Creditors with $15.5 billion in claims against Lehman Brothers Holdings Inc. fired the opening salvo in a possibly protracted courtroom battle over how billions of dollars generated in the Lehman liquidation should be distributed to creditors.
An ad hoc group of the creditors said in court papers filed yesterday that so-called substantive consolidation of 23 Lehman affiliates would increase recoveries for holding company creditors “by billions.” The group includes California Public Employees’ Retirement System, Canyon Capital Advisors LLC, Fortress Credit Opportunities Advisors LLC, Owl Creek Asset Management LP and Paulson & Co.
Lehman filed a revised Chapter 11 plan and explanatory disclosure statement in April where creditors of each of the Lehman companies are treated according to the claims against the particular affiliate and the assets of the entity in question.
The plan also would allow creditors to enforce guarantees where one Lehman company, typically the holding company, guaranteed debt owing by a subsidiary. A creditor with a guarantee therefore could collect twice on the debt, although not more than the amount owed.
In substantive consolidation, as the ad hoc group would prefer, guarantee claims aren’t recognized; all assets of all companies are thrown into one pot, and unsecured creditors of all companies are treated the same.
The ad hoc group said that the “purported settlement” in Lehman’s plan regarding some guarantee claims is “illusory.” The settlement puts a cap of $21.2 billion on what the creditor group calls “previously undisclosed board resolutions and intercompany agreements” giving rise to guarantees by one Lehman company in favor of creditors of others.
The group believes the settlement is of little value because affected claims won’t greatly exceed the cap. As it now stands, the ad hoc group says the “plan’s proposed allocation of value within the individual debtor estates is seriously flawed.”
The holding company creditors contend that the new debt or stock proposed for distribution to holding company creditors gives “very little value” to their group while there is “enormous value” to creditors of subsidiaries who receive cash.
The group wants the bankruptcy judge to hold a status conference on July 14 to address how disputes over the disclosure statement should be handled. The ad hoc group proposes changes in the disclosure statement to explain how much holding company creditors would gain if there were substantive consolidation. They also want the judge to set up a schedule for pre-trial discovery in advance of hearings for approval of the disclosure statement and plan.
For details on the Lehman plan and disclosure statement, click here and here for the April 15 and April 16 Bloomberg bankruptcy reports.
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 of New York (Manhattan).
Baseball’s Texas Rangers List Assets at $79.6 Million
The Texas Rangers baseball club filed formal lists of assets and debt yesterday, showing property worth $79.6 million against debt totaling $173.7 million. Secured claims were listed for $93.5 million.
The lists of property didn’t put a value on the franchise from Major League Baseball.
The schedule of financial affairs says that the team’s income from the business was $149.5 million in 2008 and $167.4 million in 2009. Through May 31, income in 2010 was $54.9 million.
The confirmation hearing for approval of the Rangers’ plan is scheduled for July 9 at U.S. Bankruptcy Court in Fort Worth, Texas. The plan is opposed by secured lenders owed $525 million.
The plan would directly pay them $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 pitcher and member of the Hall of Fame.
The Rangers moved to Texas from Washington in 1972. The team defaulted on payments owing to the lenders in March 2009. The partnership that owns the team is Texas Rangers Baseball Partners.
Michael Rochelle, a brother of Bloomberg reporter Bill Rochelle, is a lawyer for an agent for the lenders.
The case is In re Texas Rangers Baseball Partners, 10- 43400, U.S. Bankruptcy Court, Northern District of Texas (Fort Worth).
St. Vincent Sells Staff House for $67.3 Million
St. Vincent Catholic Medical Centers, a shuttered 727-bed acute-care hospital in Manhattan’s Greenwich Village, decided that a $67.3 million offer was the best bid for a residential building at 555 Avenue of the Americas (6th Avenue) and 15th Street in Manhattan.
The price represented a 40 percent increase from the offer the hospital received before the bankruptcy court approved sale procedures. The purchase contract says that the winning bidder is affiliated with Stonehenge Partner Inc., 888 7th Avenue in New York. The original offer came from Taconic Investment Partners LLC.
