Trico, Innkeepers, Oriental Trading, Fulton, ASR, Magic Brands: Bankruptcy

Trico Marine Services Inc., a provider of support vessels for the offshore oil and gas industry, filed under Chapter 11 late yesterday in Delaware after signing a revised loan agreement in June that required initiating a bankruptcy reorganization not later than Sept. 8.

Trico in a statement blamed the filing on a “sluggish economy, a highly leveraged balance sheet, and imminent interest payments.” Bankruptcy reorganization is also necessary, according to the court filing, on account of lower oil prices, lower utilization and “day rates,” and a larger number of available supply vessels.

Aside from a Cayman Islands holding company, none of the foreign subsidiaries are in bankruptcy. The consolidated balance sheet for June listed assets of $904 million against liabilities totaling $1.027 billion. The bankruptcy petition listed liabilities of $354 million for Trico Marine.

The Chapter 11 case will be financed with a $35 million secured credit supplied by Tennenbaum Capital Partners LLC. The new loan will pay off a $25 million credit from Tennenbaum that was the subject of the June loan agreement. The bankruptcy loan will bear interest at 11.5 percentage points more than the London interbank borrowed rate.

Additional new financing will come from a $22 million credit to non-bankrupt subsidiary Trico Shipping AS. The loan is being supplied by Tennenbaum and holders of some of the 11.875 percent senior secured notes.

Liabilities include $202.8 million on secured convertible debentures where an interest payment in May was missed. There is also $150 million owing on unsecured convertible debentures where the interest payment in July was missed.

Non-bankrupt Trico Shipping owes $400 million on the 11.875 percent senior secured notes.

Although Trico was attempting to negotiate a prepackaged reorganization with its creditors, the company said a Chapter 11 filing became necessary for lack of a feasible plan for short- term financing. The loan agreement with Tennenbaum in June required Trico to “diligently” pursue negotiations on a so- called prepackaged Chapter 11 reorganization.

Trico, based in Woodlands, Texas, reported a $108.6 million operating loss in the first half of 2010, including $84.2 million in impairments. Revenue for the first half was $240 million while the net loss was $238.9 million. In 2009, the net loss was $145.3 million on revenue of $642.2 million.

The 8.125 percent convertible debentures last traded yesterday at $18.75, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The 3 percent unsecured convertible debentures last traded yesterday at $6.125, according to Trace.

The case is In re Trico Marine Services Inc., 10-12653, U.S. Bankruptcy Court, District of Delaware (Wilmington).

New Filings

Oriental Trading Plan Cuts Out Second-Lien Creditors

Oriental Trading Co., a direct marketer of home décor products, toys, and novelties, missed an interest payment in May on second-lien debt and filed a Chapter 11 petition yesterday along with an agreement in which first-lien lenders, owed $403.6 million, would end up owning the new stock.

Assets of the Omaha, Nebraska-based company were on the books for $463 million on April 3. Liabilities totaled $756.6 million. Net sales for the fiscal year were $485.4 million.

Efforts to negotiate a so-called standalone plan between first- and second-lien lenders were unsuccessful. OTC then searched for a purchaser. None of the offers was enough to pay first-lien debt in full.

At the filing date, $180 million plus interest is owing on the second-lien debt. In addition, there is $120 million in mezzanine debt.

An affiliate of The Carlyle Group purchased 68 percent of OTC in July 2006 from private-equity investor Brentwood Associates, which continues to own about 24 percent of the equity.

OTC said in a statement that a “substantial majority” of first-lien lenders are in agreement with the proposed plan which is outlined in a so-called plan support agreement. Second-lien lenders are not parties to the agreement.

The plan would give the new stock plus a new $200 million second-lien note to the senior lenders. If the plan goes through, second-lien creditors would be given warrants for 2.5 percent of the stock with a strike price based on an enterprise value of $427.5 million.

The first-lien lenders are agreeing to provide a secured $40 million credit for the Chapter 11 case. At confirmation of the plan, there would be a $50 million first-lien term loan to pay off the so-called DIP loan.

