MGM, FX Luxury, Innkeepers, Tronox, Acorn: Bankruptcy
Metro-Goldwyn-Mayer Inc. and about 160 affiliates filed a prepackaged Chapter 11 petition yesterday in New York. The producer and distributor of movies and television programming said it “anticipates” having the previously negotiated reorganization plan approved in a confirmation order “in approximately 30 days.”
The plan was already accepted by lenders under the credit agreement who will exchange $4.89 billion of debt for “most of the equity,” the company statement said. The plan is being revised to obviate objection from Carl Icahn, who MGM said holds “significant” debt.
To support the plan, Icahn said in a statement that he negotiated “restrictions on poison pills and staggered boards.” Details in new corporate governance documents will indicate whether Icahn could conduct a proxy fight if post- confirmation conduct of the business isn’t to his liking. The ability to hold a proxy fight could be more significant for Icahn than the one board representative he will be given under the plan.
In addition, the plan is being changed so Spyglass Entertainment Group won’t be acquiring almost 5 percent of the new stock. As a result, Spyglass’s Cypress Entertainment Group Inc. and Garoge Inc. won’t be folded into MGM at confirmation.
Still, Gary Barber and Roger Birnbaum from Burbank, California-based Spyglass will become MGM’s co-chairman and chief executive.
The plan provides for paying general unsecured claims in full. Existing stockholders won’t receive anything. The plan, along with the disclosure statement given creditors when they voted, was filed with the bankruptcy court yesterday.
MGM’s library includes 4,100 feature films and 10,800 television episodes. According to a court filing, assets as of Sept. 30 were $2.67 billion and total liabilities were $5.77 billion. After adjustment according to accounting principles, debt would be $3.45 billion, the papers said.
MGM owns $62.5 percent of United Artists Entertainment LLC, which isn’t in bankruptcy.
Los Angeles-based MGM was acquired in April 2005 in a $4.8 billion transaction by a group including Credit Suisse Group AG, Providence Equity Partners Inc., Sony Corp. and TPG Capital.
For Bloomberg coverage of the filing, click here.
Las Vegas Strip Owner Slated for Nov. 8 Confirmation
FX Luxury Las Vegas I LLC, the owner of 17.7 acres on the Las Vegas Strip, is scheduled to confirm a Chapter 11 plan on Nov. 8 where junior lenders will take ownership. The plan is a “compromise” between first- and second-lien lenders, Lenard M. Parkins, counsel for the junior lenders, said in an interview.
The case started on the settlement path when U.S. Bankruptcy Judge Bruce A. Markell in Las Vegas took away the current owners’ exclusive right to propose a plan in June. Exclusivity was ended at the request of the second-lien lenders, represented by Parkins from the New York office of Haynes & Boone LLP.
In return for their $271 million in claims, the first-lien lenders will receive a new first-lien note for $188 million, representing the agreed value of the property. The plan also will give the senior lenders a junior note for $71 million plus $7.5 million in accrued interest. Both notes will mature in six years with options for three one-year extensions.
The second-lien lenders, owed $233 million, will take the new equity interest along with junior lenders who are providing $7.5 million in equity.
FX filed a so-called prepackaged reorganization plan along with the Chapter 11 petition in April. FX responded to the loss of so-called exclusivity by withdrawing the plan in June and later agreeing on the settlement with junior lenders.
The withdrawn plan would have given ownership to the first- lien lenders if there wasn’t a cash bid of at least $256 million. FX’s abandoned plan would have given nothing to the second-lien creditors and unsecured creditors. For details on FX’s abandoned plan and negotiations that preceded the Chapter 11 filing, click here to see the April 22 Bloomberg bankruptcy report.
FX intended to develop the property into a hotel, casino, and other businesses until the financial markets collapsed and the Las Vegas gaming market declined. After default on the first mortgage, a receiver was appointed in June 2009.
The petition listed assets of $140 million against debt totaling $493 million.
The case is In re FX Luxury Las Vegas I LLC, 10-17015, U.S. Bankruptcy Court, District of Nevada (Las Vegas).
