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Old GM Creditors, General Growth, Flying J, National Envelope: Bankruptcy
The creditors’ committee for old General Motors Corp. filed papers on July 2 against hedge funds including Aurelius Capital Partners LP and Appaloosa Management LP, seeking to set aside a “grossly one-sided” transaction on the day of bankruptcy that they say depleted old GM’s coffers while “disproportionately benefitting” the funds.
The hedge funds were holders of notes issued by an old GM subsidiary named General Motors Nova Scotia Finance Co., which was created to borrow money in the capital markets. Old GM, now formally named Motors Liquidation Co., guaranteed Nova Scotia’s notes.
On the day of the Chapter 11 filing, the noteholders and old GM agreed to the validity of a $1.6 billion claim on behalf of Nova Scotia and $1.07 billion in claims in favor of the noteholders. In addition, the committee contends there was a $360 million payment to the noteholders disguised as a consent fee.
The committee characterizes the transaction as transforming one $640 million obligation into $2.6 billion in claims and a $360 million cash payment.
The committee also doesn’t like a feature of the agreement that had old GM give up its claim against GM’s Canadian subsidiary with regard to the Nova Scotia notes.
Presumably because it doesn’t have authorization to sue on behalf of old GM, the committee’s filing on July 2 calls itself an objection to the claims for $1.07 billion and $1.6 billion. Under bankruptcy law, any creditor can file a claim objection.
The committee wants the bankruptcy judge to throw out the claims at a Nov. 18 hearing.
The committee’s papers explain how old GM assumed the agreement with the Nova Scotia noteholders as part of the sale of the core assets. Saying they weren’t given notice, creditors contend that assumption was intended “to improperly insulate” the agreement from scrutiny.
In return for the agreement, the committee says old GM received nothing except a release for “trumped up” claims relating to transfers Nova Scotia made to old GM in the year before bankruptcy.
In addition to disallowing the claims, the committee wants the bankruptcy judge to unwind the order from a year ago allowing assumption of the agreement.
Old GM sold the core business to new GM, in return receiving 10 percent of the stock of the new company plus warrants for 15 percent. The warrants will be worth something 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).
Updates
Texas Rangers Baseball to Hold Auction on July 16
The Texas Rangers baseball club acceded to the request of the chief restructuring officer for the team’s owners and decided to hold an auction on July 16 so the bankruptcy judge in Fort Worth, Texas, could approve the sale and the Chapter 11 plan at a July 22 confirmation hearing.
In papers filed yesterday, the team said it “became clear” from talks with the owner’s chief restructuring officer that the CRO would be “more likely” to vote in favor of the reorganization if an auction were held. The auction would determine whether the existing contract with a group including team President Nolan Ryan is the best offer.
The team filed under Chapter 11 on May 24, intending to have the bankruptcy judge approve the sale and the plan at a confirmation hearing on July 9. The team believed that all creditors were paid in full and no one was entitled to vote on the plan.
The bankruptcy judge issued an opinion on June 22 saying that the two partnerships that own the team, contrary to the club’s opinion, were adversely affected and entitled to vote. The judge had previously appointed a chief restructuring officer for the two partnership owners because some of the team’s secured lenders, owed $525 million, filed an involuntary bankruptcy petition. The bankruptcy judge charged the chief restructuring officer with the responsibility of deciding whether to vote for or against the plan.
The team wants the bankruptcy judge to hold a hearing on July 9 to decide on procedures for the auction. If the team’s procedures pass muster, the auction would occur on July 16 at the office of the lawyer for the chief restructuring officer.
The CRO would consult with the team and decide who made the best offer at the action. Next, the bankruptcy judge would approve the sale and the Chapter 11 plan at a July 22 confirmation hearing.
After confirmation, the team proposes that Major League Baseball be given “sole and absolute discretion” to approve the sale to the high bidder. If the winner at the auction isn’t approved by Major League Baseball, the second-place finisher at the auction would complete the sale and become the new owner.
The Nolan Ryan group waived the so-called exclusivity provision in its contract and instead agreed to a $15 million breakup fee to be paid should someone else win the auction.
The team says that the contract with the Ryan group is worth more than $500 million, including assumed obligations and $304 million cash, before downward adjustments.
