Tribune, Movie Gallery, Abitibi, Old GM: Bankruptcy

The official creditors’ committee for newspaper publisher Tribune Co. wants authority from the bankruptcy judge to sue Sam Zell and company officers, directors and advisers who were responsible for what the group calls the “ruinous LBO transaction” in 2007.

At the Oct. 22 hearing on the motion, the committee will say it needs to start the suit before the two-year deadline under bankruptcy law runs out on Dec. 8.

The committee for now only wants permission to file the suit. It won’t proceed with litigation so long as the parties are still involved in mediation over a new plan to take the place of the reorganization that Tribune abandoned in August.

In addition to Zell, who was the leader of the leveraged buyout, the committee intends to sue people who were officers and directors at the time, including officers of subsidiaries that gave guarantees without receiving anything in return. The targets also include Valuation Research Corp., which provided a solvency opinion that the examiner found to be flawed.

The committee says that the claims will include breach of fiduciary duty, aiding and abetting a breach of duty, professional malpractice, and violation of Delaware corporate law.

Tribune last month withdrew a Chapter 11 plan that was designed to force through a settlement of claims resulting from the 2007 LBO. The plan was aborted following the report of the examiner, Kenneth N. Klee, who concluded that there was some likelihood that the second phase of the leveraged buyout in December 2007 could be attacked successfully as a constructively fraudulent transfer. Klee found less likelihood that the first phase 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.

The plan would have settled claims that the $13.7 billion leveraged buyout led by Zell contained fraudulent transfers. The plan was opposed by holders of $3.6 billion in debt. For details on the withdrawn plan, the proposed settlement, and the parties’ arguments, click here for the April 13 Bloomberg bankruptcy report.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).

Updates

Movie Gallery’s Liquidation Sets Oct. 28 Confirmation Hearing

Movie Gallery Inc., the former movie-rental chain, filed a liquidating Chapter 11 plan in July and received approval of the explanatory disclosure statement on Sept. 10. The confirmation hearing for approval of the plan is set for Oct. 28.

If the plan goes through, secured lenders will give up $5 million cash to fund a trust for unsecured creditors. The disclosure statement doesn’t tell unsecured creditors the percentage recovery they can expect. The company said the lack of an estimate results from the “liquidating nature of the plan and the costs involved in obtaining such an estimation.”

The plan creates two trusts, one for secured creditors and the other for unsecured creditors. The lenders will be paid cash on confirmation of the plan derived from the liquidation of their collateral. The term loan lenders won’t assert deficiency claims against the trust for unsecured creditors.

A liquidation analysis shows that Movie Gallery is projected to have $100.5 million cash in October, with total proceeds from the liquidation of assets eventually reaching $165.6 million. Secured revolving credit lenders are owed $55.7 million while $408 million is owing on the first-lien term loan. In addition, there is a $151.6 million second-lien loan.

The plan calls for substantive consolidation where all assets from the five Movie Gallery companies are combined and all liabilities go into one pot, without regard for the particular company that owed the debt.

Movie Gallery liquidated the last 1,028 movie-rental stores. It had some 2,600 stores in operation on filing under Chapter 11 again in February. The new filing was less than two years after a previous bankruptcy reorganization. Debt when the new case began included $100 million on a secured revolving credit, $394 million on a first-lien facility, and $146 million in claims held by second-lien creditors.

Movie Gallery operated under the names Movie Gallery, Hollywood Video and Game Crazy. It had 3,490 stores before the first bankruptcy. The prior Chapter 11 case concluded with a confirmed Chapter 11 plan in May 2007. For details on the second filing, click here.

The new case is In re Movie Gallery Inc., 10-30696, U.S. Bankruptcy Court, Eastern District Virginia (Richmond). The prior case is In re Movie Gallery Inc., 07-33849, in the same court.

Tronox Shareholders Object to Fees for Backstopping Offering

The Tronox Inc. (TRX) official shareholders’ committee contends that the proposed fees for backstopping the company’s $170 million rights offering would allow “certain favored bondholders” to “recover far more than their allowed claims.”

The equity committee, which is proposing a competing reorganization plan, calculates that the fees for backstopping the offering under the company’s plan would give the backstop providers a $37.4 million fee for guaranteeing that the entire $170 million offering will be sold. Based on the committee’s higher valuation of the company, the fee would be $53.2 million, according to the court filing.

Pegging a precise value on the fees isn’t possible yet because the fee will be paid in the new Tronox stock. A hearing for approval of the rights offering fees is scheduled for Sept. 16.

Kerr-McGee Corp (KMG) and its parent Anadarko Petroleum Corp. (APC) objected to proposed procedures for the rights offering. They contend it’s improper to cut off a creditor’s ability to purchase in the offering solely because the claim hasn’t been approved by Nov. 5.

The two companies contend that most of the value in the plan for unsecured creditors will come from purchasing shares in the rights offering. They say the recovery would be no more than 22 percent for a creditor not allowed to participate. By purchasing in the rights offering, the recovery could be as much as 100 percent, they say.

Kerr-McGee owned Tronox before it was spun off.