A hearing to approve the sale will take place tomorrow.
Commonly known as Staff House, the property was used as the residence for 160 young doctors.
St. Vincent filed under Chapter 11 for a second time in April. The new petition listed assets of $348 million against debt totaling $1.09 billion. The hospital concluded the prior reorganization in July 2007 with a Chapter 11 plan claimed at the time to have a “a realistic chance” of paying all creditors in full. The previous reorganization left the medical center with more than $1 billion in debt.
The primary asset sales are yet to take place. The main hospital has 941,000 square feet in 10 buildings. The nonprofit hospital is sponsored by the Catholic Diocese of Brooklyn and the Sisters of Charity. It was founded in the mid-19th century.
When the prior bankruptcy began in July 2005, St. Vincent had seven operating hospitals. Five were sold.
The new case is In re Saint Vincent Catholic Medical Centers of New York, 10-11963, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The prior case was In re Saint Vincent Catholic Medical Centers of New York, 05-14945, in the same court.
General Growth Aiming for October Plan Confirmation
General Growth Properties Inc. said in a court filing yesterday that it will emerge from reorganization slightly later than the previous schedule. On July 9, the mall owner will file a reorganization plan and explanatory disclosure statement for itself and three other top-tier companies.
The hearing for approval of the disclosure statement is to take place in August, with a confirmation hearing for approval of the plan in October.
In May, the bankruptcy judge approved an agreement where a group including Brookfield Asset Management Inc. will invest $7 billion to finance a Chapter 11 plan paying all creditors in full. All property-owning subsidiaries already have confirmed their own plans to pay their creditors fully.
The Brookfield agreement allows General Growth to shop for other financing on more favorable terms. In the court filing yesterday, General Growth said it is exploring the possibility of a “public capital raise” that is “seldom, if ever, seen in a Chapter 11 case.”
General Growth is asking the bankruptcy judge to extend the exclusive right to propose a Chapter 11 plan until Oct. 18. The hearing on the exclusivity motion will take place on July 22.
General Growth began the largest real-estate reorganization in history by filing under Chapter 11 in April 2009. The books of Chicago-based General Growth had assets of $29.6 billion and total liabilities of $27.3 billion as of Dec. 31, 2008. The company owns or manages more than 200 shopping-mall properties.
The case is In re General Growth Properties Inc., 09-11977, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
Wilmington Diocese Parishes Lose $75 Million Ruling
Parishes and parochial schools in the Catholic Diocese of Wilmington Inc. sustained a stinging defeat on June 28 when the bankruptcy judge in Delaware ruled that $75 million of their money, which should have been held in trust, became part of the diocese’s bankrupt estate and must be shared with sexual-abuse claimants.
The diocese maintained a pooled investment account holding $120 million belong to the diocese and 31 organizations, such as schools and parishes. The creditors’ committee, mostly representing abuse claimants, filed suit in December, claiming there was not a valid trust so all the money could be used for creditors’ claims.
After mediation failed to produce a settlement, U.S. Bankruptcy Judge Christopher S. Sontchi held a four-day trial and issued his 44-page opinion on June 28.
Although Sontchi ruled there was a valid trust, he said that the parishes and schools failed “to meet their burden of tracing those funds.” Consequently, the parishes and schools became unsecured creditors for their $75 million and will be paid alongside sexual-abuse claimants.
Sontchi acknowledged that the result “may seem harsh.”
Sontchi’s opinion is a lengthy exploration of arcane trust law. He needed to weave his way through other cases pointing to a result in favor of the parishes and schools. In the process of ruling in favor of abuse claimants, he concluded that a U.S. Supreme Court opinion wasn’t applicable. He also said that an opinion from the U.S. Court of Appeals in Philadelphia must be limited “to the facts of that case.” In addition, Sontchi disagreed with an earlier decision by another bankruptcy judge in Delaware.
