GSI, BP, Brown, Tribune, Capmark, Spheris: Bankruptcy

GSI Group Inc. (GSIG), a provider of laser-based systems to aid manufacturing, reported the results of the rights offering accompanying the Chapter 11 plan the bankruptcy judge approved in a May 27 confirmation order.

Existing shareholders and noteholders subscribed for about 80 percent of the $85 million in new common stock in the offering. The remainder is being purchased by holders of senior notes who agreed to backstop the offering. GSI said it expects to implement the plan and exit reorganization around July 23.

As a result of the offering and elections made by noteholders to take stock, GSI said that 86.1 percent of the reorganized company’s stock will be held by existing shareholders, including those who are also noteholders. Holders of senior notes, including those who provided the backstop, will have 13.9 percent of the new stock.

The elections to take stock mean that GSI under the plan will issue $107 million in new 12.25 percent senior secured notes.

The new plan would have allowed shareholders to retain up to 87.3 percent of the stock through the offering. For details on the plan, click here for the May 12 Bloomberg bankruptcy report.

The original version of the plan and explanatory disclosure statement were filed along with the Chapter 11 petition in November. The original plan was rejected by holders of 80 percent of the stock.

When the plan was improved for stockholders, they went along, permitting the judge to confirm the plan which then had all classes voting in favor.

The petition in November listed assets of $555 million and debt totaling $370 million. Bedford, Massachusetts-based GSI has no substantial secured debt.

The case is In re MES International Inc., 09-14109, U.S. Bankruptcy Court, District of Delaware (Wilmington).

BP Oil-Spill News

House Bill Would Limit a Bankrupt BP’s Ability to Sell Assets

The House of Representatives passed an amendment to the U.S. Bankruptcy Code on July 1 that would limit the ability of BP Plc (BP/) to sell property without assuring that claims arising from the oil spill are paid in full. The amendment would apply to BP were it to file bankruptcy in the U.K. or the U.S.

If adopted in the Senate and signed by the president, H.R. 5503 would change bankruptcy law by preventing a company from selling “significant property” unless creditors with personal injury or property damage claims from an oil spill are being paid in full or two-thirds of creditors with oil spill claims consent to the sale.

Similarly, a company couldn’t sell property under a Chapter 11 plan unless two-thirds in amount of oil spill claims vote in favor. The bill would preclude BP from using the so-called cramdown process to confirm a plan and sell substantial property over a “no” vote from creditors in the oil spill class.

If an involuntary bankruptcy petition were filed against BP or subsidiaries, the bill likewise would prohibit selling substantial property absent the same protections for spill creditors.

The bill as adopted in the House deleted provisions originally proposed by House Judiciary Committee Chairman John Conyers Jr. that would have precluded BP’s use of Chapter 15 of the Bankruptcy Code. With the provisions deleted, if BP or subsidiaries were file their principal bankruptcies in the U.K., Chapter 15 would allow the U.K. court to decide how creditors should be paid and whether their claims are valid.

The bill as passed in the House nonetheless appears to preclude BP from selling property in the U.S. under Chapter 15 unless oil spill creditors consent or are paid in full.

Chapter 15 of the U.S. Bankruptcy Code pertains to multinational companies with bankruptcies pending in more than one country. Generally speaking, the court in the country with the head office is entitled to control the bankruptcy worldwide.

Updates

Capmark Creditors Investigating $1.5 Billion Loan

Capmark Financial Group Inc. (CPMK) agreed that the official creditors’ committee can examine the company’s files as part of an investigation into a $1.5 billion secured loan made 149 days before the Chapter 11 filing in October. The committee believes loan proceeds were used to pay off unsecured debt owing to practically the same lenders.

The company agreed to begin producing document by Aug. 2 about the loan and alternatives the company considered. The committee reserved the right to demand documents from directors who weren’t company employees.

Because the loan was made more than 90 days before bankruptcy, it can’t be attacked as a so-called preference. Although the committee believes the loan delayed an inevitable bankruptcy, the panel’s papers didn’t lay out a theory explaining how the loan could be attacked successfully in bankruptcy.

After filing in Chapter 11, Capmark completed three sales to generate more than $1 billion cash. Berkshire Hathaway Inc. (BRK/A) and Leucadia National Corp. (LUK) bought most of the business for $468 million.

Capmark previously said it intends on filing a reorganization plan giving stock to unsecured creditors while reorganizing around its non-bankrupt bank subsidiary which was not sold. Based in Horsham, Pennsylvania, Capmark was called GMAC Commercial Holding Corp. before control was sold in 2006. It had been GMAC’s servicing and mortgage banking business.

