s a breach in the future.

In return, Verizon will pay $3 million to FairPoint in twice-yearly installments of $600,000.

FairPoint began the confirmation hearing for approval of the Chapter 11 plan in May. The hearing was continued until July 8 so FairPoint could work on settlements with regulators in three New England states. FairPoint said in the Verizon settlement papers that it hopes to confirm the plan “in the near future.” For details on the plan, click here for the March 12 Bloomberg bankruptcy report.

FairPoint’s Chapter 11 petition listed assets of $3.236 billion and debt of $3.234 billion. Funded debt, aggregating $2.7 billion, included $2 billion under a secured credit facility, $575 million in senior unsecured notes, and $88 million on interest-rate swap agreements.

The case is In re FairPoint Communications Inc., 09-16335, U.S. Bankruptcy Court, Southern District New York (Manhattan).

Majestic Star Has Exclusivity Stretched to Aug. 20

Casino operator Majestic Star Casino LLC was granted its request and received an extension of the exclusive right to propose a Chapter 11 plan until Aug. 20.

The so-called exclusivity motion, the company’s second, was granted yesterday. Majestic Star is revising its projections and strategies because easy access by customers from Chicago to the Indiana properties was cut off when a bridge closed indefinitely for structural repairs.

Majestic Star promised to file a reorganization plan by Aug. 20. It has four casinos, plus hotels with 806 rooms serving the two riverboat casinos in Gary, Indiana. The other casinos are in Tunica, Mississippi, and Black Hawk, Colorado.

Debt includes $79.3 million owed on the senior secured credit facility, with Wells Fargo Capital Finance Inc. as agent. Senior secured noteholders with a second lien are owed $300 million. Majestic Star owes $200 million on unsecured senior notes and $63.5 million on discount notes. It had assets of $406 million and debt of $750 million in the quarterly report for the period ended June 30.

The case is In re Majestic Star Casino LLC, 09-14136, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Briefly Noted

Rangers and Secured Lenders Exchanging Documents

The Texas Rangers baseball club was told by the bankruptcy judge at a hearing yesterday to produce documents for the secured lenders relating to the bids for the team, the valuation of the bids, and the reasons for filing in Chapter 11. The lenders, who oppose the sale and the team’s reorganization plan, in turn were required to produce documents for the team. To read Bloomberg coverage of the hearing, click here.

The confirmation hearing for approval of the plan is scheduled for July 9 in U.S. Bankruptcy Court in Fort Worth, Texas. The plan would directly pay the lenders $75 million of the $256 million the Rangers estimate the lenders will recover in total from the sale of the club to a group including current team President Nolan Ryan, a former Major League Baseball pitcher and member of the Hall of Fame. The Rangers moved from Washington to Texas in 1972. The team defaulted on payments owing to the lenders in March 2009. Michael Rochelle, a brother of Bloomberg News reporter Bill Rochelle, is a lawyer for an agent for the lenders. The partnership that owns the team, Texas Rangers Baseball Partners, said in its petition that the 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).

More Exclusivity and Investigation for Bear Island Paper

The bankruptcy judge gave Bear Island Paper Co. LLC an extension until Oct. 1 of the exclusive right to propose a reorganization plan. Last week, the judge in Richmond, Virginia, also extended the time for the creditors’ committee to investigate the validity of pre-bankruptcy secured claims until July 9. Bear Island is a U.S. subsidiary of Canada’s White Birch Paper Co. Based in Nova Scotia, White Birch is the second largest newsprint maker in North America.

White Birch and its U.S. subsidiaries filed for reorganization simultaneously in the U.S. and Canada in February. Secured liabilities include $438 million on a first- lien term loan, $104 million on a second-lien term loan, $50 million on an asset-backed revolving credit and $51.5 million on swap agreements. Trade suppliers are owed $9.5 million. The companies had $667 million in sales during 2009, with $125 million generated by Bear Island. White Birch has three pulp and paper mills in Quebec. The Bear Island plant is in Ashland, Virginia. White Birch is controlled by Brant-Allen Industries, according to Bloomberg Data.

The case is In re Bear Island Paper Co. LLC, 10-31202, U.S. Bankruptcy Court, Eastern District Virginia (Richmond).

Holley Performance Implements Second Reorganization Plan

Holley Performance Products Inc., a supplier of high- performance products for autos, implemented a reorganization plan that the bankruptcy court approved in a June 7 confirmation order. The plan reduces debt by $59 million, chiefly by converting $57.6 million of secured notes into stock. Unsecured creditors received nothing for their $11 million in claims. For detail on the plan plus Holley’s previous Chapter 11 case, click here for the June 9 Bloomberg bankruptcy report.

Bowling Green, Kentucky-based Holly listed assets of $106 million and debt of $243 million in the first case. In the second reorganization begun in September, the company said its assets and debt both exceeded $100 million.

The new case is In re Holley Performance Products Inc., 09- 13333, and the prior case was In re Holley Performance Products Inc., 08-10256, both U.S. Bankruptcy Court, District of Delaware (Wilmington).

Daily Podcast

Texas Rangers, Quarterback Mark Brunell: Audio

Sports continue leading bankruptcy news, with reports on how the Texas Rangers are proceeding against the bankruptcy judge’s recommendation and backup quarterback Mark Brunell files in Chapter 11. Click here for the latest bankruptcy podcast on the Bloomberg terminal and Bloomberglaw.com.

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

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