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WaMu, Innkeepers, Lehman, Point Bank, Cozumel, Extended Stay: Bankruptcy
Bank holding company Washington Mutual Inc. failed at a hearing yesterday to move ahead with a Chapter 11 plan to implement a controversial settlement with the Federal Deposit Insurance Corp. and JPMorgan Chase & Co.
The bankruptcy judge declined to approve the disclosure statement explaining the plan, and granted a motion by shareholders to appoint an examiner to investigate the merits of the settlement.
The examiner, to be named by the U.S. Trustee, must file a preliminary work plan by Aug. 6 followed by a preliminary report by Sept. 7. Shareholders wanted 120 days for the investigation.
The judge pushed back the disclosure statement hearing to Sept. 7. For Bloomberg coverage on yesterday’s hearing, click here.
The plan and the settlement together 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 are opposed to the settlement. They see WaMu and the FDIC as giving up too cheaply. They would prefer having lawsuits continue with JPMorgan and the FDIC.
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 largest bank failure in the country’s history.
The holding company filed formal lists of assets and debt showing property with a total value of $4.485 billion against liabilities of $7.832 billion.
The holding company Chapter 11 case is Washington Mutual Inc., 08-12229, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Updates
Innkeepers USA Trust Given Cash Use Over Lenders’ Objection
Innkeepers USA Trust, a real estate investment trust owned by Apollo Investment Corp., was given interim authority to use cash yesterday, one day after a Chapter 11 filing in New York.
Innkeepers, which Apollo acquired in July 2007 in a $1.35 billion transaction, has a plan in which a subsidiary of Lehman Brothers Holdings Inc., one of the secured lenders, would receive the new stock in exchange for $238 million in mortgage debt. The plan is opposed by lenders with $825 million in mortgage debt that would be cut to $550 million.
The lenders owed $825 million failed in their effort to block use of cash from their properties on other lenders’ collateral. The lenders were given the right to bid their secured claims rather than cash if the properties are sold.
For Bloomberg coverage of yesterday’s hearing, click here.
Innkeepers has 72 extended-stay and limited-service hotels with 10,000 rooms in 20 states. Its petition listed assets of $1.5 billion and debt of $1.52 billion. Secured debt includes $238 million in floating-rate debt with mortgages on 20 properties owing to Lehman subsidiary Lehman ALI Inc. Other lenders have $825 million in fixed-rate debt secured by mortgages on 45 properties.
It also has a $118 million floating-rate mezzanine loan owed to Lehman. There is another $206 million in mortgage debt on seven properties that would be reduced by the plan to $150 million.
According to court records, Lehman may sell some of its forthcoming stock holding to Apollo. Lehman won’t receive anything under the plan for its $118 million in mezzanine debt.
General unsecured creditors are slated to get $500,000 in cash.
Midland Loan Services Inc. is the servicer for the $825 million in mortgage debt. The debt was sold in two issues of commercial mortgage-backed securities known as LB-UBS 2007-C6 and LB-UBS 2007-C7. Palm Beach, Florida-based Innkeepers didn’t make payments due on the fixed-rate debt in April.
The reorganization plan should be filed within 45 days, according to a court filing. Lehman, also in Chapter 11, will apply to the bankruptcy judge for approval of its end of the transactions. The Lehman and Innkeepers cases 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).
Class Plaintiffs Seek $100 Million in Lehman Insurance
Plaintiffs in a class-action lawsuit against Lehman Brothers Holdings Inc. want the bankruptcy judge to modify the so-called automatic stay so they can continue a suit aimed at collecting damages from a $100 million insurance policy that Lehman had for the years 1999 to 2002.
The suit, Fogarazzo v. Lehman Brothers, alleges that Lehman and other investment banks shaded research reports to garner investment banking business. The defendants in an enforcement action by the Securities and Exchange Commission agreed to pay $1.4 billion. Lehman’s share was $80 million, the plaintiffs said.
Later, the suit against Lehman was certified as a class action.
The hearing on the motion for permission to sue the insurance company is scheduled for Aug. 18.
Lehman filed a revised Chapter 11 plan in April. 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 its 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, U.S. Bankruptcy Court, Southern District New York (Manhattan). 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 New York (Manhattan).
