Regional airline Mesa Air Group Inc. filed a proposed Chapter 11 reorganization plan on Sept. 17. A hearing to approve the explanatory disclosure statement is set for Oct. 26.
Unsecured creditors with claims aggregating $2.05 billion are to share a note for $50 million plus all of the new stock except shares reserved for management and 10 percent earmarked for US Airways Group Inc. The stock for US Airways, together with a $5.5 million note, is for US Airway’s agreement to enter into a new code-sharing arrangement where Mesa flies regional aircraft for the larger carrier.
The plan has separate treatment for the unsecured creditors of each of the affiliated companies. Creditors of Freedom Airlines Inc. come out best with an estimated 7.7 percent recovery. Mesa Air Group Inc. creditors are in second place at 5.8 percent. Creditors of Mesa Airlines Inc. are to see an estimated 5.7 percent, the disclosure statement says. Creditors of Air Midwest Inc. could see 3.6 percent. The estimates are based on the midpoint value available for distribution to unsecured creditors.
The enterprise value of the reorganized company is estimated to range from $939 million to $1.1 billion. The largest component of the value is $645 million for capitalized leases.
The total value for unsecured creditors, including the $50 million note and the stock, is $69.2 million to $224.1 million. The equity for unsecured creditors has an estimated value of $19.2 million to $174.1 million.
Although the official creditors’ committee is still working on some details, the disclosure statement says that the panel believes the plan “represents the best alternative available to creditors.”
Mesa filed under Chapter 11 in January with a fleet of 178 aircraft. At the time, 130 were operating to provide 700 daily departures serving 127 cities in 41 states, Canada, and Mexico. After rejecting aircraft leases, Mesas is now operating 77 aircraft making 575 departures a day.
Phoenix-based Mesa listed assets of $976 million against debt totaling $869 million. Liabilities include $393 million on loans secured by 24 owned aircraft, $26 million on three note issues, and $33.6 million secured by 20 other aircraft. In addition, there was $1.62 billion in potential liability on aircraft leases. At the outset of the Chapter 11 case, Mesa operated regional aircraft under code-sharing agreements with US Airways, UAL Corp.’s United Airlines and Delta Air Lines Inc.
The case is In re Mesa Air Group Inc., 10-10018, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
Ultimate Escapes Destination Club Files for Sale
Ultimate Escapes Inc., a destination club operator, filed for Chapter 11 protection yesterday in Delaware along with dozens of affiliates. The company intends to sell the business on a so-called credit bid to the secured lender CapitalSource Finance LLC unless a better offer turns up at auction.
The company owns or leases 119 residences in 45 destinations. Most are owned. A court filing says that Chapter 11 was the result of a decline in membership sales beginning in 2008.
Ultimate Escapes has approximately 1,250 members who pay annual dues ranging from $8,000 to $49,000. Court papers say that the properties are worth between $1 million and $3 million each. The June 30 balance sheet was upside down with $189 million in assets against total liabilities of $222 million.
The Kissimmee, Florida-based company calls itself the largest destination club operator measured by number of destinations. By number of members, it is the second-largest. The company says it offers “hundreds of multimillion dollar private residences and luxury hotels.”
Revenue for the first half of the year was $14.9 million, a decline of almost 15 percent from a year earlier. The net loss was $10.8 million, resulting in part from $5.7 million in interest expense.
The company told members earlier this month that it was operating under a forbearance agreement with the secured lender and needed either to sell the business, obtain a new investment, or merge.
Ultimate Resorts filed papers today asking the bankruptcy judge to set up procedures for auction and sale. Chevy Chase, Maryland-based CapitalSource is under contract to buy the business for a $74.7 million credit against the $97.3 million secured debt it’s owed. An affiliate has a second lien for $10 million.
The bankruptcy court is being asked to require other bids by Oct. 15, followed by an Oct. 18 auction and an Oct. 20 hearing for approval of the sale.
Ultimate Escapes is familiar with bankruptcy sales. In 2007 it paid $98 million plus debt assumption to buy assets from Tanner & Haley Resorts, another destination resort operator in Chapter 11.
