The company listed assets of $1.02 billion against debt of $1.46 billion on a Chapter 11 petition filed today in U.S. Bankruptcy Court in New York. The company said it reached a deal with a group of bondholders on a plan of reorganization and secured a $125 million loan to finance operations.
The filing “provides the optimal path for recapitalizing our balance sheet and positioning Blockbuster for the future, as we continue to transform our business model to meet the evolving preferences of our customers,” Chief Executive Officer Jim Keyes said in a statement today. Sales at Dallas-based Blockbuster, with about 3,000 stores in the U.S., shrank in recent years while Netflix grew by renting movies online and through the mail, and Coinstar Inc. put Redbox DVD vending machines in supermarkets and drugstores.
Under the proposed plan, there will be no recovery by the holders of the company’s outstanding subordinated debt, preferred stock or common stock, according to the statement.
The company’s largest trade creditor is Twentieth Century Fox Home Entertainment with a $21.6 million claim, according to today’s filing.
The bankruptcy filing occurred after Blockbuster negotiated a plan with holders of 80 percent of the $630 million in 11.75 percent senior-secured notes.
The plan would give new stock to the senior creditors while offering nothing to holders of the $300 million in 9 percent subordinated notes. Blockbuster missed payments on the senior and subordinated notes prior to bankruptcy.
The plan, according to a company statement, will reduce debt from more than $1 billion to approximately $100 million. On emergence from Chapter 11, the only debt would be the outstanding obligations on the $125 million in financing for the reorganization being offered by some of the senior secured noteholders.
The $125 million in secured financing from the senior noteholders represents new cash availability. On an interim basis before final approval, $45 million would be available. The financing is to have a lien ahead of existing debt.
The financing also calls for converting $250 million of existing secured debt into a new loan with a lien ahead of existing debt.
Blockbuster estimates it owes $57 million in accounts payable in addition to the secured and subordinated notes.
In addition to $21.6 million claim held by Twentieth Century Fox, the unsecured creditors with the largest claims are Warner Home Video Inc. with a $19 million claim, Sony Pictures Home Entertainment, Walt Disney Co., and Universal Studios Home Entertainment, with claims of $13.3 million, $8.6 million, and $8.3 million, respectively.
Some of the major studios, including Warner, Fox and Sony, are owed $68.5 million and have liens on assets of the non- bankrupt Canadian subsidiary. Other studios are owed $49.6 million, according to a court filing.
Blockbuster is asking for authority from the bankruptcy court to pay the secured studios in the normal course of business, in return for extending new credit. The company also wants the right to pay pre-bankruptcy debt owing to other studios in return for new credit.
The largest shareholders are Prentice Capital Management LP and Goldman Sachs Group Inc., according to a court filing.
Blockbuster’s net loss for six months ended July 4 widened to $134.1 million from $9.2 million a year earlier. Revenue fell 16.4 percent to $1.728 billion. The operating loss for the half year was $67.4 million. The company had a 2009 net loss of $558 million.
Blockbuster, which blamed bankruptcy on the decline in the bricks-and-mortar stores combined with the economy, has 5,600 stores, including 3,300 in the U.S. and the remainder abroad. Among the stores in the U.S., 2,925 are owned, with the remainder franchised. Abroad, 720 locations are franchised. Blockbuster closed almost 1,100 stores in the last two years.
Billionaire Carl Icahn bought about one-third of Blockbuster’s bonds as of Sept. 17, according to people with knowledge of the matter. Icahn, 74, a former director of the company, led a proxy fight in 2005 to put himself and two nominees on the board. Last March, he cut his stake in the company to 3.5 percent by selling stock. He left the board in January.
Blockbuster has support for its reorganization plan from a group of bondholders holding about 80.1 percent of the company’s 11 3/4 percent senior-secured notes, it said. The notes will be exchanged for equity in the reorganized company.
After it emerges from bankruptcy, the only debt expected to remain on Blockbuster’s balance sheet will be the $125 million loan, known as a debtor-in-possession loan, the company said. It will convert to so-called exit financing and a revolving-credit line of as much as $50 million.
The case is In re Blockbuster Distribution, Inc., 10-14997, U.S. Bankruptcy Court, Southern District of New York.
Coast Crane Files for Bankruptcy Court Protection
Coast Crane Co., a provider of construction cranes and heavy-duty forklifts, filed for bankruptcy court protection from its creditors, with plans to sell itself at an auction, the company said.
Private investment firm Clearlake Capital Group would be the lead bidder at the proposed auction, which must be approved by a judge, according to a company statement. The Seattle-based company listed assets of $50 million to $100 million and debt of $100 million to $500 million in Chapter 11 documents in U.S. Bankruptcy Court in Seattle.
