Lehman, AbitibiBowater, Esmerian, Centaur, Storm King Golf: Bankruptcy

Lehman Brothers Holdings Inc. and brokerage unit Lehman Brothers Inc. face a tax liability of as much as $283 million if they retain residual interests in real- estate mortgage investment conduits known as Remics.

The companies filed a motion asking the bankruptcy judge for authority to pay Citibank NA $24 million to assume the tax liability.

The joint motion by the Lehman holding company and the trustee for the brokerage, filed on July 28, explains how the owner of the residual interests incurs so-called phantom income, which gives rise to a tax liability even though there is no actual income. Moreover, the phantom income can’t be offset by operating losses. It can be offset only by specified tax credits, which the Lehman companies lack.

The motion for offloading the tax liabilities will come to bankruptcy court for approval on Aug. 18.

That hearing will also find Lehman seeking authorization for a third time to allow insurance companies to honor policies providing directors’ and officers’ liability insurance.

For the policy year May 2007 to May 2008, Lehman had $250 million in so-called D&O insurance. Claims on the policies soon will have eaten through the first two layers providing the initial $35 million of coverage. The new motion, Lehman’s third, is seeking authority for payments by insurance companies providing the next layers of coverage.

The Lehman holding company and its non-brokerage subsidiaries filed a revised Chapter 11 plan and disclosure statement in April. For details, click here and here for the April 15 and 16 Bloomberg bankruptcy reports.

The Lehman holding company filed under Chapter 11 in New York on Sept. 15, 2008, and sold office buildings and the 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, while the liquidation proceeding under the Securities Investor Protection Act for the brokerage operation is Securities Investors Protection Corp. v. Lehman Brothers Inc., 08-01420, both in U.S. Bankruptcy Court, Southern District of New York (Manhattan).


Emergency Hearing this Morning in Texas Rangers Case

The Texas Rangers baseball club filed tantalizingly vague papers yesterday setting up an emergency hearing today in U.S. Bankruptcy Court in Fort Worth, Texas.

The motion underlying this morning’s hearing wasn’t merely filed in redacted form, it was entirely filed under seal with none of its contents made public. The request for authority to file the papers secretly said the motion would ask the bankruptcy judge to modify unspecified prior orders and allow the team to “effectuate a settlement of certain disputes in this case.”

The only court filing made public says that the settlement would provide “substantial value to the debtor’s estate.”

On July 28 the bankruptcy judge signed an order extending the deadline for voting on the reorganization plan to Aug. 2 for the chief restructuring officer for the two partnerships that own the team.

The team’s tersely written papers yesterday said that the proposed settlement “contains confidential and highly-sensitive terms that could be prejudicial to the debtor’s estate if the motion is ultimately denied.”

Absent the order extending the time to vote, the restructuring officer would have been required to vote by July 28. The confluence of the extension order and the motion for approval of a settlement may be mere coincidence or could indicate that the team and the restructuring officer are working on a compromise.

Bids for the team are due on Aug. 3 in advance of the Aug. 4 auction. The first bid of $306.7 million cash comes from a group including current President Nolan Ryan and sports lawyer Chuck Greenberg.

The auction will be followed immediately by a hearing to approve the sale or a confirmation hearing on the team’s Chapter 11 plan.

The Rangers filed under Chapter 11 on May 24 with a sale contract and a plan that claims to be paying all creditors in full. Secured lenders owed $525 million 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).

Tribune Creditors May Have More Time to Vote on Plan

The entire Tribune Co. examiner’s report may be made public after an Aug. 3 hearing, the bankruptcy judge said in court yesterday.

At yesterday’s hearing, the judge allowed parties who were targets of the investigation to see the entire report. Creditors on both sides of the question of fraudulent transfers in the 2007 leveraged buyout were urging the judge to make the entire report public, including evidence the examiner used to draw his conclusions.