KKR & Co. (KKR), Goldman Sachs Group Inc., Dune Capital Management LP and Five Mile Capital Partners LLC owned 75.4 percent of Capmark following a 2006 acquisition from General Motors Corp. (GM) for $1.5 billion cash and repayment of $7.3 billion in debt. Capmark’s debt includes a $1.5 billion term loan secured by all assets except Capmark’s bank’s, $234 million remaining under a bridge loan, a $4.6 billion senior credit, $2.34 billion in notes, and a $250 million junior subordinated debt. The bank had assets of $11.12 billion and deposits of $8.39 billion, according to a court filing.

The case is In re Capmark Financial Group Inc., 09-13684, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Brown Publishing Creditors Begin Attack on Lenders

The creditors of Brown Publishing Co. began an offensive this week against the secured lenders. Brown is the publisher of the largest-circulation local newspaper on eastern Long Island.

The committee started a lawsuit yesterday in bankruptcy court against the lenders, contending that $72 million in liens given in September 2007 were fraudulent transfers that can be voided in bankruptcy.

The committee describes how some of Brown’s subsidiaries in substance gave guarantees of pre-existing debt owing by sister companies. Because the debt wasn’t originally their obligation and they received no proceeds from the loan, the committee contends the loan was a voidable transfer as to some of the subsidiaries that were made insolvent.

On July 12 the committee filed a motion asking the bankruptcy judge in Central Islip, New York, to prohibit the lenders from making a so-called credit bid at the auction scheduled for July 19. If credit bidding is permitted, the lenders can us their secured debt rather than cash as currency at the auction.

The bankruptcy judge scheduled a hearing for today where she will decide if the lenders can credit bid. The lenders are Prudential Insurance Co. of America, Allied Irish Bank PLC, Brown Brothers Harriman & Co., and Wells Fargo Bank NA.

Initial bids are due tomorrow in advance of the auction. The hearing for approval of the sale is set for July 22. The banks have said they intend to credit bid.

The opening bid of $15.9 million will come from a group including Roy Brown, the president and chief executive.

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. In setting up rules for the auction, the judge previously ruled that the secured lenders, with PNC Bank NA as agent, aren’t required to make a deposit and may bid secured debt rather than cash.

Dolan Media Co. (DM), publisher of the Long Island Business News, previously filed papers earlier 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).

Spheris Schedules August 26 Confirmation Hearing

Spheris Inc., a transcriber of medical dictation for doctors and hospitals, will hold a confirmation hearing on Aug. 26 for approval of the liquidating Chapter 11 plan. The bankruptcy judge in Delaware approved the explanatory disclosure statement on July 13.

The disclosure statement tells unsecured creditors and holders of senior subordinated notes they should take home a recovery of almost 23 percent. If Spheris fail to eliminate a $21.3 million disputed claim asserted by MedQuist Inc., the dividend to creditors will be lower, the disclosure statement says.

Spheris, now formally named SP Wind Down Inc., sold the business for $98.83 million cash and a note later sold for $13.77 million. At Jan. 31, secured lenders were owed $75.6 million. Unsecured claims consist largely of $125 million on subordinated notes.

Franklin, Tennessee-based Spheris listed assets of $61 million against debt totaling $225 million, including $75.6 million on a senior secured credit and $125 million on subordinated notes. For nine months ended in September, revenue was $120 million.

The case is In re SP Wind Down Inc., 10-10352, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Sunwest Confirms Plan to Permit Blackstone Sale

The Chapter 11 plan for Sunwest Management Inc., now formally named Stayton SW Assisted Living LLC, was confirmed by the U.S. District Court on July 13, the company said in a statement yesterday.

Approval of the plan allows Sunwest to complete a $1.3 billion asset sale to a group including an affiliate of Blackstone Group LP (BX), Emeritus Senior Living and Columbia Pacific Advisors, according to a prior statement from Emeritus. Subject to confirmation of the plan, the district judge approved the sale in May.

The price includes cash, securities, and assumption of approximately $1 billion in debt. To read about the sale, click here for the May 12 Bloomberg bankruptcy report. The group is acquiring 149 communities made up of 12,165 units.

As originally announced in August 2009, Sunwest’s receiver, creditors and investors reached agreement through mediation on a plan to restructure the company and make distributions to creditors through Chapter 11.

The plan gives creditors the option of taking cash or securities in the new company. Those who elect securities may receive either preferred stock with a 6 percent dividend or up to 49 percent of the common stock.

A receiver was appointed by a federal district judge after the Securities and Exchange Commission alleged Sunwest was violating securities laws. The Chapter 11 case was moved from the bankruptcy court to the district judge who was handling the SEC receivership.

The case is In re Stayton SW Assisted Living LLC, 09-06082, U.S. District Court, District of Oregon (Eugene).