The diocese’s Chapter 11 filing in October automatically stopped 136 abuse suits involving 147 plaintiffs, according to a court filing by the diocese. The Delaware diocese is the seventh Roman Catholic diocese to file for Chapter 11 protection to deal with lawsuits for sexual abuse. Previous filings were by the dioceses in Spokane, Washington; Portland, Oregon; Tucson, Arizona; Davenport, Iowa; Fairbanks, Alaska; and San Diego.
The case is In re Catholic Diocese of Wilmington, 09-13560, U.S. Bankruptcy Court, District of Delaware, (Wilmington).
Corus Sues FDIC to Keep $258 Million in Tax Refunds
Corus Bankshares Inc., the holding company whose bank was taken over by regulators in September, filed under Chapter 11 on June 15 and started a lawsuit yesterday against the Federal Deposit Insurance Corp. to decide ownership of $258 million in tax refunds.
The U.S. Trustee appointed a creditors’ committee consisting of five members. All are indenture trustees.
In the lawsuit against the FDIC, which is the receiver for the failed bank subsidiary, Corus describes how it paid taxes for all affiliated companies under a tax-sharing agreement. Corus contends that the agreement gives the FDIC, as the bank’s receiver, nothing more than an unsecured claim for the bank’s share of refunds.
Corus says the agreement didn’t create a trust relationship so that all refunds are part of the holding company’s bankrupt estate.
Corus’s petition filed in Chicago listed assets of $314.1 million against debt totaling $532.9 million.
The Corus bank had 80 branches and $7 billion in deposits that were transferred to MB Financial Inc. in a transaction estimated at the time of the September takeover to cost the FDIC $1.7 billion.
The case is In re Corus Bankshares Inc., 10-26881, U.S. Bankruptcy Court, Northern District of Illinois (Chicago).
Visteon Seeks Exclusive Plan Rights Until October 15
Auto-parts maker Visteon Corp. filed a motion for an extension of the exclusive right to propose a Chapter 11 plan on June 28, the same day the bankruptcy judge formally approved a disclosure statement allowing creditors to begin voting on whether to approve the reorganization.
If granted at a July 15 hearing, so-called exclusivity would be pushed out to Oct. 15.
The bankruptcy judge scheduled a 10-day confirmation hearing to begin Sept. 28. Should all creditors and shareholder classes vote for the plan, an unlikely occurrence, the judge would accelerate the confirmation hearing and approve the plan on Aug. 25.
Shareholders and some creditors are opposing the plan. For details on Visteon’s plan, click here for the June 15 Bloomberg bankruptcy report. For a rundown on the positions taken by various parties even before the hearing for approval of the disclosure statement, click here for the May 25 Bloomberg bankruptcy report.
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. Visteon was spun off from Ford in 2000.
At the outset, Van Buren Township, Michigan-based Visteon 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).
Black Crow Wants More Exclusivity, GECC Drops Appeal
Black Crow Media Group LLC is seeking a second extension of the exclusive right to propose a reorganization plan.
The closely held owner of 22 radio stations says its time has been consumed since the beginning of the case in January with litigation against General Electric Capital Corp., the secured lender owed $38.9 million at the outset.
Black Crow, based in Daytona Beach, Florida, won the first round in March when the bankruptcy judge denied motions by Stamford, Connecticut-based GECC to dismiss the case or allow the lender to foreclose.
Black Crow says it spent almost three months in litigation with GECC over financing, which the bankruptcy judge approved on a final basis at the end of May. GECC appealed that order and sought a stay pending appeal. GECC’s motions for stays were denied in both the bankruptcy court and the federal district court.
Bankruptcy law requires obtaining a stay pending appeal to overturn financing approval. GECC therefore withdrew the financing appeal this week, saying it was unlikely to be given significant relief even if it won the appeal.
Black Crow wants so-called exclusivity extended by three months, to Nov. 8.