Before the Chapter 11 filing, Ultimate Escapes said it preferred conversion to a member-owned operation, where members would end up owing a majority of the stock. For conversion, each member would have been required to pay between $30,000 and $50,000, depending on the type of membership. In addition, members would have been required to convert $80 million in membership redemption rights into equity.
If the club were converted to member ownership, existing shareholders would have continued with a minority of the equity, the Sept. 9 message to members said.
The case is In re Ultimate Escapes Holdings LLC, 10-12915, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Ashley Stewart Plus-Sized Retailer Files in Delaware
Urban Brands Inc., the owner of the Ashley Stewart brand of clothing for what the company calls “plus-sized urban women,” filed under Chapter 11 early this morning in Delaware to sell the business.
The company has 210 stores in 26 states, according to a court filing. The flagship store is on 125th Street in the Harlem neighborhood of Manhattan, the website says.
There is a non-binding letter of intent to sell the business. Neither the price nor the identity of the buyer was disclosed in papers filed by early this morning. Not all the so- called first-day papers were filed by dawn today.
Urban Brands, based in Secaucus, New Jersey, lost $44.3 million in 2008 and $28.6 million in 2009, court filings disclose.
Funds affiliated with Trimaran Capital Partners are the largest shareholders, court papers say. Trimaran is owed $81.2 million on senior unsecured notes. The other principal shareholder is UBI Holding Corp.
Bank of America NA, a secured lender, is owed $2.3 million.
Sales declined from $179.6 million to $174.6 million between 2008 and 2009. The company blamed financial problems on the now-divested Marianne division and general weakness in the economy.
The petition says assets are less than $50 million while debt exceeds $100 million.
The case is In re Urban Brands Inc., 10-13005, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Kentuckiana Medical Center Hospital Files in Indiana
Kentuckiana Medical Center LLC, the owner of a 36-bed acute-care hospital in Clarksville, Indiana, filed for Chapter 11 protection on Sept. 20 in New Albany, Indiana.
The secured lender, First Tennessee Bank NA, froze the hospital’s accounts on Sept. 8, resulting in a missed payroll on Sept. 17.
The hospital, opened in August 2009, is 49 percent owned by Cardiovascular Hospitals of America. Investors who own the remainder of the equity are providing financing for the Chapter 11 case.
The petition says assets and debt both exceed $10 million.
The case is In re Kentuckiana Medical Center LLC, 10-93039, U.S. Bankruptcy Court, Southern District Indiana (New Albany).
Lehman Explains Logic in Bailing Out Bank Subsidiaries
Lehman Brothers Holdings Inc. filed papers in bankruptcy court yesterday explaining why it’s prudent to invest another $1 billion in its two non-bankrupt bank subsidiaries, Aurora Bank FSB and Utah-based Woodlands Commercial Bank.
Once the new contributions are made, Lehman expects to recover $2 billion from the sale or liquidation of the banks’ assets. Lehman will also avoid $2.7 billion in priority claims that regulators would have against the holding company for failure to maintain required capitalization. The resulting “value preserved,” according to Lehman, is $4.7 billion.
The hearing for approval of the investment will be held tomorrow.
After deducting $1.6 billion in contributions that Lehman will have made to the banks since filing in Chapter 11, the net value saved is $3.09 billion, the Lehman filing says. For details on the investments in the banks, click here for the Sept. 3 Bloomberg bankruptcy report.
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).
Neff Compromises on Plan with Unsecured Creditors
Neff Corp., a closely owned equipment rental company, reached agreement with the official creditors’ committee on revisions to the Chapter 11 plan. The company said the revised plan opens the door to a “fully consensual balance sheet restructuring that eliminates more than $400 million debt.”
The company is asking the bankruptcy judge to approve amendments to the reorganization plan and sign a confirmation order at a hearing today.
The plan is unchanged except that the purchaser will make a $1.8 million “gift” to holders of senior notes claims. Other unsecured creditors are to split up a $365,000 cash “gift” from the buyer. Both groups would see a recovery of approximately 5 percent.
