MGM Studios, Lehman, GM, Awal, Chemtura: Bankruptcy

Metro-Goldwyn-Mayer Inc. held its first Chapter 11 hearing yesterday and the bankruptcy judge set aside Dec. 2 for a confirmation hearing to consider approving the reorganization plan that creditors accepted in advance.

The judge said that while the plan’s confirmation is pending, MGM can pay pre- and post-bankruptcy debts owing to employees, suppliers and licensors. The judge also gave interim approval for the use of cash.

The plan will swap $4.89 billion of debt for most of the equity. To read Bloomberg coverage of the first-day hearing, click here.

After confirmation, Gary Barber and Roger Birnbaum from Burbank, California-based Spyglass Entertainment Group will become MGM’s co-chairmen and chief executive officers.

General unsecured claims would be paid in full while existing stockholders receive nothing.

MGM’s assets include a library with 4,100 feature films and 10,800 television episodes. The assets as of Sept. 30 were valued at $2.67 billion and total liabilities were $5.77 billion, without adjustments required by generally accepted accounting principles.

MGM, based in Los Angeles, owns 62.5 percent of United Artists Entertainment LLC, which isn’t in bankruptcy.

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.

The case is In re Metro-Goldwyn-Mayer Studios Inc., 10- 15774, U.S. Bankruptcy Court, Southern District New York (Manhattan).

Updates

Lehman Aiming to Cut Derivative Claims Almost in Half

Lehman Brothers Holdings Inc. filed papers on Nov. 3 objecting to the valuation of more than $900 million in derivative claims. If Lehman is correct in its calculation, the amount of the 128 claims will be reduced to $475.5 million.

American International Group Inc. has a claim for $12.5 million, which Lehman says should be allowed for $6.1 million. The $38.9 million claim of Commonwealth Bank of Australia should be $18.4 million, and the $5.9 million claim of National Bank of Canada should be $525,000, Lehman said.

The Lehman holding company filed under Chapter 11 in New York on Sept. 15, 2008, and sold office buildings and the North American brokerage 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 to amend the plan in the last quarter of the year and have the plan approved in a confirmation order by March.

The 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 Investor Protection Corp. v. Lehman Brothers Inc., 08-01420, both in U.S. Bankruptcy Court, Southern District of New York (Manhattan).

GM, Delphi Agree on Result, Disagree on Which Judge

Two bankruptcy judges in New York may need to decide whether General Motors Co., often referred to as new GM, is liable to pay the United Auto Workers union $450 million for retiree health benefits for employees of former unit Delphi Corp.

The union sued in federal court in Michigan, claiming the liability was extinguished in neither of the bankruptcies of old General Motors Corp. nor Delphi. New GM responded by filing a motion in old GM’s bankruptcy court in New York contending that the liability was cut off in either its own or Delphi’s bankruptcy. The dispute is on the old GM court’s calendar for Nov. 9.

While new GM wants old GM’s bankruptcy judge, Robert E. Gerber, to decide issues from both the GM and Delphi cases, Delphi, now formally known as DPH Holdings Corp., filed papers arguing that only its bankruptcy judge, Robert D. Drain, should make rulings about the preclusive effect of orders in the Delphi case.

New GM wants Gerber to rule that liability for retiree benefits was cut off when old GM’s core assets were sold to the new company, which is 60.8 percent-owned by the U.S. government. As a fallback, new GM would have Gerber rule that the liability was cut off when Delphi’s assets were sold in October 2009 to old GM and Delphi lenders including Elliott Management Corp. and Silver Point Capital LP.

DPH agrees with the result sought by new GM. DPH says Drain alone should make decisions interpreting his own orders.

Delphi originally confirmed what was supposed to be a full- payment plan in January 2008. The plan couldn’t be implemented because the business deteriorated. In July 2009, Drain approved the sale to old GM and the lenders.

In October, Gerber agreed to approve the disclosure statement explaining old GM’s liquidating Chapter 11 plan. A trust for unsecured creditors will distribute the stock and warrants issued by new GM as part of the sale. For details of the plan, click here for the Sept. 1 Bloomberg bankruptcy report.

The sale of the GM business produced a pot for old GM creditors containing 10 percent of the stock of new GM plus warrants for 15 percent. The warrants will have value if new GM is profitable enough to raise the new stock’s value to specified levels.

