The U.S. Court of Appeals in New Orleans penned a second important opinion this week in the completed reorganization of Scotia Pacific Co. and affiliate Pacific Lumber Co., telling purchasers of bankrupt companies that they may end up paying more than they bargained.
Chief Judge Edith H. Jones from the U.S. Court of Appeals in New Orleans ruled in an Oct. 19 opinion that reorganized Scotia and Palco are obliged to pay an extra $29.7 million because the bankruptcy judge made a mistake in calculating the amount owed to secured lenders for use of their collateral during the Chapter 11 case.
The case involved the Chapter 11 plan for California timberland owners Scotia and Palco. Writing for the 5th Circuit in New Orleans, Jones in September 2009 upheld most of the ruling by the bankruptcy judge in Corpus Christi, Texas, confirming the Chapter 11 plan. The plan in substance sold the company to Marathon Structured Finance Fund LP and Mendocino Redwood Co. in exchange for $580 million cash and the conversion of $160 million of debt into equity.
This week’s opinion on a separate appeal appears to mean that Marathon and Mendocino must somehow enable the reorganized Scotia and Palco to pay $29.7 million to the pre-bankruptcy secured lenders, who were owed about $800 million secured by Scotia’s 210,000 acres of California redwood timberland.
The new decision follows up on Jones’s 2009 opinion by pointing out another facet of a confirmed reorganization that can be modified on appeal even though the plan was implemented.
In the new appeal, Jones ruled that the bankruptcy judge incorrectly calculated how much the lenders were owed as the result of the use of their collateral. She said the bankruptcy judge committed error in concluding that the lenders didn’t have a right to receive the $29.7 million generated during the case from the sale of timber.
Jones said the appeal wasn’t moot because the purchasers were “sophisticated investors” and an adverse result on the cash collateral appeal was “foreseeable.” Quoting from her 2009 opinion, Jones said the buyers “opted to press the limits of bankruptcy confirmation.”
Jones also said that the appeal from the lower court’s ruling on cash collateral was “independent” and “unrelated to confirmation.” The lower court’s cash collateral order “could not have been raised in the appeal of the confirmation order,” she said.
The $29.7 million owing to the lenders was a so-called super-priority administrative claim that must be paid in full for a plan to be confirmed. The claim represented a diminution in the value of the lenders’ collateral during the Chapter 11 case.
Last year, Jones held that paying the noteholders $513 million cash in full satisfaction of their claims was proper because the bankruptcy judge wasn’t “clearly wrong” in deciding that the timberland was worth only that amount. The new opinion this week means that the lenders are entitled to another $29.7 million.
Even though the reorganization plan was implemented without making the payment, this week’s ruling appears to mean that Scotia and Palco must somehow make the $29.7 million payment or give the lenders something of equivalent value, such as a mortgage. Interest also may be owing to the lenders.
To read details of Jones’s 2009 ruling, click here for the Sept. 30, 2009, Bloomberg bankruptcy report. Lawyers for Marathon and the noteholders declined to comment on the new opinion.
Mendocino, a family-owned operator of a sawmill and 230,000 acres of nearby redwood forests, was controlled by the late Gap Inc. founder Donald Fisher.
Scotia, Palco and four affiliates filed Chapter 11 petitions in January 2007 when a $27 million payment was coming due on notes secured by the timberland. The bankruptcy judge approved the Chapter 11 plan in a confirmation order in June 2008.
The opinion by Jones is Bank of New York Trust Co. v. Pacific Lumber Co. (In re Scopac), 09-40307, U.S. 5th Circuit Court of Appeals (New Orleans). The bankruptcy court case is In re Scotia Pacific Co., 07-20027, U.S. Bankruptcy Court, Southern District Texas (Corpus Christi). The prior appeals court decision is Bank of New York Trust Co. v. Official Unsecured Creditors’ Committee (In re Pacific Lumber Co.), 08-40746, U.S. 5th Circuit Court of Appeals (New Orleans).
Chemtura Plan Confirmed, Value Under $2.05 Billion
Specialty chemical maker Chemtura Corp. will have an approved reorganization plan thanks to a 78-page opinion handed down yesterday where U.S. Bankruptcy Judge Robert E. Gerber explained why he will sign a confirmation order.
Although creditors accepted the plan by large majorities, shareholders voted it down, even after being offered a guaranteed 5 percent of the new stock. Proposing to retain some stock for shareholders was necessary because the reorganized business should be worth enough to pay all claims in full with interest, the company and creditors believed.