The judge said he may extend the Aug. 6 deadline for creditors to vote on the reorganization plan. He said he wasn’t inclined to delay the plan confirmation hearing that’s scheduled to begin Aug. 30.

The examiner’s complicated report found some likelihood a court would conclude that debt issued in the final steps of the leveraged buyout could be attacked successfully as a constructively fraudulent transfer. He found less likelihood that the first part of the transaction, in May 2007, could be unraveled as a fraudulent transfer. For a summary of some of the examiner’s conclusions, click here for the July 27 Bloomberg bankruptcy report.

Tribune’s Chapter 11 plan 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 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).

Madoff Trustee Sues to Recover Business Investments

The trustee for Bernard L. Madoff Investment Securities Inc. filed three lawsuits yesterday to recover $34.5 million and ownership interests in businesses that Bernard Madoff’s family members purchased with money that was allegedly stolen from the Madoff firm’s customers.

Madoff “was quite generous with money he stole,” according to the complaints. The papers say he gave $250 million to his closest family members, including his wife, brother, two sons and a niece. The money allegedly was used to “fund lavish lifestyles” and provide $22 million for investment in businesses.

Yesterday’s complaint seek to recover $34.5 million that went to the businesses along with the majority ownership interest in Primex Holdings LLC, the owner of an electronic auction system for securities and commodities.

Bernard Madoff is serving a 150-year prison sentence following a guilty plea. The Madoff firm began liquidating in December 2008 with the appointment of a trustee under the Securities Investor Protection Act. Bernard Madoff himself went into an involuntary Chapter 7 liquidation in April 2009. His bankruptcy case was consolidated with the firm’s liquidation.

The first of the three new suits is Picard v. Madoff Technologies LLC, 10-08483, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The other two are 10-08484 and 10-08485.

The Madoff liquidation case is Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities Inc., 08-01789, U.S. Bankruptcy Court, Southern District New York (Manhattan). The criminal case is U.S. v. Madoff, 09-cr- 00213, U.S. District Court for the Southern District of New York (Manhattan).

Brown Publishing Insiders Allowed to Buy Most Assets

Dan’s Papers, the weekly newspaper with the largest circulation on eastern Long Island, New York, and the Montauk Pioneer will be sold to company insiders for $22.4 million along with most of the other assets of Brown Publishing Co.

At a hearing yesterday, the judge approved the sale to the insider group, which includes Roy Brown, the president and chief executive officer. She also approved the sale of three publications in Ohio for $3.59 million cash to Delphos Herald Inc.

The bankruptcy judge refused to approve the sale of three parcels of real property for $10,000 to the insider group, saying there hadn’t been sufficient marketing. To read Bloomberg coverage of the hearing, click here.

Closely held Brown, based in Cincinnati, listed assets of $94 million against debt totaling $104.6 million after the Chapter 11 filing at the end of April. First-lien lenders are owed $70.2 million on a revolving credit and term loan. Second- lien lenders are owed $24.3 million.

Brown owns 15 daily, 32 weekly, 11 business and 41 free publications, and runs 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 of New York (Central Islip).

U.S. Concrete Plan Confirmed, Noteholders to Get Stock

U.S. Concrete Inc., one of the 10 largest producers of ready-mixed concrete in the U.S., has the signature of the bankruptcy judge on a July 29 confirmation order confirming the Chapter 11 plan.

The plan reduces debt by $285 million by swapping 8.325 percent subordinated notes for the new equity. Among noteholders who voted, 99.97 percent favored the plan.

Although some shareholders said they were entitled to more than warrants for 15 percent of the stock, 88 percent of the shareholder class voted “yes.”

For details of the plan, click here for the April 30 Bloomberg bankruptcy report.

The Chapter 11 petition filed in late April listed assets of $389 million and debt of $399 million. Liabilities include $40 million on a pre-bankruptcy secured credit facility where JPMorgan Chase Bank NA serves as agent. There was another $17.9 million on undrawn letters of credit.

