Trade Secret, Medical Staffing, Eco2, St. Vincent, Rangers: Bankruptcy

Trade Secret Inc., a 612-store beauty-supply retailer based in Markham, Canada, filed a Chapter 11 petition yesterday in Delaware along with a term sheet to sell the business to former owner Regis Corp. and an entity controlled by the family that bought the company from Regis in January 2009.

The $45 million price is to be paid by a credit against the $32 million in secured debt owing to Edina, Minnesota-based Regis and the assumption of $13 million in debt. The term sheet is to be converted into a formal purchase agreement.

Trade Secret, along with its affiliates, is asking the bankruptcy court to set up sale procedures calling for other offers by Aug. 20 and an auction on Aug. 25, followed the next day by a hearing to approve the sale.

Brian Luborsky, the chief executive officer of the family- owned unit, said in court papers that the bankruptcy was caused in part by the recession and the decline in discretionary spending. Some stores were losing money before the acquisition, and some leases are above market, he said.

Trade Secret also operates under the names Beauty Express, BeautyFirst and Pure Beauty.

The stores, mostly in shopping malls, generate 87 percent of revenue through product sales. The remainder is from salon services. Revenue for the fiscal year ended in January was $220 million.

Luborsky said in a court filing that the bankruptcy court will be used to terminate 80 leases.

Rent must be reduced on other stores for them to be viable, he said.

The Luborsky family also owns Premier Salons Inc. Neither Premier nor any of its 340 stores are in bankruptcy.

The case is In re Trade Secret Inc., 10-12153, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Watch List

Skilled Healthcare Hit with $671 Million Jury Award

Skilled Healthcare Group Inc., an operator of 78 nursing homes and 22 assisted living communities, was hit for $613 million in statutory damages by a California jury yesterday for not maintaining minimum nursing staff at 22 facilities.

The jury also assessed $58 million in damages for restitution. The jury is yet to consider whether to impose punitive damages.

The Foothill Ranch, California-based company said in a statement that was “deeply disappointed” by the verdict and believes its facilities were “appropriately staffed.” The company vowed to “vigorously pursue” motions in the trial court to reverse the verdict and to appeal if necessary.

Skilled Nursing, which has operations in seven states, said taking an appeal would require posting a bond for 150 percent of the verdict. There is currently $94 million available on the revolving credit, although availability may be limited by covenants in the loan, the company said.

Revenue of $759.8 million in 2009 resulted in a net loss of $133.2 million. For the first quarter of 2010, net income was $8.9 million on revenue of $189.3 million.

The balance sheet at March 31 showed current assets of $131.4 million among total assets of $859 million. Current liabilities were $91.7 million. Total liabilities were $574.7 million.

The stock closed yesterday at $6.22 on the New York Stock Exchange, down 31 cents a share.

Molecular Insight, Cancer-Drug Developer, May Reorganize

Molecular Insight Pharmaceuticals Inc., a developer of therapeutic and imaging radiopharmaceuticals for cancer treatment, for a fourth time has a forbearance agreement with bondholders. The new expiration date is July 16.

The Cambridge, Massachusetts-based company says it’s talking with bondholders about a debt-for-equity exchange.

MIP’s only income is less than $1 million from development grants. Operating expenses in the first quarter were $10.4 million.

The balance sheet at the end of the first quarter had assets on the books for $74.6 million and current liabilities of $184.6 million.

New Filing

Medical Staffing Files for Sale to First-Lien Lenders

Medical Staffing Network Holdings Inc., a Boca Raton, Florida-based provider of temporary nursing services, filed a Chapter 11 petition July 2 in West Palm Beach, Florida, to sell the business in exchange for $84.1 million in debt to first-lien lenders owed $98.2 million.

The agreement for sale to the senior lenders has consent from holders of 90 percent of the $26.8 million in second-lien debt. The buyers are to assume the $15 million loan to be made by existing lenders to sustain the Chapter 11 case. General Electric Capital Corp. is the agent for the senior lenders. NexBank SSB is agent for the junior secured lenders.

To determine if there is a better offer, Medical Staffing is asking the bankruptcy judge to set up an auction on Aug. 19, with a hearing the following day for approval of the sale.

Warburg Pincus Private Equity VIII LP owns 45 percent of the equity of Medical Staffing. The company was created through 30 acquisitions since founding in 2008.

The petition listed assets of $87.8 million against debt totaling $140.9 million. Revenue of $341 million in 2009 resulted in an operating loss of $34.3 million. Revenue of $72 million in the first quarter of 2010 threw off a $1.3 million operating loss. Projected revenue for 2010 is $302 million.

To read about the sale and projected bankruptcy when it was originally announced, click here for the June 16 Bloomberg bankruptcy report.