Gerber was required to hold a trial, which ended Sept. 22, because the official shareholders’ committee contended that the company will be worth 20 percent more than the company’s valuation.
Chemtura’s valuation expert from Lazard Freres & Co. pegged the total equity value after confirmation at between $1.9 billion and $2.2 billion. Gerber said he didn’t need to pick an exact value because it was only necessary for him to conclude, as he did, that the equity value will be below the $2.05 billion midpoint value forming the basis for a settlement underlying the plan. Were he to put a precise value on the reorganized Chemtura, Gerber said it would be at the low end of the Lazard valuation.
Gerber said that his conclusion on value was bolstered by how holders of 78 percent of the bonds elected to receive cash rather than stock, even though stock would give them a 20 percent or greater return if the equity committee were correct in its valuation.
By voting as a class against the plan, existing shareholders won’t receive the guaranteed 5 percent of the stock they were offered for a “yes” vote. Instead, they will receive whatever stock is left after claims are paid in full with interest and after environmental-claim reserves are fully funded.
Shareholders did achieve minor victories. Gerber didn’t approve a provision in the plan that would have disbanded the equity committee when the plan is implemented. Instead, Gerber directed that the committee continue in existence for the purpose of taking an appeal from the order confirming the plan.
Gerber also said that releases of third parties were too broad. He described in his opinion how the plan must be changed so releases for third parties don’t exceed what bankruptcy law allows.
Gerber said that his rulings on the law “breaks no new ground.”
The plan would reduce debt for borrowed money from $1.3 billion to about $750 million. For details of the plan, click here for the June 18 Bloomberg bankruptcy report.
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).
Innkeepers Wants Fried Frank as Special Board Lawyers
Innkeepers USA Trust, a real-estate investment trust whose first attempt at reorganization was rebuffed by the bankruptcy judge, is seeking authority to retain law firm Fried Frank Harris Shriver & Jacobson LLP to represent a newly formed special committee of the board of directors.
In papers filed in bankruptcy court on Oct. 20, Innkeepers explained how the committee was formed to analyze potential reorganization proposals and make recommendations to the full board. New York-based Fried Frank would be attorneys for the committee. A hearing to approve the retention is set for Nov. 10.
Innkeepers also wants the judge to authorize increasing the compensation of board members who serve on the special committee. In addition to the reimbursement of expenses and $75,000 a year, board members would receive $3,000 for each meeting of the special committee.
In August, U.S. Bankruptcy Judge Shelley C. Chapman refused to allow Innkeepers to lock in an agreement 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. that has $238 million in floating-rate mortgages on 20 properties.
Fried Frank disclosed in a court filing that it currently represents both Apollo and Lehman in other matters.
Palm Beach, Florida-based Innkeepers has 72 extended-stay and limited-service properties with 10,000 rooms in 20 states. Midland Loan Services Inc. is servicer for $825 million in mortgage debt on 45 of Innkeepers’ 72 properties. Midland says it’s developing its own reorganization plan financed by selling the new stock for $236 million to Five Mile Capital Partners LLC. For details of Innkeepers’ rejected plan and Midland’s proposal for a competing plan, click here for the Aug. 31 Bloomberg bankruptcy report.
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).
General Growth’s Last Reorganization Plans Confirmed
General Growth Properties Inc., the subject of the largest real estate reorganization in history, is set to emerge from Chapter 11 around Nov. 8 after the bankruptcy judge at a hearing yesterday said he would sign a confirmation order approving the plan for the top-tier companies.
General Growth subsidiaries owning the properties already confirmed Chapter 11 plans restructuring or paying creditors in full on their $15 billion in claims. Creditors of General Growth’s top-tier companies likewise receive full payment, financed in part by $8.55 billion in debt and equity investments from a group led by Brookfield Asset Management Inc.
For Bloomberg coverage of the confirmation hearing, click here.
The plan gives General Growth the flexibility to make a public stock offering after bankruptcy so $2.15 billion in new capital can be secured on terms more favorable than those offered by the Brookfield group.
General Growth remains the second-largest mall owner in the U.S. with more than 185 properties in 43 states. It began the largest real-estate reorganization in history by filing under Chapter 11 in April 2009. The books of Chicago-based General Growth had assets of $29.6 billion and total liabilities of $27.3 billion as of Dec. 31, 2008.