Old GM began the largest manufacturing reorganization in history by filing under Chapter 11 on June 1, 2009. GM listed assets of $82.3 billion against debt totaling $172.8 billion.

The GM case is In re Motors Liquidation Co., 09-50026, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The Delphi case is In re Delphi Corp., 05-44481, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Awal Administrator May Be Rethinking Chapter 11 in U.S.

The administrator for Awal Bank BSC may be rethinking whether to pursue the Chapter 11 case begun Oct. 21. The Bahrain-based bank was already in an approved Chapter 15 case that started in September 2009.

Awal said it intended for the Chapter 11 case to have “very limited scope.” At the first hearing held Oct. 26, the bankruptcy judge in Manhattan balked at the idea of having no creditors’ committee, no lists of assets and debt, distributions made to creditors by the court in Bahrain, and payment to professionals without bankruptcy court approval. The judge said he might eventually give approval, though not without notice to creditors.

The bank yesterday said it is assessing “creditor views in relation to Chapter 11.” Awal’s administrator will later “determine whether to further pursue the Chapter 11 case,” according to a statement.

The bank began bankruptcy administration proceedings in Bahrain in July 2009. In the Chapter 15 case in New York, the bankruptcy judge recognized Bahrain as the home of the so-called foreign main proceeding, meaning that the foreign court would be largely responsible for collecting assets and making distributions to creditors, were there no Chapter 11 case.

Awal evidently filed under Chapter 11 because the ability to bring lawsuits is limited in Chapter 15.

Awal’s petition said assets are less than $100 million while debt exceeds $1 billion. Although domestic banks are precluded from filing any form of bankruptcy in the U.S., foreign banks such as Awal may file for bankruptcy or reorganization.

The new Chapter 11 case is In re Awal Bank BSC, 10-15518, U.S. Bankruptcy Court, Southern District of 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).

Sea Island Confirms Plan for Sale to Oaktree Group

Sea Island Co. has a confirmed Chapter 11 plan, the resort and real estate development company said in a statement yesterday. By early this morning, the formal confirmation order wasn’t yet on the court’s docket.

Approval of the liquidating Chapter 11 plan resulted from a settlement between unsecured creditors and secured lenders. The plan provides for a $212.4 million sale of the assets to a group including Oaktree Capital Management LP, Avenue Capital Group, Starwood Capital Group Global LP and Anschutz Corp. The opening bid at auction had been $197.5 million.

Sea Island said it expects to complete the sale this year.

To garner support for the plan from the official creditors’ committee, the lenders increased the fund for unsecured creditors to $6.33 million from $3 million, for a recovery of about 6 percent on unsecured creditors’ $100 million in claims. The lenders are also making $217,000 available to fund a liquidating trust. The settlement ended disputes over which assets were covered by the secured lenders’ liens and which weren’t.

Sea Island’s properties are on or near St. Simons Island and Sea Island, Georgia.

Before the price increased at auction, Sea Island projected having about $180 million remaining after paying priority claims. About $177 million under the pre-auction price would go to secured lenders with $566 million in claims. Their recovery originally was expected to be 31 percent.

The Chapter 11 plan and the original sale were negotiated before the bankruptcy petition was filed in August. Synovus Bank, Bank of America Corp. and Bank of Scotland are lenders.

The case is In re Sea Island Co., 10-21034, U.S. Bankruptcy Court, Southern District of Georgia (Savannah).

Maryland’s Rosecroft Track to Get Chapter 11 Trustee

Cloverleaf Enterprises Inc., owner of the Rosecroft Raceway in Fort Washington, Maryland, is being taken over by a Chapter 11 trustee.

The U.S. Trustee, an official of the Justice Department, sought either conversion of the case to liquidation in Chapter 7 or the appointment of a trustee in Chapter 11. U.S. Bankruptcy Judge Paul Mannes in Greenbelt, Maryland, opted for a trustee in Chapter 11.

The U.S. Trustee said that the track halted operations in July and lost its racing license. In April, Mannes denied a motion to sell the assets, saying the sale “primarily benefits” the track’s sole shareholder.

