Daimler AG won dismissal yesterday of a lawsuit begun last August by the trust for unsecured creditors of Old Chrysler, now formally named Old Carco LLC.
Although the bankruptcy judge in New York gave the creditors permission to file a revision of parts of the complaint, the creditors may be unable to craft another suit that will pass muster.
The suit alleges that Daimler, old Chrysler’s former owner, stripped out the automaker’s most valuable assets before the company was sold in 2007 to Cerberus Capital Management LP.
Ordinarily, the plaintiff in a fraudulent transfer suit contends that multiple transactions must be collapsed into one. Here, it was the opposite. The creditors wanted the judge to look only at the restructuring of Chrysler that preceded the sale to Cerberus.
U.S. Bankruptcy Judge Arthur J. Gonzalez, in a 40-page opinion, said Daimler was correct to collapse the two-stage transaction. Gonzalez said that the “deal documents themselves make clear that the transaction is integrated.”
By not collapsing the two transactions, the judge said the creditors made a mistake by ignoring “billions of dollars that flowed” into the carmaker from the sale to Cerberus. Gonzalez mentioned how Cerberus provided “billions of dollars of fresh capital” plus $12 billion in borrowing capacity.
Gonzalez concluded that the creditors’ complaint was fatally defective because it “does not include, or even reference, the significant value” in the overall transaction. The judge gave the creditors the right to amend the counts in the complaint related to a so-called constructive fraud “to account for all of the elements of value that were received.”
When the new complaint properly accounts for everything old Chrysler received, Daimler will argue that the suit must be dismissed again because there could have been no fraud since the automaker was solvent.
Gonzalez permanently dismissed a count in the complaint related to the repayment of existing debt. He said there could be no fraud because repayment of debt is valid consideration.
Gonzalez also permanently dismissed counts in the complaint alleging actual fraud. He said that the creditors had more than enough time to conduct discovery and still were unable to lay out facts with specificity showing actual fraud.
Old Chrysler confirmed a liquidating Chapter 11 plan in April. The confirmed plan gave nothing to unsecured creditors aside from proceeds, if any, from the Daimler suit, and then only if the recovery exceeds $25 million. To read about the plan, click here to see the April 21 Bloomberg bankruptcy report.
After filing under Chapter 11 on April 30, 2009, old Chrysler sold the business in June 2009 to the new company 20 percent-owned by Italy’s Fiat SpA.
The petition listed assets of $39.3 billion and debt totaling $55.2 billion. A trust to provide health benefits for Chrysler workers owns 55 percent of new Chrysler. The U.S. government owns 8 percent of the stock while Canadian governmental units have 2 percent.
The case is In re Old Carco LLC, 09-50002, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
Tribune Bond Prices Rise After Examiner’s Report Released
The Tribune Co. examiner’s report pushed up prices on some of the newspaper publisher’s bonds sold before the 2007 leveraged buyout.
The Tribune Co. 4.875 percent senior secured bonds of August 2010 traded yesterday at 30.75 cents on the dollar, up 34 percent from the previous day. Times Mirror Co.’s 7.5 percent senior secured bonds due in 2023 traded at 30.45 cents, a gain of 19 percent from July 14.
The examiner’s report said there is some likelihood that a court would rule that debt issued in the final step of the leveraged buyout in December 2007 could be attacked successfully as a constructively fraudulent transfer. Bonds issued earlier would benefit in bankruptcy, thus explaining the price spike.
Even before yesterday’s improvement in price, those who bought the bonds last year already banked a substantial profit. The 4.875 percent bonds could have been purchased on Feb. 26, 2009, for less than 3 cents on the dollar. A day later, the 7.5 percent Times Mirror bonds traded at 0.7 cent.
The examiner issued a report on the evening of July 26 evaluating the strength of arguments for and against the fraudulent transfer claims. For a summary of some of his conclusions, click here for the July 27 Bloomberg bankruptcy report.
Tribune reached an agreement with the official creditors’ committee and two unions by reducing the management bonus program for 2010. A hearing for approval of the revised bonus pool is set for Aug. 9. Tribune first sought approval of the bonuses by filing a motion in May.
