Innkeepers, Aventine, Tousa, Jennifer Convertibles, Vick: Bankruptcy

Innkeepers USA Trust, a real estate investment trust acquired in July 2007 by Apollo Investment Corp. in a $1.35 billion transaction, filed a Chapter 11 petition yesterday in New York with a reorganization plan where a subsidiary of Lehman Brothers Holdings Inc., one of the secured lenders, would end up with all the new stock in exchange for $238 million in debt.

Although Innkeepers characterized the plan as a “pre- arranged” reorganization, other secured lenders owed $825 million filed papers late last night opposing the plan and the proposed use of cash. The objecting mortgage lenders hold 64 percent of the secured debt.

Innkeepers has 72 extended-stay and limited-service hotels with 10,000 rooms in 20 states. The petition listed assets of $1.5 billion against debt totaling $1.52 billion.

The company’s $1.42 billion debt for borrowed money includes $1.29 billion in secured debt. The secured obligations include $238 million in floating-rate debt owing to Lehman subsidiary Lehman ALI Inc. with mortgages on 20 properties. Other lenders have $825 million in fixed-rate debt secured by mortgages on 45 properties.

In addition there is a $118 million floating-rate mezzanine loan also owing to Lehman. Finally, there is debt on seven properties with mortgages ranging from $27 million to $48 million each.

The agreement with Lehman calls for exchanging the $238 million obligation for all the new equity. Lehman’s $118 million in mezzanine debt won’t receive anything under the plan.

Innkeepers amended its papers yesterday by disclosing that Lehman intends to sell “a portion” of the stock it receives to Apollo, thus evidently allowing Apollo to retain control after bankruptcy. Otherwise, Innkeepers had said that the plan would extinguish Apollo’s ownership interest.

The plan calls for the holders of the $825 million in mortgages to receive new mortgages for $550 million. The plan would allow the lenders to exercise an election under Section 1111(b) of the U.S. Bankruptcy Code to retain mortgages on the property in the original amount, although the terms of the mortgages would result in their having a present value of $550 million.

Other secured lenders can elect between taking $150 million in new mortgages or retaining mortgages in the original principal amount, although with a present value of $150 million.

General unsecured creditors could split $500,000 cash.

In papers filed last night, Midland Loan Services Inc., the servicer for the $825 million in mortgage debt, objected to the requested use of cash generated by its 45 properties. There will be a hearing this morning to authorize the temporary use of cash.

Midland is asking the bankruptcy court to segregate cash so money generated by its properties are not used on hotels where Lehman has liens. Midland’s papers describe how Innkeepers in April redirected $9 million in cash away from a so-called lock box in violation of loan agreements.

Midland doesn’t want any of its cash collateral to be used to pay Innkeepers’ professionals. Likewise, Midland opposes having its cash used to pay $460,000 a month in professional fees for Lehman.

Midland said it was forced to pay $5.2 million in taxes for the first quarter on its properties when Innkeepers didn’t. Midland also alleges that Apollo breached its guarantee of an agreement to perform improvements on the 44 properties operating under license with Marriott International Inc.

Palm Beach, Florida-based Innkeepers missed a payment on the fixed-rate debt in April.

To avoid losing licenses with Marriott, Innkeepers has a $50.75 million loan for improvements on the Marriott properties. Midland says it arranged the loan and will permit its mortgages to be subordinated to the loan. There is to be a separate $17 million loan from Lehman for improvements on the Lehman collateral.

Midland argued in its papers last night that Innkeepers’ plan can’t be confirmed because it would allow Apollo to retain ownership without testing the market to see if there’s a better offer.

Section 1111(b) in bankruptcy law deals with so-called cramdown on secured creditors. Rather than take what the debtor would cram down in a plan, the section allows a secured lender not to lose the ability to profit from an increase in the value of the collateral after the company emerges from bankruptcy. The section is little used and not well understood.

The reorganization plan is to be filed within 45 days, a court paper says. Lehman, itself in Chapter 11, must receive approval from its bankruptcy judge to go ahead with the agreements. The Lehman case and the Innkeepers case are pending before different bankruptcy judges in Manhattan.

For other Bloomberg coverage of the filing, click here.

The case is In re Innkeepers USA Trust, 10-13800, U.S. Bankruptcy Court, Southern District New York (Manhattan).


