Workflow, ASR, Tronox, Nortel, Lehman: Bankruptcy

Workflow Management Inc., a provider of promotional marketing services and printed business documents, filed a Chapter 11 petition late in the day on Sept. 29, possibly aiming to use cramdown on a holder of first- and second-lien debt who was blocking an out-of-court restructuring.

Dayton, Ohio-based Workflow, whose holding company is based in Norfolk, Virginia, owes $146.5 million on first-lien debt, including $30.2 million on a revolving credit and $111.5 million on a term loan. The second-lien debt is $196.5 million. The petition, filed in U.S. Bankruptcy Court in Norfolk, said assets and debt both exceed $100 million.

Workflow said in a court filing that the company needed Chapter 11 relief in view of amortization payments on secured debt and the inability to refinance. The company said one creditor has a controlling position on the second-lien debt and recently acquired a position on the first-lien obligations. The creditor wouldn’t consent to restructuring.

Workflow filed a proposed Chapter 11 plan where the creditor holding both first- and second-lien debt would be placed into its classes by itself. Creditors holding only first- or second-lien obligations are classified separately.

The plan says that all secured creditors would retain their liens and be paid in full with deferred cash payments. An exhibit to the plan said that the terms of the new first-lien debt are yet to be determined.

For the second-lien credit, holders would be given a new 4 1/2-year secured note bearing interest at 12 percent, with 10 percent paid in cash and the remainder in new notes. The new second-lien debt could be redeemed by the company before maturity.

The plan calls for giving unsecured creditors 50 percent in cash on confirmation with the remainder two months later without interest.

Workflow generated about $600 million revenue in 2009. The company has 49 offices, 17 distribution centers and nine plants. Earnings before interest, taxes, depreciation and amortization in 2009 were about $60 million, according to a court filing.

The case is Workflow Management Inc., 10-74617, U.S. Bankruptcy Court, Eastern District of Virginia (Norfolk).

Updates

Tronox Shareholders Withdraw Competing Reorganization Plan

Tronox Inc., the world’s third-largest producer of the white pigment titanium dioxide, won’t face a competing reorganization plan sponsored by the official equity committee.

The shareholders withdrew their plan on Sept. 29. If they hadn’t, there would have been a hearing yesterday where shareholders would have sought approval of a disclosure statement explaining their plan.

Yesterday the bankruptcy judge formally approved the disclosure statement for Tronox’s own plan. The judge had tentatively approved the disclosure statement at a hearing in September. The confirmation hearing is now formally scheduled for Nov. 17.

Tronox’s revised plan is financed in part by a $185 million backstopped rights offering. To read about the equity committee’s withdrawn plan and Tronox’s plan, click here for the Sept. 7 Bloomberg bankruptcy report. For details on Tronox’s 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).

American Safety Razor Auction Overturned by Judge

American Safety Razor Co., the fourth-largest maker of wet- shaving blades, has the distinction of being one of the few reorganizing companies whose bankruptcy judge rejected the results of an auction.

At a hearing yesterday, U.S. Bankruptcy Judge Mary F. Walrath read her ruling into the record from the bench and directed ASR to hold another auction, this time permitting bids from Energizer Holdings Inc., the maker of Schick shavers. ASR didn’t allow Energizer to bid at a previously scheduled auction, claiming antitrust concerns might scotch a sale and slow the disposition of the business.

ASR contended that Energizer didn’t make a so-called qualified bid because antitrust regulators could slow down or block an acquisition.

To read Bloomberg coverage of the hearing, click here.

If the results of the prior auction had been allowed to stand, the business would have been sold to secured lenders in exchange for $244.4 million owing on the first-lien revolving credit and term loan. Energizer would have offered $301 million cash.

Second-lien creditors, owed $178.1 million, supported the idea of holding another auction where Energizer could bid. Walrath said the process at the first auction “has not been fair.” Walrath also questioned whether ASR had been correct in demanding that Energizer make a non-refundable deposit.

When ASR filed under Chapter 11 in July, the company said it would give second-lien creditors an opportunity to devise a plan more favorable than swapping the business for the first- lien debt.

Mezzanine lenders are owed $60 million on an obligation that pays in kind.

The agent for the first-lien lenders is UBS AG. ASR had revenue of $330 million in 2009.

ASR, based in Cedar Knolls, New Jersey, has U.S. plants in Virginia and Tennessee. Affiliates abroad aren’t in bankruptcy. It was acquired for $625 million in July 2006 by London-based Lion Capital LLP.

ASR has the largest market share for private-label blades, although only 8 percent when branded goods are included, according to Moody’s Investors Service.