Tribune currently has a confirmation hearing scheduled to begin on Aug. 30 for approval of a Chapter 11 plan that would settle claims that the $13.7 billion leveraged buyout led by Sam Zell contained fraudulent transfers. The plan is opposed by holders of $3.6 billion in pre-LBO debt who announced their opposition even before the settlement was formally disclosed. For details of 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).
Joshua Hochberg Named as Washington Mutual Examiner
He is to file a preliminary report by Sept. 7 on the merits of a proposed settlement with the Federal Deposit Insurance Corp. and JPMorgan Chase & Co.
Hochberg is a lawyer with McKenna Long & Aldridge LLP in Washington. He served as examiner for Refco Inc., whose chief executive officer was given a 16-year prison sentence. More recently, he was the examiner for DBSI Inc., where he investigated transactions between the company, affiliates not in bankruptcy, and insiders. DBSI was a seller and servicer of fractional interests in commercial real estate.
WaMu’s proposed reorganization plan would implement the settlement that Hochberg will investigate. The hearing for approval of the disclosure statement explaining the plan and the settlement is currently set for Sept. 7.
If creditors eventually vote in favor of the plan and it’s confirmed by the bankruptcy judge, WaMu would 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 believe WaMu and the FDIC are giving up too cheaply and would prefer having lawsuits continue against 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 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 $4.49 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).
Rangers May be Sold Without Confirming Chapter 11 Plan
The Texas Rangers baseball club, to comply with a ruling from the bankruptcy judge, filed papers taking care of procedural details so the winner of the auction on Aug. 4 can buy the team without at the same time having the team’s Chapter 11 plan confirmed.
The examiner for the team’s two partnership owners wanted the ability to sell the team without at the same time confirming a Chapter 11 plan. The examiner believed that confirming a plan would foreclose the opportunity to file suits aimed at recovering fraudulent transfers that he alleges were made in the day or two before bankruptcy.
Bids for the team are due on Aug. 3. The judge will decide at the Aug. 4 hearing after the auction whether the winning bidder can complete the sale standing alone or through plan confirmation.
The Rangers filed under Chapter 11 on May 24 with a contract selling the team to a group including current team President Nolan Ryan and sports lawyer Chuck Greenberg. The buyers later increased the price to $306.7 million cash. Secured lenders, owed $525 million not including interest, would recover $256 million, according to the team’s disclosure statement based on the original contract for $304 million.
The Rangers moved to Texas from Washington in 1972. The team defaulted on payments owing to the lenders in March 2009. Michael “Buzz” 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).
Sea Launch Says Reorganization Plan Confirmed
Sea Launch Co., a provider of heavy-lift satellite launch services, succeeded in having the bankruptcy judge in New York approve the reorganization plan at a confirmation hearing yesterday, the company said in a statement on its website. The formal confirmation order is yet to appear on the formal court docket.
The plan called for Russia’s S.P. Korolev Rocket & Space Corp. Energia to acquire 85 percent or more of the stock. The plan is financed by a $140 million equity commitment and $200 million in debt financing.
Unsecured customers and suppliers owed some $120 million are to see recovery of about 17.5 percent, the disclosure statement said.
Investors Boeing Co. and Norway’s Aker Maritime Finance AS reached a settlement of their claims in June after mediation. Between them, they are to get 5 percent of the stock for the estimated $1.76 billion they are owed.
Sea Launch filed for Chapter 11 reorganization in June 2009 to stop attempts by Hughes Network Systems LLC to collect a $52 million arbitration award in connection with a canceled launch contract following a failed launching in 2007.
Sea Launch was formed by an affiliate of Chicago-based Boeing along with industry investors from Norway, Russia and Ukraine. At the outset of the Chapter 11 case, debt included $476 million owing on several loan agreements plus $761 million to investors Boeing and Aker. In addition, investors were owed $119 million resulting from cost overruns in the late 1990s.
Most of the company’s launches are made from a semi- submersible platform stationed at the equator.
The case is Sea Launch Co. LLC, 09-12153, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Old GM Settles Class Suit on Defective Parking Brake
Old General Motors Corp. agreed to settle a pre-bankruptcy class-action lawsuit based on an allegedly defective parking brake in some GM cars and trucks built between 1999 and 2002. If approved, the class will have an approved unsecured claim of $12 million.