Innkeepers’ Lenders Oppose Paying Fried Frank Lawyers
Innkeepers USA Trust, a real estate investment trust, will face opposition from both secured lenders to the proposal for paying law firm Fried Frank Harris Shriver & Jacobson LLP to advise a newly formed special committee to make recommendations to the board of directors about a Chapter 11 plan.
Midland Loan Services Inc., as servicer for $825 million in mortgage debt on 45 of Innkeepers’ properties, notes that Fried Frank may not be independent because the firm, in other matters, represents Apollo Investment Corp. and Lehman Brothers Holdings Inc. Apollo is the current owner, and Lehman’s subsidiary Lehman Ali Inc. is the holder of $238 million in floating-rate mortgages on 20 properties. The bankruptcy judge early in the case nixed a proposal where Apollo and Lehman would have taken ownership through a Chapter 11 plan crammed down on Midland.
Lehman also opposes the retention. Lehman and Midland alike don’t consent to allowing revenue subject to their liens to be used to pay Fried Frank’s fees. Both lenders also oppose the idea of not having Fried Frank’s fees subject to review by the bankruptcy judge.
Both lenders contend that having another large law firm is not justified when Innkeepers is already represented by Kirkland & Ellis LLP, one of the country’s foremost law firms.
The Fried Frank issue will be hashed out at a Nov. 10 hearing in bankruptcy court. At the same hearing, the bankruptcy judge will rule on a motion by Midland to terminate Innkeepers’ exclusive right to propose a reorganization plan.
Midland is working on its own reorganization plan to be financed by selling the new stock for $236 million to Five Mile Capital Partners LLC.
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 Apollo and Lehman.
Palm Beach, Florida-based Innkeepers has 72 extended-stay and limited-service properties with 10,000 rooms in 20 states. For details on 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 New York (Manhattan).
Tronox Shareholders Have More Warrants, Support Plan
The Tronox Inc. shareholders’ committee negotiated an improvement in their warrant package and switched their opposition to support for the reorganization plan for the world’s third-largest producer of the white pigment titanium dioxide. The plan comes to bankruptcy court for approval at a Nov. 17 confirmation hearing.
Previously, existing shareholders were to receive two-year warrants for 5 percent of the new stock exercisable at a price reflecting a $1.5 million enterprise value. The settlement, negotiated in mediation with another bankruptcy judge, calls for shareholders to receive warrants for 7.5 percent of the new stock.
The new package of seven-year warrants has 3.5 percent based on a $1.4 billion enterprise value and 4 percent based on a $1.5 billion enterprise value.
In comparison with the old plan, existing shareholders will receive the warrants regardless of whether the class votes for or against the plan. The equity committee previously withdrew what would have been a competing plan.
Tronox’s plan is financed in part by a $185 million backstopped rights offering. For details on Tronox’s plan before the changes for shareholders, 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).
Bank of New York Beats Suit by Sentinel Trustee
Bank of New York Mellon Corp. came out on top in a lawsuit brought by the Chapter 11 trustee for defunct money manager Sentinel Management Group Inc. In a 68-page opinion yesterday, U.S. District Judge James B. Zagel dismissed the trustee’s claims and found that the bank has a valid secured claim.
After Sentinel’s liquidating Chapter 11 plan was confirmed in December 2008, the trustee pursued a $550 million lawsuit alleging the bank aided the fraud conducted by Sentinel’s management. Although Zagel originally denied a motion to dismiss parts of the complaint, he said in January 2009 that he was skeptical whether the trustee could produce the facts to prevail ultimately.
Zagel held a lengthy trial in May without a jury and issued his opinion yesterday where he granted the bank’s previous motion for summary judgment. Zagel’s opinion included 24 pages of undisputed facts.
Zagel denied the trustee’s claims based on fraudulent transfer, preference, and equitable subordination.
The judge dismissed the claim alleging fraudulent transfers with actual intent to defraud because the trustee didn’t present evidence showing a Ponzi scheme. There was no preference, Zagel said, because the bank had more than sufficient collateral so it wasn’t unsecured.
