Blockbuster, Oriental Trading, Movie Gallery, Lehman, Barzel: Bankruptcy

Blockbuster Inc., the movie rental chain, received final authority from the bankruptcy judge yesterday to pay pre-bankruptcy claims of movie companies, regardless of whether the claims are secured or unsecured. Blockbuster sought the right to pay claims to assure a continuing supply of new movies.

The bankruptcy judge also turned back an objection from one creditor who contended that Blockbuster’s primary bankruptcy lawyers, Weil Gotshal & Manges LLP, were disqualified because they have hundreds of present or former clients who are creditors. The bankruptcy judge said there is no conflict now. If one arises in the future, another firm could handle the particular dispute, the judge said.

The judge also gave final approval for $125 million in financing for the Chapter 11 case. The approved loan converts another $125 million of pre-bankruptcy debt into a post- bankruptcy loan. The amount of the so-called rollup was cut in half following objection from the unsecured creditors’ committee.

The committee also negotiated other changes in the loan, such as withholding lawsuit proceeds from collateral securing the banks’ loans. For other Bloomberg coverage, click here.

Before the Chapter 11 filing on Sept. 23, Blockbuster negotiated a reorganization plan with holders of 80 percent of the senior notes. The plan would give the new stock to holders of the $630 million in 11.75 percent senior-secured notes. General unsecured creditors would have warrants for 3 percent of the stock. Holders of the $300 million in 9 percent subordinated notes won’t receive anything.

Dallas-based Blockbuster has 5,600 stores, including 3,300 in the U.S. Among the U.S. stores, 3,000 are owned by the company and the rest are franchised.

The petition listed assets of $1.017 billion and debt of $1.465 billion. Blockbuster estimated it owes $57 million in accounts payable in addition to the secured and subordinated notes.

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

Filing Soon

AmericanWest to Sell Bank Subsidiary in Chapter 11

AmericanWest Bancorporation, a bank holding company, said yesterday that it will file in Chapter 11 to complete the sale of the stock of its bank subsidiary, AmericanWest Bank, for $6.5 million cash to SKBHC Holdings Inc.

The Spokane, Washington-based holding company said it will ask the bankruptcy court to set up auction procedures testing whether there is a better offer.

The buyer has agreed with regulators that it will inject another $200 million of capital into the bank after the purchase. The bank subsidiary won’t be in bankruptcy.

The holding company says that remaining assets will be insufficient to pay creditors in full. Shareholders therefore won’t receive anything through Chapter 11, the press release said. The bank has been prevented by regulators from paying dividends to the holding company since the third quarter of 2008.

Scott A. Kisting is chairman and chief executive of SKBHC, according to Bloomberg data.

Updates

Lehman Seeks $15 Million Bonuses for Derivate Workers

Lehman Brothers Holdings Inc. filed a motion yesterday for approval of a program that could pay up to $15 million in performance bonuses in 2011 to 230 employees resolving claims involving derivatives contracts. The hearing for approval of the program will be held Nov. 17.

Late last year, the bankruptcy judge approved a bonus pool what will pay $50 million to employees working to resolve derivatives contracts.

Lehman’s motion says that workers will have recovered $2.5 billion in 2010, bringing total recoveries on derivatives to $11 billion since the bankruptcy filing in September 2008. At the outset, Lehman had 10,000 derivatives contracts involving 1.7 million transactions.

The bonus program will be less costly in 2011 because 95 percent of derivatives contracts have been resolved.

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 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).

Junior Lenders Oppose Oriental Trading’s Disclosure Statement

Oriental Trading Co., a direct marketer of home décor products, toys, and novelties, has opposition from second-lien lenders to approval of the disclosure statement that comes up for hearing on Nov. 1 in U.S. Bankruptcy Court in Delaware.

The proposed Chapter 11 plan only gives the junior lenders warrants for 2.5 percent of the stock with a strike price based on an enterprise value of $427.5 million. The objection filed by the agent for the junior lenders gives a hint about objections to be raised again when it comes to approving the plan at a confirmation hearing. The junior lenders are owed about $185 million.

The junior lenders’ agent contends the disclosure statement has “woefully inadequate information” about the value of the business and the distributions earmarked for various creditor groups.

The disclosure statement contains no estimate for the percentage recovery by senior or junior lenders.