The suit began in 2005 and later was certified as a class action by a state court in Arkansas. After GM’s bankruptcy, the class plaintiff filed a claim on behalf of the class for almost $1.5 billion.
GM had the case switched from the Arkansas state court to bankruptcy court. The settlement ensued. The plaintiffs believe there are 4 million class members.
Old GM sold the core business to new GM and in return received 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).
Visteon Should Reinstate Retiree Benefits, Union Says
Auto-parts maker Visteon Corp. should be compelled to reinstate health benefits for retirees, the Communications Workers union said in a motion filed last week. The motion is scheduled for a hearing in bankruptcy court on Aug. 10.
Retirees won a victory when the U.S. Court of Appeals in Philadelphia ruled on July 13 that Visteon didn’t have the unilateral right to terminate health and life insurance benefits for retirees without complying with procedures specified in bankruptcy law.
The ruling affects 8,000 retirees, the circuit court’s opinion said. The annual cost for the retiree medical benefits is $31 million, the union’s motion said.
Where Visteon says it needs three months to reinstate coverage, the union is asking the judge to force the company to move more quickly. To read about the ruling on retiree health benefits and the applicability to other bankruptcy reorganizations, click here for the July 14 Bloomberg bankruptcy report.
Visteon is currently scheduled for a 10-day plan confirmation hearing to begin Sept. 28. Shareholders and some creditors are opposed to the plan, and a group of trade suppliers contend they have enough “no” votes to block approval by the unsecured creditor class.
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).
Magic Brands Finishes Sale to Luby’s Restaurant Chain
Kelley Drye & Warren LLP, attorneys for the official creditors’ committee, said that the payment of $61 million to the bankruptcy estate should result in “substantial recoveries for unsecured creditors.” Magic Brands previously said the sale “could” result in full payment for unsecured creditors.
Houston-based Luby’s has 96 restaurants, mostly in Texas.
After closing stores, Austin, Texas-based Magic Brands had 62 company-owned Fuddruckers locations operating in 11 states. It also owns the Koo Koo Roo restaurant brand, with 3 stores in California. The petition said assets are less than $10 million while debt is less than $50 million.
The Koo Koo Roo stores are in bankruptcy a second time. Once owned by Prandium Inc., they were sold to Magic Brands through Chapter 11 in 2004. The 135 Fuddruckers stores in 32 states owned by franchisees aren’t in the bankruptcy.
The case is In re Magic Brands LLC, 10-11310, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Inmate Moves to Intervene in Another Reorganization
Garlock Sealing Technologies LLC, a unit of EnPro Industries Inc., is the newest target of Jonathan Lee Riches, an inmate at the federal penitentiary in Lexington, Kentucky.
This time joined by 11 other inmates, Riches filed a motion to intervene in a lawsuit where Garlock is seeking protection from asbestos lawsuits. Riches said in his hand-written court paper that one of the doctors in the Federal Medical Center in Lexington compelled him to “clean and sweep the steps on the Veritas unit in which Mr. Riches got sick from asbestos.”
Riches says that he “suffers from numerous health related issues.”
The bankruptcy judge in North Carolina denied Riches’s intervention motion three days after it was filed. The judge said the motion hadn’t been properly served on parties in the case.
Riches, who then claimed he was also known as Bernard Madoff, previously appeared in the Bloomberg bankruptcy report when he appealed denial of his motion to intervene in the reorganization of Pilgrim’s Pride Corp. In denying a motion to intervene in the liquidation of Bernard L. Madoff Investment Securities Inc., U.S. Bankruptcy Judge Burton R. Lifland said that Riches filed more than 1,000 lawsuits in federal district courts.
Riches’s release date is March 2012, according to the Federal Bureau of Prisons website.
Garlock, a Palmyra, New York-based gasket maker, filed under Chapter 11 in early June to deal with the 100,000 asbestos claims.
The case is In re Garlock Sealing Technologies LLC, 10- 31607, U.S. Bankruptcy Court, Western District of North Carolina (Charlotte).