Texas Rangers Restructuring Officer Wants Team-Owner Consolidation

The chief restructuring officer for the two partnerships that own the Texas Rangers professional baseball club filed a motion late yesterday asking for permission to begin the process of substantively consolidating the bankruptcies of the team and the two partnership owners.

William K. Snyder, the restructuring officer appointed by the bankruptcy judge in Fort Worth, Texas, argued in his papers that consolidation is the only way to preserve fraudulent transfer claims that otherwise would be lost were the team to win approval of its own reorganization plan at the currently scheduled Aug. 4 confirmation hearing.

The team filed papers last night in opposition. The Rangers believe that Snyder’s mandate does not include proposing substantive consolidation. The team also argues that a motion for substantive consolidation would “impede and disrupt” the sale process.

On the eve of the May 24 Chapter 11 filing, Snyder says the team assumed $9 million in debt to financial advisers that previously had no claim against the team. Also just before bankruptcy, the team assumed the above-market lease for an aircraft.

Substantive consolidation would entail putting the team and the two partnerships into one pot, with creditors receiving distributions without regard for the particular entity that owed the debt. Snyder believes consolidation is proper because Thomas Hicks, the ultimate owner, “commingled assets and liabilities of all Rangers-related entitles as if they were one single entity.”

He described how Hicks’ loans to the team weren’t documented until just before bankruptcy. He says the partnerships and the teams shared the same bank accounts and the same officers and directors.

The team, according to Snyder, was “grossly undercapitalized.” It had negative equity going back to 2002, he says.

Snyder wants the bankruptcy judge to decide before the Aug. 4 confirmation hearing whether the substantive consolidation motion should go forward. The judge is holding a hearing today on motions by the secured lenders and Snyder to reconsider holding the auction on Aug. 4. Snyder believes there will be no bidders other than the group that signed a contract just before bankruptcy.

A group including current team President Nolan Ryan and sports lawyer Chuck Greenberg have a contract to buy the team for $306.7 million cash. The lenders owed $525 million have security interests in the partnerships that own the team. The team’s liability to the lenders is limited to $75 million. Under the original form of the contract signed in May, the lenders would recover $256 million, 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 Lowers Interest on $400 Million Loan

Mall owner General Growth Properties Inc. has a hearing on July 22 for approval of replacement financing reducing the interest rate by 8 percent.

After filing under Chapter 11 in April 2009, General Growth landed $400 million in secured financing requiring interest at 12 percentage points higher than the London interbank borrowed rate.

Barclays Bank PLC has agreed to make a replacement $400 million loan at a fixed rate of 5.5 percent, saving General Growth $2.7 million a month in interest.

General Growth filed a Chapter 11 plan and disclosure statement last week to finish the reorganization of the four top-tier companies. Like the property-owning subsidiaries that already confirmed Chapter 11 plans, the top-level companies will pay their creditors in full while preserving some of the stock for existing shareholders.

The plan is financed with an $8.55 billion debt and equity commitment from a group led by Brookfield Asset Management Inc. Teacher Retirement System of Texas has a separate commitment to buy $500 million of new stock at $10.25 a share.

General Growth plans on emerging from reorganization in October. It will remain the second-largest mall owner in the U.S., with 180 properties in 43 states.

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 case is In re General Growth Properties Inc., 09-11977, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Houlihan Fees Dinged 5% for Aventine Non-Disclosure

Although Houlihan Lokey Howard & Zukin Capital Inc. didn’t make timely disclosure about its connections with noteholders who were providing contested financing, the bankruptcy judge only cut the firm’s fees by 5 percent in the completed reorganization of ethanol producer Aventine Renewable Energy Holdings Inc.

The U.S. Trustee in May asked the bankruptcy judge to cut the $5 million fee request in half. Los Angeles-based Houlihan at a hearing last week established to the satisfaction of the bankruptcy judge in Delaware that tardy disclosure about the lenders was “inadvertent and not willful.”

U.S. Bankruptcy Judge Kevin Gross said in his 12-page opinion on July 16 that a $250,000 reduction in fees was nonetheless appropriate “to balance the protection of the integrity of the bankruptcy process with the substantial benefits” the Houlihan firm provided in Aventine’s reorganization.

