Lehman Brothers, AbitibiBowater, Black Crow, W Union Square: Bankruptcy

Lehman Brothers Holdings Inc. said yesterday that it will invest another $1 billion in its two non- bankrupt bank subsidiaries, Aurora Bank FSB and Utah-based Woodlands Commercial Bank.

The new investments are designed so Lehman can sell Aurora and Woodlands within 18 months. If regulators determine that a sale of one or both banks won’t happen, the unsold bank will be dissolved and Lehman will pay cash for the bank’s non-cash assets. Aurora is the Lehman thrift unit formerly known as Lehman Brothers Bank FSB.

The additional capital injection is intended to give the banks a breathing spell from the demands of regulators while allowing them to sell the assets and dispose of the banking licenses if there isn’t a buyer. The remaining assets would go to Lehman. The motion for approval of the investments is scheduled for consideration at a Sept. 22 hearing.

Lehman said that the arrangements will effectively eliminate the risk of having the banks taken over by regulators, who likely would gain control of Woodlands if Aurora were to fail. Both banks became subject to cease-and-desist orders limiting their activities until their capital was returned to satisfactory levels.

Lehman said that its equity interest in the two banks was a combined $1.42 billion at June 30.

Since Lehman’s Chapter 11 filing in September 2008, it has made investments in the banks totaling more than $1.5 billion, according to court filings. The investments included a secured loan of $950 million to Aurora for which Lehman received collateral in the form of mortgage loans.

The agreements call for the two banks and Lehman to drop all claims against one another. Lehman will transfer $557 million in cash and $409 million in other assets to Aurora, and Aurora in return will return collateral that Lehman values at $294 million. In addition, Lehman will pay as much as $25 million more to Aurora.

Woodlands would receive $75 million cash from Lehman.

Lehman will sign a so-called capital maintenance agreement under which it will agree to inject additional capital in Aurora and Woodlands if the banks’ tier-1 capital falls below the 11 percent to 15 percent range.

A witness for Barclays Plc testified in bankruptcy court yesterday that there really wasn’t a “windfall” when it purchased Lehman’s brokerage business. For Bloomberg coverage of yesterday’s trial, click here. The trial resumed last week after a summer break.

Barclays has been presenting its witnesses the last two weeks. Lehman is trying to prove that the bank took $11 billion more than it was entitled to receive when it purchased the brokerage business. The trial began in May.

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 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).

Statistics

Business, Individual Bankruptcy Filings Fall From July

Commercial, Chapter 11 and individual bankruptcy filings fell in August from July. Filings still rose from the 2009 period and are on pace to set a record for the most since bankruptcy law was changed in 2005, according to data compiled from court records by Automated Access to Court Electronic Records.

The total of 135,600 bankruptcy filings in August were 3.6 percent more than the year before, though down 3.9 percent from July. While the August filings were the third-fewest this year on a daily basis, the year as a whole is on pace to have almost 1.6 million bankruptcies, the most since 2005.

August continued a trend where commercial and Chapter 11 filings are declining compared with individual bankruptcies that continue to rise, according to AACER, a service of Oklahoma City-based Jupiter ESources LLC.

August recorded 992 new Chapter 11s, 11 percent fewer than the same month in 2009. The trend so far this year is for Chapter 11s to decline by 8.3 percent compared with 2009.

Commercial filings in all chapters of bankruptcy law aggregated almost 7,000 in August, a 6.7 percent decline from August 2009. For 2010 as a whole, the trend is for commercial filings to come in 2.5 percent fewer than 2009.

Bankruptcy filings in 2009 totaled 1.44 million. Last year’s bankruptcies represented a 32 percent increase from 2008.

Bankruptcy filings still trail 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 that October and made it more difficult for individuals to erase debt.

Updates

Innkeepers Trust Given Final Cash Use Authority

Innkeepers USA Trust, a real estate investment trust owned by Apollo Investment Corp., received final approval from the bankruptcy judge yesterday to use cash representing collateral for secured lenders’ claims.

The order by U.S. Bankruptcy Judge Shelley C. Chapman requires Innkeepers to pay the lenders’ legal fees. The order also gives the lenders the right to bid their liens rather than cash if there is a sale of the properties. Innkeepers admitted that the mortgages are valid.

The day before, Chapman refused to approve an agreement where Innkeepers would have been compelled to support a reorganization plan calling for a subsidiary of Lehman Brothers Holdings Inc. to own the new stock in exchange for Lehman’s $238 million in secured debt. Lehman in turn was obligated to sell half the stock to Apollo for $107.5 million.

Midland Loan Services Inc., the servicer for $825 million in mortgage debt, was opposed to the Lehman-Apollo plan. Midland has liens on 45 of Innkeepers’ 72 properties. Its competing plan would be financed by selling the new stock for $236 million to Five Mile Capital Partners LLC.

Midland is seeking permission to file the competing plan. For details on Innkeepers’ plan and Midland’s competing plan, click here for the Aug. 31 Bloomberg bankruptcy report.

In total, Palm Beach, Florida-based Innkeepers has 72 extended-stay and limited-service properties 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 against debt totaling $1.52 billion.

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

AbitibiBowater Wants Canada Judge Opinion on Disputed Claim

AbitibiBowater Inc., the largest newsprint maker in North America, is seeking the opinion of the Canadian court to help resolve a disputed $620 million claim arising from the 2001 sale of notes by Bowater Canada Finance Corp.

The company’s Bowater unit guaranteed the $600 million in 7.95 percent notes. Two holders of the notes have argued that Bowater is liable for contribution under a provision of the Nova Scotia Companies Act. The bankruptcy court called for the appointment of independent advisers for Bowater Finance, who filed a $620 million claim against the Bowater unit.