The case is In re General Growth Properties Inc., 09-11977, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
Old GM’s Disclosure Statement Tentatively Approved
Old General Motors Corp. can proceed with soliciting votes by creditors on the Chapter 11 plan now that the bankruptcy judge in Manhattan yesterday gave conditional approval to the disclosure statement.
The plan will distribute stock and warrants in new GM representing proceeds from the sale of the core assets. The disclosure statement will be formally approved when changes are made to include late-occurring events, such as a $773 million settlement of environmental claims.
The bankruptcy judge said he would rule later on a dispute between the creditors’ committee and the U.S. government over who is entitled to proceeds from $1.5 billion in lawsuit claims.
To read Bloomberg coverage of the hearing, click here.
Old GM, now formally named Motors Liquidation Co., filed the liquidating Chapter 11 plan in August. A trust for unsecured creditors will distribute the stock and warrants issued by new GM. For details on the plan, click here for the Sept. 1 Bloomberg bankruptcy report.
The sale of the core business produced a pot for old GM creditors containing 10 percent of the stock of the new GM plus warrants for 15 percent. The warrants will have value if the new company is profitable enough to raise the new stock’s value to specified levels. New GM, formally named General Motors Co., is 60.8 percent-owned by the U.S. government.
Old GM began the largest manufacturing reorganization in history by filing under Chapter 11 on June 1, 2009. The sale was completed on July 10, 2009. GM listed assets of $82.3 billion against debt totaling $172.8 billion.
The case is In re Motors Liquidation Co., 09-50026, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
Two Judges Hearing Tousa Fraudulent-Transfer Appeal
Whether homebuilder Tousa Inc. made fraudulent transfers by bailing out and refinancing a joint venture in Transeastern Properties Inc. in mid-2007 is the subject of three appeals being argued today in U.S. District Court in Florida.
The appeals are unusual because they are being heard simultaneously by two district judges.
U.S. Bankruptcy Judge John K. Olson ruled in October 2009 that the banks received fraudulent transfers in connection with the bailout and refinancing because Tousa caused its operating subsidiaries to guarantee the debt when they received no benefit from the loans. Olson later required the lenders to post $700 million in bonds to hold up enforcement of the judgment pending appeal. To read about Olson’s ruling last year, click here.
Three groups of lenders filed three separate appeals. Ordinarily, three appeals from one ruling would be consolidated and assigned to one district judge. In the Tousa case, U.S. District Judges Adalberto J. Jordan and Alan S. Gold decided they’d hear the appeals together, rather than have one of them decide all three.
Presumably, although not necessarily, the two district judges will reach consensus in their rulings on the appeals. If they agree, the loser seemingly would have a slimmer chance of success in taking another appeal to the U.S. Court of Appeals in Atlanta. A disagreement by the judges on whether Olson was right or wrong would be unique.
Also, one district judge might say that the outcome of his appeal was governed by how the other judge ruled, given how the bank groups are theoretically appealing from different parts of Olson’s ruling.
Tousa scheduled a hearing on Oct. 27 for approval of a 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 the judgment the creditors’ committee won in October 2009 against the lenders.
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).
New York Mayor Opposes Reorganization Plan for NYC OTB
New York Mayor Michael Bloomberg came out yesterday in opposition to the proposal made this week by Governor David Paterson for reorganizing New York City Off-Track Betting Corp.
Bloomberg objected because the proposal would put the city “on the hook” for $100 million to $200 million in unfunded retiree benefit costs. “Only in government can you run a bookie operation and actually lose money every year,” the mayor said.
The mayor said the city would use “all available options” to fight adoption and approval of the plan, which requires action by the state legislature as well as the bankruptcy judge. He said the governor was violating an agreement made two years ago where the state would take over all liabilities of NYC OTB.
To read Bloomberg coverage, click here.
The bankruptcy judge ruled in March that NYC OTB is eligible to reorganize in Chapter 9. The petition, filed in December, said assets are less than $50 million while debt exceeds $100 million.
Liabilities include $8 million in governmental statutory claims, $43.7 million owing to the racing industry, and $6.3 million in claims held by general unsecured creditors. There is almost no secured debt.
The mayor is founder and majority owner of Bloomberg News parent Bloomberg LP.
The case is In re New York City Off-Track Betting Corp., 09-17121, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
TriDimension Seeks to Auction Oil-Gas Assets Nov. 16
TriDimension Energy LP, an independent oil and natural gas exploration and production company, has a buyer willing to pay $28 million cash for substantially all of the assets.