On the issue of equitable subordination, Zagel said it was a “close question” about whether the bank knew or suspected there was fraud. Ultimately, Zagel denied the subordination claim, saying the bank had no obligation to analyze the facts and discover fraud, even though there were so-called red flags.
In Zagel’s opinion, negligence isn’t enough to support a claim for equitable subordination. He said the bank’s conduct had to be egregious or shock the conscience before he would subordinate the bank’s secured claim.
Zagel said that the “result might be different” on the subordination claim if it were enough to show negligence. He said the bank “had suspicions” and testimony by some bank officers was not credible.
Should the trustee take an appeal to the U.S. Court of Appeals in Chicago, the trustee presumably would contend that Zagel used the wrong legal standard on the subordination claim. The trustee could also argue on appeal that the evidence did show the existence of Ponzi scheme.
The trustee sued the bank in March 2008, alleging that it played a “pivotal role” in Sentinel’s collapse and “aided and abetted breaches of fiduciary duty committed by certain Sentinel insiders.” Originally filed in bankruptcy court, the bank had the suit transferred to the district court.
To read Bloomberg coverage, click here. To read the district court opinion, click here.
Northbrook, Illinois-based Sentinel voluntarily asked for a trustee four business days after the Chapter 11 filing in August 2007.
The suit in district court is Grede v. Bank of New York, 08-2582, U.S. District Court, Northern District of Illinois (Chicago). The Chapter 11 case is In re Sentinel Management Group Inc., 07-14987, U.S. Bankruptcy Court, Northern District of Illinois (Chicago).
Blixseth Has Yellowstone Plan Remanded on Appeal
Timothy Blixseth, the founder of Yellowstone Mountain Club LLC, succeeded at least temporarily in setting aside the bankruptcy court’s confirmation order from June 2009 approving the club’s Chapter 11 plan.
The plan incorporated a settlement from May 2009 with the secured lender Credit Suisse Group AG, the creditor’s committee, and the buyer, private-equity investor CrossHarbor Capital Partners LLC. The settlement was reached after the bankruptcy judge ruled that the $309 million secured claim of Credit Suisse should be subordinated to specified unsecured claims.
On the appeal by Blixseth, U.S. District Judge Sam E. Haddon in Butte, Montana, sent the case back to the bankruptcy judge, saying there hadn’t been the required notice to creditors regarding the settlement.
Haddon also said the plan didn’t adequately describe third parties who are to receive releases under the plan. On remand, Haddon told the bankruptcy judge to explicitly identify the released third parties and “to state the reasons why it reached such conclusions.”
The plan sold the resort to CrossHarbor for $115 million, consisting of a note for $80 million and $35 million in cash. The club said it expected unsecured trade suppliers would be paid in full.
The club is a 13,600-acre property just outside Yellowstone National Park. For other Bloomberg coverage, click here.
The Chapter 11 case is In re Yellowstone Mountain Club LLC, 08-61570, U.S. Bankruptcy Court, District of Montana (Butte). The appeal is Blixseth v. Yellowstone Mountain Club LLC, 09-0047, U.S. District Court, District of Montana (Butte).
Acorn Files to Liquidate in Chapter 7 in Brooklyn
Acorn, which had been the target of allegations of voter fraud, filed a petition in Brooklyn, New York, on Nov. 2 along with six affiliates to liquidate under Chapter 7. The petition listed assets of $115,000 and debt totaling $4.1 million.
Formally named Association of Community Organizations for Reform Now Inc., Brooklyn-based Acorn’s revenue of $46.2 million in 2008 declined to $16.3 million in 2009. Revenue in 2010 was $1.6 million, the petition said.
Acorn halted operations in March.
The case is In re Association of Community Organizations for Reform Now Inc., 10-50380, U.S. Bankruptcy Court, Eastern District New York (Brooklyn).
North Las Vegas Shopping Center Files in Hometown
Commerce Commons Inc., the owner of a shopping center in North Las Vegas, filed for Chapter 11 protection last week in Las Vegas, owing $23.1 million on a mortgage.