Black Crow filed for Chapter 11 protection in January, two days before a hearing in U.S. district court where GECC was seeking appointment of a receiver following default on the term loans and revolving credit. 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. Black Crow had revenue of $12.9 million 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 of Florida (Jacksonville).
Newly Built Se San Diego Hotel Files to Stop Bank
The owner of the Se San Diego Hotel in the city’s financial district filed for Chapter 11 protection on June 25 to stop the bank from having a receiver appointed.
The hotel open in December 2008, one year late and over budget, according to court papers. The construction loan from WestLB AG Bank matured in May 2009. Currently, $67 million is owing to the lender, the hotel said.
The hotel has 184 room, a spa, restaurant and rooftop bar. The project also has 23 unsold condominium units. The petition says assets are worth less than $100 million while debt exceeds $100 million.
The case is In re 5th Avenue Partners LLC, 10-18667, U.S. Bankruptcy Court, Central District of California (Santa Ana).
Medical Staffing Prepack Filing Deadline Now July 2
The deadline for Medical Staffing Network Holdings Inc. to file a prepackaged Chapter 11 reorganization was moved back to July 2 from June 28.
The Boca Raton, Florida-based provider of temporary nursing services announced earlier this month that the plan will provide that first-lien lenders owed $95.1 million buy the business in exchange for debt. For details, click here for the June 16 Bloomberg bankruptcy report.
In a prepackaged reorganization, the plan is negotiated before the Chapter 11 filing, to shorten the time the company is in bankruptcy court to as little as about four to six weeks.
Old GM Sells Plant to Fisker for Electric Car Making
Old General Motors Corp., now formally named Motors Liquidation Co., was authorized by the bankruptcy judge yesterday to sell a shuttered plant in Wilmington, Delaware, for $20 million to Fisker Automotive Inc. for building plug-in hybrid electric vehicles. For details on the sale, click here and see the GM item in the June 10 Bloomberg bankruptcy report.
The Delaware plant wasn’t among those sold along with the core business. Old GM received 10 percent of the stock of the new company plus warrants for 15 percent. The warrants will have value if the new company is profitable enough to raise the company’s value to specified levels. New GM is 60.8 percent- owned by the U.S. government. Old GM began the largest manufacturing reorganization in history by filing under Chapter 11 on June 1, 2009. The sale was completed on July 10, 2009. GM listed assets of $82.3 billion against debt totaling $172.8 billion.
The case is In re Motors Liquidation Co., 09-50026, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
Beazer Buys $6.45 Million in Lots from DBSI Trustee
The Chapter 11 trustee for DBSI Inc., once a seller and servicer of fractional interests in commercial real estate, was authorized this week to sell 232 lots in Maricopa Country, Arizona, for $6.45 million to a subsidiary of Beazer Homes USA Inc. The price worked out to $27,800 for each lot.
The examiner for DBSI called the company an “elaborate shell game” operated like a Ponzi scheme. His report prompted the bankruptcy judge to appoint a Chapter 11 trustee in September. DBSI filed under Chapter 11 in November 2008 along with almost 150 affiliates. Based in Meridian, Idaho, the company claimed it managed real estate valued at more than $2.65 billion and raised $1.5 billion in capital over 29 years.
The case is In re DBSI Inc., 08-12687, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Pacific Ethanol Plants Implement Reorganization Plan
Four ethanol plants owned by Pacific Ethanol Inc. implemented the reorganization plan yesterday that the Delaware bankruptcy judge approved in a June 8 confirmation order. The plan reduced debt by $290 million while giving the former parent company Pacific Ethanol a 90-day option to buy as much as 25 percent of the reorganized company from the secured lenders for $30 million. For details of the plan, click here for the June 9 Bloomberg bankruptcy report. Pacific Ethanol wasn’t itself in Chapter 11.
When the Chapter 11 case began, debt included $270 million owing to the secured creditors on a term loan, revolving credit, construction financing, and other liabilities.