The two noteholders are Aurelius Capital Management LP and Contrarian Capital Management LLC. AbitibiBowater said in papers filed in the U.S. bankruptcy court yesterday that it will object to the claim. Since the validity of the claim is controlled by Nova Scotia law, the companies are seeking permission from the U.S. judge to seek the opinion of the Canadian judge on the dispute.

The request for the opinion of the Canadian judge would be made under the so-called cross-border protocol developed at the outset of the bankruptcies. The protocol is designed to foster cooperation between the two courts.

With AbitibiBowater’s Chapter 11 plan scheduled for approval at a Sept. 24 confirmation hearing, the company wants the bankruptcy judge to consider the motion at an accelerated hearing on Sept. 14.

The two noteholders and their indenture trustee both object to an accelerated hearing.

AbitibiBowater filed an operating report for July showing an $11.1 million net loss on net sales of $375.3 million. Gross profit was $24.1 million and interest expense was $11.9 million.

For details of AbitibiBowater’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 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).

GECC Tees Up Consolidation Issue for Black Crow Media

General Electric Capital Corp. drew first blood in an incipient dispute over whether there should be substantive consolidation of the family of companies headed by Black Crow Media Group LLC, a closely held owner of 22 radio stations.

According to GECC, the secured lender owed $38.9 million at the outset of Chapter 11. Black Crow told the bankruptcy judge at a hearing that it intended to propose a plan based on substantive consolidation. If the judge goes along, all of the Black Crow companies would be treated as one. Similarly, creditors would have a claim against one pot of assets rather than against the individual company obligated on the debt.

GECC, based in Stamford, Connecticut, took the offensive by filing a lawsuit on Aug. 31 asking U.S. Bankruptcy Judge Paul M. Glenn to declare that substantive consolidation is improper in the Black Crow case. GECC said it relied on each company being a separate entity when it made the loans. GECC also contends that the disadvantages of consolidation outweigh the advantages.

Black Crow filed an operating report showing earnings before interest, taxes, depreciation and amortization in July of $326,700 on revenue of $1.125 million.

Glenn ruled in July that Black Crow’s exclusive right to propose a plan won’t be extended beyond Nov. 8 “unless truly extraordinary circumstances occur which could not have been reasonably anticipated.”

In March, Black Crow defeated a motion by GECC to dismiss the case or allow foreclosure.

Black Crow filed for Chapter 11 protection in January, two days before a hearing in U.S. district court where GECC was seeking appointment of a receiver following default on the term loans and revolving credit.

Black Crow’s stations are in five markets in Florida, Alabama, Georgia and Tennessee.

In addition to the GECC debt, there is another $6 million owing to unsecured creditors. Daytona Beach, Florida-based Black Crow had $12.9 million of revenue in 2009, a 23 percent decline from 2008.

The case is In re Black Crow Media Group LLC, 10-00172, U.S. Bankruptcy Court, Middle District of Florida (Jacksonville).

New Filing

Charlottesville’s Landmark Hotel Lands in Chapter 11

The owner of the unfinished Landmark Hotel in downtown Charlottesville, Virginia, filed for Chapter 11 protection on Sept. 1 in Lynchburg, Virginia.

A court paper says that the hotel’s owner was “wrongfully induced to execute a $23.6 million loan agreement” with Specialty Finance Group LLC.

The 10-story hotel was to have 101 rooms.

The project is owned by Halsey Minor.

The case is In re Minor Family Hotels LLC, 10-62543, U.S. Bankruptcy Court, Western District of Virginia (Lynchburg).

Briefly Noted

W Union Square Hotel Owner Changes in Confirmed Plan

W New York Union Square hotel in Manhattan will have new owners as a result of confirmation of the reorganization plan for the property’s indirect owners. The bankruptcy judge approved the plan in New York on Aug. 27. Control will shift to a partnership led by Host Hotels & Resorts Inc. For details of the plan, click here to see the July 16 Bloomberg bankruptcy report.

An affiliate of Dubai World purchased the hotel in 2006.

The case is In re Hotels Union Square Mezz 1 LLC, 10-10971, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Broadstripe Loses $3 Million in July; Cash at $5 Million

Broadstripe LLC, a St. Louis-based broadband cable operator, incurred a $3.02 million net loss in July on revenue of $7.79 million.

Depreciation and amortization for the month was $2.29 million, according to the operating report. Interest expense was $1.83 million. The balance sheet showed $5.02 million cash at the end of July.

Any creditor can file a plan now that Broadstripe has been in Chapter 11 more than 18 months. Broadstripe has been unable to confirm a plan given an unresolved lawsuit where the unsecured creditors’ committee contends that secured lenders’ claims should be subordinated or recharacterized as equity. In addition, rival cable operators have two claims totaling almost $160 million based on Broadstripe’s alleged failures to complete asset purchase agreements.

Broadstripe filed a reorganization plan in January 2009 centered on an agreement reached before the Chapter 11 filing with holders of the first- and second-lien debt. At the outset of Chapter 11, Broadstripe had 93,000 customers in Maryland, Michigan, Washington state and Oregon. It was created through four acquisitions in 1998 and 1999 and filed for Chapter 11 reorganization in January 2009.

The case is In re Broadstripe LLC, 09-10006, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Daily Podcast

Innkeepers, Tribune, Colonial BancGroup, Ronson: Audio

Disapproval of the agreement compelling Innkeepers USA Trust to propose a plan supported by a subsidiary of Lehman Brothers Holdings Inc., the $5.15 million cost of the examiner’s report for Tribune Co., an important decision regarding bank holding company bankruptcies, and the chance to buy a fixed-base aircraft maintenance facility in New Jersey are discussed in the latest 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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