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Extended Stay, Capmark, Lyondell, Wexford, ISE, McDermott: Bankruptcy

Extended Stay Inc. creditors withdrew a request seeking permission from a bankruptcy judge to sue Blackstone Group LP and Lightstone Group LLC over the 2007 buyout of the hotel chain.

The committee representing Extended Stay’s unsecured creditors withdrew a motion to sue the firms, according a filing Aug. 10 with the U.S. Bankruptcy Court in New York. Judge James Peck was scheduled to consider the request at an Aug. 26 hearing.

The creditors committee didn’t give a reason for withdrawing the motion in its court filing. Mark Power, an attorney for the committee, didn’t immediately return a call seeking comment.

Blackstone sold Spartanburg, South Carolina-based Extended Stay to a group led by David Lichtenstein’s Lightstone in 2007 in a deal financed mostly with debt. Extended Stay filed for bankruptcy about two years later.

Creditors filed a motion in April to sue Blackstone, Lightstone and others involved in the sale, claiming the deal led to the company’s collapse. Extended Stay won court permission last month to sell its hotels to Centerbridge Partners LP, Paulson & Co. and Blackstone.

The case is In re Extended Stay Inc. 09-13764, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

New Filings

ISE Corp. Seeks Bankruptcy Protection in San Diego

ISE Corp., a maker of clean energy products, filed for protection under Chapter 11 of the U.S. Bankruptcy Code in San Diego.

The debtor declared assets and liabilities each in the range of $10 million to $50 million, according to court papers. The Poway, California-based clean energy technology developer said in court files that it has more than 200 creditors. The largest creditor is Suntron Corp., to which it owes $1.152 million. Other creditors include KPMG LLP, Proskauer Rose LLP, Goodwin Proctor LLP, R.R. Donnelley Receivables Inc., Ernst & Young LLP, Foley & Lardner LLP, and Blue Shield of California, according to a filing.

A meeting of creditors is scheduled for Sept. 14.

The case is In Re ISE Corp., 10-14198, U.S. Bankruptcy Court, Southern District of California (San Diego).

Wexford Development Files Chapter 11 in Indiana

Wexford Development LLC, a Lafayette, Indiana-based real estate development company, yesterday filed for protection under Chapter 11 of the U.S. Bankruptcy Code. Court files show that Wexford will continue to operate as a so-called debtor-in- possession.

Wexford declared assets of $1 million to $10 million and debts of $10 million to $50 million, according to court files. Among the 20 largest unsecured claims were Mount Prospect, Illinois-based First Banks Inc., to which it owes $14.250 million, of which $3 million is secured, and Polarity LLC, to which it owes $960,000, court files showed. A meeting of creditors is scheduled for the U.S. Bankruptcy Court in Layfette, Indiana, for Sept. 10.

The case is In re Wexford Development, 10-40804, U.S. Bankruptcy Court, Northern District of Indiana (Layfette).

Updates

Capmark Creditors Ask to Sue Citigroup, Goldman Sachs

Capmark Financial Group Inc.’s creditors sought court permission to sue Citigroup Inc. and Goldman Sachs Group Inc. over a $1.5 billion loan made to the commercial property lender.

The loan provided “little to no value” to Capmark and merely ensured the lenders were paid ahead of other creditors, unsecured creditors said in a papers filed Aug. 10 in U.S. Bankruptcy Court in Wilmington, Delaware.

The lack of assets available to pay unsecured creditors “is the direct result of this troubling transaction,” the committee representing the creditors of Horsham, Pennsylvania- based Capmark, said in the filing. The creditors are seeking court permission to sue on behalf of the company. Capmark filed for bankruptcy on Oct. 25.

Andrea Raphael, a spokeswoman for Goldman, declined to comment. A Citigroup representative didn’t immediately return a call seeking comment.

The case is In re Capmark Financial Group Inc., 09-13684, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Mexicana Leasing Companies Ask Under Seal to Lift Automatic Stay

A request by International Lease Finance Corp., Whitney Ireland Leasing Ltd. and Calliope, Ltd. for permission to make an emergency motion under seal was granted yesterday by U.S. Bankruptcy Judge Martin Glenn in Manhattan. The motion objects to the temporary restraining order now in effect, and for a determination that certain lease agreements are terminated and the automatic stay is not applicable if the court recognizes the foreign proceeding in Mexico, according to Glenn’s order.

Permission to file under seal can be granted when a filing contains trade secrets, proprietary or confidential information. Glenn did not specify in his order the reason for permitting the filing under seal. He granted the request “to the extent authorized” in a telephone conference call Aug. 9 that included him and the parties, allowing “unredacted” documents to be unavailable to the public.

Compania Mexicana filed for protection in both Mexico and the U.S. last week. Mexicana flies to more than 65 national and international destinations, including in the U.S., Canada, Europe and Latin America.

The U.S. case is Compania Mexicana De Aviacion SA de CV, 10-14182, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Lyondell Asks Court to Enforce Plan After Suit by Highland

Lyondell Chemical Co., the chemical company that recently exited from bankruptcy, asked the U.S. Bankruptcy Court in Manhattan for an order enforcing the April order that confirmed its third amended plan of reorganization, according to court files. The motion, joined by UBS Securities, LLC, was made in response to a lawsuit brought by Highland Capital Management, LP in state court in Manhattan.

UBS Securities was the agent and facilitator of term loan exit financing under the plan. Highland had a commitment from Lyondell that it would handle part of its exit financing, Highland said in the state court action filed July 28. UBS, as agent and facilitator for exit financing under the plan, “refused to allocate any part of the term loan to Highland” and did so “to further its personal, unrelated dispute with Highland,” causing Lyondell to breach its contract with the finance company, Highland said in court papers.

