ProtoStar, Centaur, South Bay, Gloucester, Boston Generating: Bankruptcy

ProtoStar Ltd., after its creditors’ committee reached an agreement with secured lenders, still faces opposition at an Oct. 6 confirmation hearing for approval of the settlement and its Chapter 11 plan.

The committee had sued secured lenders, challenging the validity of their liens. The tentative settlement allowed the bankruptcy judge to approve the disclosure statement explaining the resulting Chapter 11 plan.

Creditor Kiskadee Communications (Bermuda) Ltd. filed an objection to confirmation of the plan. It contends the settlement unfairly allocates fruits of the settlement among the ProtoStar companies. Kiskadee also argues that the settlement improperly benefits members of the creditors’ committee.

For a description of the plan and the recovery by creditors, click here to see the Sept. 1 Bloomberg bankruptcy report.

Hamilton, Bermuda-based ProtoStar, the former provider of digital television and broadband service in Asia, and five subsidiaries filed under Chapter 11 in July 2009, listing assets of $528 million and debt of $463 million. The debt included $10 million on a first lien, plus $183 million in 12.5 percent and 18 percent secured notes and $242 million on the so-called Credit Suisse facility secured by all the assets.

The case is In re ProtoStar Ltd., 09-12659, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Watch List

InSight Health Candidate for Second Reorganization

InSight Health Services Corp. may find itself in Chapter 11 a second time. Standard & Poor’s said yesterday that it expects a “distressed exchange offer” from the provider of diagnostic imaging services in 30 states.

S&P reported that revenue for Lake Forest, California-based InSight declined 13 percent from fiscal 2009 to fiscal 2010. Earnings before interest, taxes, depreciation and amortization in the same period fell 26 percent, S&P said.

InSight’s auditors said they have substantial doubt about the company’s ability to continue as a going concern. The qualification of financial statements by itself will become a violation of a loan covenant, S&P said. S&P lowered the corporate rating to CC.

Insight’s parent company, InSight Health Services Holdings Corp., began a so-called prepacked Chapter 11 petition in May 2007 and completed the reorganization in July of that year. The plan paid creditors in full, except holders of the $194.5 million in notes, who were given 90 percent of the stock. Existing shareholders retained 10 percent.

InSight had 62 fixed and 104 mobile facilities at the end of the June fiscal year. The balance sheet at June 30 was upside down with assets of $141 million and total liabilities of $321 million.

The parent company’s stock traded on Sept. 28 at less than 10 cents a share through the over-the-counter bulletin board.

Harrisburg City Council Votes to Hire Bankruptcy Advisers

Harrisburg, the capital city of Pennsylvania, will hire bankruptcy advisers, as the result of a vote by the city council which overrode advice from the mayor.

To read Bloomberg coverage, click here.

Harrisburg this year has already missed $8 million in payments on more than $210 million in bonds sold to finance an incinerator that converts trash to energy. The city has $43 million owing before the year’s end.

The bonds are insured by Assured Guaranty Municipal Corp.

Updates

Orleans Disclosure Approved, Confirmation on Nov. 16

Orleans Homebuilders Inc. persuaded the bankruptcy judge to approve the disclosure statement at a hearing yesterday, court records show. The confirmation hearing for approval of the Chapter 11 plan is set for Nov. 16.

Orleans builds homes and condominiums in seven states. The plan filed in August would to give stock and new secured debt to revolving credit lenders owed $234 million. Unsecured creditors are to have lawsuit recoveries and share proceeds from sales of properties after secured debt is paid.

The disclosure statement explaining the plan estimates that the revolving credit lenders should recover between 67 percent and 87 percent if they vote for the plan. Unsecured creditors should see between 3.4 percent and 5.25 percent if they vote “yes” as a class.

The plan reduces debt from more than $400 million to less than $200 million, the company said in a statement. Orleans negotiated the plan with holders of more than 80 percent of the secured debt.