The U.S. Trustee named James J. Murphy to serve as Cloverleaf’s trustee. Mannes hasn’t yet approved the appointment. Murphy has 30 years’ experience in horse racing, according to the U.S. Trustee.

Cloverleaf filed under Chapter 11 in May, aiming to forestall termination of the racing license and the license allowing simulcasting. The petition said assets are more than $10 million and debt is less than $10 million. Liabilities include $6.8 million owing on variable-rate notes secured by all the assets. The noteholders have protection from a letter of credit issued by PNC Bank.

The case is In re Cloverleaf Enterprises Inc., 09-20056, U.S. Bankruptcy Court, District of Maryland (Greenbelt).

Credit Suisse Wants Tamarack’s Chapter 11 Reorganization Ended

The secured lender to Tamarack Resort LLC wants the Chapter 11 reorganization dismissed or converted to a liquidation in Chapter 7.

Credit Suisse AG, Cayman Islands Branch, contends the reorganization must end in view of continuing losses, gross mismanagement, unauthorized use of cash collateral, and lack of insurance.

The motion to dismiss or convert comes on the heels of a ruling by the bankruptcy judge denying a $2 million secured loan for the golf and ski resort in Valley County, Idaho. Tamarack said it needed the loan to winterize the property.

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 the bankruptcy judge granted a motion for conversion to reorganization, even though a 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).

Dykstra, Companies Should Be Consolidated, Trustee Says

The Chapter 7 bankruptcy trustee for Lenny Dykstra wants the bankruptcy judge in California to consolidate Dykstra’s liquidation with three corporations claimed to be alter egos for the former Major League Baseball player for the New York Mets and Philadelphia Phillies.

The motion is scheduled for hearing on Dec. 1 in Woodland Hills, California. The trustee, David K. Gottlieb, contends in court papers filed last week that Dykstra used the companies to “conceal assets and interfere” with creditors. He also says that the companies’ revenue was “squandered” on Dykstra’s “personal needs.”

Unless the companies’ assets and liabilities are combined with Dykstra’s, there will be “few assets with which to satisfy claims of creditors,” Gottlieb said. The trustee wants to bring fraudulent transfer claims on behalf of the companies.

The companies the trustee wants to consolidate are Car Wash Corp., Car Wash III and South Corona Center. Claims against buyers of the properties are “significant assets of the estate,” Moshe Mortner, an attorney for Dykstra who isn’t involved in the bankruptcy case, said in an interview. Dykstra “is much in support of the claims,” Mortner said.

Dykstra filed for reorganization under Chapter 11 in July 2009 in Woodland Hills, California. A Chapter 11 trustee was appointed in September 2009 and the case was converted to a liquidation in Chapter 7 in October 2009.

Dykstra listed assets of $24.6 million against debt totaling $37.1 million. Debt includes $12.9 million owing to JPMorgan Chase & Co.

The bankruptcy case is In re Lenny Kyle Dykstra, 09-18409, U.S. Bankruptcy Court, Central District of California (Woodland Hills).

Actor Stephen Baldwin Negotiates Mortgage Reduction

Actor Stephen Baldwin, who filed under Chapter 11 in July 2009 to stop home foreclosure, negotiated a settlement reducing the amount owed to the first-mortgage lender Bankers Trust Co.

With unpaid interest and fees, the balance on the first mortgage in September was $925,000. The principal will be reduced to $790,000. The new mortgage will bear 5.5 percent interest and require an $8,214 monthly payment, including principal, interest, taxes and insurance.

There is also a $292,000 second mortgage on the home in Upper Grandview, New York.

Baldwin’s petition said the home was worth $1.1 million and had $1.2 million in mortgages. The second mortgage probably will be converted to an unsecured claim and lose its lien on the home. In total, Baldwin and his wife listed assets of $1.1 million against debt totaling $2.3 million.

The case is In re Stephen and Kennya Baldwin, 09-23296, U.S. Bankruptcy Court, Southern District of New York (White Plains).

New Filing

Gulfstream, Feeder Airline, Files in Fort Lauderdale

Gulfstream International Group Inc., the parent of Gulfstream International Airlines Inc., filed for Chapter 11 reorganization yesterday in Fort Lauderdale, Florida. The case is to be financed with a $5 million loan from Chicago-based Victory Park Capital Advisors.

