Lehman Minibonds, Comercial Mexicana, Chemtura, Circuit City: Bankruptcy

Lehman Brothers Holdings Inc. and HSBC Holdings Plc may be sued over $1.6 billion in worthless securities sold to retail investors, primarily in Hong Kong, a judge in New York ruled.

U.S. District Judge William H. Pauley III yesterday reversed part of a decision by Lehman’s bankruptcy judge, who threw out a suit by seven holders of structured financial notes called “minibonds.” The plaintiffs seek to represent a class of investors in the notes from June 16, 2003, to Sept. 15, 2008, Pauley said in his decision.

Pacific International Finance Ltd. issued the minibonds and marketed them as linked to the credit of financially sound companies and backed by AAA-rated collateral, Pauley said. The minibonds became worthless when Lehman Brothers collapsed in September 2008. A Hong Kong regulatory authority investigation disclosed that Lehman designed the minibonds program and used Pacific Finance to issue them, Pauley said.

Neil Brazil, an HSBC spokesman, said the firm had no immediate comment on the ruling. Kimberly Macleod, a Lehman spokeswoman, didn’t immediately return a voice mail message seeking comment.

The case is Wong v. HSBC USA Inc., 10-cv-00017, U.S. District Court, Southern District of New York (Manhattan).

New Filings

Mexican Judge Accepts Comercial Mexicana Bankruptcy Petition

A federal Mexican judge accepted a bankruptcy petition from Controladora Comercial Mexicana SAB, Mexico’s fourth-largest retailer by market capitalization, which has already filed for bankruptcy protection in the U.S., the Mexico City-based company said in an e-mailed statement.

Comercial Mexicana filed for pre-approved bankruptcy in Mexico July 14 and Chapter 15 bankruptcy in the U.S. on July 16. The company said that 98 percent of its creditors support the filing.

At a hearing on July 16 in New York, U.S. Bankruptcy Judge Stuart M. Bernstein denied Comercial Mexicana’s request for a temporary restraining order intended to stop creditor actions in the U.S. He said they could try again. Bernstein also scheduled a hearing for Aug. 19, when Comercial Mexicana will ask the judge to declare that the reorganization proceedings in Mexico meet the standards demanded in Chapter 15. If he finds that Mexico is properly home to the “foreign main proceeding,” creditors’ suits in the U.S. will be halted automatically. Chapter 15 doesn’t have a so-called automatic stay like Chapters 11 or 7.

Controladora joins Mexican companies Compania Mexicana de Aviacion and Cozumel Caribe SA, a tourist services company, in filing Chapter 15 this summer.

The U.S. case is In re Controladora Comercial Mexicana SAB, 10-13750, U.S. Bankruptcy Court, Southern District of New York (Manhattan).


Chemtura Wins Approval for Exit-Financing Agreement

Chemtura Corp. won court permission to enter an agreement to finance the plastic-additives maker’s exit from bankruptcy with about $1 billion in new debt.

U.S. Bankruptcy Judge Robert Gerber in Manhattan yesterday said Chemtura can borrow $275 million in a revolving credit facility and as much as $750 million through an unsecured term loan or notes. Gerber also allowed Chemtura’s Canadian unit to join the parent company’s U.S. bankruptcy case.

Chemtura, based in Middlebury, Connecticut, said July 30 that it seeks to prefund new debt as it prepares to leave bankruptcy. The agent for the loan is Bank of America Corp., with joint lead arrangers Banc of America Securities LLC and Wells Fargo Capital Finance LLC. Chemtura will seek final approval for the financing when it confirms a Chapter 11 plan.

Chemtura Canada, which filed for bankruptcy Aug. 8, was included in the reorganization plan filed by the parent in July. The unit’s bankruptcy will allow Chemtura to resolve liability from food-additive diacetyl, the parent said in the so-called disclosure statement explaining its plan.

The case is In re Chemtura Corp., 09-11233, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Madoff Victims Declared Winners Deserve Recoveries, Lawyer Says

A U.S. bankruptcy judge erred in ruling Bernard Madoff’s customers can collect as much as $500,000 each from the Securities Investor Protection Corp. only if they invested more money than they withdrew, a lawyer said.

Victims of Madoff’s Ponzi scheme known as “net winners” deserve recoveries even though they took out more than they put into Bernard L. Madoff Investment Securities LLC, attorney Helen Chaitman argued in an appeals court filing yesterday. The net investors “typically” elderly, with health problems, and “live in constant fear” the trustee will sue them for the amount they withdrew in excess of their investments, Chaitman wrote in a filing yesterday.