Until the compromise was reached, the committee was objecting to the plan and seeking authority to bring lawsuits. Before the latest revisions, the plan had been scheduled for approval at a Sept. 15 confirmation hearing.
At auction, Wayzata Investment Partners LLC came out as the winning bidder to finance a plan with $73 million cash to second-lien creditors owed $299 million. Before the auction, the payment was $63 million. In addition, second-lien creditors may participate in an equity rights offering.
First-lien term loan lenders, owed $87.9 million, can elect between being paid in full with interest at the default rate or participating in the $181.6 million rights offering that originally was for $118.9 million. Wayzata is fully backstopping the rights offering.
For details on the company’s finances and the original plan, click here for the May 17 Bloomberg bankruptcy report.
Wayzata and Apollo Capital Management together have more than 67 percent of the first-lien debt.
Miami-based Neff, with 63 branches in 14 states, listed assets of $299 million and debt totaling $609 million.
The case is In re Neff Corp., 10-12610, U.S. Bankruptcy Court, Southern District New York (Manhattan).
Majestic Star Files Plan and Disclosure Statement
Majestic Star Casino LLC filed a proposed reorganization plan on Sept. 17. The accompanying disclosure statement has blanks were creditors eventually will be told the percentage recovery to expect.
Senior secured credit facility lenders, owed $65.3 million, are to receive cash and a new secured note for $58 million.
Holders of $348.4 million in senior secured notes are in line for new second-lien notes and 65 percent of the equity. Holders of the senior notes are to see 35 percent of the new equity for their approximately $200 million in debt. General unsecured creditors are being offered 22.5 percent in cash.
Holders of $72.6 million in discount notes are to receive nothing.
Majestic Star’s financial condition took a beating when convenient access by customers from Chicago to the Indiana properties was cut off by the indefinite closing of a bridge for structural repairs.
Majestic Star has four casinos, plus hotels with 806 rooms serving the two riverboat casinos in Gary, Indiana. The other casinos are in Tunica, Mississippi, and Black Hawk, Colorado.
At the outset of the Chapter 11 case, Majestic Star’s debt was listed as including $79.3 million on the senior secured credit facility, with Wells Fargo Capital Finance Inc. as agent. Senior secured noteholders have a second lien for a $300 million debt. Majestic Star owes $200 million on unsecured senior notes and $63.5 million on discount notes. Assets were listed $406 million and debt was $750 million in the quarterly report for the period ended June 30.
The case is In re Majestic Star Casino LLC, 09-14136, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Trico Has $22 Million Loan, Selling Two Vessels
Trico Marine Services Inc., a provider of support vessels for the offshore oil and gas industry, received approval from the bankruptcy court on Sept. 17 for $22 million in new secured financing for non-bankrupt subsidiary Trico Shipping AS. For details on the financing, click here and see the Trico item in the Sept. 16 Bloomberg bankruptcy report.
Trico returns to court tomorrow for final approval of its own financing.
Trico filed a motion on Sept. 17 for approval of the private sale of two vessels for $8.5 million to NigerDelta Shipping Agency Ltd. The vessels being sold are the Spirit River and the Truckee River. The Spirit River is responsible for 88 percent of the price.
Trico wants the judge to approve the sale at a Sept. 29 hearing without holding an auction. Trico says the vessels have been thoroughly marketed and the price exceeds appraised value.
The Chapter 11 filing in August was the second by Woodlands, Texas-based Trico. It finished a so-called prepackaged reorganization in early 2005 by swapping $250 million in debt for equity. Shareholders were given warrants.
Apart from a Cayman Islands holding company, none of the foreign subsidiaries are in bankruptcy the second time around. 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.
Liabilities include $202.8 million on secured convertible debentures and $150 million owing on unsecured convertible debentures. Non-bankrupt Trico Shipping owes $400 million on the 11.875 percent senior secured notes.
The new reorganization is being financed primarily with a $35 million secured credit supplied by Tennenbaum Capital Partners LLC.