JPMorgan Chase Bank NA is agent for the first-lien creditors while Wilmington Trust FSB is agent on the second-lien credit. Wachovia Bank NA serves as agent for the mezzanine debt holders.

The case is In re OTC Holdings Corp., 10-12636, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Wood Panel Producer States Industries Files Chapter 11

States Industries Inc., a producer of wood paneling in Eugene, Oregon, filed a Chapter 11 petition on Aug. 24, owing $15.5 million to the secured lender Renwood States Lending LLC. Renwood is offering to provide $1.5 million in financing for the reorganization effort.

States listed assets of $20.6 million and debt of $28.5 million in its Chapter 11 papers.

The case is In re States Industries Inc., 10-65148, U.S. Bankruptcy Court, District of Oregon (Eugene).

Updates

Innkeepers’ Creditors May Investigate Lehman, Apollo

The official creditor’s committee for Innkeepers USA Trust was authorized by the bankruptcy judge yesterday to conduct an investigation into the formation and financing of the real estate investment trust owned by Apollo Investment Corp.

In addition to Innkeepers and Apollo, the committee can take discovery from a subsidiary of Lehman Brothers Holdings Inc. named Lehman ALI Inc. that was the originator of debt sold in connection with Apollo’s $1.35 billion acquisition in July 2007. To read Bloomberg coverage of the hearing, click here.

The judge decreed that documents must be provided to the committee within 30 days and that witnesses must submit for examinations under oath within 40 days.

Targets of the examinations also include Midland Loan Services Inc., the servicer for the $825 million in mortgage debt. Midland is opposed to Innkeepers’ proposed reorganization plan.

Innkeepers’ plan was worked out with Lehman ALI before the Chapter 11 filing on July 19. The plan would give the Lehman subsidiary the new equity in exchange for $238 million in mortgage debt. The Lehman subsidiary has floating-rate mortgages on 20 of Innkeepers’ 72 extended-stay and limited-service properties.

Lehman is to sell half the new stock to Apollo for not less than $107.5 million.

Innkeepers’ plan would have other secured creditors, owed $825 million, receiving $550 million in fixed-rate mortgages on the 45 properties that are their collateral. There is another $206 million in mortgages on seven properties that would be reduced by the plan to $150 million. Innkeepers’ general unsecured creditors would receive $500,000 cash under the plan.

Whether the bankruptcy judge will allow Innkeepers’ plan to slide through easily may become apparent at a Sept. 1 hearing when she rules on objections to financing and the so-called plan support agreement with Lehman ALI. The Sept. 1 hearing will also have preferred shareholders arguing in support of the appointment of an examiner.

Palm Beach, Florida-based Innkeepers has 72 hotels with 10,000 rooms in 20 states. Apollo acquired the company in July 2007 in a $1.35 billion transaction. The Innkeepers petition listed assets of $1.5 billion and debt of $1.52 billion.

The case is In re Innkeepers USA Trust, 10-13800, U.S. Bankruptcy Court, Southern District New York (Manhattan).

Lenders’ Compromise Lets Bashas’ Emerge from Chapter 11

Secured bank lenders and noteholders reached a settlement with Bashas’ Inc. that will result in the withdrawal of appeals from the Aug. 13 confirmation order approving the supermarket operator’s Chapter 11 plan.

The agreement calls for the lenders to be paid each month rather than once a year. The monthly payments are to be “in accord with the debtor’s projections,” a court filing says.

In addition, the lenders can pursue their claims for default interest, fees, expenses and “yield maintenance.”

The bankruptcy judge in Phoenix crammed the plan down on the lenders in a 75-page opinion. The lenders, owed some $217 million, include Prudential Life Insurance Co. of America, Wells Fargo Bank NA, Bank of America NA, and Compass Bank.

Bashas’ plan promises to pay all creditors in full, so existing shareholders could retain their equity. For details on the revised plan, click here for the June 21 Bloomberg bankruptcy report.