The Chapter 11 filing in March by Bensalem, Pennsylvania- based Orleans followed maturity of the revolving credit the month before. About $325 million was owing to the banks at maturity, not including $15 million on letters of credit. The March 31 balance sheet listed assets of $591 million against total liabilities of $560 million.

The case is In re Orleans Homebuilders Inc., 10-10684, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Hedge Fund Paulson Buys Tousa’s Western Business

Liquidating homebuilder Tousa Inc. was authorized by the bankruptcy court to sell most of the assets in Arizona, Nevada and Colorado to RERF Acquisition Co., an affiliate of New York- based hedge fund Paulson & Co. The price was $42.4 million.

Tousa operated in the western U.S. under the name Eagle Homes. Paulson bid to buy almost 8,300 unstarted lots and 22 model homes. Tousa decided that selling the western operation in bulk was preferable to disposing of the properties piecemeal over several years.

Tousa has a hearing scheduled on Oct. 27 for approval of the disclosure statement explaining the Chapter 11 plan filed in July. For a summary of the plan, click here for the July 20 Bloomberg bankruptcy report. The plan assumes appellate courts uphold a judgment the creditors’ committee won last October when the bankruptcy judge ruled that a bailout and refinancing in mid-2007 of a joint venture in Transeastern Properties Inc. resulted in fraudulent transfers. The appeal will be argued in October in U.S. District Court.

Tousa filed for bankruptcy reorganization in January 2008. The Hollywood, Florida-based company listed assets of $2.1 billion against debt totaling $2 billion. At the outset of the reorganization it was 67 percent-owned by Technical Olympic SA.

The case is In re Tousa Inc., 08-10928, U.S. Bankruptcy Court, Southern District of Florida (Fort Lauderdale).

Centaur Wants More Exclusivity if Reorganization Plan Fails

Casino and racetrack operator Centaur LLC wants the bankruptcy judge to extend the exclusive right to solicit votes on a reorganization until Dec. 31 in case the court doesn’t approve the Chapter 11 plan at a tentatively scheduled confirmation hearing on Dec. 13.

The exclusivity motion is Centaur’s third. A hearing on the motion will be held on Nov. 2.

Centaur said in its papers that the bankruptcy court tentatively gave approval of the disclosure statement at a Sept. 7 hearing. The disclosure statement explains the amended plan filed Sept. 3.

The judge, according to Centaur, said that solicitation of the vote must begin by Oct. 15 so a confirmation hearing can be held Dec. 13.

Centaur will conduct an auction on Oct. 20 to sell a planned racetrack 55 miles from Pittsburg named Valley View Downs and Casino. The sale would be approved along with confirmation of the Chapter 11 plan.

Centaur was authorized in August to sell the Fortune Valley Hotel & Casino 40 miles west of Denver to Luna Gaming Central City LLC for $7.5 million cash plus a $2.5 million note.

Centaur’s plan promises an 83.3 percent recovery for holders of $405 million in first-lien debt by giving them a combination of mostly new stock and debt. Holders of $207 million in second-lien debt would realize a 1.4 percent recovery, according to the disclosure statement accompanying the plan.

For details on the plan, click here for the July 26 Bloomberg bankruptcy report.

Centaur LLC and 12 affiliates filed Chapter 11 petitions in March. Affiliates Centaur PA Land LP and Valley View Downs LP filed for bankruptcy reorganization in October 2009 to keep the Pennsylvania project alive. All the companies are subsidiaries of privately-owned Centaur Inc., which isn’t in bankruptcy.

The March filings listed assets of $584 million and debt of $681 million. The newer cases resulted from the failure to make payments due in October 2009 on a $382.5 million first-lien debt and a $192 million second-lien credit. The companies have horse racing and gambling facilities in five markets in Indiana and Colorado.

The companies own Hoosier Park, a casino and horse racetrack, in Anderson, Indiana, along with three off-track betting parlors in Indiana. Fortune Valley Hotel & Casino in Central City, Colorado, was sold. The companies generated revenue of $277.5 million in 2009.