The proposed bidding procedures provide that anyone who bids at auction must be approved in advance by Major League Baseball.
The team said that the chief restructuring officer gave his approval for filing the motion to set up the auction.
The team’s strategy has gone through several changes. Initially, the team believed the plan could be approved on July 9 with no one entitled to vote. In connection with the decision on June 22 when the bankruptcy judge ruled that the partnership owners were entitled to vote on the plan, the judge called for mediation and moved the confirmation hearing from July 9 to July 22 to allow time for talks.
The prospective buyer later prevailed on the judge to restore the July 9 confirmation. Although the judge moved confirmation back to the earlier date, he said there was a “real risk” the plan would fail. The team then decided to move confirmation back to July 22 and conduct mediation in the meantime. The decision to hold an auction resulted from talks among the chief restructuring officer, the team and Major League Baseball.
The secured lenders believe there is a higher offer and oppose the sale to Ryan group. They also contended the sale was structured to divert some value to the current owner, Thomas Hicks, when it should go to them. Under the existing Chapter 11 plan, the lenders would be paid $256 million of the $525 million they’re owed, according to the team’s disclosure statement.
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 reporter Bill Rochelle, is a lawyer for an agent for the lenders. The partnership that owns the team is Texas Rangers Baseball Partners.
The case is In re Texas Rangers Baseball Partners, 10- 43400, U.S. Bankruptcy Court, Northern District of Texas (Fort Worth).
General Growth to Auction 503 Lots at Summerlin, Nevada
Mall owner General Growth Properties Inc. is asking the bankruptcy court to approve a procedure for selling some of the remaining 7,000 undeveloped acres at Summerlin, the 22,500-acre master-planned community outside Las Vegas.
Absent higher offers, General Growth will sell 232 lots to Richmond American Homes of Nevada Inc. for $18 million. Richmond is a subsidiary of Denver-based M.D.C. Holdings Inc.
A subsidiary of Pulte Homes Inc. is under contract to buy 271 lots for $19.9 million.
General Growth arranged a hearing for July 22 where the bankruptcy judge in New York will establish procedures for soliciting other offers and holding an auction. The same procedures would apply when General Growth decides to sell other lots in Summerlin.
General Growth said it will file a plan and explanatory disclosure statement by July 9 where the four top-tier companies will promise full payment to all creditors. All the property- owning subsidiaries have already confirmed plans paying their creditors in full. The disclosure statement hearing is to be held in August, with the confirmation hearing for approval of the plan to take place in October.
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).
Pilot Takes Flying J; Confirmation Scheduled Today
Flying J Inc., at one time a vertically integrated oil producer, refiner and marketer, is set for approval of the Chapter 11 plan at a confirmation hearing today after most of the retail business was sold last week to Knoxville, Tennessee- based Pilot Travel Centers LLC. The $1.2 billion transaction includes $515 million cash plus equity in Pilot.
The Pilot transaction was completed July 1 after the Federal Trade Commission ruled on June 30 that there were no antitrust impediments in the combination. Bringing the two companies together creates an operation with 550 travel centers. The combined companies will operate under the name Pilot Flying J.
Flying J’s reorganization plan was filed in February. It is intended to pay creditors in full, with the excess going to existing shareholders. For details on the plan and the underlying financing, click here for the Feb. 12 Bloomberg bankruptcy report.
At the outset of the Chapter 11 reorganization in December 2008, Flying J had a $53 million revolving credit along with a $395 million secured term loan. Pipeline-owner Longhorn Partners Pipeline LP owed $45 million on a revolving credit and $166 million on a secured note. The companies also owed $90 million on an unsecured revolving credit with Zions Bank.
The case is In re Flying J Inc., 08-13384, U.S. Bankruptcy Court, District of Delaware (Wilmington).
National Envelope Opposes Giving Cenveo Financial Information
Cenveo Corp., which calls itself a “major player in the envelope business,” isn’t a party in interest and has no right to demand the disclosure of the most intimate financial details about National Envelope Corp., the largest closely held envelope manufacturing company in the U.S., the company said in a July 1 court filing.