Aventine implemented its reorganization plan in March. Holders of $315.5 million in unsecured notes received 80 percent of the new stock which they shared with unsecured creditors owed $15 million. To read details about the plan, click here for the Dec. 10 Bloomberg daily bankruptcy report. To read about the U.S. Trustee’s objection to Houlihan’s fees, click here for the June 1 Bloomberg bankruptcy report.

The Chapter 11 petition filed in April 2009 by Pekin, Illinois-based Aventine listed $799 million in assets against debt totaling $491 million. It had two plants in operation and two in construction. The operating plants had an annual capacity of 207 million gallons of ethanol. The two plants being built were designed to produce 220 million gallons.

The case is In re Aventine Renewable Energy Holdings Inc., 09-11214, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Tousa Committee Files Liquidating Chapter 11 Plan

The unsecured creditors’ committee for liquidating homebuilder Tousa Inc. filed a Chapter 11 plan and explanatory disclosure statement on July 16. The plan assumes appellate courts uphold a judgment the committee won in October where the bankruptcy judge ruled that a bailout and refinancing in mid- 2007 of a joint venture in Transeastern Properties Inc. resulted in fraudulent transfers.

The bankruptcy judge required the banks to post $700 million in bonds to hold up enforcement of the judgment pending appeal. The appeal is scheduled for argument on Oct. 22 in U.S. District Court in Florida.

The plan and disclosure statement are complicated in view of intercreditor agreements and payments secured lenders received that they must disgorge under the judgment. In lieu of disgorgement, the plan provides that payments previously received by first- and second-lien term-loan lenders will be deemed to have been made and redistributed in accordance with the waterfall provisions in the intercreditor agreement.

Consequently, the $46 million on the $316 million first- lien revolving credit will be paid in full under the plan. The $208 million owing on the first-lien term loan will see a recovery between 2.8 percent and 100 percent, according to the explanatory disclosure statement.

The $319 million in second-lien claims are to see nothing to 45.2 percent.

The holders of $574 million in senior notes are in line for a dividend between 52 percent and 82.3 percent, the disclosure statement says.

Holders of $510 million on subordinated notes, $20 million in pay-in-kind subordinated notes, and existing stock will receive nothing under the plan.

Tousa had almost $486 million cash at the end of May.

The variation in recoveries depends in part on whether other lawsuits by the committee are successful.

Tousa filed for bankruptcy reorganization in January 2008. The Hollywood, Florida-based company listed assets of $2.1 billion against debt totaling $2 billion. At the outset of the reorganization it was 67 percent-owned by Technical Olympic SA.

The case is In re Tousa Inc., 08-10928, U.S. Bankruptcy Court, Southern District of Florida (Fort Lauderdale).

Jennifer Has Plan for Haining Mengnu to Own Stores

Jennifer Convertibles Inc., the furniture retailer that filed for reorganization on July 18, has agreement on a plan where the principal supplier Haining Mengnu Group Co. from China will end up owning 95 percent of the stock. Existing ownership will be extinguished.

The other 5 percent of the new equity will go to other creditors, a court filing said.

Jennifer blamed the filing on the “poor housing market and an overall weak U.S. economy.” Comparable-store sales declined 19.6 percent for the quarter ended in May, compared with the same period in 2009. Revenue for fiscal 2009 was $94.2 million, a 22 percent decline from $120.1 million revenue the year before.

Woodbury, New York-based Jennifer listed assets of $26 million and debt totaling $46.4 million. It had a $13.2 million operating loss for six months ended Feb. 27 on revenue of $48.3 million. The net loss in the period was $13.3 million.

The company has 130 Jennifer locations and seven Ashley HomeStores Ltd. stores operated under license. Ashley is a full- line furniture retailer. Jennifer closed seven stores in fiscal 2009 and said earlier this year it expected to close seven to 10 stores in fiscal 2010.

Haining was listed as the largest unsecured creditor with a claim of $16.7 million.

The case is In re Jennifer Convertibles Inc., 10-13779, U.S. Bankruptcy Court, Southern District New York (Manhattan).

DBSI Liquidating Chapter 11 Plan Consolidates Creditors

The Chapter 11 trustee for DBSI Inc. and the official creditors’ committee jointly filed a liquidating Chapter 11 plan on July 16 along with an explanatory disclosure statement.

