Blockbuster, Ag Energy, Duratek, Lehman: Bankruptcy

Blockbuster Inc. Chief Executive Officer James Keyes said he will evaluate “every single store” in the video-rental chain as it reorganizes to compete with competitors that provide movies online and by mail.

The 25-year-old company filed for bankruptcy Sept. 23 in New York after losing sales to Netflix Inc.’s Web and mail-order movie service and Coinstar Inc.’s Redbox DVD rental kiosks. Revenue dropped 20 percent to $4.06 billion last year, when Dallas-based Blockbuster reported a $558.2 million net loss.

As of Aug. 29, Blockbuster had about 5,600 stores worldwide, including 3,300 in the U.S., according to court papers. Michael Pachter, an analyst at Wedbush Morgan Securities in Los Angeles, said the company may have to cut U.S. locations to about 2,000 to increase annual sales per store to at least $1 million. In 2002, that figure stood at $1.1 million, he said. The company will also face pressure to cut stores from “a new class of shareholder wanting to see cash increasing in a hurry,” he said.

In the past two years, Blockbuster has closed 1,061 U.S. company-operated stores, according to a court document. All its U.S. operations, including stores, DVD vending kiosks, mail and digital, will continue to operate normally, the company said.

The company is likely to close more than 500 stores and will seek ways to reduce lease costs on hundreds of others, a person with knowledge of the plans said. The actual number of stores is still being worked out, said the person, who declined to be identified because the deliberations are private and subject to court approval.

Patty Sullivan, a spokeswoman for Blockbuster, didn’t immediately respond to an e-mailed request for comment after normal business hours. The Wall Street Journal reported the store closings earlier.

Movie Gallery Inc., which once had as many as 4,800 locations, filed for bankruptcy in 2007 and closed more than 1,700 stores. After reorganizing, the chain closed another 715, before filing a second bankruptcy in February and liquidating.

In 2009, Blockbuster reached a deal with NCR Corp. for DVD vending kiosks, under which NCR pays royalties to Blockbuster. Blockbuster said in a court filing that the agreement lets it compete with Redbox without the startup costs. As of Sept. 19, there were about 6,600 Blockbuster kiosks throughout the U.S. That business will continue to operate, NCR said Sept. 23 in a statement.

Blockbuster has a marketing partnership with Comcast Corp., the biggest U.S. cable-television provider, in which subscribers are offered Blockbuster’s by-mail services through a website.

The company also negotiated agreements with consumer- electronics makers, including Samsung Electronics Co. and Toshiba Corp. to deliver movies to customers with Internet- connected TVs and Blu-ray players through a partnership with Sonic Solutions. Blockbuster also has an accord with Motorola Inc. to embed its digital applications in mobile phones.

Under the proposed reorganization plan, there will be no recovery by the holders of the company’s outstanding subordinated debt, preferred stock or common stock, Blockbuster said in a statement. Senior bondholders will swap their debt for equity in the reorganized company.

In court papers, the company listed assets of $1.02 billion against debt of $1.46 billion.

The case is In re Blockbuster, 10-14997, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

New Filings

Ag Energy Resources Files Chapter 11 in Illinois

Ag Energy Resources Inc., a biofuel processing facility, filed for protection under Chapter 11 of the U.S. Bankruptcy Code Sept. 23 in Benton, Illinois. The debtor listed assets of $10 million to $50 million and liabilities of $1 million to $10 million, according to court papers.

Ag Energy Resources declared Foxboro/Invensys Systems, with a claim of $90,395, and the Internal Revenue Service, with a claim $95,520, among the largest of the 20 largest unsecured creditors, according to a court filing. Ag Energy Resources has real property valued at $4.9 million, and personal property valued at $9.2 million, the debtor said in court papers. The debtor has secured claims totaling $8.5 million, it said in a filing.

The case is In re Ag Energy Resources, Inc., 10-41440, U.S. Bankruptcy Court, Southern District of Illinois (Benton).

Duratek Precast Technologies Files Chapter 11 in Florida

Duratek Precast Technologies Inc., formerly known as Duratek Wall Corp., filed for protection under Chapter 11 of the U.S. Bankruptcy Code in Tampa, Florida.

The debtor, maker of precast concrete wall systems and other structures, declared assets and liabilities each in the ranges of $10 million to $50 million, according to court files.

An affiliate, Duratek Precast Structures LLC, also has a pending bankruptcy case. Duratek Precast Technologies has made an “emergency motion” asking the court for joint administration of the two bankruptcy cases, court files showed. Duratek Precast Technologies is the managing member and owns 100 percent of Duratek Precast Structures, the debtor said in court papers in support of its motion.