The equity committee filed a competing Chapter 11 plan early this month for reorganizing the world’s third-largest producer of the white pigment titanium dioxide. To read about the committee’s plan and Tronox’s plan, click here for the Sept. 7 Bloomberg bankruptcy report.

The disclosure statements explaining the company plan and the equity plan will both be up for approval in bankruptcy court on Sept. 23. For details on Tronox’s own plan, click here for the Sept. 2 Bloomberg bankruptcy report.

The Chapter 11 petition by Tronox in January 2009 listed assets of $1.56 billion against debt totaling $1.22 billion. Debt includes $213 million on a secured term loan and revolving credit, $350 million in 9.5 percent senior notes, and a $40.7 million accounts receivable securitization facility. Tronox’s products are used in paints, coatings, plastics, paper and consumer products. The operations outside of the U.S. didn’t file.

The case is In re Tronox Inc., 09-10156, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

U.S. Trustee Doesn’t Like Broad AbitibiBowater Plan Releases

AbitibiBowater Inc., the largest newsprint maker in North America, shouldn’t be allowed to give blanket releases to people not involved with the reorganization, the U.S. Trustee in Delaware said in a bankruptcy court filing yesterday.

The U.S. Trustee says that the Chapter 11 plan, scheduled for approval at a Sept. 24 confirmation hearing, shouldn’t give immunity from suit to “parties that had no connection nor provided any contribution to” the Chapter 11 effort. Among those who shouldn’t receive release, according to the U.S. Trustee, are former officers, directors, and professionals.

At a Sept. 30 hearing Abitibi will ask the bankruptcy judge to approve the $4.6 million sale of 16.3 acres and a former paper-coating plant in Covington, Tennessee, to True Partners Financial Services LLC.

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 of $8.8 billion as of September 2008.

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

Old GM Seeks Voting Exclusivity Until March 29

Old General Motors Corp., now formally named Motors Liquidation Co., is asking the bankruptcy court to extend its exclusive right to solicit acceptances of a Chapter 11 plan until March 29. The hearing on the exclusivity motion will take place Sept. 27.

Old GM cites how 70,000 proofs of claim were filed for $274 billion. Already, more than 21,000 claims were knocked out, reducing claims by $24.8 billion. Another $754 million in bondholder claims are to be eliminated as duplicates, the motion says.

Old GM filed a liquidating Chapter 11 plan at the end of August. The hearing for approval of the explanatory disclosure statement is set for Oct. 21. The company hopes the confirmation hearing for approval of the plan will take place 60 days later. The trust for unsecured creditors will distribute stock and warrants in new GM that resulted from the sale of the core business last year. To read about the plan, click here for the Sept. 1 Bloomberg bankruptcy report.

The sale of the core business brought in 10 percent of the stock of the new GM plus warrants for 15 percent. The warrants will have value if the new company is profitable enough to raise the company’s value to specified levels. New GM, formally named General Motors Co. (GM), is 60.8 percent owned by the U.S. government.

Old GM began the largest manufacturing reorganization in history by filing under Chapter 11 on June 1, 2009. The sale was completed on July 10, 2009. GM listed assets of $82.3 billion and debt of $172.8 billion.

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

New Filings

Island One Time Share Operator Files in Orlando

Island One Inc., the developer and operator of 10 time-share vacation communities in Florida and the Virgin Islands, filed for Chapter 11 reorganization along with affiliates on Sept. 10 in Orlando, Florida, the hometown.

A court filing says that Bay Harbour Management LC is negotiating to buy the company. Island One blamed the filing on the “fall of the real estate market” and the “general downturn in the economy.”

Nine of the communities are in Florida.

Textron Financial Corp. is a secured creditor owed $99.1 million. Branch Banking & Trust Co., a secured creditor, is owed $39.1 million. Liberty Bank has a secured claim for $7.9 million.

Gross revenue in 2009 was some $50.6 million, according to a court filing.

The case is In re Island One Inc., 10-16177, U.S. Bankruptcy Court, Middle District Florida (Orlando).

Hooters Operator Rascals Files Chapter 11 in Chicago

Rascals Casinos LLC, which operates four Hooters restaurants in Washington state, filed a Chapter 11 petition on Sept. 7 in Chicago along with affiliates.

One of the restaurants has a bowling alley. Two locations previously had public gaming rooms. Rascals is based in Burr Ridge, Illinois.

The case is In re Rascals Casinos LLC, 10-40083, U.S. Bankruptcy Court, Northern District Illinois (Chicago).

Parent of Failed Los Padres Bank Files in Chapter 11

Harrington West Financial Group Inc. (HWFGQ), the parent of Los Padres Bank FSB, filed under Chapter 11 on Sept. 10 in Santa Barbara, California, after the bank was taken over by regulators on Aug. 20.

Harrington said that assets were $579,000 plus tax refunds of an “unknown amount.” Liabilities were listed for $26 million.

The holding company in a statement said it intends to file a liquidating plan “within a few months.”

The case is In re Harrington West Financial Group Inc., 10-14677, U.S. Bankruptcy Court, Central District California (Santa Barbara).