The suit is an “end-run around” the bankruptcy court’s confirmation order, Lyondell said in a court filing. The events on which Highland bases its claims in the state court suit arise from “events and alleged conduct” that occurred prior to the effective date of the plan and “are and were integral” to the plan, Lyondell said in court papers.

The suit “is barred as against UBS” by the confirmation order, UBS Securities argued in a court filing. Highland “violated the clear language” of the plan by filing the action in New York state court.

To read details on the reorganization plan, click here.

A hearing on the motion to enforce is scheduled for Sept. 22, and objections must be filed no later than Aug. 30.

The bankruptcy case is In re Lyondell Chemical Co., 09- 10023, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The state court case is Highland Capital Management LP v. LyondellBasel Industries NV, Supreme Court of the State of New York, County of New York (Manhattan).

Briefly Noted

Visteon Corp. has held discussions with three banks concerning bankruptcy exit financing of about $700 million, Reuters reported, citing two people familiar with the talks it didn’t identify. Morgan Stanley and Barclays Plc are leading competing groups to provide the financing, Reuters said. A group comprised of Goldman Sachs Group Inc., Deutsche Bank AG and Wells Fargo & Co. is also in talks with Visteon, Reuters said. Van Buren Township, Michigan-based Visteon filed for reorganization in May 2009, listing assets of $4.6 billion against debt totaling $5.3 billion. Visteon was spun off from Ford in 2000.

The case is In re Visteon Corp., 09-11786, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Debt Activity

Toys ‘R’ Us to Meet Lenders Today on $1 Billion Financing

Toys “R” Us Inc., the retailer acquired by KKR & Co., Bain Capital LLC and Vornado Realty Trust in 2005 for $7.5 billion, is expected to meet today with lenders for $1 billion of debt it’s seeking to refinance existing borrowings, according to a person familiar with the negotiations.

Bank of America Corp. will arrange the term loan and bonds backing the transaction, said the person, who declined to be identified because the terms are private.

The new financing will be used to repay all obligations under the company’s existing $800 million secured term loan facility and its existing $181 million senior unsecured credit facility, Toys “R” Us said yesterday in a statement.

Credit Markets

U.S. Corporate Credit Risk Index Rises by Most in Three Weeks

The cost to protect against defaults on U.S. corporate bonds rose by the most in more than three weeks, trading in a benchmark credit derivatives index shows. 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, increased 3 basis points to a mid-price of 107.7 as of the morning on Aug. 11 in New York, for the biggest jump since July 16, according to Markit Group Ltd. The index, which typically rises as investor confidence deteriorates, reached its highest since July 22.

Downgrades/Other Ratings Actions

J. Ray McDermott Ratings Repositioned by Moody’s After Spinoff

J. Ray McDermott SA had its B1 corporate family and B2 probability of default ratings repositioned to its parent company, McDermott International Inc., by Moody’s Investors Service, according to a statement by the ratings company.

Approximately $900 million of bank facilities are affected, Moody’s said in the statement.

The repositioning of the ratings “follows completion of the spinoff of Babcock & Wilcox Investment Co. from McDermott,” according to the statement. As planned in a May 3 $900 million senior secured revolving credit agreement of J Ray’s, parent company McDermott “has assumed the related obligation, which is rated Baa3.”

The ratings outlook for McDermott “is stable,” Moody’s said in the statement.

American General Finance Downgraded by Moody’s on Parent Sale

American General Finance Corp. had its corporate family and senior unsecured debt ratings lowered to B3 from B2 by Moody’s Investors Service yesterday, according to a statement issued by the ratings company.

The ratings change was made after American International Group Inc. announced that it will sell 80 percent of American General Finance Corp. and its immediate parent, American General Finance Inc., to “certain funds and affiliates” of Fortress Investment Group LLC.

American General Finance Corp.’s rating outlook “is developing,” Moody’s said in the statement.

The downgrade of American General Finance Corp.’s ratings “reflects Moody’s view that the pending sale of the firm results in a lower expectation of support” from American International Group.

AIG agreed to sell a majority stake in its consumer lender to Fortress Investment Group LLC, getting rid of a unit that posted about $1.7 billion in operating losses since 2008 and accumulated more than $17 billion in debt.

Fortress will take an 80 percent stake in American General Finance Inc. with AIG retaining the rest, according to a statement yesterday that didn’t disclose terms. AIG will book a pretax loss of about $1.9 billion on the deal, according to a filing from the New York-based insurer, which previously valued the unit at about $2.4 billion. Financial companies are scaling back consumer-lending operations after funding dried up for the businesses.

AIG Chief Executive Officer Robert Benmosche, 66, is divesting assets to help repay the insurer’s $182.3 billion bailout. The company said last week it was exploring “strategic alternatives” for American General, including a sale.

For more about the sale, click here.

Wyle Holdings’ Corporate Credit Rating Put on Credit Watch

Wyle Holdings Inc., the El Segundo, California-based U.S. government contractor, had its B+ corporate credit rating placed on credit watch “with negative implications,” according to a statement by Standard & Poor’s yesterday.

S&P also placed the BB issue-level rating on the Wyle Holding’s $115 million first-lien facilities and the B+ rating on the company’s $175 million senior subordinated notes due 2018 on credit watch negative.

The ratings actions were made in light of Wyle Holdings’ announcement that “it has entered into a definitive agreement to acquire CAS Inc., a Huntsville, Ala.-based provider of systems engineering and technical assistance services primarily to the U.S. Department of Defense,” S&P said in the statement. The “incremental financing” of $200 million used to fund the acquisition “could result in higher leverage than the current rating contemplates,” and exceeds the size of prior acquisitions, “presenting material integration risk,” S&P said.

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

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