Joint administration would expedite the cases and “avoid unnecessary and expensive duplication” to the parties and the court,” it argued. It asked for the relief as part of its first day filings, without a hearing.

The case is Duratek Precast Technologies Inc.,10-22876, U.S. Bankruptcy Court, Middle District of Florida (Tampa).

C.M.B. III Files Bankruptcy Protection in Arizona

C.M.B. III LLC filed for protection from creditors in U.S. Bankruptcy Court in Phoenix, listing its assets and liabilities from $10 million and $50 million, according to court files.

The debtor, represented by Richard M. Lorenzen of Perkins Coie Brown & Bain PA in Phoenix, estimated that there will be funds available for distribution to unsecured creditors, a court filing showed. C.M.B. III has fewer than 50 creditors, it said in its bankruptcy petition.

C.M.B. III’s largest unsecured creditor is Maricopa County, to which the debtor owes $395,000 for unpaid taxes, court papers revealed.

The case is In re C.M.B. III, LLC, 10-30496, U.S. Bankruptcy Court, District of Arizona (Phoenix).

BNA Subsidiaries Files Chapter 11 in New Hampshire

BNA Subsidiaries LLC, a publisher of materials for government professionals, filed for protection from creditors in U.S. Bankruptcy Court in Wilmington, Delaware.

The Peterborough, New Hampshire-based company declared assets against liabilities in the range of $1 million to $10 million, according to court papers.

BNA Subsidiaries has been known by other names including Kennedy Consulting Research, Washington G-2 Report, and IOMA, according the filing. The Bureau of National Affairs, with a claim of $2 million, is the largest of the unsecured creditors and owns all of the equity, according to court files.

BNA Subsidiaries requested court approval for $1.5 million in debtor-in-possession financing. A hearing was set for Sept. 29 on the financing motion as well as other first-day relief, including permission to pay wages and benefits.

The case is In re BNA Subsidiaries, LLC, 10-13087, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Updates

Innkeepers Has $47.5 Million for Preferred Holders

Innkeepers USA Trust has four hotels that are valuable enough to pay creditors and still leave $47.5 million for preferred-share holders who would otherwise get nothing from the bankrupt hotel owner, according to a court filing.

The preferred holders published a valuation of four out of 72 Innkeepers hotels to try to persuade a judge they should be allowed to have a committee fighting for their interests in court, according to the Sept. 23 filing. Most of Innkeepers’ hotels secure debt serviced by Midland Loan Services Inc., or are pledged to a unit of defunct Lehman Brothers Holdings Inc.

The four hotels are located in San Antonio, Washington, Tyson’s Corner, Virginia, and San Diego.

Innkeepers, whose parent is managed by an affiliate of Leon Black’s private-equity firm Apollo Global Management LLC, filed for bankruptcy protection on July 19.

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

Lehman Art Sale Raises $12 Million for Creditors at Sotheby’s

A sale of art from Lehman Brothers Holdings Inc. on Sept. 24 raised $12.3 million for creditors.

The priciest lot at the Lehman and Neuberger Berman art liquidation sale at Sotheby’s in New York was a swirling 2001 canvas by Julie Mehretu, “Untitled 1,” that sold for $1 million to an unidentified telephone bidder, topping the $800,000 high estimate. Bidders snubbed a 1993 Damien Hirst cabinet, tagged to fetch as much as $1.2 million.

The sale garnered “curiosity” from the “global financial community,” Tobias Meyer, Sotheby’s worldwide head of contemporary art, said in an interview. The sale total exceeded the $8.8 million to $12 million presale estimate. Out of 142 lots on offer, 118, or 83 percent, found buyers.

New York-based Lehman was the world’s fourth-largest investment bank on Sept. 15, 2008, when it filed the biggest bankruptcy in U.S. history. It had assets of $639 billion. More than $830 billion in claims have been filed against Lehman, which has said many are duplicates.

More Lehman art will be sold at Christie’s International in London on Sept. 29 and at Freeman’s in Philadelphia on Nov. 7.

SIPC Tells Congress Madoff Victim Claims Exceed Agency’s Funds

The Securities Investor Protection Corp. said in a letter to a congressional subcommittee that claims by victims of Bernard Madoff’s Ponzi scheme far exceed the funds available to the agency to reimburse them.

As of Aug. 1, the SIPC had a total fund of $1.2 billion and access to as much as an additional $2.5 billion in loans from the U.S. Securities and Exchange Commission, SIPC President Stephen Harbeck said in a Sept. 7 letter to the House Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises.

The liquidation of New York-based Bernard L. Madoff Investment Securities LLC is the biggest such case undertaken by SIPC, according to court records.