The newer case is Centaur LLC, 10-10799, and the first case was In re Centaur PA Land LP, 09-13760, U.S. Bankruptcy Court, District of Delaware (Wilmington).

South Bay Expressway Committee’s Motion Denied Without Hearing

South Bay Expressway LP, the owner of a nine-mile toll road near San Diego, defeated a motion by the creditors’ committee without even filing opposing papers or attending a hearing. U.S. Bankruptcy Judge Louise DeCarl Adler issued a decision two days after the committee filed its papers saying the “proposed motion is a waste of time and money.”

In its motion on Sept. 22, the committee had sought to supplant South Bay in a pending lawsuit to determine the validity of as much as $240 million in mechanics’ liens. Adler effectively denied the motion two days later when she said “the proposed motion makes no sense.” She went on to explain how South Bay hadn’t given up the right to challenge mechanics’ liens. The company is only precluded from attempting to void secured financing.

The expressway began operating in November 2007. It owes $340 million on a first-lien construction and term loan plus another $170 million first-lien obligation on a loan provided by the U.S. Department of Transportation. Ownership of the toll road is controlled by affiliates of Sydney, Australia-based Macquarie Group Ltd.

The case is In re South Bay Expressway LP, 10-04516, U.S. Bankruptcy Court, Southern District California (San Diego).

Gloucester Engineering to Be Acquired by Blue Wolf in Plan

Gloucester Engineering Co. Inc., a producer and servicer of plastic film extrusion equipment, filed a reorganization plan yesterday in which the secured lender, Blue Wolf Capital Fund II LP, will take ownership in exchange for debt.

The disclosure statement explaining the plan says that unsecured creditors, owed $13.6 million, should see a recovery of 3.8 percent to 7.8 percent by splitting $500,000 cash and other consideration.

Blue Wolf will convert $6 million of financing for the Chapter 11 case into a new exit loan. Blue Wolf’s secured claim, totaling almost $13.5 million, will convert into equity.

The plan is supported by the creditors’ committee, the company said in a statement.

Gloucester converted an involuntary Chapter 7 petition into a Chapter 11 reorganization in June.

Based in the Massachusetts town of the same name, Gloucester had $41 million revenue in 2009. The company was acquired in October 2007 in a management buyout.

The case is In re Gloucester Engineering Co. Inc., 10- 12967, U.S. Bankruptcy Court, District of Massachusetts (Boston).

Jeweler Shane Co. Plan Includes Full Payment Over Time

Shane Co., a jewelry retailer based in Centennial, Colorado, scheduled a confirmation hearing for Nov. 10 when it hopes the bankruptcy judge will approve a Chapter 11 plan proposing to pay secured and unsecured creditors in full, over time.

Chief Executive Officer Thomas M. Shane is deferring payment on more than $30 million in loans he made to the company he controls. By providing full payment to creditors, Mr. Shane and family trusts will retain ownership.

Mr. Shane will defer principal payments on a $10.5 million secured loan he advanced to finance the Chapter 11 case. He will likewise defer payments on $20 million in pre-bankruptcy secured loans until unsecured creditors have been paid.

Some of the deferred payments to unsecured creditors will be secured by a second lien on inventory. Mr. Shane will loan the company half of any tax refunds he receives as a result of the company’s net operating losses. To read other Bloomberg coverage, click here.

Shane is currently operating 20 of the 23 jewelry stores it had on filing under Chapter 11 in January 2009.

The company filed formal lists showing assets for $130 million and debt of $103 million, including $31.4 million owed on secured claims.

The case is Shane Co., 09-10367, U.S. Bankruptcy Court, District of Colorado (Denver).

Daily Podcast

Tribune, Lehman, Anna Nicole Smith in Supreme Court: Audio

The settlement for Tribune Co. that may not be a settlement, an appeal of an important ruling for Wall Street regarding Lehman Brothers Holdings Inc., and an upcoming Supreme Court bankruptcy ruling involving the late Playboy model Anna Nicole Smith are covered in the bankruptcy podcast on the Bloomberg terminal and Bloomberglaw.com. To listen, click here.