The case is In re Medical Staffing Network Holdings Inc., 10-29101, U.S. Bankruptcy Court, Southern District of Florida (West Palm Beach).

Molecular Insight, Cancer-Drug Developer, May Reorganize

Molecular Insight Pharmaceuticals Inc., a developer of therapeutic and imaging radiopharmaceuticals for cancer treatment, for a fourth time has a forbearance agreement with bondholders. The new expiration date is July 16.

The Cambridge, Massachusetts-based company says it’s talking with bondholders about a debt-for-equity exchange.

MIP’s only income is less than $1 million from development grants. Operating expenses in the first quarter were $10.4 million.

The balance sheet at the end of the first quarter had assets on the books for $74.6 million and current liabilities of $184.6 million.

Updates

Visteon Suppliers Claim Right to Block Plan Approval

Auto-parts maker Visteon Corp. may be unable to confirm the reorganization plan if a group of creditors are correct and can deliver “no” votes by holders of 60 percent of $167 million in debt owing to trade suppliers.

A negative vote by trade suppliers may squelch Visteon’s effort to give some of the new stock to existing shareholders, or could block the plan entirely for some subsidiaries. To read Bloomberg coverage, click here.

Visteon has a 10-day confirmation hearing scheduled to begin Sept. 28. 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 summary of the positions by various parties before the judge approved 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. 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).

Funds Claim WaMu Fraud on Trust Preferred Securities

A group of funds that purchased $1 billion of trust preferred securities issued by bank holding company Washington Mutual Inc. asked the bankruptcy court to declare that they continue holding the collateralized securities.

The funds want the bankruptcy judge to rule that the trust preferred securities were never properly converted into equity immediately before WaMu’s bank was taken over and sold.

Plaintiffs in the lawsuit begun yesterday in U.S. Bankruptcy Court in Delaware include funds affiliated with Black Horse Capital Advisors LP, Greywolf Capital Partners, Lonestar Partners LP, Riva Ridge Capital Management LP and Whitebox Advisors LLC.

The plaintiffs contend that there was collusion between WaMu and the Office of Thrift Supervision that voids the conversion of the trust preferred securities into equity. They also argue that offering materials accompanying the securities failed to disclose the unsound manner in which WaMu’s bank was being run.

They say there was an improperly undisclosed agreement to downstream the trust preferred securities to the failing bank rather than retain them at the holding company level.

The funds contend that upholding their theory, coupled with success by the WaMu holding company in other lawsuits, would result in full payment to WaMu’s creditors.

WaMu has a hearing scheduled tomorrow for approval of the disclosure statement explaining the Chapter 11 plan that incorporates a controversial settlement with the Federal Deposit Insurance Corp. and JPMorgan Chase & Co. 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 say 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 biggest bank failure in the country’s history. The holding company filed formal lists of assets and debt showing property with a total value of $4.49 billion against liabilities of $7.83 billion.

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

Fairfield Residential Confirms Reorganization Plan

Fairfield Residential LLC, a developer of multifamily housing, persuaded the bankruptcy judge at a hearing yesterday to approve the reorganization plan. For Bloomberg coverage of the hearing, click here.

Brookfield Asset Management Inc. is providing $180 million in new-money financing for the plan, which includes a $19.5 million distribution for Fairfield’s unsecured creditors. Brookfield’s investment includes working capital, a follow-on investment, a revolving credit and $100 million as a limited partner co-investor.

Fairfield’s Chapter 11 petition in December listed assets of $958 million and debt totaling $835 million as of Sept. 30. The San Diego-based company and its non-bankrupt affiliates have 200 projects in 40 markets, ranging from raw land to completed developments.

When the Chapter 11 case began, debt at the parent level included $33.7 million on a revolving credit and a matured $45.8 million term loan owing to a group with Capmark Finance Inc. as agent. At the parent level, there was another $18.2 million owing on a revolving credit with Wachovia Bank NA.

The case is In re Fairfield Residential LLC, 09-14378, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Uno Chicago Grill Reorganization Plan Confirmed in Delaware

Uno Restaurant Holdings Corp., which once operated 99 Uno Chicago Grill casual-dining restaurants, secured the signature of the bankruptcy judge yesterday on a confirmation order approving the Chapter 11 plan.

Largely negotiated before the Chapter 11 filing in January, the plan gives noteholders all the new stock plus $1.75 million cash. Noteholders were owed $82.1 million.

Unsecured creditors originally were to receive nothing. Thanks to a settlement, they share $1.75 million provided by the noteholders. The plan is intended to reduce debt to $41 million from $176.3 million. Before and during the Chapter 11 case, 24 locations were closed.