U.S. Concrete’s balance sheet on Dec. 31 listed assets of $392.4 million and liabilities totaling $402.5 million. It has 125 fixed and 11 portable plants serving markets in California, New Jersey, Texas and Michigan.

The case is In re U.S. Concrete Inc., 10-11407, U.S. Bankruptcy Court, District of Delaware (Wilmington).

AbitibiBowater Says Company ‘Hopelessly Insolvent’

AbitibiBowater Inc., the largest newsprint maker in North America, characterized the business as being “hopelessly insolvent” in court papers filed July 28 opposing the appointment of an official committee to represent shareholders.

Abitibi was scheduled to be in bankruptcy court today in pursuit of approval for the disclosure statement explaining the Chapter 11 plan. The hearing was adjourned to Aug. 2. The hearing on the equity committee motion is on the calendar for Aug. 4. For details of Abitibi’s revised plan and disclosure statement, click here to read the July 29 Bloomberg bankruptcy report.

Opposing a new official committee late in the case, Abitibi said that the reorganized company will have a consolidated enterprise value of about $3.68 billion, compared with claims totaling $8.9 billion.

The shareholders, who said they own 27 percent of the stock, contend Abitibi’s liquidation value is $9.1 billion. The company said the equity holders provided no “credible evidence” supporting the higher value.

Among the larger Abitibi subsidiaries, the recovery under the plan ranges between 0.4 percent and 37.4 percent. For the Bowater units with larger creditor bodies, the predicted recovery ranges between 0.9 percent and 36.5 percent.

AbitibiBowater was formed in October 2007 through a merger between Montreal-based Abitibi-Consolidated Inc. and Greenville, South Carolina-based Bowater Inc. Abitibi is a producer of newsprint, uncoated mechanical paper and lumber. Bowater also makes newsprint, along with papers, bleached kraft pulp and lumber.

The Montreal-based company began reorganizing with 24 pulp and paper mills plus 30 wood-product plants. Revenue in 2008 was $6.8 billion. In Chapter 11 petitions filed in April 2009, the combined AbitibiBowater companies listed assets of $9.9 billion and debt totaling $8.8 billion as of September 2008.

The case is AbitibiBowater Inc., 09-11296, U.S. Bankruptcy Court, District of Delaware (Wilmington).

U.S. Trustee Seeks Chapter 11 Trustee for Esmerian

Ralph Esmerian and the company that bears his name appear to be headed toward being taken over by a Chapter 11 trustee.

Esmerian, former owner of liquidated antique jewelry retailer Fred Leighton LLC, knew he would have difficulty fending off the appointment of a Chapter 11 trustee. Consequently, he filed a motion for the appointment of restructuring officer who would be responsible for managing his financial affairs in Chapter 11.

The bankruptcy judge denied the motion on July 23.

The U.S. Trustee in New York filed an emergency motion on July 27 seeking appointment of a Chapter 11 trustee for Esmerian and his namesake company. The motion will be on the Aug. 2 calendar in bankruptcy court.

The U.S. Trustee argues that Esmerian must be taken over by a trustee on account of misdeeds in the Leighton case. The U.S. Trustee points to findings by the bankruptcy judge in the prior case where the court ruled that Esmerian “misappropriated the debtors’ cash and inventory,” causing additional losses to the secured lender. The judge also found that Esmerian sold company property to pay personal debt and pledged the same jewelry to more than one creditor simultaneously.

The U.S. Trustee argues that the prior proven examples of “inequitable conduct” represent fraud or gross mismanagement which are grounds for having a trustee in Chapter 11.

Creditors who filed the involuntary petition against Esmerian in May said they were collectively owed $40 million. Esmerian converted the cases to Chapter 11 this month.

Merrill Lynch Mortgage Capital Inc. precipitated the Fred Leighton Chapter 11 in April 2008 by suing in state court to hold a foreclosure auction. Eventually, Fred Leighton was liquidated under a Chapter 11 plan proposed by Merrill. The Leighton plan was confirmed in November.