The secured debt is comprised of some $120 million owing to bank lenders and $97 million owing to Newark, New Jersey-based Prudential on notes. The banks and noteholders share the same collateral.

With 158 grocery stores in Arizona when the reorganization began, Chandler, Arizona-based Bashas’ has 134 locations. It filed under Chapter 11 in July 2009 in Phoenix, before the deadline ran out for filing preference suits against the lenders who received liens within 90 days of bankruptcy.

The case is In re Bashas’ Inc., 09-16050, U.S. Bankruptcy Court, District of Arizona (Phoenix).

Fulton Homes Hoping for Disclosure Statement Approval Today

Homebuilder Fulton Homes Corp. is in bankruptcy court today in Phoenix, hoping the judge will approve the disclosure statement explaining the fourth amended reorganization plan.

The new plan was crafted by newly hired restructuring lawyers who were assigned the task of breaking a log jam with bank lenders.

The new plan, compared with a prior version the bankruptcy judge refused to confirm in March, provides what Fulton calls “substantially enhanced treatment” of bank claims.

The new plan would give the banks a “substantial cash payment” on confirmation and senior liens to secure their remaining debt. The new plan only gives secured suppliers 60 percent payment on confirmation on account of their $1.2 million in claims, with the remainder secured by a lien subordinate to the banks. The suppliers also must agree to provide “normal trade terms.”

The new plan, like the prior versions, is based on the notion that Fulton is solvent. Consequently, the plan will pay interest on unsecured claims. The company’s valuation expert pegs the going-concern value at $200 million to $210 million.

In return for access to information, the banks agreed not to file a competing plan before Sept. 27. Otherwise, Fulton’s so-called plan exclusivity expires at the end of August.

Charlotte, North Carolina-based Bank of America NA is agent for unsecured lenders owed about $164 million.

Fulton has no substantial secured debt. In addition to the suppliers, general unsecured claims amount to $1.2 million.

Fulton previously said it accumulated $65 million cash during its stay in Chapter 11 that began in January 2009. The company says it generated a cumulative profit of $8.5 million while in reorganization.

The case is In re Fulton Home Corp., 09-01298, U.S. Bankruptcy Court, District of Arizona (Phoenix).

Arrow Air Cancels Auction After Failing to Attract Suitable Bids

Arrow Air Inc., once the largest cargo airline in Miami, canceled an auction that was to have been held yesterday because none of the bids complied with requirements set down by the bankruptcy judge, the company said in a court filing.

Arrow had been negotiating with two prospective buyers when discussions broke down before bankruptcy. Arrow terminated operations just before filing under Chapter 11 on June 30. The new Chapter 11 case is Arrow’s third experience with bankruptcy reorganization.

At the canceled auction, Arrow hoped to sell all its assets, including the operating certificate that allows the company to operate as an airline.

Also known as Arrow Cargo, the company operated 60 flights a week with four leased DC-10-30 and three leased B757-200 aircraft.

Arrow was acquired in June 2008 by a fund affiliated with MatlinPatterson Global Advisors. Arrow owes MatlinPatterson funds $72 million on term loans. The principal amount of the secured term loan is $58.5 million, and the unsecured loan is $7.8 million.

The case is In re Arrow Air Inc., 10-28831, U.S. Bankruptcy Court, Southern District Florida (Miami).

American Safety Razor Has Final Loan Approval

American Safety Razor Co., the fourth-largest maker of wet- shaving blades, obtained final approval yesterday for $25 million in secured financing.

The bankruptcy judge turned aside objections from second- lien creditors who argued the loan would give senior lenders too much control over the Chapter 11 case. The objecting junior lenders were GSO/Blackstone Debt Funds Management LLC and BlackRock Kelso Capital Corp.

ASR filed under Chapter 11 toward the end of July to sell the business to first-lien lenders in exchange for debt unless second-lien creditors can devise a means within seven weeks to pay off the senior creditors.

ASR owes $244.4 million on the first-lien revolving credit and term loan and $178.1 million on the second-lien loan. Mezzanine lenders are owed another $60 million that pays in kind.