Some noteholders are providing a backstop for a $27 million rights offering for new second-lien debt.

Uno, based in West Roxbury, Massachusetts, listed assets of $145 million against debt totaling $172 million. Along with the second-lien notes, Uno at the outset owed $44 million on the first-lien revolving credit and term loan, including letters of credit. Revenue for a year was $287 million.

In addition to the company-owned locations, franchisees operate 76 Grill locations. There are also 215 kiosks operated by franchisees under the name Uno Express. The owned stores are in 28 states, mostly in the eastern U.S.

The case is In re Uno Restaurant Holdings Corp., 10-10209, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Eco2, Recycling Tech Developer, Implements Reorganization Plan

Eco2 Plastics Inc., the owner of patented technology for cleaning and shredding plastics for recycling, implemented a reorganization plan last week that the bankruptcy judge in San Francisco approved in a May 8 confirmation order.

Secured lenders owed more than $11 million will take the new stock. Unsecured creditors with $2.7 million in claims received 5 percent in cash.

The Menlo Park, California-based company patented the process in 2007. A demonstration plant was closed although there were plans to build another.

The petition listed assets of $1.7 million and debt of $6.4 million.

The case is In re ECO2 Plastics Inc., 09-33702, U.S. Bankruptcy Court, Northern District of California (San Francisco).

Briefly Noted

Detroit’s Greektown Casino Consummates Chapter 11 Plan

Greektown Holdings LLC, the owner of one of three casinos in Detroit, implemented the reorganization yesterday that the bankruptcy judge approved by confirming a Chapter 11 plan in January. The plan reduced debt by about $500 million. Sponsored by noteholders, the plan resulted from a settlement allowing unsecured creditors to receive $10 million. Secured lenders are to be paid in full under the plan. Existing noteholders took 6 percent of the new stock. The plan was financed with a $200 million fully-committed equity offering and $385 million from the sale of new secured notes.

The casino filed under Chapter 11 in May 2008 owing $314.5 million on a defaulted term loan and revolving credit. The case is In re Greektown Holdings LLC, 08-53104, U.S. Bankruptcy Court, Eastern District of Michigan (Detroit).

St. Vincent Formally Authorized to Sell Staff House

St. Vincent Catholic Medical Centers, a shuttered 727-bed acute-care hospital in Manhattan’s Greenwich Village, was given formal authority on July 2 to sell a residential building at 555 Avenue of the Americas (6th Avenue) and 15th Street in Manhattan for $67.3 million. The price rose 40 percent at auction for the property that was known as Staff House.

St. Vincent filed under Chapter 11 for a second time in April, listing assets of $348 million against debt totaling $1.09 billion. The hospital ended the prior reorganization in July 2007 with a Chapter 11 plan claiming to have a “a realistic chance” of paying all creditors in full.

The prior reorganization left the medical center with more than $1 billion in debt. The hospital’s primary assets are 10 buildings with 941,000 square feet. 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.

Daily Podcast

Texas Rangers Baseball and Old General Motors: Audio

The auction for the Texas Rangers baseball club and a $3 billion transaction on the eve of the old General Motors Corp. bankruptcy are discussed in the latest bankruptcy podcast on the Bloomberg terminal and Bloomberglaw.com. To listen, click here.

Advance Sheets

Recording Officer’s Slow Work Voids Auto Lien

A secured lender is at the mercy of government recording officers, as Branch Banking & Trust Co. was made painfully aware in a July 2 opinion from the U.S. Court of Appeals in Cincinnati.

Because the recording officer was slow in noting a lien on the title to an auto, the security interest in the vehicle was set aside as a preference. The ruling makes it clear that lenders shouldn’t wait to send in lien documents, in case state employees don’t perform their jobs punctually.

An individual purchased an auto on Feb. 8. The lender mailed the necessary papers to the recording officer on Feb. 17 to perfect a lien on the vehicle. The papers were received on Feb. 22, all within the 20-day period required by bankruptcy law. The recording officer didn’t record the lien until March 7, outside the 20-day period.

Given an ambiguity in Kentucky law, the 6th U.S. Circuit Court of Appeals certified a question to the Kentucky Supreme Court.

The highest court in Kentucky answered by saying that the lien on the auto wasn’t perfected until title was issued, even though the papers arrived on time. The arrival of the papers only pertains to priority among secured lenders, not to perfection.

Because the security interest wasn’t perfected within the 20-day window, the appeals court ruled that late perfection was a preference that the bankruptcy court should void because the owner filed for bankruptcy within 90 days of perfection.

The case is Brock v. Branch Banking & Trust Co. (In re Johnson), 08-5088, 6th U.S. Circuit Court of Appeals (Cincinnati).

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

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