The new cases are In re R. Esmerian Inc. and In re Ralph Esmerian, 10-12719 and 10-12721, both in U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Centaur to Auction Colorado Casino on August 23

Casino and racetrack operator Centaur LLC will hold an auction on Aug. 23 to learn if the offer from Luna Gaming Central City LLC is the best bid for the Fortune Valley Hotel & Casino 40 miles west of Denver. The so-called stalking horse bid is $7.5 million in cash plus a $2.5 million note, less adjustments.

Other bids are due Aug. 18, with a hearing for approval of the sale on Aug. 23, according to procedures approved by the bankruptcy judge on July 28.

The judge also extended Centaur’s exclusive right to solicit acceptances of a Chapter 11 plan until Sept. 30.

Centaur filed a revised reorganization plan on July 22 where holders of $405 million in first-lien debt are slated to recover 83.3 percent from a combination of mostly new stock and debt. Holders of $207 million in second-lien debt are in line for a 1.4 percent recovery, according to the disclosure statement filed along with the plan.

Centaur doesn’t believe that its assets are worth enough to pay first-lien debt in full. For details of the plan, click here for the July 26 Bloomberg bankruptcy report.

Centaur LLC and 12 affiliates filed Chapter 11 petitions in March. Affiliates Centaur PA Land LP and Valley View Downs LP filed for bankruptcy reorganization in October to keep alive a project to develop a racetrack in Pennsylvania. All the companies are subsidiaries of closely held Centaur Inc., which isn’t in bankruptcy.

The March filings listed assets of $584 million and debt of $681 million. The newer cases resulted from the failure to make payments due in October on a $382.5 million first-lien debt and a $192 million second-lien credit. The companies have horse racing and gambling facilities in five markets in Indiana and Colorado. They were developing a property in Pennsylvania to be called Valley View Downs & Casino 55 miles from Pittsburgh.

The companies own Hoosier Park, a casino and horse-racing track in Anderson, Indiana, along with three off-track betting parlors in Indiana.

In addition, they own Fortune Valley Hotel & Casino in Central City, Colorado, which has a 118-room hotel to complement the casino. The companies generated revenue of $277.5 million in 2009.

The newer case is Centaur LLC, 10-10799, and the first case was In re Centaur PA Land LP, 09-13760, U.S. Bankruptcy Court, District of Delaware (Wilmington).

New Filing

Storm King Golf Club Files Chapter 11 in Poughkeepsie

Storm King Golf Club Inc., a member-owned golf course in Cornwall, New York, filed a Chapter 11 petition on July 28 in Poughkeepsie, New York.

The 6,300-yard course claims to be one of the 100 oldest in the U.S. The “general state of the economy” caused a drop in membership, according to court papers.

There is a $1.62 million mortgage on the course, which the club values at $12 million. Monthly revenue in the season is about $14,000, a court filing says.

The case is In re Storm King Golf Club Inc., 10-37256, U.S. Bankruptcy Court, Southern District of New York (Poughkeepsie).


Home Foreclosures Increasing in 74% of Metro Areas

Home foreclosures in the first six month of 2010 increased in 154 of 209 metropolitan areas with populations over 200,000, RealtyTrac Inc. said in a report yesterday.

The foreclosure rate declined in nine of the 10 areas with the highest rates, indicating that foreclosures are spreading beyond the areas that were hard-hit first.

The states with the highest foreclosure rates are Florida, California, Nevada and Arizona. To read Bloomberg coverage, click here.

Daily Podcast

Texas Rangers, American Mortgage, Visteon, Station: Audio

Limitations on giving releases to non-bankrupt third parties in the reorganizations of the Texas Rangers and American Mortgage Acceptance Co., improved creditor treatment to smooth confirmation of plans for Visteon Corp. and Station Casinos Inc., and record-low recoveries in Chapter 11 cases are discussed in the new bankruptcy podcast on the Bloomberg terminal and Bloomberglaw.com. To listen, click here.

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

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