Ice Cream Producer Vitafreze Files in Sacramento
Vitafreze Frozen Confections Inc. and affiliates Deluxe Ice Cream Co. and Matterhorn Group Inc. filed Chapter 11 petitions on July 26 in Sacramento, California, saying an expanded product line, cool weather and capital expenses resulted in a “cash crunch.”
The companies owe $10.6 million to secured lender Key Bank NA. The two primary equity holders are Pacific Mezzanine Fund LP and CC&B Holdings Inc. Formed in 2004, Vitafreze was designed to be a “vehicle to roll up frozen novelty manufacturing companies in the Western U.S.”
The company has plants in Sacramento and Salem, Oregon.
A court paper says the assets are on the books for $24.25 million.
The case is In re Vitafreze Frozen Confections Inc., 10- 39664, U.S. Bankruptcy Court, Eastern District of California (Sacramento).
Artecity Miami Beach Condo Files for Loan Access
Artecity Management LLC, the developer of a partly completed 202-unit condominium in Miami Beach, filed a bare- bones Chapter 11 petition on July 26 in Miami.
Although little was on file in the bankruptcy court aside from the printed form petition and a list of creditors, the company issued a press release explaining that Chapter 11 will be used to complete construction with a $2.7 million loan provided by some of the existing investors.
By late yesterday afternoon, there was no motion on file to approve financing.
The lender, an affiliate of Starwood Capital Group LLC, was foreclosing, according to the statement. Greenwich, Connecticut- based Starwood purchased the loan from a failed bank, Artecity said.
The new loan will be used to complete construction on 93 units that are already 95 percent complete, Artecity said in the statement.
The case is In re Artecity Management LLC, 10-31406, U.S. Bankruptcy Court, Southern District Florida (Miami).
Great Atlantic May Be Illiquid in Near Term, S&P Says
Great Atlantic & Pacific Tea Co. “may be illiquid at some point in the near term,” Standard & Poor’s said yesterday while issuing a second downgrade in five weeks.
The corporate rating is now CCC, down another notch. The second-lien notes are likewise CCC, with a prediction that holders won’t recover more than 50 percent after default. Unsecured debt now has a CC rating couple with a projection that the recovery in default won’t exceed 10 percent.
S&P was prompted to downgrade again by the $62.6 million operating loss in the quarter ended June 19 on sales of $2.57 billion. The net loss in the period was $122.6 million. Comparable-store sales declined 7.2 percent in the quarter.
Although food retailers generally have been under pressure, S&P said that the performance of A&P “has generally been worse than industry averages.” Cash from operations isn’t covering interest expenses and capital expenditures. A&P has its third chief executive officer in 12 months.
A&P’s hurdles include $165 million in convertible debt that matures in 2011, S&P said. In 2012, maturities are over $900 million including bonds, a term loan and revolving credit, according to data compiled by Bloomberg.
In the June downgrade, S&P’s stated concerns included multiemployer pension debt, “limited free cash flow generation, and geographic concentration.”
A&P reported a $876 million net loss and an $802 million loss from continuing operations for the fiscal year ended in February, on sales of $8.81 billion. The loss from operations in the year was $600.6 million.
The unaudited balance sheet was upside down on June 19, with total assets of $2.68 billion and total liabilities of $3.20 billion.
Montvale, New Jersey-based A&P had 429 stores in June, mostly in New York, New Jersey and Pennsylvania.
Tribune Examiner’s Report May Slow Plan Approval: Audio
By being given the task of partially adjudicating disputes, the report by the examiner for Tribune Co. may end up slowing the publisher’s ability to confirm a Chapter 11 plan. For a discussion of the examiner’s report and related issues, click here for the latest bankruptcy podcast on the Bloomberg terminal and Bloomberglaw.com.
Fulcrum Credit Lobbies for Votes Against Visteon Plan
Fulcrum Credit Partners LLC, which purchased claims of trade suppliers, is urging unsecured creditors to vote against the Chapter 11 plan of auto-parts maker Visteon Corp. To read Bloomberg coverage, click here.