The case is Pacific Ethanol Holding Co. LLC, 09-11713, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Bear Island Has $630,000 Operating Loss in May
Bear Island Paper Co., a U.S. subsidiary of Canada’s White Birch Paper Co., reported a $630,000 operating loss in May on revenue of $10.5 million. The net loss was the same as the operating loss in the report filed with the bankruptcy court in Richmond, Virginia.
Based in Nova Scotia, White Birch and its U.S. subsidiaries filed for reorganization simultaneously in the U.S. and Canada in February. White Birch is the second-largest newsprint maker in North America. 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 attributable to Bear Island. White Birch has three pulp and paper mills in the province of 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., 10-31202, U.S. Bankruptcy Court, Eastern District of Virginia (Richmond).
Edison Mission Energy Lowered by Moody’s to B2 Corporate
Independent power producers Edison Mission Energy and subsidiary Midwest Generation Co. received downgrades yesterday from Moody’s Investors Service, following a ding issued this time last year.
The new corporate rating is down one notch to B2, or one level higher that the demotion issued in April by Standard & Poor’s. Moody’s also moved the senior unsecured notes down one peg to B3.
Moody’s based its action in part on “lower future sustainable cash flow generation due to weaker operating margins driven principally by low energy and capacity prices.”
The Irvine, California-based company owns or leases 10,072 megawatts of electric generating capacity, Moody’s said.
Lehman, Hamptons Papers, Holley Performance: Audio
A brewing battle over Lehman Brothers Holdings Inc., newspapers on the East End of Long Island, CBGB and Holley Performance are the topics discussed in the latest bankruptcy podcast on the Bloomberg terminal and Bloomberglaw.com. To listen, click here.
International Trade Proceedings Not Halted by Stay
Although begun by the owner of a patent, a proceeding before the International Trade Commission to halt the importation of goods that infringe patents is exempt from the so-called automatic stay as an exercise by the government of its policy or regulatory power, U.S. District Judge T.S. Ellis III ruled on June 28 in reversing the bankruptcy court.
U.S. Bankruptcy Judge Robert G. Mayer in Alexandria, Virginia, ruled in February that proceedings in the ITC aren’t police or regulatory actions and thus are automatically halted when a defendant files for bankruptcy. He saw the automatic stay as applicable because the patent holder, not the ITC, controlled litigation and settlement.
Ellis disagreed with Mayer’s understanding of federal law regarding the ITC. He saw the proceedings as initiated by the agency and ultimately controlled by the government, thus making ITC proceedings a police or regulatory action not barred by the automatic stay.
To read about the bankruptcy court decision that was reversed, click here for the Feb. 24, Bloomberg bankruptcy report.
The reversal in the district court is U.S. International Trade Commission v. Jaffe, 10-367, U.S. District Court, Eastern District of Virginia (Alexandria). The case in the bankruptcy court that was reversed was In re Qimonda AG, 09-14766, U.S. Bankruptcy Court, Eastern District of Virginia (Alexandria).
Member of LLC is Insider for Preferences Liability
Someone who is a member of a limited liability company is the equivalent of a director of a corporation and is thus an insider, U.S. District Judge Samuel Der-Yeghiayan in Chicago ruled on June 28.
The case involved a $200,000 payment made to an individual more than 90 days and less than one year before a bankruptcy filing. The bankruptcy trustee claimed that the transfer could be recovered as a preference because the individual was a “member” of the bankrupt LLC.
A preference is a payment on a stale unsecured debt. Preferences can be recovered if made within 90 days of bankruptcy. The recovery period extends to one year for payments to insiders.
The individual argued that he didn’t fit within the statutory definition of an insider. The bankruptcy court and the district court disagreed. They both concluded that a member of an LLC is the same as a director of a corporation. Thus, a transfer within one year to a member of an LLC can be a preference.
Der-Yeghiayan ruled that it wasn’t necessary in proving a preference to show that a member of an LLC could control the business. It was enough to be a member.
The case is Longview Aluminum LLC v. Brandt, 10-254, U.S. District Court, Northern District of Illinois (Chicago).