The case is In re American Safety Razor Co., 10-12351, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Ericsson Raises Price and Buys Nortel Switch Business

Telefonaktiebolaget LM Ericsson was authorized by the bankruptcy judge yesterday to buy the multiservice switch business from Nortel Networks Inc. for $65 million cash.

The opening offer at the auction held Sept. 24 was $39 million cash from PSP Holdings LLC, a company sponsored by Marlin Equity Partners from El Segundo, California, and Canada’s Samnite Technologies Inc.

The multiservice switch business permits customers to integrate data, voice and video into one network available at multiple locations. Nortel’s business has customers in 100 countries. Before bankruptcy, Nortel had been North America’s largest communications equipment provider.

Nortel filed a disclosure statement in early September explaining the liquidating Chapter 11 plan filed in July. Generally speaking, the plan is for full payment on secured claims with distributions of remaining asset sale proceeds to unsecured creditors after creditors with higher priorities are paid in full. There would be no distributions to creditors with subordinated claims.

There is no substantive consolidation, so recoveries will vary depending on the Nortel company that owes a particular debt. Eventually, the disclosure statement will include an appendix with estimated recoveries by each class of creditors. The estimate wasn’t included in the draft disclosure statement filed Sept. 3.

The Toronto-based Nortel companies filed for bankruptcy reorganization in January 2009 in the U.S., Canada, and London. The Nortel companies reported $11.6 billion in consolidated assets against debt totaling $11.8 billion as of Sept. 30. Revenue was $9.7 billion in 2007. For the first nine months of 2008, sales were $6.8 billion.

The Chapter 11 case is In re Nortel Networks Inc., 09- 10138, and the parent’s Chapter 15 case is In re Nortel Networks Corp., 09-10164, both in U.S. Bankruptcy Court, District of Delaware (Wilmington).

Lenders Again Approved to Buy Philadelphia Newspapers

Philadelphia Newspapers LLC once again has a confirmed Chapter 11 plan. Secured lender for a second time were authorized to purchase the publisher of the Philadelphia Inquirer and Philadelphia Daily News.

The bankruptcy judge in Philadelphia approved the sale and confirmed the revised plan at a hearing yesterday. This time, the lenders are buying the newspapers for $105 million. Under the original plan confirmed in June, the lenders would have paid $139 million.

For other Bloomberg coverage, click here.

The prior sale never closed because the buyers weren’t able to reach agreement on a new labor contract with the Teamsters union. Another auction was held on Sept. 23 where the lenders came out on top again, although at a lower price.

Unsecured creditors didn’t vote on the revised plan.

The revised plan, like the predecessor, carves out 2.3 percent of the stock in the new newspaper company for the benefit of the holders of $110 million in unsecured debt claims. The revised disclosure statement estimated that the recovery by the class would be 1.5 percent.

The revised plan sets aside $1.09 million cash for general unsecured creditors with claims estimated at $4.2 million. Claims in the class could grow by $12.8 million if the claim of McClatchy Co. is allowed. Claims in the class will increase another $150 million if the buyer doesn’t take over pension claims.

The recovery for general unsecured creditors will range from 23 percent in the most favorable case to less than 1 percent, according to the disclosure statement.

The secured lenders, with claims of $318.8 million, will receive cash left over from the sale plus the value of real estate estimated to be worth $29.5 million. The plan required the lenders to waive their deficiency claims.

The new auction prevented the successful bidder from refusing to complete the acquisition.

The newspapers began a bankruptcy reorganization in February 2009 in their hometown after defaulting on a term loan and revolving credit totaling $296.6 million and on $98.5 million in subordinated notes.

The case in bankruptcy court is In re Philadelphia Newspapers LLC, 09-11204, U.S. Bankruptcy Court, Eastern District of Pennsylvania (Philadelphia).

Innkeepers to Have Neither Examiner nor Equity Panel

Innkeepers USA Trust, a real estate investment trust, will have neither a shareholders’ committee nor an examiner, U.S. Bankruptcy Judge Shelley C. Chapman ruled at a hearing yesterday in Manhattan.

A group of preferred shareholders filed motions both for an examiner and an official equity committee. Chapman denied both motions yesterday after the conclusion of argument, according to John D. Penn, a lawyer for secured lender Midland Loan Services Inc. who attended the hearing.

Penn, from Haynes & Boone LLP, said that the judge approved an agreed change in permission that Innkeepers was granted in early September to use cash representing collateral for secured lenders’ claims. Among other changes, a provision allowing $5.5 million of revenue to be used for paying Innkeepers’ lawyers and other professionals was reduced to $3.4 million.

Midland is servicer for $825 million in mortgage debt on 45 of Innkeepers’ 72 properties.