DBSI, once a seller and servicer of fractional interests in commercial real estate, was what the examiner called an “elaborate shell game” operated like a Ponzi scheme. The examiner’s report led to the appointment of a Chapter 11 trustee in September.

After investigation, the trustee filed a motion in January for substantive consolidation of all the DBSI companies. He concluded that the company was managed with disregard for “corporate separateness,” such that money was moved around as needed to keep the shell game alive.

The plan therefore treats all creditors alike, regardless of whether they hold claims for notes or bonds or thought they were supposed to be so-called tenants in common in specified properties. The disclosure statement predicts an 18.5 percent recovery for many creditors.

DBSI filed under Chapter 11 in November 2008 along with almost 150 affiliates. More filed later. 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).

Vick Trustee Sues Family for Pre-Bankruptcy Transfers

The trustee for the creditors of Michael D. Vick sued the professional football quarterback’s relatives this month to recover what the complaint describes as “gifts and other transfers” received before Vick’s Chapter 11 filing in July 2008.

Those sued include Vick’s mother, sister, the mother of his first child, and a woman described in the complaint as Vick’s fiancee and mother of his second and third children. The amount of the transfers wasn’t specified.

Vick served a prison sentence for holding dog fights. He confirmed a Chapter 11 plan in September. The plan created a trust to liquidate remaining assets and bring suits for the benefit of creditors.

The plan was modified before confirmation to satisfy the judge’s criticism of a prior version allowing Vick to retain too much property. The revised plan required Vick give up all but one of his four homes. He retained one automobile and a pension plan. He turned over other homes, boats, cars, horses, real property and investments.

He is giving up part of his future income over six years to help repay unsecured creditors with claims estimated to exceed $19 million.

The case is In re Michael D. Vick, 08-50775, U.S. Bankruptcy Court, Eastern District of Virginia (Newport News).

Watch List

KKR and TPG’s Energy Future ‘Appears Unsustainable’

Energy Future Holdings Corp., known as TXU Corp. before the $43.2 billion acquisition in October 2007 by KKR & Co. LP and TPG Inc., has a business plan that “appears unsustainable” along with and “untenable capital structure,” Moody’s Investors Service said in a report yesterday.

The corporate rating remained at Caa1 evidently because the recently announced exchange offer, which Moody’s views as “distressed,” will reduce consolidated debt by $1 billion.

Noting that $20 billion in debt matures in 2014, Moody’s believes that “additional restructuring activity is likely over the near to intermediate term horizon.” The exchange offer will cause a “material reduction” in cash, Moody’s said.

The balance sheet is upside down. Energy Futures, a Dallas- based generating and retail electric company, had total liabilities of $55.6 billion on the March 31 balance sheet when total assets were $52.8 billion.

The acquisition in 2007 added $4.5 billion in senior unsecured debt plus $24.5 billion in secured debt and $6.75 billion in senior unsecured debt at key subsidiaries. The purchase rolled over $8 billion in existing debt.

Energy Future is the largest unregulated electric provider in Texas.

Briefly Noted

Lake Las Vegas Development Consummates Chapter 11 Plan

The master developer of the Lake Las Vegas Resort 17 miles from the Las Vegas Strip implemented the reorganization plan on July 15 that the bankruptcy judge approved in a July 1 confirmation order. The plan resulted from a settlement between unsecured creditors and secured lenders owed $626 million. For details, click here for the June 22 Bloomberg bankruptcy report.

The development is a 3,600-acre master-planned community with a 320-acre manmade lake next to the Lake Mead National Recreational Area. It has three golf course, two hotels, a casino, retail stores and more than 1,600 completed residential units. The Chapter 11 filing was in July 2008.

The case is Lake at Las Vegas Joint Venture LLC, 08-17814, U.S. Bankruptcy Court, District of Nevada (Las Vegas).

Daily Podcast

Texas Rangers, Lehman, 3 Significant Opinions: Audio

Allegations about fraudulent transfer on the eve of the bankruptcy filing by the Texas Rangers baseball team, disputes among creditors of Lehman Brothers Holdings Inc. about substantive consolidation, and three significant appellate rulings on bankruptcy law are topics in the new bankruptcy podcast on the Bloomberg terminal and To listen, click here.

To contact the reporter on this story: Bill Rochelle in New York at

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