Cenveo Pledges to Pay More for National Envelope
Cenveo Corp. said it is prepared to bid at auction for National Envelope Corp. and pay more than the $134.5 million offered by Gores Group LLC, without the breakup fee Gores demands.
In papers filed yesterday in advance of tomorrow’s hearing for approval of bidding procedures, Englewood, Colorado-based Cenveo contends that the sale process so far has been “designed to exclude Cenveo and bidders like it.”
Opposing approval of a breakup fee for Gores, Cenveo characterizes the Gores offer as having escape hatches allowing termination of the contract. Cenveo plans to deliver by tomorrow’s hearing an asset-purchase agreement that will be “subject only to confirmatory due diligence which will take very little time once Cenveo gets the information it needs.”
Cenveo told the bankruptcy court in Delaware that financial information it was given contained redactions that made the information incomplete. Cenveo is a competitor of National Envelope.
National Envelope, calling itself the largest closely held envelope manufacturing company in the U.S., filed under Chapter 11 on June 10. It is proposing that bids be due initially on Aug. 16, followed by an auction on Aug. 20 and an Aug. 23 hearing for approval of the sale.
The loan agreement, with General Electric Capital Corp. as agent, 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. Sales last year 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).
Point Blank Committee Is ‘Reckless,’ Body Armor Company Says
Point Blank Solutions Inc., a manufacturer of soft body armor for the military and law enforcement, said that a motion by the creditors’ committee for the appointment of a Chapter 11 trustee or examiner is based on “reckless accusations with no factual basis whatsoever.”
The company also sees the committee as being motivated by “personal animosity against” the chief executive and a “desire to control these Chapter 11 cases at any cost.” Point Blank contends that the motion for a trustee is based partly on misdeeds by executives who left the company four years ago.
A hearing on the request to appoint a trustee is scheduled for Aug. 3. Today, a bankruptcy judge is scheduled to consider a separate motion by the committee to conduct examinations under oath and require production of documents by lenders, insiders and customers.
A lender is opposing another motion by the committee to extend the deadline for filing a complaint challenging the validity of the pre-bankruptcy loan.
The committee argued in its court filing that the reorganization case is being run for the benefit of Steele Partners LLC, a New York-based private equity fund. Steele, according to the committee, controls the board and is also the secured lender in the Chapter 11 case.
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 and debt of $68.5 million. The 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., 10-11255, U.S. Bankruptcy Court, District of Delaware.
New Filings
Two U.K. Insurers File Chapter 15 to Help Arrangement
Minster Insurance Co. and affiliate Malvern Insurance Co. filed Chapter 15 petitions on July 19 in Manhattan so the U.S. court can assist in carrying out the scheme of arrangement approved by a U.K. court in March.
Both companies ceased writing new business in 2000 and since then have been paying off claims on remaining policies and collecting from reinsurers. The coverage periods for all policies have lapsed.
In July 2009 the companies filed for arrangements in the High Court of Justice under the Companies Act of 2006.
Court papers say that the filings in the U.S. are intended to help implement the U.K. schemes.
Domestic insurance companies are prohibited from filing under any form of bankruptcy in the U.S. Foreign insurance companies may file. The Chapter 15 case isn’t a full-blown bankruptcy. It mainly helps implement and enforce the U.K. frameworks.
The case is In re Minster Insurance Co. Ltd., 10-13899, U.S. Bankruptcy Court, Southern District New York (Manhattan).
Cozumel Caribe Files Chapter 15 Petition in New York
Cozumel Caribe SA filed a Chapter 15 petition yesterday in New York to complement a reorganization called a concurso mercantile that began in a Mexican court in May.
According to court papers, the company “renders tourism and hostelry services” through the beachfront Hotel Park Royal Cozumel in Mexico.
The company blames its financial problems on the recession, news coverage of the “crime wave” resulting from Mexico’s attempt to clamp down on the drug trade, and the swine flu epidemic.
The company has assets of 658 million Mexican pesos ($51.6 million) and liabilities of 367 million pesos, according to court papers. In addition, there is $109 million owed on secured debt where the special servicer is CT Investment Management Co.