The confirmation hearing for approval of Visteon’s reorganization plan is scheduled to begin Sept. 28. The judge set aside 10 days given the degree of opposition expected. In addition to shareholders and some creditors who are opposed, a group of trade suppliers say they have enough “no” votes to block approval by the unsecured creditor class. For details of 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).
Nexity Financial Sets August 27 Confirmation Hearing
Nexity Financial Corp., self-described as a leading provider of capital and support services for community banks, was granted its request when the bankruptcy judge scheduled an Aug. 27 hearing for approval of the reorganization plan. Before the Chapter 11 filing on July 22, the plan had been accepted by holders of 96 percent of the $22 million in trust preferred securities who voted on the plan. To confirm the plan, the judge must also find at the Aug. 27 hearing that the pre-bankruptcy disclosure statement contained adequate information.
For details of the plan and Nexity’s debt structure, click here for the July 23 Bloomberg bankruptcy report. Birmingham, Alabama-based Nexity has a bank subsidiary, Nexity Bank, operating under a cease-and-desist order issued by regulators.
The case is In re Nexity Financial Corp., 10-12293, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Crucible Has Approval for Environmental Settlement
Crucible Materials Corp., a steelmaker for the auto and aerospace industries, received approval from the bankruptcy judge on July 26 for a settlement reducing claims of the New York State Department of Environmental Conservation by about 94 percent. On claims originally filed for $21 million, environmental authorities will have approved unsecured claims totaling $1.18 million.
The confirmation hearing for approval of Crucible’s Chapter 11 plan is currently scheduled for Aug. 9. Crucible generated $14.4 million from four asset sales after secured lenders were fully paid on $64.5 million in claims outstanding at the outset of bankruptcy. When the disclosure statement was filed, Crucible had $25.2 million in cash on hand. The disclosure statement says that unsecured claims against Crucible Materials may be as much as $400 million while unsecured claims against Crucible Development Corp. might be $300 million. Crucible sold most of the assets to three buyers in September for $52 million and sold the remainder in January for $13.2 million.
Crucible filed under Chapter 11 in May 2009, listing assets of $163 million against $130 million in debt. Syracuse, New York-based Crucible is owned by its 1,000 employees and went into bankruptcy with two plants and 12 regional service centers.
The case is In re Crucible Materials Corp., 09-11582, U.S. Bankruptcy Court, District of Delaware (Wilmington).
One Communications Lowered Again, Now CCC+ by S&P
One Communications Corp., a competitive local exchange carrier, received a second downgrade in three months from Standard & Poor’s. The corporate peg went down another click yesterday to CCC+.
S&P cited bank loan covenants which tighten in March. The company negotiated a covenant waiver good through the end of this year.
Compared with last year, revenue and earnings before taxes, depreciation and amortization declined in the first quarter by 11 percent and 28 percent, respectively. S&P said it’s “uncertain” whether One Communications can refinance the revolving credit that matures in 2011.
Between the $30 million revolving credit and term loan, there are $484 million in maturities next year, according to data compiled by Bloomberg.
S&P was influenced by litigation where Verizon Communications Inc. is claiming it was overcharged on access billing by predecessor Choice Communications for the period April 2003 to September 2005.
One Communications is based in Burlington, Massachusetts.
Texas Industries Downgraded Again by Moody’s
Cement and concrete supplier Texas Industries Inc., which generates 80 percent of its income in Texas, received a second downgrade in six months from Moody’s Investors Service when the corporate peg slipped another notch yesterday to B3.
Moody’s based its action on “poor end market demand” coupled with “declining prices” and private spending that remains “depressed.”
On completion of a refinancing of $550 million in bonds that otherwise would have been due in 2013, Texas Industries’ only maturity is a $200 million revolving credit that’s up in 2012.
Dallas-based Texas Industries had a $38.9 million net loss for the fiscal year ended May 31 on sales of $621.1 million. Revenue in the year was 26 percent less than in prior fiscal years.
The new Moody’s rating is one level below the ding issued in March by Standard & Poor’s.
The stock closed yesterday at $34.20, down 76 cents in New York Stock Exchange composite trading. The closing high during the past three years was $84.04 on Aug. 8, 2007. The three-year low was $13 on March 9, 2009.