Tribune Creditors Spar on Time for Confirmation Trial

The bankruptcy judge didn’t rule yesterday on how much time he will devote at the plan confirmation hearing to claims by some creditors of newspaper publisher Tribune Co. that the $13.8 billion leveraged buyout led by Sam Zell in December 2007 included fraudulent transfers.

The Chapter 11 plan proposes to resolve the fraudulent transfer claims through a settlement some creditors oppose. Although he said a full-blown fraudulent transfer trial isn’t required before confirmation, the judge said the underlying merits of the claims must be addressed. The judge will revisit the issue at a hearing Aug. 9. For Bloomberg coverage of the hearing, click here. For Associated Press coverage, click here.

Tribune’s examiner, Kenneth N. Klee, is scheduled to issue a report by July 26 giving his opinion on the strength of arguments about the fraudulent transfer. The confirmation hearing was rescheduled to begin on Aug. 30 so creditors would have time to digest the report before the Aug. 6 voting deadline. Klee won’t provide an opinion about the merits of the proposed settlement.

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 Delaware (Wilmington).

Circuit City Has Buyer for Land Under Head Office

Circuit City Stores Inc. has a $2.75 million offer for the sale of land in the Deep Run Business Park in Richmond, Virginia, where the corporate headquarters was located. The property being sold doesn’t include the building.

Other bids are due by July 27. An auction will take place July 29, followed by a hearing to approve the sale on Aug. 4.

Circuit City and the official creditors’ committee are at loggerheads over details in the liquidating Chapter 11 plan. The bankruptcy judge sent them to mediation with instruction to report to him at a July 22 status conference.

Circuit City and the committee jointly filed a liquidating plan in last August for the former 721-store electronics retailer. They couldn’t agree on who would control the liquidating trust to be created under the plan.

In addition to the dispute over the liquidating trust, the plan couldn’t be confirmed in view of outstanding Canadian tax claims.

All except approximately $5 million to $20 million in secured claims were fully paid from store liquidation proceeds. Unsecured creditors with claims ranging from $1.8 billion to $2 billion were estimated to have a recovery ranging between nothing and 13.5 percent, according to the explanatory disclosure statement for the joint plan.

Circuit City filed under Chapter 11 in November, 2008, in its Richmond, Virginia, hometown, listing assets of $3.4 billion and debt totaling $2.3 billion as of Aug. 31, 2008. Papers originally listed $898 million owing to the secured revolving credit lenders. Unsecured trade suppliers were owed another $650 million at the outset, the company said in a court filing.

The case is In re Circuit City Stores Inc., 08-35653, U.S. Bankruptcy Court, Eastern District Virginia (Richmond).

Spansion and Tessera Moving Dispute to District Court

Companies in Chapter 11 typically want the bankruptcy court to decide every dispute, perhaps assuming the bankruptcy judge by nature is inclined in favor of the reorganizing company.

Spansion Technology Inc., a manufacturer of flash memory semiconductors, is an exception to the rule when it comes to a patent dispute with Tessera Inc. (TSRA) over packaged semiconductor components. Spansion’s Chapter 11 plan was confirmed and implemented on May 10.

The dispute began when San Jose, California-based Tessera filed a patent infringement suit in 2005 in U.S. District Court in California. The suit was put on hold after Tessera began a proceeding before the International Trade Commission to halt the importation of goods that allegedly infringed the patents. Ultimately, the ITC ruled that there were infringements and ordered a limited exclusion prohibiting importation of infringing goods.

Tessera filed a $219 million claim against Spansion and followed up with a motion for allowance of a $96.8 million administrative claim based on patent infringement. If allowed, an administrative claim is of a type requiring full payment.

Spansion and Tessera agreed that the disputes in bankruptcy court over the claims should be transferred to the district court in California. They will call on the bankruptcy judge to bless the transfer of the proceedings to California at a July 28 hearing.

Spansion’s plan reduced debt from $1.5 billion to less than $480 million. To read about the plan, click here for the Dec. 31 Bloomberg bankruptcy report.

Before filing under Chapter 11 in March 2009, Sunnyvale, California-based Spansion hadn’t reported a profit since being spun off by Advanced Micro Devices Inc. (AMD) in 2005. It had a $352 million net loss during the first three quarters of 2008 on net revenue of $1.8 billion.

The case is Spansion Inc. (CODE), 09-10690, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Point Blank Committee Wants Chapter 11 Trustee or Examiner

Point Blank Solutions Inc., a manufacturer of soft body armor for the military and law enforcement, should be taken over by a trustee in Chapter 11 or an examiner should be appointed, the official unsecured creditors’ committee said in a July 13 motion.

The committee believes the case is being run for the benefit of Steele Partners LLC, a New York-based private equity fund. The committee points out how Steele Partners controls the board and is also the secured lender in the Chapter 11 case.

The motion for a trustee or an examiner is on the bankruptcy court calendar for Aug. 3.