The “recent economic downturn” and its effect on the construction industry had an impact on the company’s balance sheet and banking facilities, Chief Executive Officer Dan Goodale, said in a statement.
The company sells and rents heavy-duty construction equipment on the West Coast, Alaska, Hawaii and Guam. The company didn’t disclose details of its sale agreement with Clearlake.
The case is In re Coast Crane Co. 10-21229, U.S. Bankruptcy Court, District of Washington (Seattle).
Lehman to File New Reorganization Plan in 4th Quarter
Lehman Brothers Holdings Inc. plans to file a revised reorganization plan in bankruptcy court by the fourth quarter and aims to win creditor approval by March 2011, according to a regulatory filing.
The defunct New York-based securities firm said it aims to cut creditor claims to between $250 billion and $350 billion, down from a total of $1.2 trillion earlier. Its filing was made yesterday with the U.S. Securities and Exchange Commission. Only after winning approval of its plan can Lehman start to pay creditors, it has said.
The “biggest obstacle” to getting a U.S. bankruptcy plan approved has been foreign affiliates with their competing plans, Chief Executive Officer Bryan Marsal told U.S. Bankruptcy Judge James Peck in Manhattan yesterday.
The former investment bank, which is liquidating over five years, provided a progress report in court to Peck, two years after filing the biggest bankruptcy in U.S. history.
Lehman and its affiliates now have $21 billion in cash and liquid investments, according to the filing. Lehman has a monthly payroll of as much as $45 million for managers and advisers, while investments it considers illiquid are being managed by 400 employees. The company also is spending tens of millions of dollars on litigation that may stretch to at least 2012.
Separately, Lehman may sell its largest real-estate asset, the apartment-complex owner Archstone, which it acquired in a $22 billion leveraged buyout, to two affiliates for “yet undefined consideration,” according to a court filing by Gerard Uzzi, a lawyer for Lehman creditors.
The two affiliates are Lehman Commercial Paper Inc. and Luxco, or Luxembourg Residential Properties Loan Finance S.a.r.l, according to a Sept. 20 filing by Uzzi, who represents a group of creditors of the defunct Lehman, including hedge fund Paulson & Co. Archstone, which has required two bailouts from its bankers in the last two years amid the real-estate slump, has ownership interests in hundreds of apartment developments in the U.S.
The deal might represent “the most valuable give-up” by the Lehman holding company to its affiliates, Uzzi said in a footnote to a filing protesting another deal involving Lehman, LCPI and Luxco. Lehman currently is trying to untangle numerous claims and obligations with its bankrupt and non-bankrupt affiliates.
Details of the Archstone transaction weren’t given.
Lehman and Tishman Speyer Properties took the former Archstone Smith private in October 2007. Lehman in May held 47 percent of the controlling stock in Archstone, according to court papers.
The case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
Tribune Judge Refuses to Replace Creditor Lawyer
Tribune Co.’s official unsecured creditors committee can keep its current law firm during a mediation session designed to help end the publisher’s bankruptcy, a judge ruled yesterday.
U.S. Bankruptcy Judge Kevin Carey in Wilmington, Delaware, rejected a request by some low-ranking creditors to replace Chadbourne & Park LLP as the lead law firm representing a panel of unsecured creditors.
Most members of the panel supported Chadbourne, saying the firm is the best qualified to represent it during two days of mediation starting Sept. 26.
Each member of the committee is represented by individual lawyers who aren’t involved in the details of the bankruptcy. Two members of the panel have complained that the law firm has too many conflicts of interest to participate in mediation. Those creditors asked Carey to replace Chadbourne for the mediation with the group’s other law firm, Zuckerman Spaeder LLP.
In an order yesterday, Carey told the creditors to try to divide the mediation duties between Chadbourne and Zuckerman. They were unable to reach an agreement, Chadbourne attorney Howard Seife said at the start of yesterday’s hearing.
The seven-member official committee of unsecured creditors is divided over the $8 billion leveraged buyout led by real- estate billionaire Sam Zell that took the newspaper and television company private in 2007.
Low-ranking noteholders, represented by Wilmington Trust Co., want to sue fellow committee member JPMorgan Chase Bank NA and other banks that financed the buyout. Because Chadbourne represents some of the banks in other matters, the committee hired Zuckerman to advise it on a potential lawsuit over the buyout.