The juniors’ agent also faults the disclosure document for containing no justification for substantive consolidation and for giving releases to third parties, such as officers and directors. The substantive consolidation and third-party release issues could be raised again at the confirmation hearing.

The plan would give the new stock plus cash or a new $200 million second-lien note to senior lenders owed $403 million. If the plan goes through, second-lien creditors would be given warrants for 2.5 percent of the stock with a strike price based on an enterprise value of $427.5 million. As the result of a settlement with the creditor’s committee, first-lien lenders are providing $1.1 million for unsecured creditors with $6.8 million in claims, assuming the class votes for the plan.

Oriental Trading missed an interest payment in May on second-lien debt and filed its Chapter 11 petition on Aug. 25 along with an agreement with the first-lien lenders on the plan.

Assets of the Omaha, Nebraska-based company were on the books for $463 million on April 3. Liabilities totaled $756.6 million. Net sales for the fiscal year were $485.4 million.

Efforts to negotiate a so-called standalone plan between first- and second-lien lenders were unsuccessful. Although OTC sought a purchaser, none of the offers was enough to pay first- lien debt in full.

At the filing date, $180 million plus interest was owed on the second-lien debt plus $120 million in mezzanine debt.

An affiliate of the Carlyle Group purchased 68 percent of OTC in July 2006 from private-equity investor Brentwood Associates, which continues to own about 24 percent of the equity.

JPMorgan Chase Bank NA is agent for the first-lien creditors while Wilmington Trust FSB is agent on the second-lien credit. Wachovia Bank NA serves as agent for the mezzanine debt holders.

The case is In re OTC Holdings Corp., 10-12636, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Movie Galley to Sell Trademarks, Confirmation Set for Today

Movie Gallery Inc., the liquidating movie-rental chain, was authorized by the bankruptcy judge yesterday to sell trademarks without an auction or another hearing if there is only one offer.

If there are multiple bids, the bankruptcy court said there will be an auction on Nov. 9 followed by a sale-approval hearing on Nov. 15.

If there is only one bid, Movie Gallery can give the bankruptcy judge in Richmond, Virginia, an order to sign approving the sale without holding a hearing.

The marks to be sold include Hollywood Video, Movie Gallery, and Game Crazy, plus the associated domain names and customer data bases.

Movie Gallery was using Streambank to market the intellectual property. Although 28 potential buyers signed confidentiality agreements and several offers were received, Movie Gallery said none was good enough to warrant being designated as a so-called stalking horse bid.

A confirmation hearing is scheduled today for Movie Gallery to seek approval of the liquidating Chapter 11 plan. First-lien lenders unanimously accepted the plan while 98 percent of unsecured creditors were in favor. For details on the plan, click here for the Sept. 14 Bloomberg bankruptcy report.

Movie Gallery liquidated the last 1,028 movie-rental stores. It had some 2,600 stores in operation on filing under Chapter 11 again in February. The new filing was less than two years after a previous bankruptcy reorganization. Debt when the new case began included $100 million on a secured revolving credit, $394 million on a first-lien facility, and $146 million in claims held by second-lien creditors.

Movie Gallery operated under the names Movie Gallery, Hollywood Video, and Game Crazy. It had 3,490 stores before the first bankruptcy. The prior Chapter 11 case concluded with a confirmed Chapter 11 plan in May 2007. For details on the second filing, click here.

The new case is In re Movie Gallery Inc., 10-30696, U.S. Bankruptcy Court, Eastern District Virginia (Richmond). The prior case is In re Movie Gallery Inc., 07-33849, in the same court.

Gordon Brothers to Operate and Buy Ashley Stewart

Urban Brands Inc., the owner of the Ashley Stewart line of women’s clothing, received authorization from the bankruptcy judge yesterday to sell the business for $16.67 million to an affiliate of Gordon Brothers Group LLC, the winner of a 21-hour auction. Urban Brands is a retailer targeting what it calls “plus sized urban women.”

Although known as a liquidator, Gordon Brothers told the judge it will operate at least 175 of the 210 stores. Gordon Brothers will serve as Urban Brands’ agent to run going-out-of- business sales at the locations it won’t buy.

The price to be paid by Gordon Brothers is subject to downward adjustment. The ultimate price can’t be less than $6 million plus the amount necessary to pay off funding for the Chapter 11 case. To read Bloomberg coverage of the sale-approval hearing, click here.