The committee believes there is a need for a “neutral and independent fiduciary” because Point Blank has “placed the interests of insiders above maximizing the value of these estates.” The creditors’ panel notes that while the company filed under Chapter 11 on April 14, it didn’t announced until almost three months later that it was “considering strategic alternatives,” including a sale.

Point Blank has a plant and head office in Pompano Beach, Florida, and a second plant in Jacksboro, Tennessee. Revenue in 2009 was more than $153 million.

The petition listed assets of $64 million against debt totaling $68.5 million. Debt included a $10.5 million secured loan to be paid off by financing for the Chapter 11 case. Point Blank said it also owes $28.2 million to trade suppliers. Three former officers were indicted on charges of securities fraud.

The case is In re Point Blank Solutions Inc. (PBSOQ), 10-11255, U.S. Bankruptcy Court, District of Delaware.

New Filing

Lucien Piccard Watch Business Files in Fort Lauderdale

LP Watch Group Inc., the Hollywood, Florida-based owner of the Lucien Piccard watch brand, filed for Chapter 11 reorganization yesterday in Fort Lauderdale, Florida, listing assets of $10.59 million against unsecured debt of $6.24 million.

Affiliate A.G. Inc., also known as Lucien Piccard Inc., listed the same amount of assets and debt totaling $11.96 million, including $5.69 million in secured debt owing to Comerica Bank & Trust NA.

The company diversified into other types of jewelry, in part by acquiring an 80 percent stake in Charles Winston Luxury Group LLC, which also filed a Chapter 11 petition. The Charles Winston business makes what the company calls affordable jewelry using simulated gems.

Other brands include Dufonte, Maddy Emerson, and Venetian Gold.

The case is In re LP Watch Group Inc., 10-29921, U.S. Bankruptcy Court, Southern District Florida (Fort Lauderdale).

Daily Podcast

Texas Rangers Auction, Visteon, Lehman, and Nortel: Audio

The auction in early August for the Texas Rangers baseball club, the Visteon Corp. (VC) ruling on retiree benefits, access to Lehman Brothers Holdings Inc. documents, and the Nortel Networks Inc. Chapter 11 plan are discussed in the latest bankruptcy podcast on the Bloomberg terminal and Bloomberglaw.com. To listen, click here.

Advance Sheets

Bank May Violate Stay by Holding Exempt Account Funds

A bank that refuses to turn over exempt assets in an account does so at peril of being hit with sanctions for violating the automatic stay in bankruptcy, the Appellate Panel for the Ninth Circuit ruled on June 30.

The case involved two individuals in Chapter 7 who were claiming an exemption for 75 percent of some $17,000 in bank accounts at Wells Fargo NA. The day after bankruptcy, the bank told the Chapter 7 trustee and the bankrupts that it would release the money only as directed by the trustee.

The trustee never consented to releasing the funds.

After the time expired for the trustee to object to the claimed exemption, the bankrupts demanded the bank turn over the exempted money. The bank didn’t, and the bankrupts filed a motion in bankruptcy court to hold the bank in contempt and assess damages.

The bankruptcy judge denied the contempt motion, saying that a violation of the automatic stay only applies to property of the bankrupt estate. The bankruptcy judge reasoned that exempt property is not property of the estate, thus making the automatic stay inapplicable.

The Bankruptcy Appellate Panel reversed, relying in part on the Supreme Court’s June decision in Schwab v. Reilly for the proposition that property claimed as exempt is property of the estate, at least initially. Accordingly, the bank could be guilty of an automatic-stay violation for improperly asserting control over the account.

The Appellate Panel utilized a narrow reading of a 1995 Supreme Court case called Citizens Bank of Maryland v. Strumpf and held that Wells Fargo was exercising control over the account because the bank was not protecting a right of setoff.

The Appellate Panel didn’t go so far as to hold the bank in contempt. It sent the case back to the bankruptcy court with instructions to decide whether continuing to freeze the account “in the absence of instructions from the trustee was reasonable” in light of the bankrupts’ demands that the bank turn over the exempt funds.

The panel said that the bank’s mistake was in forcing the bankrupts to file papers in bankruptcy court to force a turnover of exempt money. The ruling means that a bank must either turn over money after the time for challenging exemptions has passed or take the initiative by filing papers in bankruptcy court seeking absolution for turning over property that appears exempt.

On remand, the bankruptcy court must also decide what damages, if any, the bankrupts are entitled to receive. Bankruptcy law gives individuals the right to punitive damages “in appropriate circumstances.”

The case is Mwangi v. Wells Fargo Bank NA (In re Mwangi), 09-1408, Bankruptcy Appellate Panel for the Ninth Circuit.

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

To contact the editor responsible for this story: David E. Rovella at drovella@bloomberg.net.

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