Englewood, Colorado-based Cenveo filed papers in bankruptcy court on June 30 contending it had been “systematically excluded” from the process of finding a buyer for NEC. In papers submitted to the court the next day, NEC said it would be “highly inappropriate” for Cenveo, its “largest competitor,” to have access to detailed information about customers and operations.
NEC characterizes Cenveo as seeking sensitive information that isn’t made available in a typical bankruptcy marketing and sale process.
NEC argues that Cenveo isn’t what bankruptcy law calls a party in interest. Lacking that status, it’s not entitled to file a motion to compel production of documents, NEC says.
Cenveo says it’s prepared to pay $140 million, which it believes is more than is being offered by Gores Group LLC and enough to pay off first-lien debt.
NEC says it expects the auction process will have begun by the time a hearing is held on Cenveo’s motion for access to information. After selection of the so-called stalking horse and the court approval of auction procedures, NEC says Cenveo will have access to information like every other potential bidder.
NEC filed under Chapter 11 on June 10 along with a loan agreement where the agent, General Electric Capital Corp., required 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).
Pacific Energy Wants One Last Exclusivity Extension
Pacific Energy Resources Ltd., formerly an oil and gas exploration and development company, sold the most of the assets in Alaska and offshore California and is pursuing a last extension of the exclusive right to propose a Chapter 11 plan.
The company says it prepared a plan that’s not being filed as yet at the request of the creditors’ committee.
At a July 28 hearing, Pacific Energy will ask the judge to extend so-called exclusivity to Sept. 9, the maximum 18 months that bankruptcy law allows.
The bankruptcy judge previously gave the official creditors’ committee authority to file so-called preference suits. The committee estimated there could be $30 million in claims to recover preferences, which are payments Pacific Energy made on overdue debts within 90 days of the Chapter 11 filing.
In buying California assets in exchange for debt, secured lenders gave up $12.8 million to be used in winding up the business. The California producing properties were nine miles offshore from Huntington Beach and included a pipeline running from the wells to the shore.
The company originally intended to abandon the Alaska properties. After succeeding in winning an abandonment order, the order was revoked in part, allowing properties later to be sold.
At the beginning of the Chapter 11 exercise in March 2009, Pacific Energy owed $452 million to secured creditors who made first- and second-lien loans for acquisition of the properties in 2006 and 2007. It owed another $31.7 million on subordinated notes plus the equivalent of a $25.2 million secured claim owing to an affiliate of Chevron Corp., the holder of the majority working interest and the operator of the California properties. Revenue in 2008 was $226.2 million.
The case is In re Pacific Energy Resources Ltd., 09-10785, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Broadstripe Sells Small Operation, Exclusivity Gone
Broadstripe LLC, a St. Louis-based broadband cable operator, was authorized by the bankruptcy judge on July 1 to sell several small money-losing cable systems in the Washington, D.C., area to New Day Broadband LLC for $1,200. For details, click here to read the June 24 Bloomberg bankruptcy report.
Any creditor can now file a plan, because Broadstripe has been in Chapter 11 more than 18 months. Changes in bankruptcy law enacted by Congress in 2005 prohibit a bankruptcy judge from giving a company exclusivity for more than 18 months.
Broadstripe has been unable to confirm a plan given an unresolved lawsuit where the unsecured creditors’ committee contends that secured lenders’ claims should be subordinated or recharacterized as equity. In addition, there are two claims by rival cable operators totaling almost $160 million for Broadstripe’s alleged failures to complete asset purchase agreements.
Broadstripe filed a reorganization plan in January 2009 based on an agreement reached before the Chapter 11 filing with holders of the first- and second-lien debt. At the outset of Chapter 11, Broadstripe had 93,000 customers in Maryland, Michigan, Washington State, and Oregon. It was created through four acquisitions in 1998 and 1999 and filed for Chapter 11 reorganization in January 2009.
The case is In re Broadstripe LLC, 09-10006, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Statistics
June Bankruptcies Trail May, Record Year Likely
Bankruptcy filings in June declined for both individuals and businesses. Still, bankruptcies so far this year are 9 percent ahead of last year’s monthly average, according to data compiled from court records by Automated Access to Court Electronic Records.
If the pace continues for the next six months, 2010 will have the most bankruptcies since 2005 when Congress made bankruptcy less available for individuals.