The Dallas-based company is asking the bankruptcy judge to hold an Oct. 27 hearing to approve auction and sale procedures. TriDimension wants the auction on Nov. 16.
The company filed under Chapter 11 in its hometown in May. It owes $37.5 million to secured lenders which are providing financing for the reorganization. The lenders are owed another $5.6 million on terminated hedges. Amegy Bank NA is agent for the lenders.
The company has leases on 165,218 gross acres of oil and gas properties in Louisiana and Mississippi with proven reserves of about 5.1 million barrels.
The company signed 57 prospective buyers to confidentiality agreements and received 11 bids, according to a court filing. Before filing the motion for approval of a sale, there were final discussions with two bidders.
TriDimension owes $6 million to general unsecured creditors, not including the deficiency claim of the secured lenders, Chief Financial Officer Kenneth A. Gregg said in a court filing.
The case is In re TriDimension Energy LP, 10-33565, U.S. Bankruptcy Court, Northern District of Texas (Dallas).
Siena Hotel & Casino in Reno Shuts Down Operations
The operator of the Italian-themed Siena Hotel Spa and Casino in Reno, Nevada, closed the hotel on account of “liquidity restraints” after having previously shut down the casino, according to a bankruptcy court filing.
The casino hotel filed for reorganization on July 21 in Oakland, California. Creditors, along with Nevada gaming regulators, sought to transfer the case to Nevada. The bankruptcy judge in California sent the Chapter 11 case to Reno on Oct. 1.
The company says there are discussions with two possible investors.
The petition said debt exceeds $50 million. The hotel has 185 rooms and 29 suites, according to the website. The casino covers 23,000 square feet.
The case is In re Hi-Five Enterprises LLC, 10-54013, U.S. Bankruptcy Court, District of Nevada (Reno).
Creditors Voting on Three Plans for Meruelo Maddux
Creditors of Meruelo Maddux Properties Inc. have the opportunity to vote on three competing Chapter 11 plans to reorganize the Los Angeles-based developer and manager of commercial and multi-family properties.
The bankruptcy judge approved disclosure statements explaining the reorganization plans filed by the company, along with rival plans from lenders Legendary Investors Group No. 1 LLC and East West Bank and from shareholders Charlestown Capital Advisors LLC and Hartland Asset Management Corp.
The confirmation hearing where the bankruptcy judge can approve one of the plans will begin Jan. 26. Ballots from creditors are due Nov. 22. A report about the vote will be filed in bankruptcy court by Dec. 3. The U.S. bankruptcy judge in Woodland Hills, California, will hold an initial conference on Nov. 1.
Creditors, if they wish, can vote in favor of all three plans. In addition, they may state their preferences among the plans. The bankruptcy judge will confirm the plan found to be in creditors’ best interests.
The official unsecured creditors’ committee recommends that creditors vote in favor of all the plans, although support for the company’s plan is qualified. All three plans would pay unsecured creditors in full plus interest.
The bankruptcy court permitted the filing of competing plans in May. The Chapter 11 petition filed in March 2009 listed assets of $682 million against debt totaling $342 million.
The case is In re Meruelo Maddux Properties Inc., 09-13356, U.S. Bankruptcy Court, Central District California (Woodland Hills).
Tamarack Denied $2 Million Loan to Winterize Project
U.S. Bankruptcy Judge Terry L. Myers in Boise, Idaho, wrote a 41-page opinion this week concluding that the proposed loan and the procedures used to gain approval didn’t meet the requirements contained in bankruptcy law.
Myers said that the papers seeking approval of the loan contained an inadequate description of the financing and lacked required details. Disclosures about the loan weren’t made sufficiently in advance of the hearing to comply with bankruptcy and local rules of procedure.
The proposed loan was to be secured by a lien coming ahead of existing secured creditors, including mechanics’ lien holders who objected to the financing. The bankruptcy judge said the loan didn’t give so-called adequate protection to the mechanics’ lien holders for the loss of their first-lien position.
The loan “would appear headed for default,” Myers said. The chance of default was “high” because the existing bank lender would control the sale and plan process, he said.
Myers also refused to approve the appointment of a so- called chief restructuring officer. He said the proposal was flawed because the company would have no control over its own affairs while the CRO wouldn’t assume all duties of the company as a debtor-in-possession.
Tamarack needed the financing in part to winterize the property. The financing would have been provided primarily by Candlewood Special Situations Master Fund Ltd. and an affiliate of Credit Suisse AG, Cayman Islands Branch, the existing lender.