The case is In re Tribune Co., 08-13141, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Abitibi Pays Premium to Emerge From Bankruptcy: Canada Credit
AbitibiBowater Inc., the bankrupt newsprint maker, provided bond investors with a one-day windfall of almost $12 million as it prepares to emerge from bankruptcy. The $850 million of notes sold by the Montreal-based paper maker in the U.S. corporate debt market on Sept. 20 rose to a mid-price of 101.375 cents on the dollar in trading Sept. 21 from 100 cents, according to brokerage firm RW Pressprich & Co.
AbitibiBowater, which has 19 pulp and paper mills and 24 wood-products plants in the U.S., Canada, the U.K. and South Korea, sold the debt a day before it said creditors approved its reorganization.
The bankruptcy case is AbitibiBowater Inc., 09-11296, U.S. Bankruptcy Court, District of Delaware (Wilmington).
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Trico Marine Loses Bid to Refinance Debt With Bankruptcy Loan
Trico Marine Services Inc., a supplier of rented support ships to oil and natural-gas drillers, was denied court permission to refinance $25 million in debt while it reorganizes in bankruptcy.
U.S. Bankruptcy Court Judge Brendan Linehan Shannon said he didn’t know enough about how refinancing the debt to Tennenbaum Capital Partners LLC would affect lower-ranking creditors. Tennenbaum required Trico to refinance what it’s owed as a condition for an additional $10 million loan.
Trico, based in Woodlands, Texas, has already received interim court permission to borrow the $10 million, but needs final approval to convert the older, Tennenbaum-funded loan to new debt with new collateral protections.
The company has already received the $10 million on interim approval, and has enough cash to maintain operations, company attorney Robert Dehney said in an interview. Under its agreement with Tennenbaum, the company has until Sept. 24 to win permission for the refinancing, Dehney told Shannon in court.
Lawyers for the company and Tennenbaum agreed to meet yesterday morning with attorneys for unsecured creditors who oppose the refinancing and to give Shannon a status report this afternoon.
Shannon said he would consider approving the refinancing should the company provide him with more information, or if Trico, Tennenbaum and the unsecured creditors work out a new loan package.
Trico filed for bankruptcy court protection last month, blaming the economic slowdown and imminent interest payments. The company listed assets of $30.6 million and debt of $353.6 million in its bankruptcy filing.
The case is In re Trico Marine Services, 10-12653, U.S. Bankruptcy Court, District of Delaware (Wilmington.)
General Growth Plans Offering to Replace Investor Commitments
General Growth Properties Inc., the bankrupt mall owner, said it expects to pursue a stock offering after it emerges from bankruptcy to replace financing commitments from some investors instead of selling notes that would convert to equity, it said in a filing yesterday in U.S. Bankruptcy Court in Manhattan.
Chicago-based General Growth is approaching the end of its bankruptcy case, which started in April 2009. It’s scheduled to seek court approval next month for its plan to exit bankruptcy with financing commitments from Brookfield Asset Management Inc., Fairholme Capital Management LLC and Pershing Square Capital Management LP.
General Growth has the right to replace portions of the investors’ equity commitments through a public offering of notes that convert to shares or through a post-bankruptcy public stock offering, according to court papers.
General Growth has an underwriting agreement from Goldman & Sachs Co., Deutsche Bank AG, Wells Fargo Securities, RBC Capital Markets Corp., Barclays PLC, UBS Securities LLC, Macquarie Bank Ltd. and TD Securities (USA) LLC. The mall owner also has exit- financing commitments of as much as $1.8 billion in loans, according to the court filing.
The case is In re General Growth Properties Inc., 09-11977, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
Philadelphia Inquirer Has Two Bidders for Auction
The Philadelphia Inquirer and its sister newspaper will have two bidders competing to buy them out of bankruptcy at an auction in which the opening offer is less than half the value of a deal that fell apart this month.
Lenders who backed out of their contract to buy the newspapers for $139 million on Sept. 14, will compete with Raymond Perelman, father of billionaire Ronald Perelman, said Lawrence G. McMichael, an attorney who represents the holding company that owns the two newspapers.
“We have two bids,” McMichael said yesterday in an e- mail. The bids were due yesterday for the auction scheduled for today.
The auction will be the second this year for the Inquirer and the Philadelphia Daily News, which are owned by bankrupt Philadelphia Newspapers LLC. Lenders owed more than $200 million won the first auction. They refused to complete the deal after members of the Teamsters union rejected changes to their pension plan.
Under rules approved by Judge Stephen Raslavich on Sept. 16, the new opening bid must be at least $50 million.
The newspaper company filed for bankruptcy in February 2009, blaming the recession and a fall in advertising.