Claims by Madoff victims total $57.2 billion based on false account statements issued by Madoff’s firm in November 2008, the month before his arrest, according to the SIPC letter. Victims lost $17.3 billion when calculated as the difference between money invested and money withdrawn from Madoff’s firm.

The SIPC, which is required to pay victims a maximum of $500,000 for most claims, has allocated $888 million to pay claims based on lost principal. If forced to pay based on the account statements, the SIPC would have to pay an additional $1.1 billion, it said in the letter, produced in connection with the subcommittee hearing on Sept. 23.

Madoff victims have tried, unsuccessfully so far, to force the SIPC to pay based on their fictitious account balances. The SIPC, supported by trustee Picard and U.S. Bankruptcy Judge Burton Lifland in Manhattan, has said it’s required only to pay based on cash invested minus withdrawals.

On Sept. 24, the Litwin Foundation, a Madoff investor, sued the SEC for “negligence” in failing to uncover the Ponzi scheme. John Heine, a spokesman for the SEC, declined to comment on the lawsuit.

Madoff, 72, is serving a 150-year prison term after pleading guilty last year to masterminding the largest Ponzi scheme in history.

The bankruptcy case is: Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities LLC, 08-01789, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The Litwin case is The Litwin Foundation v. United States of America, 10-CV-7367, U.S. District Court, Southern District of New York (Manhattan).

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Bank Closures

Banks in Florida, Washington Shut; 2010 Failures Climb to 127

Regulators shut lenders in Florida and Washington amid losses on real-estate loans, pushing the number of U.S. bank failures to 127 for the year.

Haven Trust Bank Florida of Ponte Vedra Beach and Arlington, Washington-based North County Bank were closed, according to statements on the website of the Federal Deposit Insurance Corp., which was named receiver. The failures cost the agency’s deposit-insurance fund $104.7 million.

Whidbey Island Bank, based in Coupeville, Washington, paid a 2 percent premium to acquire $276.1 million in deposits and four branches from North County, the FDIC said.

First Southern Bank of Boca Raton, Florida, took over Haven Trust’s two branches and shared losses on $127.3 million in assets with the FDIC, the agency said.

Banks are failing at a faster pace than last year, which saw the most failures since 1992. Regulators closed 140 banks last year.

Commercial Debt

Terex to Amend Credit Agreement to Gain Flexibility

Terex Corp., the world’s third-biggest maker of construction equipment, said it is seeking to amend its bank credit facility. The revisions would allow Terex to prepay 100 percent of the outstanding principal amount of its term loans under a credit facility of about $270 million.

In addition, the amendment would give Terex the flexibility to redeem or repurchase debt, as well as to make acquisitions, the Westport, Connecticut-based company said Sept. 24 in a statement.

Statistics

Re-Default Rate on Home Loan Modifications Drops, U.S. Says

The number of delinquent borrowers who re-defaulted after home loan modifications declined as lenders offered more generous payment reductions, according to the U.S. Treasury Department. Six months after receiving a modification, 32 percent of borrowers were at least 60 days delinquent through the period ending June 30, down from 45 percent a year earlier, the Treasury Department’s Office of the Comptroller of the Currency and Office of Thrift Supervision reported Sept. 24. The number of seriously delinquent mortgages declined 5.7 percent as of June 30 to 2.08 million from 2.39 million three months earlier, the report said.

Downgrades

ATI Acquisition Ratings Placed on Negative Credit Watch by S&P

ATI Acquisition Co., the post-secondary education company, had its corporate credit rating of B and all related issue-level credit ratings on the company’s debt placed on credit watch “with negative implications” by Standard & Poor’s Ratings Services, according to a Sept. 24 statement by the ratings company.

Arlington, Texas-based ATI Acquisition had total debt of $234 million as of June 30, S&P said in the statement.

The placement of the ratings on credit watch “reflects the potential impact of increased federal government regulation, which would negatively affect ATI’s operating performance, debt leverage, and liquidity,” Standard & Poor’s credit analyst Hal Diamond said in the statement.

The U.S. Education Department has proposed a requirement that post-secondary programs demonstrate federal student loan principal repayment rates at certain thresholds in order for students to remain eligible for federal loans under Title IV funding, according to S&P’s statement. Certain of ATI’s schools “had repayment rates that fell below the threshold for retaining Title IV funding eligibility, based on the current measure of repayment rates and relevant thresholds proposed” by the Education Department, according to the statement.

The Education Department plans to complete the new regulations by Nov. 1, with initial implementation beginning July 1, according to S&P’s statement.

To contact the reporter on this story: Carla Main in New Jersey at cmain2@bloomberg.net.

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

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