Chaitman, who represents 700 investors, asked the U.S. Court of Appeals in New York to reverse U.S. Bankruptcy Judge Burton Lifland’s March order. They want SIPC trustee Irving Picard to review claims based on final account statements in December 2008 that included fake profit from the fraud. The investors say they had no knowledge of the fraud at Madoff’s New York-based firm.

The case is Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities LLC, 08-01789, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

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Chelsea Museum May Close After Building’s Bankruptcy

The Chelsea Art Museum in New York may be forced to close after the owner of the 19th century building that is home to the museum filed for bankruptcy protection.

The museum can be saved if its building refinances its debt and develops its rooftop, Dorothea Keeser, the museum’s co- founder and the owner of its building, said in an interview. Otherwise, the property will be sold.

The entity that owns the museum building, built in 1850 and located in the Chelsea neighborhood on the west side of Manhattan, filed for bankruptcy Aug. 6, listing assets of $10 million to $50 million, according to papers filed in U.S. Bankruptcy Court in Manhattan. Keeser said the building is worth $20 million now.

Carin McDonald, a spokeswoman for Hudson Realty, didn’t immediately return a call seeking comment made after regular business hours.

The case is In re 556 Holding LLC, 10-14267, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

GM’s Estate May Face Billions of Dollars in Asbestos Claims

Creditors of General Motors Corp.’s bankruptcy estate won permission to seek data from new General Motors and other parties to estimate what could be billions of dollars in asbestos claims, relating to brake linings containing with small amounts of encapsulated asbestos.

U.S. Bankruptcy Judge Robert Gerber in New York yesterday granted permission to unsecured creditors to request documents, after they agreed to keep sensitive information confidential. He said the situation was not like “the formula for Coke or nuclear launch codes.”

Motors Liquidation Co., the remains of General Motors still in bankruptcy, plans to create a trust, allowing it to exit bankruptcy with some funds set aside to pay future tort claims. While the estate recorded an estimate of $648 million for asbestos liability, a committee of creditors said in a court filing the estate may face claims for five to 10 times as much.

Thomas Mayer, a lawyer for creditors, wasn’t available for comment yesterday. Elihu Inselbuch and Rita C. Tobin, lawyers representing the asbestos claimants, didn’t respond to a call seeking comment.

The case is In re Motors Liquidation Co., 09-50026, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

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Possible Filing

Constellation Bids $1.1 Billion for Boston Plants

Constellation Energy Group Inc., the Baltimore-based power producer, signed an agreement to become the $1.1 billion “price to beat” for U.S. Power Generating Co.’s five Boston-area power plants.

The bid for the plants will be the price to beat in an asset auction held later this year as part of bankruptcy proceedings for Boston Generating LLC, a unit of New York-based U.S. Power Generating, according to a Constellation statement yesterday. Boston Generating LLC has “too much debt to be supported by the current and prospective market economics,” Standard & Poor’s said in a report July 22. The company is in restructuring discussions with holders of first-lien, second- lien and mezzanine debt, S&P said in the report.

U.S. Power Generating owns and operates 58 units in the New York and New England area, according to its website. The closely held company’s investors include affiliates of investment company Madison Dearborn Partners LLC and the family of Hunt Oil Co.’s Ray L. Hunt.

Nonprofit Debt

Folk Art Museum Doubles Deficit, Spends $341,580 on Legal Fees

New York’s American Folk Art Museum, which has defaulted on $29.9 million of tax-exempt bonds, saw its deficit almost double from 2008 to 2009, according to its latest tax return.

The deficit increased to $7.23 million during the fiscal year ending June 30, 2009, up from $3.79 million in 2008. The return also shows that revenue from admissions at the nonprofit institution, whose collection includes folk art and works by self-taught artists, fell 13 percent to $306,054 in 2009.

In July 2009, the 49-year-old museum stopped paying into a reserve fund for tax-exempt bonds issued by New York City’s Trust for Cultural Resources to finance construction of a new home next to the Museum of Modern Art on West 53rd Street.

“We’re not on the verge of closing,” Maria Ann Conelli, the museum’s executive director, said in an e-mail. Museum board members have offered $375,000 in challenge grants, she said, and the rest of the board “is actively fundraising” to meet them.

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Briefly Noted

Circuit City Stores Inc., the bankrupt electronics retail company, was given permission Aug. 6 by the U.S. Bankruptcy Court in Richmond, Virginia, to sell a building that houses its corporate offices to DRCC Properties LLC for $2.75 million, according to court files. The order signed by U.S. Bankruptcy Judge Kevin R. Huennekens granted permission to Circuit City to assume unexpired leases connected to the property and assign them free and clear of all liens. After the assignment, the leases will be “in full force and effect,” the order said. DRCC made a deposit of $275,000 when the purchase agreement was signed June 21. Circuit City will pay DRCC $75,000 “as reimbursement of its expenses and costs,” according to the order. Under the purchase agreement, the deal must close within 20 days after the signing of the order.