Through June, there were about 795,000 bankruptcies of all types in the U.S. The 133,800 filings in June were the second fewest this year at a daily rate.
There were over 7,100 commercial filings in June, an 11 percent decline on a daily basis from the average in 2009. Chapter 11 filings were 7 percent fewer than the 2009 monthly average, according to the report from AACER, a service of Oklahoma City-based Jupiter ESources LLC.
Nevada, Georgia and Tennessee continue leading the nation in per capital bankruptcies. The states where filings are growing fastest are Hawaii, Utah and Montana.
Among individuals, 73 percent of June filings were in Chapter 7 where unsecured creditors seldom make a recovery. The other 27 percent were in Chapter 13 where the bankrupt individual must pay a portion of future income to creditors to qualify for discharging unsecured debt.
In 2009 there were 1.44 million bankruptcies. Last year’s amounted to a 32 percent increase from 2008.
Bankruptcy filings still trail the record 2.1 million in 2005, when 630,000 Americans sought protection from creditors in the two weeks before revisions to federal bankruptcy laws that October made it more difficult for individuals to erase debt.
New Filing
Harlem’s North General Hospital Files to Close Down
North General Hospital, located at Madison Avenue and 121st Street in Manhattan’s Central Harlem, filed under Chapter 11 on July 2 to implement a program to close the 200-bed not-for- profit institution by July 15.
The petition listed assets of $67 million and debt totaling $293 million. Liabilities include $213 million in secured debt mostly owing to the Dormitory Authority of the State of New York.
The hospital has been chronically undercapitalized since its founding in the 1970s, court papers say. The working capital deficiency at the time of bankruptcy was $194 million. Financial difficulties resulted in part from lower reimbursement rates and declining admissions.
The hospital will halt admissions today. The last of the patients will be discharged and the emergency department will close by July 15. North General says it was the only minority- run hospital in New York State.
The case is In re North General Hospital, 10-13553, U.S. Bankruptcy Court, Southern District New York (Manhattan).
Briefly Noted
Specialty Products and Bondex Have Final Loan OK
Specialty Products Holding Corp. and Bondex International Inc., subsidiaries of RPM International Inc., won the court’s approval on July 1 for $40 million in financing from lenders where Wachovia Financial Corp. (New England) is agent. The company had interim authority to borrow $5 million since June 2.
The companies filed Chapter 11 petitions at the end of May to create a trust taking over liability for 10,000 asbestos claims. The trust would have sole responsibility for asbestos claim, not only for the companies in bankruptcy but also for affiliates not in Chapter 11. A provision in bankruptcy law expressly for asbestos cases allows companies not in bankruptcy to make contributions to a claimants’ trust and thereby receive absolution for claims.
Non-bankrupt subsidiaries of Specialty Products generate 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).
Downgrade
American Railcar Downgraded on Cash Flow and Losses
American Railcar Industries Inc., a manufacturer of railroad tank cars and covered hopper cars, received a one-notch downgrade when Standard & Poor’s lowered the corporate grade to B+ on July 2.
Although ARI has “ample liquidity,” S&P said it was “concerned” about the company’s being profitable this year. Capital investment, in S&P’s opinion, will result in “sizable negative free operating cash flows.”
St. Charles, Missouri-based ARI reported a $5.1 million operating loss and a $7 million net loss in the first quarter on revenue of $52.3 million. In the same quarter last year, revenue was $156.9 million, producing a net profit of $2.7 million. For 2009 as whole, profit was $15.5 million on $423.4 million revenue.
S&P also lowered the $275 million in senior unsecured notes to a B+ rating. S&P projects that the holders would recover 30 percent to 50 percent following payment default.
The new S&P rating is three pegs higher than the grade issued in September by Moody’s Investors Service. Moody’s was responding to what it called “dramatically weaker revenues and operating losses” resulting from lower demand for rail cars.
American Railcar lacks a leasing business like some of the competition.
The stock fell 17 cents on July 2 to $11.75 in Nasdaq Stock Market trading. The three-year high was $42 on July 19, 2007. The low was $6.10 on Nov. 21, 2008.
To contact the reporter on this story: Bill Rochelle in New York at wrochelle@bloomberg.net.
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