The Tamarack case began with an involuntary petition in Chapter 7 that the company unsuccessfully opposed. The company switched the case to Chapter 11 in April when Myers granted the motion for conversion to reorganization, even though the Chapter 7 trustee had been named in March.
The project’s 27.5 percent owner, VPG Investments Inc., filed for Chapter 11 reorganization in 2008. The petition was dismissed in October 2008. VPG was controlled by Mexican businessman Alfredo Miguel Afif.
The new case is In re Tamarack Resort LLC, 09-03911, U.S. Bankruptcy Court, District of Idaho (Boise). The previous case was In re VPG Investments Inc., 08-00253, U.S. Bankruptcy Court, District of Idaho (Boise).
Icahn Offers Put to Bust Up MGM’s Prepacked Plan
Carl Icahn is offering to guarantee that lenders to Metro- Goldwyn-Mayer Inc. won’t recover less than 45 percent on their senior-secured loans if they join with him in voting against the prepackaged reorganization where secured lenders would swap $4 billion in debt for 95.3 percent of the new stock.
Icahn’s put price is roughly equal to the current market. It is dependent on acceptance by holders of $963 million in debt, according Icahn’s statement. Icahn can accept more than the minimum but isn’t required to do so. The offer expires on Oct. 29, unless extended.
Under Icahn’s proposal, debt holders can have the up side allowing them to take home more than 45 percent if the new stock trades high enough after bankruptcy.
To read other Bloomberg coverage, click here.
The MGM prepackaged plan calls for Spyglass Entertainment Group to acquire the remainder of the new equity in exchange for contributing assets including Cypress Entertainment Group Inc. and Garoge Inc.
The voting deadline for the so-called prepack is Oct. 29. If the votes are favorable, MGM could file the Chapter 11 petition and attempt to emerge from Chapter 11 within about four to six weeks, assuming no protracted confirmation fight.
Former Lawyer Files Involuntary Against Washington Times
Washington Times LLC was hit with an involuntary Chapter 11 petition filed yesterday by a lawyer named Richard A. Steinbronn, who says his claim against the newspaper publisher is $390. Steinbronn contends that the newspaper is generally not paying its debts as they come due.
Steinbronn says in the involuntary petition that he was “wrongfully removed” from his position in early 2009 as a director, officer and legal counsel for Times Aerospace International LLC and two subsidiaries with similar names: Washington Times Aviation LLC and Washington Times Aviation USA LLC.
To satisfy the requirement that there be three petitioning creditors, Steinbronn signed the petition on behalf of Washington Times Aviation LLC and Washington Times Aviation USA LLC, saying he has “derivative or special standing.”
Steinbronn alleges that the two companies for which he signed the petition together are owed $2 million on loans.
For the involuntary petition to be valid, the petitioners must have debt that isn’t contingent and not disputed.
Bankruptcy law contains penalties for someone who improperly files an involuntary petition.
If the involuntary petition is dismissed, the unsuccessful petitioner can be required to pay the targeted company’s attorneys’ fees. In addition, the bankruptcy judge can assess ordinary damages and punitive damages if the involuntary petition was found to be filed in bad faith.
Bloomberg reported in April that the family of Reverend Sun Myung Moon cut off funding for the newspaper and was looking for a buyer.
The case is In re Washington Times LLC, 10-01041, U.S. Bankruptcy Court for the District of Columbia.
Closing Arguments Held in Lehman-Barclays Trial
Lehman Brothers Holdings Inc. and Barclays Plc held closing arguments yesterday in the trial that began in April where Lehman contends the bank took $11 billion more than it was entitled to receive when it purchased the brokerage business a week after the Chapter 11 filing in September 2008.
Although the bankruptcy judge reminded Barclays’s lawyer that he never approved a pivotal agreement where the bank received additional assets in the sale, this writer has learned from experience not to guess how a judge may rule based on grillings given the lawyers during trial or argument.
To read Bloomberg coverage of closing arguments, click here.
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 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 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 said it intends on amending the plan in the last quarter of the year and have the plan approved in a confirmation order by March.
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).
Claim Jumper Has Approval for $5 Million Financing
Claim Jumper Restaurants LLC, the operator of a chain of 45 western-themed restaurants in eight states, prevailed over creditors’ committee objection and won final approval this week for $5 million secured financing. The business goes up for auction on Oct. 28 with an initial bid of $27 million from a company formed by Black Canyon Capital LLC and Bruckmann Rosser Sherrill & Co. Black Canyon is an affiliate of the unsecured mezzanine lender, according to court papers. Restaurant operator Landry’s Restaurants Inc. appeared at a hearing saying it was willing to pay $27.5 million.