Court papers suggest that the U.S. court will be used to help secure access to revenue tied up by lenders.
Should the U.S. bankruptcy judge decide that Mexico is home to the primary bankruptcy proceeding, and if Mexican laws and proceedings pass muster, the U.S. court will halt creditor actions in the U.S. and help collect assets. The Mexican court would be chiefly in charge of the reorganization.
The case is In re Cozumel Caribe SA de CV, 10-13913, U.S. Bankruptcy Court, Southern District New York (Manhattan).
Los Gatos, California, Development Files Chapter 11
Highlands of Los Gatos LLC, the owner of a 66-acre development near Los Gatos, California, filed a Chapter 11 petition on July 16 in San Jose.
The petition says the property is worth $32 million. The secured debt, $23 million, is owed to East-West Bank.
According to the company’s website, the project is to be developed into 19 residential lots.
The case is In re Highlands of Los Gatos LLC, 10-57370, U.S. Bankruptcy Court, Northern District California (San Jose).
Daily Podcast
Innkeepers Trust, Texas Rangers, Jennifer: Audio
Opposition to the plan by newly filed Innkeepers USA Trust, the idea of consolidating the Texas Rangers with the two partnerships that own the team, and the proposal for a Chinese furniture manufacturer to buy Jennifer Convertibles Inc. are topics in the latest bankruptcy podcast on the Bloomberg terminal and Bloomberglaw.com. To listen, click here.
Briefly Noted
Texas Rangers Hearing Continues on New Auction Date
The hearing to reconsider the date to auction the Texas Rangers baseball team ran all day yesterday and continues this afternoon in bankruptcy court in Fort Worth, Texas. The reconsideration motion was filed by William K. Snyder, the chief restructuring officer for the two partnerships that own the team. Snyder says that an auction on Aug. 4 wouldn’t give other bidders enough time. Testimony in court yesterday revealed there are four potential bidders. For coverage of yesterday’s hearing, click here. Lenders owed $525 million also want new auction procedures.
The Rangers filed under Chapter 11 on May 24 with a contract to sell the team to a group including current team President Nolan Ryan and sports lawyer Chuck Greenberg. The price was raised to $306.7 million cash. The lenders would recover $256 million, according to the team’s disclosure statement based on the original contract for $2.7 million less. The Rangers moved to Texas from Washington in 1972 and 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).
Extended Stay Plan Confirmed, Centerbridge Group Buying Hotels
Extended Stay Inc., the operator of more than 680 long-term lodging properties in 44 states, won approval to emerge from reorganization when the bankruptcy judge agreed at a confirmation hearing yesterday to approve the Chapter 11 plan.
Centerbridge Partners LP, Paulson & Co. and Blackstone Group LP will buy the business for $3.925 billion cash. Almost all objections were resolved, according to a court filing. For details about the company’s plan and the auction won by the Centerbridge group, click here to read the June 10 Bloomberg bankruptcy report.
Extended Stay’s Chapter 11 petition in June 2009 listed assets of $7.1 billion and debt of $7.6 billion, including $4.1 billion in mortgage loans and $3.3 billion in 10 different mezzanine loans. Based in Spartanburg, South Carolina, Extended Stay says it’s the largest operator of mid-priced extended stay hotels in the U.S.
The case is In re Extended Stay Inc., 09-13764, U.S. Bankruptcy Court, Southern District New York (Manhattan).
Equipment Acquisition Resources Confirms Chapter 11 Plan
Equipment Acquisition Resources Inc., under management by William Brandt as chief restructuring office, confirmed a Chapter 11 plan last week. Creditors weren’t told how much to expect. Brandt was hired in October when the officers and directors resigned. For Bloomberg coverage, click here. Based in Palatine, Illinois, the company was a market maker in semiconductor manufacturing equipment sales and servicing. Two secured bank lenders were owed almost $16 million.
The case is In re Equipment Acquisition Resources Inc., 09- 39937, U.S. Bankruptcy Court, Northern District Illinois (Chicago).
To contact the reporter on this story: Bill Rochelle in New York at wrochelle@bloomberg.net.
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