The agent for the first-lien lenders is UBS AG.

ASR had revenue of $330 million in 2009, a decline of 6 percent from 2008.

Cedar Knolls, New Jersey-based ASR has U.S. plants in Virginia and Tennessee. Affiliates abroad aren’t in bankruptcy. It was acquired for $625 million in July 2006 by London-based Lion Capital LLP.

ASR has the largest market share for private-label blades, although only 8 percent when branded goods are included, according to Moody’s Investors Service.

The case is In re American Safety Razor Co., 10-12351, U.S. Bankruptcy Court, District of Delaware (Wilmington).

St. Vincent to Sell Suburban Psychiatric Services

St. Vincent Catholic Medical Centers, a shuttered 727-bed acute-care hospital in Manhattan’s Greenwich Village, has an agreement to sell its inpatient and outpatient behavioral health services operations in Westchester County, New York, to St. Joseph’s Medical Center.

The price is $18 million cash and the assumption of $5 million in debt.

St. Vincent’s is in Chapter 11 a second time. This time, it’s a liquidation. The new petition in April listed assets of $348 million and debt totaling $1.09 billion. The hospital ended the prior reorganization in July 2007 with a Chapter 11 plan claimed at the time to have a “a realistic chance” of paying all creditors in full. The prior reorganization left the medical center with more than $1 billion in debt. When the first bankruptcy started in July 2005, St. Vincent had seven operating hospitals. Five were sold.

The main facility has 941,000 square feet in 10 buildings. The not-for-profit hospital is sponsored by the Catholic Diocese of Brooklyn and the Sisters of Charity. It was founded in the mid-19th century.

The new case is In re Saint Vincent Catholic Medical Centers of New York, 10-11963, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The prior case was In re Saint Vincent Catholic Medical Centers of New York, 05-14945, in the same court.

Magic Brands’ Plan Exclusivity Extended to Nov. 17

Magic Brands LLC was given a three-month extension of the exclusive right to propose a Chapter 11 plan. The new deadline is Nov. 17.

The company changed its name to Deel LLC following the completion of the sale of the Fuddruckers stores and franchise business to restaurant operator Luby’s Inc. for $63.45 million. The sale was approved by the bankruptcy court in June.

The creditors’ committee’s lawyers said the sale should generate “substantial recoveries for unsecured creditors.” Magic Brands previously said the sale “could” result in full payment for unsecured creditors.

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. 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 are not in the bankruptcy.

The case is In re Deel LLC, 10-11310, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Barclays Presents More Witnesses in Lehman Trial

A witness for Barclays Plc testified at trial yesterday in bankruptcy court that the bank was unsure of the value of collateral it was receiving in taking over a $45 billion loan from the Federal Reserve to Lehman Brothers Holdings Inc. To read Bloomberg coverage of yesterday’s trial, click here.

Barclays this week is presenting its witnesses in defense of claims by Lehman that the bank took $11 billion more than it was entitled to receive when it purchased the brokerage business. The trial began in May.

In other developments, Lehman and the trustee for the remnants of the brokerage business said yesterday that they would “expeditiously” begin lawsuits to recover preferences and fraudulent transfers. The defendants weren’t named. In addition, the brokerage’s trustee said he may sue JPMorgan Chase & Co., which is already facing a lawsuit from Lehman.

The broker’s trustee issued a preliminary report yesterday on the liquidation where he made recommendations for how the securities industry can better prepare to deal with another large insolvency like Lehman’s. Click here to read a summary of the trustee’s recommendations. For Bloomberg coverage, click here.

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 New York (Manhattan).

Statistics

Business Filings Down, Individual Filings Rise in July

Commercial and Chapter 11 filings declined in July from the year before while total bankruptcies, compromised mostly of filings by individuals, increased.

Total bankruptcy filings in July were 134,600, the third- highest monthly total since bankruptcy laws were tightened in 2005. At a daily rate, July filings were 7.7 percent more than the year before, according to data compiled from court records by Automated Access to Court Electronic Records.