Briefly Noted

Visteon Set to Emerge from Chapter 11 by Tomorrow

Visteon Corp. cleaned up the last remaining details standing in the way of implementing by tomorrow the reorganization plan that the bankruptcy judge approved in an Aug. 31 confirmation order. Yesterday, the judge approved a settlement with former parent Ford Motor Co. To read about the Ford settlement and Visteon’s plan, click here and here. For Bloomberg coverage on yesterday’s hearing, click here.

Visteon filed for reorganization in May 2009, listing assets of $4.6 billion against debt totaling $5.3 billion. Sales in 2008 were $9.5 billion, including $3.1 billion to Ford. It was spun off from Ford in 2000. Van Buren Township, Michigan- based Visteon at the outset owed $2.7 billion for borrowed money, including $1.5 billion on a secured term loan, $862 million on unsecured bonds, and $214 million on other debt obligations.

The case is In re Visteon Corp., 09-11786, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Medical Staffing Network Completes Sale to Lenders

Medical Staffing Network Holdings Inc., a Boca Raton, Florida-based provider of temporary nursing services, completed the sale of the business to secured lenders in exchange for debt, according to a statement released yesterday. The sale was approved Aug. 23.

For details of the sale and the company’s debt structure, click here for the Aug. 25 Bloomberg bankruptcy report. Medical Staffing sought Chapter 11 relief in July to sell the assets to the lenders.

The case is In re Medical Staffing Network Holdings Inc., 10-29101, U.S. Bankruptcy Court, Southern District of Florida (West Palm Beach).

Boston Generating’s Auction Faces Creditor Opposition

Some creditors of Boston Generating LLC contend that the company is moving too quickly with an auction for five electric generating plants in the Boston area. Unless outbid at auction, Constellation Energy Group Inc. would buy the facilities for $1.1 billion. A hearing will be held on Oct. 4 to decide on auction and sale procedures. To read Bloomberg coverage, click here.

The case is In re Boston Generating LLC, 10-14419, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Advance Sheets

First Circuit BAP Rejects Brunner on Student Loans

The Bankruptcy Appellate Panel in Boston ruled on Sept. 21 that the so-called totality of the circumstances test should be adopted in the First Circuit for deciding when a student loan can be discharged.

The totality test emanated from the U.S. Court of Appeals for the Eighth Circuit in St. Louis. Nine circuits follow the so-called Brunner test first enunciated by the U.S. Court of Appeals for the Second Circuit in New York.

The appellate panel said that most of the lower courts in the First Circuit have opted for the totality of the circumstances test. The appellate panel ruled that Brunner’s requirement of showing “certainty of hopelessness” is not required by the language of the governing statute, Section 523(a)(8) of the Bankruptcy Code.

U.S. Bankruptcy Judge James B. Haines Jr. concurred, although he said it was unnecessary to decide which test the circuit should adopt.

The case is Bronsdon v. Educational Credit Management Corp. (In re Bronsdon), 10-009, First Circuit Bankruptcy Appellate Panel (Boston).

Electronic Filing Fault No Excuse for Late Complaint

The inability to upload a complaint to the bankruptcy court using the electronic filing system won’t prevent dismissal of the complaint when it was filed after the deadline, U.S. District Judge Dora L. Irizarry in Brooklyn, New York, ruled on Sept. 27.

A creditor was facing a May 12 deadline for filing a complaint objecting to discharge of a debt owed by a bankrupt. The creditor’s lawyer was unable to file the complaint electronically before the deadline because the lawyer had failed to put his new credit card number into the court’s billing system.

The lawyer mailed the complaint, which arrived in the courthouse one day after the deadline.

Irizarry held that the complaint was properly dismissed for being late. She noted that the lawyer could have delivered the complaint to the courthouse on time.

The case is Yesh Diamonds Inc. v. Yashaya, 09-2016, U.S. District Court, Eastern District New York (Brooklyn).

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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