The case is In re Trico Marine Services Inc., 10-12653, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Fulton Homes Schedules Nov. 28 Confirmation Hearing
Homebuilder Fulton Homes Corp. scheduled a Nov. 28 confirmation hearing for approval of the Chapter 11 plan when the bankruptcy judge in Phoenix approved the explanatory disclosure statement on Sept. 17.
The judge will take testimony from witnesses at the Nov. 28 hearing after holding a pre-confirmation conference on Oct. 28.
The plan was formulated by newly hired restructuring lawyers assigned to break an impasse with bank lenders. The bankruptcy judge declined to approve a prior version of the plan in March.
The revised plan offers 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 in return for 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 assumes that Fulton is solvent. As a result, the plan would pay interest on unsecured claims. The company’s valuation expert says the going-concern value is $200 million to $210 million.
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 the Chapter 11 case 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).
Almatis Confirms Revised Plan After Settlement
Almatis BV, a producer of specialty alumina products, confirmed a Chapter 11 plan yesterday based on a settlement with Oaktree Capital Management LLC, a first-lien lender which had intended to take over ownership of Almatis despite opposition from lower ranking creditors. Instead of transferring ownership, the plan the judge approved yesterday gives Oaktree full payment with interest at the default rate. Other holders of the $676 million in first-lien debt receive the same treatment. For details on the plan, click here and here for the Aug. 27 and July 26 Bloomberg bankruptcy reports.
Rotterdam-based Almatis listed total debt of $1.3 billion, including $681 million on first-lien obligations, $77.7 million on second-lien debt, and $200.6 million on mezzanine debt. There is junior mezzanine debt of $80.6 million, plus trade debt of $20 million. Assets were listed for $1.53 billion.
The case is In re Almatis BV, 10-12308, U.S. Bankruptcy Court, Southern District New York (Manhattan).
Lifland Rails against Late-in-the-Case Claims Buying
Burton R. Lifland, the longest-serving bankruptcy judge in New York, gave a speech yesterday where he said that investors who buy claims during a bankruptcy reorganization can threaten to delay or derail an otherwise successful confirmation by necessitating lengthy and costly valuation trials.
To read about Lifiand’s speech, click here for Bloomberg coverage.
Tribune, Vegas Monorail, Lehman Fees, Meruelo Maddux: Audio
The reorganization plan filed by two major creditors of Tribune Co., bondholders’ opposition to the plan by Las Vegas Monorail Co., professional fees for Lehman Brothers Holdings Inc. approaching $1 billion, and the withdrawal of a press release by Meruelo Maddux Properties Inc. are discussed in the new bankruptcy podcast on the Bloomberg terminal and Bloomberglaw.com. To listen, click here.
Debtor May Hire Professional with Claim, Judge Rules
A company reorganizing in Chapter 11 can retain a professional who holds a pre-bankruptcy unsecured claim for services, U.S. Bankruptcy Judge Michael Lynn ruled on Sept. 17 when he sided with a minority of courts that have considered the issue.
Lynn, from Fort Worth, Texas, interpreted two provisions in the Bankruptcy Code, Sections 327(a) and 1107(b). Section 1107(b) says that a bankrupt company is not barred from hiring a professional “solely because of such person’s employment by or representation of the debtor before the commencement of the case.”
Lynn said that the better reading of the two sections together is to permit employment so long as the pre-bankruptcy claim “arose from prior professional work for the debtor.” Lynn said it “eludes the court” why “a post-petition administrative priority claim should be found to create no conflict of interest while a prepetition general unsecured claim automatically disqualifies the creditor professional.”
The case involved a dairy farm that sought to retain the accountants the business had been using for years. There were few if any other accountants familiar with the dairy industry. The U.S. Trustee objected to retention approval because the accountants were owed $11,700 for work performed before bankruptcy. The U.S. Trustee wouldn’t have objected if the accountants had waived the claim.
The case is In re Talsma, 10-43790, U.S. Bankruptcy Court, Northern District Texas (Fort Worth).
To contact the editor responsible for this story: David E. Rovella at email@example.com.