Fred Hodara, a lawyer for the lenders, and J. Gregory Milmoe, an attorney for Perelman, weren’t immediately able to respond to phone calls seeking comment.
Raymond Perelman was among local investors who lost an auction this spring to the company’s main lenders, including hedge fund operator Angelo Gordon & Co. and a unit of Credit Suisse Group AG.
The case is In re Philadelphia Newspapers LLC, 09-11204, U.S. Bankruptcy Court, Eastern District of Pennsylvania (Philadelphia).
Harrisburg, Pennsylvania, May Consider Hiring Bankruptcy Lawyer
A councilman in Pennsylvania’s capital, which needed state aid to avoid default on $3.3 million of bond payments this month, said he plans a second attempt to have lawmakers consider hiring a lawyer for advice on bankruptcy.
The Harrisburg councilman, Brad Koplinski, had his attempt to move a similar motion at a City Council meeting on Sept. 14 rejected as out of order because it was unadvertised new business.
“We’re looking to have it officially placed on the agenda” for a meeting on the 28th, Koplinski said in a telephone interview from Harrisburg yesterday.
The city would have been the biggest borrower after Jefferson County, Alabama, to default on bond payments this year if it had missed the Sept. 15 payment on its general obligation bonds, according to Matt Fabian, managing director of Concord, Massachusetts-based Municipal Market Advisors, an independent research company.
Harrisburg notified bondholders Aug. 30 it didn’t have the funds to make the Sept. 15 payments on its 1997 Series D and 1997 Series F bonds. The payments were made after Pennsylvania Governor Ed Rendell accelerated $3.6 million in state aid.
Dykstra Bankruptcy Trustee Seeks Settlement Approval
The special counsel to the trustee for the bankruptcy estate of Lenny Dykstra, the former Major League Baseball player who filed for protection under Chapter 7 just over a year ago, provided a report regarding the motion to approve the JPMorgan Chase compromise, concerning a $12 million pre-petition loan secured by real property at 1072 Newbern Court, Thousand Oaks, California, extended by Washington Mutual to Dykstra and his wife, according to court papers. WaMu’s assets were taken over by the Federal Deposit Insurance Corporation and sold to Chase, which filed a claim against the bankruptcy estate.
The compromise provides for Chase to release its claims and interests in insurance proceeds and pay the estate $400,000 in exchange for relief from the automatic stay so it can foreclose on the property.
The special counsel, in a 37-page report examining the defenses and objections raised by the debtor and questions raised by the court, recommended approval of the compromise.
A hearing will be held on the matter on Oct. 7 at the U.S. Bankruptcy Court in Woodland Hills, California, according to court files.
The case is In re Lenny Kyle Dykstra , 09-bk-18409, U.S. Bankruptcy Court, Central District of California (San Fernando).
Movie Gallery Gets Order Approving Key Employee Incentive Plan
Movie Gallery Inc., the bankrupt movie-rental chain, obtained an order Sept. 21 granting its request for approval of its key employee incentive plan, according to papers filed with the U.S. Bankruptcy Court in Richmond, Virginia. Payments made under the plan “shall be treated as an administrative expense” under the provisions of the Bankruptcy Code, according to signed by U.S. Bankruptcy Court Judge Douglas O. Tice.
Movie Gallery 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.
The new case is In re Movie Gallery Inc., 10-30696, U.S. Bankruptcy Court, Eastern District Virginia (Richmond); a prior case filed by Movie Gallery is In re Movie Gallery Inc., 07- 33849, U.S. Bankruptcy Court, Eastern District Virginia (Richmond).
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Default Risk Drops to Lowest in Two Years, Moody’s Says
The number of U.S. companies at greatest risk of default dropped to the lowest level in two years as Federal Reserve efforts bolstered the economy, according to Moody’s Investors Service. Companies rated at or below B3 with a negative outlook declined to 195 as of Sept. 1 from a high of 288 in June 2009, Moody’s said in a report.
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Group Health Cooperative Downgraded, by S&P Says
Group Health Cooperative, a consumer-governed health care non-profit system providing services in the states of Washington and Idaho, saw its financial strength, counterparty credit, and senior secured debt ratings downgraded by Standard & Poor’s Ratings Services to BBB from BBB+, according to a statement by the ratings company yesterday.
At the same time, S&P revised its outlook on the financial strength and counterparty credit ratings to stable from negative. S&P also affirmed its A-2 short-term counterparty credit rating on the company, according the statement.
The ratings action was based on S&P’s “revised expectations that GHC will post a $10 million-$20 million operating loss in 2010,” S&P’s credit analyst Neal Freedman said in the statement.
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