Urban Brands filed under Chapter 11 on Sept. 21 and moved quickly to sell the business. Based in Secaucus, New Jersey, the company lost $44.3 million in 2008 and $28.6 million in 2009.

The 210 stores are in 26 states, including the flagship store on 125th Street in the Harlem neighborhood of Manhattan. Sales declined from $179.6 million to $174.6 million between 2008 and 2009.

Funds affiliated with Trimaran Capital Partners are the largest shareholders, court papers say. Trimaran is owed $81.2 million on senior unsecured notes. The other principal shareholder is UBI Holding Corp. Bank of America NA, a secured lender, is owed $2.3 million.

The petition said assets are less than $50 million while debt exceeds $100 million.

The case is In re Urban Brands Inc., 10-13005, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Lehman Broker Holds More Than $20.6 Billion in Assets

The trustee for Lehman Brothers Inc., the liquidating brokerage subsidiary of Lehman Brothers Holdings Inc., gave the bankruptcy judge a status report yesterday, saying that his staff has completely resolved more than 10,000 claims for $47.6 billion, including 800 claims of customers whose repayment rights effectively come ahead of general creditors.

The approved customer claims aggregate $9.5 billion.

Almost 2,800 in claims were reclassified as general creditor claims while almost 7,000 claims for $27.5 billion were denied.

There are 3,500 unresolved claims by customers seeking $40.5 billion. The trustee, who was appointed under the Securities Investor Protection Act, said he will work to reduce the amount of general creditor claims when and if it appears there can be a “meaningful distribution.”

The trustee reported that the Lehman brokerage estate currently holds $20.64 billion, including cash and liquid assets of $7.7 billion plus $12.95 billion in securities.

For other Bloomberg coverage focusing on the professional expenses of the brokerage liquidation, click here.

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 trustee for the Lehman broker makes distributions to creditors without a vote of creditors or approval of plan.

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).

Wilmington Diocese and Victims Schedule Dec. 6 Fight

Catholic Diocese of Wilmington Inc. scheduled a hearing for Dec. 6 where the bankruptcy judge in Delaware will consider approving the disclosure statement explaining the Chapter 11 plan filed in September. Objections are due Nov. 22.

The official committee of unsecured creditors, whose constituency includes sexual abuse claimants, says the plan is “unconfirmable.” Although the bankruptcy judge extended the diocese’s exclusive right to propose a plan until Dec. 30, the committee has the right to file a motion at any time to terminate exclusivity.

The committee said it may be necessary to file a creditors’ plan. Among objections to the plan, the committee takes issue with the diocese’s proposal to pay the net present value of pensions to lay employees. The committee says the diocese instead should assume the pension obligations and thus save as much as $27 million cash.

The committee also argues that it’s impermissible for the plan to give release to the parishes because they aren’t in bankruptcy.

The diocese was dealt a defeat in June when the bankruptcy judge ruled that $75 million belonging to the parishes and parochial schools must be shared with sexual abuse claimants. The parishes and schools argued that the money should have been held in trust for them.

Although the bankruptcy judge found that the trust was valid, he said the parishes couldn’t trace their funds as law requires.

The parishes and schools appealed. A U.S. district judge allowed an appeal directly to the U.S. Court of Appeals in Philadelphia, thus avoiding an intermediate appeal in the district court. The Third Circuit in Philadelphia denied a motion to expedite the appeal.

The diocese’s Chapter 11 filing in October 2009 automatically stopped 136 abuse suits involving 147 plaintiffs, according to a court filing by the diocese.

The Delaware diocese is the seventh Roman Catholic diocese to file for Chapter 11 protection to deal with lawsuits for sexual abuse. Previous filings were by the dioceses in Spokane, Washington; Portland, Oregon; Tucson, Arizona; Davenport, Iowa; Fairbanks, Alaska; and San Diego, California.

The case is In re Catholic Diocese of Wilmington, 09-13560, U.S. Bankruptcy Court, District of Delaware, (Wilmington).

New Filing

Owner of Five Bronx Apartment Buildings Files in Manhattan

BXP 1 LLC, the owner of five apartment buildings in the Bronx section of New York City, filed for Chapter 11 protection yesterday in Manhattan, owing $13.7 million on secured debt.