In August, Chapman refused to allow Innkeepers to lock in a deal where the new equity would have been split between the current owner, Apollo Investment Corp., and Lehman Ali Inc., a subsidiary of Lehman Brothers Holdings Inc. The Lehman unit has $238 million in floating-rate mortgages on 20 properties.

Midland is hoping it will be given permission to file a competing plan financed by selling the new stock for $236 million to Five Mile Capital Partners LLC. For details on Innkeepers’ plan and Midland’s proposal for a competing plan, click here for the Aug. 31 Bloomberg bankruptcy report.

In total, Palm Beach, Florida-based Innkeepers has 72 extended-stay and limited-service properties with 10,000 rooms in 20 states. Apollo acquired the company in July 2007 in a $1.35 billion transaction. The Innkeepers petition listed assets of $1.5 billion against debt totaling $1.52 billion.

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

Lehman Has Approval for New SunCal Settlement

Lehman Brothers Holdings Inc. was given authority by the bankruptcy judge this week for a settlement allowing eventual recovery on $395 million in loans to a property developer named LBREP/L-SunCal Master I LLC and affiliates. A prior settlement between Lehman and the Chapter 11 trustee for the SunCal companies fell apart in a dispute over the interpretation of the agreement.

The new settlement provides for SunCal to confirm a Chapter 11 plan where Lehman’s collateral will be sold. Lehman subsidiary Lehman Commercial Paper Inc. will have the right to bid for the properties using secured debt rather than cash. If Lehman buys the properties and later sells them, the shortfall will be an approved unsecured deficiency claim.

Lehman is allowing the SunCal trustee to use $5.5 million cash from property that otherwise would be Lehman’s collateral. From the total, $3.5 million can be used to pay expenses in the SunCal cases, while the remainder will be for preservation of Lehman’s collateral.

If the SunCal trustee makes recoveries from property other than Lehman’s collateral, Lehman will take half of the incoming funds. The remainder is earmarked for SunCal’s non-lender creditors.

The settlement must also be approved by the bankruptcy judge in SunCal’s own reorganization. The hearing was set for Dec. 21.

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. Lehman intends to amend the plan in the last quarter of the year and have the plan approved in a confirmation order by March.

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).

Schutt Temporarily Allowed to Sell Infringing Helmets

Schutt Sports Inc., the Illinois football-helmet maker, can continue selling DNA and ION helmets through Dec. 31 despite a district court judgment in August that the products infringe a patent owned by competitor Riddell Inc., the bankruptcy judge ruled in a Sept. 29 order.

Schutt filed under Chapter 11 on Sept. 6 to halt collection of the $29 million infringement judgment. Unless Schutt decides to proceed in some aspect of the lawsuit, the bankruptcy judge this week declined to allow Riddell to continue the patent suit that’s pending in U.S. District Court in Wisconsin. The bankruptcy judge told Riddell it could return to bankruptcy court for permission to proceed with the suit if conditions change.

In the meantime, the bankruptcy judge is permitting Schutt to continue selling the infringing helmets through yearend so long as 6 percent of the sale price is placed into special escrow account.

Schutt said in the Chapter 11 petition that assets and debt both exceed $50 million.

The case is In re Schutt Sports Inc., 10- 12795, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Bankruptcy Lawyers’ Fees

Quarles & Brady Denied 95% of Fees in Las Vegas Case

Quarles & Brady LLP was denied 95 percent of the almost $900,000 in fees that the law firm requested for representing a company whose attempted reorganization in Chapter 11 was converted to a liquidation in Chapter 7. U.S. Bankruptcy Judge Bruce A. Markell in Las Vegas denied most of the fees because he found the services “did nothing to bring value into the estate.”

The Quarles firm, from offices in Phoenix, filed a Chapter 11 petition for Hotels Nevada LLC after the company and a controlling officer were hit with a $141 million arbitration award. At the outset, Markell said the case seemed better suited to a liquidation in Chapter 7. Less than four months after filing, the judge switched the case to Chapter 7.

In the course of converting the case, Markell concluded that the Chapter 11 petition hadn’t been filed in good faith. Passing on the firm’s fee request, Markell ruled that the considerable expenditure of time produced “no results.” Where the firm said that a malpractice claim against the bankrupt company’s former lawyers was the only asset of the estate, Markell said no litigation was instituted and the firm “did nothing to bring any value into the estate.”

In his Sept. 27 opinion, Markell found that services by the Quarles firm “could only be expected to benefit nondebtor parties primarily.”

The Quarles firm also has offices in Illinois, Wisconsin and Florida. Frederick G. Lautz, the firm’s managing partner, declined to comment because the matter is in litigation.

To read the opinion, click here.

The case is In re Hotels Nevada LLC, 09-31131, U.S. Bankruptcy Court, District of Nevada (Las Vegas).