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

U.S. Bankruptcy Judge Martin Glenn was asked by the trustee overseeing the bankruptcy case of Mesa Air Group Inc. bankruptcy for permission to pay part of the professional fee and expense applications of firms that did work in the bankruptcy case from Jan. 5 to April 30, according to court files. The fee applications include a request for $1.77 million for services provided by Pachulski, Stang, Zeihl & Jones LLP, and a request for $1.08 million for services provided by Jones Day LLP, and $580,645 by Imperial Capital, LLC for work as financial adviser and investment banker, court files revealed. Total professional applications for the four-month period came to $4.85 million for fees and $246,212 for expenses. Acting Trustee Tracey Hope Davis objected to $465,000 of the fees and $125,000 of the expenses, citing vagueness in the way the firms described the bases for their requests. A hearing is scheduled on the motion for April 12.

The case is In re Mesa Air Group Inc., 10-10018, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Bankruptcy Trustee Ronald F. Walton has objected to the sale of “substantially all” of the assets Medical Staffing Network Holdings Inc.’s and its debtor affiliate, free and clear of liens under a court order signed by U.S. District Judge Erik B. Kimball on July 22 that would take effect if there are no objections. The order allows for objections to the planned sale by competitive bidding and approval of an asset purchase agreement, to be held Aug. 20. Under the purchase agreement, first lien lenders offer to buy the assets for $84 million, without disclosing which liens they will take on, it said in the trustee’s objection. The debtor has secured debt of $126 million, “general unsecured debt” of $3.76 million and priority secured debt of $216,599, according to court files. It “appears there will be no benefit” to the debtors’ estates by having the sale and the first lien holders “are the only parties who will achieve any success in this proceeding,” the trustee said in court papers.

The case is Medical Staffing Network Holdings Inc., 10- 29101, U.S. Bankruptcy Court, Southern District of Florida (West Palm Beach).

Judge Arthur A. Gonzalez of the U.S. Bankruptcy Court in Manhattan Aug. 4 granted the request of Alpha Holding LP, an affiliate of Chrysler LLC, for a final decree closing the bankruptcy cases of 24 debtors and approving procedures to close Alpha Holding’s case. The bankruptcy petition was filed by Chrysler LLC April 30, 2009, and covered 24 units. One unit, Alpha Holding LP, filed on May 19, 2009. The procedures for closing the Alpha Holding include service by the liquidation trust of a notice of dissolution. Objections to the closing notice must be made within 10 days of its service.

The case is In re Old Carco, formerly known as Chrysler LLC, 09-50002, U.S. Bankruptcy Court, Southern District of New York (Manhattan)

AbitibiBowater Inc., the world’s biggest newsprint maker by capacity that got court approval for a restructuring plan outline Aug. 2, is seeking $1.35 billion in bonds and loans to finance its bankruptcy exit. JPMorgan Chase & Co., Barclays Plc and Citigroup Inc. agreed to arrange $750 million in notes and a $600 million asset-based revolving credit line, according to filings with the U.S. Bankruptcy Court in Wilmington, Delaware. The Montreal-based paper maker has the option to raise all or part of its exit financing in a term loan instead of bonds. Under AbitibiBowater’s restructuring plan, unsecured creditors would share the reorganized company’s stock in addition to the right to participate in a $500 million notes offering.

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


U.S. Corporate Credit Risk Declines, Default Swaps Index Shows

A benchmark gauge of U.S. corporate credit risk fell. The Markit CDX North America Investment Grade Index Series 14, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, declined 1.2 basis point to a midprice of 102.8 basis points as of yesterday morning in New York, according to Markit Group Ltd. The index typically falls as investor confidence improves.


NYSE Euronext, Unit Downgraded by S&P, Ratings Company Says

NYSE Euronext and its unit had their counterparty credit ratings downgraded to A+/A-1 from AA-/A-1+ yesterday by Standard & Poor’s Ratings Services, according to a statement by the ratings company.

NYSE Euronext and its unit Euronext NV were both removed from credit watch negative, where S&P had placed them May 13.

The rating actions were made following S&P’s “updated assessment that the company’s key credit metrics, while improving, will likely remain consistent” with the A rating category, S&P credit analyst Charles D. Rauch said in the statement. The ratings company expects Euronext will “gain momentum in its derivatives and information and technology services businesses, while holding on to market share in its traditional cash equity businesses,” it said in the statement.

To contact the reporter on this story: Carla Main in New Jersey at cmain2@bloomberg.net.

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