The petition says the assets are worth $19.4 million while total debt is $13.9 million.

Television station WPIX in New York reported this year that there were more than 600 housing violations against one of the buildings.

The case is In re BXP 1 LLC, 10-15608, U.S. Bankruptcy Court, Southern District New York (Manhattan).

Briefly Noted

Barzel Has No Objection to Last Exclusivity Request

Barzel Industries Inc., a steel processor and manufacturer at one time, received no objections to its fourth request for an expansion of the exclusive right to propose a Chapter 11 plan. Barzel gave the judge an order extending the deadline for filing a plan to March 15, the 18-month maximum permitted in bankruptcy law. Barzel said it doesn’t know whether “a liquidating plan is appropriate and feasible.”

Barzel sold most of the assets in November 2009 for $75 million to Norwood, Massachusetts-based Chriscott USA Inc. Secured lenders agreed to a settlement later where they received a release of claims in return for giving up $800,000.

Barzel had 15 facilities. Its petition listed assets of $366 million against debt totaling $385 million, including $315 million on senior secured notes. There was another $18.4 million owing on an asset-backed loan with a first lien on accounts receivable.

The case is In Barzel Industries Inc., 09-13204, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Daily Podcast

A Decision Hurting Creditors and the Economy: Audio

An important New York decision helping shareholders and hurting creditors along with observations on the state of the economy are covered in the new bankruptcy podcast on the Bloomberg terminal and Bloomberglaw.com. To listen, click here.

Downgrades

Boyd Gaming Downgraded on $500 Million Note Offering

Casino operator Boyd Gaming Corp. received a one-notch downgrade yesterday from Standard & Poor’s to coincide with plans to issue $500 million in senior notes to mature in 2018.

The new B corporate rating from S&P coincides with the demotion issued in June by Moody’s Investors Service. S&P also rates the new notes at B.

The new debt will be used in part to repay almost $160 million in subordinated notes due in 2012. The remainder will be used for corporate purposes and to pay down a revolving credit.

S&P said that “operating performance” was “weaker than expected” over the first nine months of 2010.

Las Vegas-based Boyd generated net income of $21.7 million in the first six months of 2010 on revenue of $840.5 million. For 2009, net income was $156 million on net revenue of $1.64 billion.

Boyd has 16 casinos in five states. It has a half interest in the Borgata casino in Atlantic City. Boyd produces 44 percent of cash flow from the so-called Las Vegas locals market, S&P said.

Sterling Chemicals Demoted on Lower Revenue, Losses

Petrochemical producer Sterling Chemicals Inc. was reduced from a B2 to a B3 rating yesterday by Moody’s Investors Service in view of continuing operating losses and the termination later this year of an agreement to produce plasticizers for an affiliate of BASF SE.

For the future, Sterling will be dependent on selling acetic acid to BP Plc. Sterling is BP’s only source for the product in the U.S.

Moody’s said that Sterling now holds $120 million cash, almost as much as debt for borrowed money. Moody’s is concerned that Houston-based Sterling will use some of the cash for acquisitions.

Sterling’s plant is located on Galveston Bay. Revenue for a year ended in June was $118 million, according to Moody’s. For the first six months of 2010, the net loss was $4.9 million on revenue of $62.1 million. Revenue has been declining since 2006, Moody’s said.

Sterling is majority owned by Resurgence Asset Management LLC, according to data compiled by Bloomberg.

Crude Tanker Owner Windsor Petroleum Reduced to Junk

Windsor Petroleum Transport Corp. lost investment grade status yesterday from Moody’s Investors Service when the rating on the $239 million in 7.84 percent secured notes fell by three notches to Ba2, the second-highest junk category. Windsor was created to finance four very large crude-oil cargo ships known as VLLCs.

The downgrade occurred on news that the charter will not be renewed for the vessel British Pioneer. Windsor is seeking authorization from bondholders to sell the vessel.

Moody’s said New York-based Windsor will need to realize “very full value” in selling British Pioneer if sale proceeds plus the company’s $8.8 million cash is to fully pay off the $59.4 million in debt allocated to the vessel.

Moody’s noted that the rate on the expiring charter is about $20,000 a day compared with current spot rates in the neighborhood of $10,000.

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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