No Holdback on Lawyers’ Fees After Plan Confirmation

Even though unsecured creditors haven’t received a distribution under a confirmed Chapter 11 plan, the lawyers for the company and the creditors’ committee are entitled to full payment of their fees, U.S. Bankruptcy Judge James Peck from Manhattan ruled on Sept. 22.

Liquidated retailer Value City Holdings Inc. confirmed a Chapter 11 where unsecured creditors were told they might receive a distribution of more than 0.6 percent. The lawyers for Value City and the official creditors’ committee sought a final award of more than $7 million in fees.

The U.S. Trustee in New York argued that 10 percent of the fees should be held back until unsecured creditors receive a distribution. Peck disagreed.

Peck found “no basis under applicable law” to hold back part of a final fee request based “on the timing or amount of a distribution to the unsecured creditors under a confirmed plan.” He said it would be “demeaning to reputable law firms to introduce artificial contingencies to their right to received earned compensation.”

The judge rested his decision in part on the realization that bankrupt companies vary in their financial condition. As a result, he said, distributions to unsecured creditors “are not directly correlated with the efforts of retained professionals.”

Value City was represented by New York-based Willkie Farr & Gallagher LLP while counsel for the committee was Otterbourg, Steindler, Houston & Rosen PC, also from New York.

Holdbacks of 10 percent to 20 percent are typical when professionals seek awards of fees before the case is completed, Peck said.

The case is In re Value City Holdings Inc., 08-14197, U.S. Bankruptcy Court, Southern District New York (Manhattan).

Briefly Noted

Chemtura Settles Gowanus Canal Cleanup Claim

Specialty chemical maker Chemtura Corp. made another environmental settlement. This time, it will pay $3.9 million toward cleaning up the Gowanus Canal in Brooklyn. To read Bloomberg coverage, click here.

Chemtura has begun a contested confirmation hearing for approval of the reorganization plan. The plan is supported by the creditors’ committee and an ad hoc bondholder group. It would pay creditors in full while leaving the possibility of preserving some value for existing shareholders. The plan would reduce debt for borrowed money from $1.3 billion to about $750 million. For details, click here for the June 18 Bloomberg bankruptcy report.

Shareholders are opposing the plan, based on a belief they are entitled to more because the company’s value in their judgment exceeds Chemtura’s $2.05 billion valuation estimate.

The Chapter 11 petition in March 2009 by Middlebury, Connecticut-based Chemtura listed assets of $3.06 billion against debt totaling $2.6 billion, including $1.02 billion owing on three issues of notes and debentures. Sales in 2008 of $3.5 billion declined to $2.5 billion in 2009. The subsidiaries outside of the U.S. didn’t file.

The case is Chemtura Corp., 09-11233, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Almatis Implements Revised Plan Based on Settlement

Almatis BV, a producer of specialty alumina products, implemented the Chapter 11 plan yesterday that the bankruptcy court approved in a Sept. 20 confirmation order, the company said in an e-mailed statement.

The plan is founded on a settlement between junior lenders and Oaktree Capital Management LLC, a first-lien lender that intended to assume ownership. The plan instead gave 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).

Downgrade

Forstmann Little’s 24 Hour Fitness Lowered to B3

Fitness club operator 24 Hour Fitness Worldwide Inc. was demoted one notch yesterday to a B3 corporate rating by Moody’s Investors Service.

Moody’s based its action on declining revenue, lower cash flow, and the “difficult environment for consumer spending.”

Revenue for a year ended in June was $1.3 billion, Moody’s said. The San Ramon, California-based company was acquired in 2005 by Forstmann Little & Co.

New Filings

Tilton, New Hampshire Hampton Inn Files in Manchester

The owner of the Hampton Inn & Suites in Tilton, New Hampshire, filed for Chapter 11 protection yesterday in Manchester, New Hampshire.

The petition says there is almost $12 million owing to three different secured creditors. The largest is a $9.4 million mortgage.

The case is In re Moultonborough Hotel Group LLC, 10-14214, U.S. Bankruptcy Court, District of New Hampshire (Manchester).

Renton, Washington Condo Developer Files in Seattle

Chateau de Ville LLC, the owner of 47 condominium units in Renton, Washington, filed a Chapter 11 petition yesterday in Seattle in the face of a suit by the lender on the debt.

Court papers say that First Citizens Bank & Trust Co. from Raleigh, North Carolina is owed about $9.5 million on two secured obligations.

The project owner contends the units are worth $12 million, while secured and unsecured debt totals $10.1 million.

The case is In re Chateau de Ville LLC, 10-21648, U.S. Bankruptcy Court, Western District Washington (Seattle).

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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