The owner says in the petition that the property is worth $8 million. It consists of a shopping center on West Centennial Parkway and an adjoining, undeveloped parcel that was to have been developed into the second phase of the project.
The secured creditor is an affiliate of Cohen Financial from Leawood, Kansas, according to court papers.
The petition listed assets for $8.5 million against debt totaling $23.15 million.
The case is In re Commerce Commons Inc., 10-30229, U.S. Bankruptcy Court, District of Nevada (Las Vegas).
Hawaii Open-Ocean Fish Farm Files to Reorganize
Grove Fish Farm & Poi LLC, an open-ocean fish farm, filed for Chapter 11 protection on Nov. 1 in Honolulu.
Located off the shore of Oahu, the farm is capable of producing 1.7 million pounds of fish a year from its submerged cages. The operation lost $2.3 million in 2009 and $2.4 million in the first nine months of 2010, court papers say.
Assets are $5 million while debt is $8.6 million. The reorganization will be financed with a $3 million loan subordinate to existing financing.
The company does business using the name Hukilanu Foods.
The case is In re Grove Fish Farm & Poi LLC, 10-03340, U.S. Bankruptcy Court, District of Hawaii (Honolulu).
Indianapolis Downs Misses Second-Lien Debt Interest
Indianapolis Downs LLC, the operator of a horserace track and casino 25 miles from Indianapolis, didn’t make the interest payment due Nov. 1 on $375 million in second-lien notes.
Standard & Poor’s lowered the rating on the first-lien credit by three notches yesterday to CCC-.
Moody’s Investors Service said in March that the capital structure “is not sustainable in its current form.”
The property is named Indiana Downs. The permanent facility opened in March 2009. It has 2,000 slot machines and electronic table games.
Agri-Best Seeks to Sell 20,000 Pounds of Strip Steak
Agri-Best Holdings LLC, a processor and distributor of meat products for the restaurant industry, has 8,133 cases of choice strip steak, much of which is on hand because a customer refused to take delivery on an order.
At a Nov. 9 hearing, the company will seek authority to sell 20,000 pounds of steak to a buyer for $4.25 a pound.
Agri-Best, known as Protein Solutions, filed under Chapter 11 on Oct. 5 in its Chicago hometown. It owes $14.6 million to secured lender Wells Fargo Bank NA, which has a lien on accounts receivable and inventory with a book value of $14.2 million. There is another $5.9 million owing on a secured claim to equity holder Advantage Capital Partners. Advantage has a lien on all assets, court papers say.
The company says that the book value of all assets is just under $20 million. Annual revenue is around $140 million, the company web site says.
The case is In re Agri-Best Holdings LLC, 10-44595, U.S. Bankruptcy Court, Northern District Illinois (Chicago).
Tubo and Cambridge-Lee Secure Longer ‘Exclusivity’
Tubo de Pasteje SA de CV and subsidiary Cambridge-Lee Holdings Inc. sought and received a second extension of the exclusive right to propose a Chapter 11 plan. The new deadline is Jan. 5. There were no objections.
The company reported “significant progress” in discussions with noteholders on a Chapter 11 plan.
The Chapter 11 filing followed a payment default in November 2009 on $200 million in 11.5 percent senior notes due 2016.
Tubo is a subsidiary of Mexico City-based Industrias Unidas SA de CV, a diversified manufacturer of copper and electrical products. The U.S. subsidiary Cambridge-Lee is based in Reading, Pennsylvania. IUSA is the issuer of the notes which were secured by a pledge of the stock of Cambridge-Lee.
The case is In re Tubo De Psteje SA de CV, 09-14353, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Contested Settlements With and Without Examiner Reports: Audio
Two different approaches to approving settlements are examined in the latest Bloomberg bankruptcy podcast. For Washington Mutual Inc., a report from the examiner came before the bankruptcy judge considers approval of a settlement. For Capmark Financial Group Inc., the bankruptcy judge didn’t delegate the responsibility for evaluating the reasonableness of a settlement to an examiner. For a discussion of which is the better approach, click here for the bankruptcy podcast on the Bloomberg terminal and Bloomberglaw.com.
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