Baylor University Housing Project Files to Halt Foreclosure

SWB Waco SH LP, the owner of a 375-bed apartment project near the Baylor University campus in Waco, Texas, filed a Chapter 11 petition on Sept. 7 in Houston.

The facility, which court papers say was “recently constructed,” is part of a re-development of downtown Waco. It serves as off-campus student housing.

The Chapter 11 filing was intended to halt foreclosure, according to a story in the Waco Tribune. Assets and debt both exceed $10 million, according to the petition.

The case is In re SWB Waco SH LP, 10-38001, U.S. Bankruptcy Court, Southern District Texas (Houston).

Watch List

Blockbuster Names McGill as New Chief Financial Officer

Blockbuster Inc., the movie rental chain operating under a forbearance agreement, selected Dennis McGill to serve as chief financial officer, replacing Thomas M. Casey who resigned.

Blockbuster has until Sept. 30 to make up defaulted debt service payments. The new forbearance agreement is similar to the previous version. To read Bloomberg coverage, click here.

The Dallas-based company had a $134.1 million net loss for six months ended July 4 on revenue of $1.728 billion. The operating loss was $67.4 million. Revenue for the first half fell 16.4 percent from the same period a year earlier.

Former competitor Movie Gallery Inc. is scheduled to confirm its liquidating Chapter 11 plan on Oct. 28. See the item in today’s report regarding the Movie Gallery plan. Movie Gallery had 2,600 stores in operation on filing under Chapter 11 for a second time in February. Movie Gallery creditors opted for liquidating rather than reorganization.

Blockbuster’s balance sheet is upside down, with assets on the books for $1.156 billion against liabilities totaling $1.607 billion in July.

Blockbuster had 5,220 company-owned and 1,300 franchised stores as of Jan. 3. Blockbuster said in February that it is closing an additional 545 stores this year on top of 347 that were dropped in 2009.

Briefly Noted

Madoff Trustee Hires Another U.K. Law Firm

The trustee for Bernard L. Madoff Investment Securities Inc. is hiring Mishcon de Reya, a London-based law firm, to help collect assets in the U.K. The trustee previously hired Hogan Lovells LLP, another U.K. law firm. To read Bloomberg coverage, click here.

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

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).

Bear Island-White Birch Seek Longer Plan Exclusivity

Bear Island Paper Co. LLC and its Canadian parent White Birch Paper Co. are aiming for a second extension of the exclusive right to propose a Chapter 11 plan to afford time for selling the assets. If granted at a Sept. 22 hearing, so-called exclusivity will be pushed out to Jan. 3. Unless topped at auction, the business will be sold for $90 million cash to affiliates of Black Diamond Capital Management LLC, Credit Suisse Group AG (CSGN), and Caspian Capital Advisors LLC. They hold 65 percent of the first-lien debt.

The hearing for approval of the sale is set for Sept. 30.

Based in Nova Scotia, White Birch and U.S. subsidiaries filed for reorganization simultaneously in the U.S. and Canada in February. White Birch is the second-largest newsprint maker in North America.

Secured liabilities include $438 million on a first-lien term loan, $104 million on a second-lien term loan, $50 million on an asset-backed revolving credit, and $51.5 million on swap agreements. Trade suppliers are owed $9.5 million. The companies had $667 million in sales during 2009, with $125 million attributable to Bear Island. White Birch has three pulp and paper mills in the province of Quebec. The Bear Island plant is in Ashland, Virginia. White Birch is controlled by Brant-Allen Industries, according to Bloomberg Data.

The case is In re Bear Island Paper Co. LLC, 10-31202, U.S. Bankruptcy Court, Eastern District Virginia (Richmond).

Downgrade

Wallace and Hollywood Theaters Downgraded to CCC+

Wallace Theater Holdings Inc. and subsidiary Hollywood Theaters Inc. were both demoted one notch last week by Standard & Poor’s to CCC+ corporate ratings.

Portland, Oregon-based Wallace, which operates in small and midsized markets in 15 states, didn’t generate enough earnings before interest, taxes, depreciation and amortization to cover interest costs for a year ended in June, S&P said.

For the second quarter this year, revenue fell 3 percent while EBITDA dropped 12 percent as a result of higher operating expenses.

S&P characterizes Wallace as having a “high interest burden.”

Grandma

Those of you who read my column when I was writing for Fulbright & Jaworski will remember stories I told about Grandma, usually around holidays. Grandma, age 91, was a small, spunky woman who passed along her secret pecan pie recipe and the formula for making a light, flaky pie crust.

Her attitudes about life, raising children and caring for a husband were the featured items in the Grandma stories, along with hints from the kitchen.

Grandma’s final illness began Sept. 3, one day short of 20 years after the death of her husband, my father. Although she doubtless intended to leave this world precisely on the anniversary, her tough spirit wouldn’t allow it. She clung to life until Sept. 7 when her two sons were by her side, holding her hands as she took her final breath.

As Mark Twain would have said, the stories about Grandma were true, mostly. While the words may not have been her own, Grandma inspired the stories.

Although Grandma is gone, her inspiration remains.

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

To contact the editor responsible for this story: David E. Rovella at drovella@bloomberg.net.

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