The 1,217 Chapter 11 filings in July represented a 5 percent decline from July 2009, according to AACER, a service of Oklahoma City-based Jupiter ESources LLC. Commercial filings of 7,256 were down 6 percent from the same month in 2009, at the daily filing rate. Commercial filings mostly include Chapter 11 cases plus businesses under Chapter 7.

Bankruptcy filings last year totaled 1.44 million, a 32 percent increase from 2008.

Bankruptcy filings remain behind the record 2.1 million in 2005, when 630,000 Americans sought protection from creditors in the two weeks before revisions to federal bankruptcy laws became effective in October and made it more difficult for individuals to erase debt.

Downgrade

Diamond Castle’s Bonten Media Downgraded to Caa2

Bonten Media Group Inc., the owner of 16 television stations that generate $50 million revenue in eight markets, was demoted to a Caa2 corporate rating yesterday by Moody’s Investors Service.

The subordinated debt slipped one notch also, to Caa3.

Moody’s said that Bonten will be “challenged to produce meaningful free cash flow” when subordinated notes begin requiring cash interest payments in 2011.

Moody’s likewise said it would be “challenging” to refinance the revolving credit and term loan when they mature in 2013 and 2014.

Bonten was formed in 2006 and is controlled by Diamond Castel Holdings LLC.

Briefly Noted

Abitibi Has Approval for $1.35 Billion in Exit Loans

AbitibiBowater Inc., the largest newsprint maker in North America, received approval from the bankruptcy judge yesterday to arrange $1.35 billion in financing to underpin an emergence from Chapter 11. To read Bloomberg coverage of the hearing, click here.

Abitibi’s reorganization plan is scheduled for approval at a Sept. 24 confirmation hearing. For details on Abitibi’s plan and disclosure statement, click here to read the July 29 Bloomberg bankruptcy report. The company 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).

Advance Sheets

Circuit Court Explains How to Allocate Tax Refunds

The 7th U.S. Circuit Court of Appeals in Chicago upheld the so-called pro-rata method for deciding how much of an individual’s income tax refund goes to the trustee and how much belongs to the bankrupt.

The case, decided on Aug. 2, involved a typical situation in which an individual files personal bankruptcy sometime during the year. The 7th Circuit in Chicago ruled that the bankruptcy judge properly applied the pro-rata method in deciding how much of the refund the bankrupt could keep.

The bankruptcy filing was on Sept. 25, when 73 percent of the year had elapsed. On the facts of the case, the Circuit Court said it was not error to conclude that the bankruptcy trustee should receive 73 percent of the tax refund, after applying the applicable wildcard exemption.

In cases where income or withholdings increased or decreased during the year, the Appeals Court said another method might be applicable. The Court cited a bankruptcy court decision from Texas called In re Donnell where the bankruptcy judge said the trustee was only entitled to keep the tax refund “to the extent that the pre-petition withholding amount exceeded the tax liability for the entire year.”

The case is In re Meyers, 09-3478, 7th U.S. Circuit Court of Appeals (Chicago).

Lump-Sum Social Security Payments Stay with Bankrupts

The U.S. Court of Appeals in St. Louis ruled in favor of an individual bankrupt with regard to exempting Social Security benefits from the grasp of the bankruptcy trustee.

The case involved an individual who received a $17,000 lump-sum payment after the Social Security Administration ruled that he was disabled. The money was deposited into a separate bank account. Later, he filed in Chapter 7.

The bankruptcy judge in Minnesota ruled in favor of the trustee by saying that the $17,000 was an asset of the estate because it was “a fully realized present interest in cash,” not a present or future Social Security benefit.

The Court of Appeals upheld that district judge who had reversed the bankruptcy court. The July 30 opinion by Chief Circuit Judge William J. Riley held that “42 U.S.C. 407 operates as a complete bar to the forced inclusion of past and future Social Security proceeds in the bankruptcy estate.”

The case is Carpenter v. Ries (In re Carpenter), 09-2897, U.S. Court of Appeals for the Eighth Circuit (St. Louis).

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

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