The hearing for approval of the sale will be Nov. 2.
In addition to $69.5 million in secured debt, Claim Jumper owes $112.5 million on subordinated notes. The petition says assets are worth more than $50 million while debt exceeds $100 million.
The case is In re Claim Jumper Restaurants LLC, 10-12819, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Awal Bank Switching from Chapter 15 to Chapter 11
Awal Bank BSC filed a petition for Chapter 11 reorganization yesterday although the Bahrain-based bank has been in Chapter 15 since September 2009. The petition said assets are less than $100 million while debt exceeds $1 billion.
The bank prevailed on the bankruptcy judge in New York to declare in October 2009 that bankruptcy proceedings in the home country are the “foreign main proceeding.” As a result, creditor actions in the U.S. were halted.
Chapter 15 doesn’t give a bankrupt company or its officers all the powers of Chapter 11. The ability to bring lawsuits is limited in Chapter 15, for instance. Chapter 15 is designed to assist a bankruptcy proceeding primarily pending elsewhere.
Consequently, a company in Chapter 15 isn’t prohibited from filing a petition under Chapter 7 or Chapter 11. In Chapter 11, the foreign representative of the bank can file lawsuits, although the endgame in Chapter 11 is different from Chapter 15. In Chapter 15, the presumption is that money collected in the U.S. will be sent to the home country for distribution to creditors under the law of the foreign country.
To deal with money collected in the U.S. in the Chapter 11 case, Awal presumably will be required to confirm a Chapter 11 plan.
Domestic banks are precluded from filing any form of bankruptcy in the U.S. The preclusion doesn’t apply to foreign banks like Awal. It began bankruptcy proceedings in the home country in July 2009.
The new Chapter 15 case is In re Awal Bank BSC, 10-15518, U.S. Bankruptcy Court, Southern District New York (Manhattan). The Chapter 15 case is In re Awal Bank BSC, 09-15923, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
3G Acquisition Lowers Burger King to B Corporate
The acquisition of Burger King Corp. by 3G Capital Inc. resulted in a two-notch downgrade, lowering the fast-food operator’s corporate rating from Standard & Poor’s to B.
The acquisition, completed this week, saddled Burger King with $2.65 billion in debt to fund the purchase of the stock. S&P said that the company’s ratio of debt to lease-adjusted earnings before interest, taxes, depreciation and amortization doubled to 6.8.
Burger King is based in Miami.
Marshall & Ilsley Downgraded on Quarterly Net Loss
Marshall & Ilsley Corp. was downgraded yesterday by Standard & Poor’s after the bank holding company reported a $169 million net loss for the third quarter. S&P lowered the counterparty rating to BB+/B from BBB-/A-3.
While capital is “marginally adequate,” S&P said liquidity is satisfactory.
Marshall & Ilsley is based in Milwaukee.
Container Maker Bway Downgraded on New Debt Offering
Bway Holding Co. and operating company Bway Corp. were downgraded yesterday by Standard & Poor’s as the result of $125 million in new debt being sold by a holding company to finance a dividend to the equity sponsor, Madison Dearborn Partners LLC.
The new debt isn’t guaranteed by the subsidiaries and is structurally subordinated to the operating companies’ debt.
S&P said it expects Bway will exercise the option to pay interest on the new debt in kind rather than in cash.
Atlanta-based Bway makes plastic and metal containers for paints, solvents and household products. It also produces aerosol cans. Revenue in fiscal 2009 was $904 million. For the six months ended March 31, net revenue was $476 million.
New Bankruptcy Judge
Assistant U.S. Attorney Named Bankruptcy Judge in San Jose
Stephen L. Johnson, an assistant U.S. Attorney, was named a U.S. bankruptcy judge San Jose, California. He fills the bench vacated by the August retirement of U.S. Bankruptcy Judge Leslie Tchaikovsky.
Johnson handled bankruptcy and civil matters for the U.S. attorney in the Northern District of California. Before that, he was a lawyer in the office of the U.S. Trustee in San Francisco.
In announcing Johnson’s appointment, Chief Judge Alex Kozinski of the U.S. Court of Appeals in San Francisco said bankruptcy filings have increased 55.8 percent this year in the Northern District of California, which includes San Francisco and San Jose.
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