The June 30 balance sheet had assets of $13.6 million against total liabilities of $26 million. Revenue of $46.3 million for the first half of 2010 resulted in a $1.6 million operating loss and a $2.8 million net loss.

On 2009 revenue of $87.3 million, the operating loss was $2.9 million and the net loss was $7.6 million.

Fort Lauderdale-based Gulfstream was operating with a going-concern qualification from the auditors, resulting from a “net capital deficiency” and “recurring losses from operations.”

Gulfstream has 23 turboprop aircraft seating 19 passengers each. The company has more than 150 daily flights from Florida, the Bahamas and Ohio. Gulfstream operates under code-sharing arrangements with Continental Airlines Inc., UAL Corp.’s United Airlines and Copa Airlines.

The case is In re Gulfstream International Group Inc., 10- 44131, U.S. Bankruptcy Court, Southern District of Florida (Fort Lauderdale).

Statistics

Exchanges Beat Prepacks in Recoveries to Creditors

Creditors’ recoveries are the same whether or not the defaulting company is owned by a private-equity investor, Moody’s Investors Service said in a report on Nov. 3.

For 62 companies owned by private-equity investors that defaulted since the recession began, recoveries averaged 55.8 percent, compared with 55.7 percent for 64 companies not owned by private equity.

The recovery rate during the recession is slightly higher than the historical average. For 850 issuers that defaulted since the 1980s, Moody’s calculates creditors’ recoveries at 54.7 percent.

Moody’s also found that distressed exchanges brought higher recoveries than regular or prepackaged Chapter 11s. Although Moody’s found that prepacks often gave higher recoveries for senior or secured creditors, company-wide recovery rates were similar for prepacks and regular bankruptcies.

The final tallies aren’t in, because companies may default a second time following an exchange offer or bankruptcy. Moody’s said the “question ahead is whether these defaults will right the ship for sponsored companies enough to stave off subsequent default.”

Moody’s Still Predicting Junk Defaults to Remain Low

Moody’s Investors Service reported that its liquidity stress index declined to 5.8 percent in October from 6 percent in September.

Moody’s said the index is “consistent” with a predicted default rate during the next year of 2.2 percent to 2.7 percent for junk-rated companies.

The report, issued Nov. 3, says that refinancings have addressed “much of 2011’s maturities.”

The peak for the liquidity stress index was 20.9 percent in March 2009.

Briefly Noted

Chemtura’s Confirmed Plan Can Take Effect November 8

Specialty-chemical maker Chemtura Corp. can implement on Nov. 8 the Chapter 11 plan that the bankruptcy judge formally confirmed on Nov. 3, as the result of a ruling by U.S. Bankruptcy Judge Robert E. Gerber. At the company’s request, Gerber shortened the usual 14-day wait to five days because Chemtura will pay $230,000 a day in interest on creditors’ claims until the plan is consummated.

Chemtura’s plan reduces debt for borrowed money to about $750 million from $1.3 billion. For details of the plan, click here for the June 18 Bloomberg bankruptcy report. To read about Gerber’s 78-page opinion explaining why he confirmed the plan, click here for the Oct. 22 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 fell to $2.5 billion last year from $3.5 billion in 2008. 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).

Schutt Reports $989,000 September Operating Loss

Schutt Sports Inc. reported a $989,000 loss from operations during September on revenue of $3 million.

The net loss was $1.64 million. During September, Schutt paid a $350,000 fee for its reorganization loan.

The football-helmet maker was forced into Chapter 11 by a $29 million patent-infringement judgment in favor of competitor Riddell Inc. Based in Litchfield, Illinois, Schutt said 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).

Daily Podcast

Boston Generating, Scotia-Palco, TerreStar and Vertis: Audio

An appeal from an important opinion requiring buyers to pay more under a bankruptcy plan, gumming up the works in the sale of Boston Generating LLC, a motion to dismiss the reorganizations of some TerreStar Corp. affiliates, and the possible need for another reorganization by Vertis Inc. are covered in the bankruptcy podcast on the Bloomberg terminal and Bloomberglaw.com. To listen, click here.

Downgrades

Packaging Maker Pregis Lowered to B- on Resin Costs

Pregis Corp., a manufacturer of flexible packaging, received a one-notch downgrade yesterday from Standard & Poor’s to match the action taken more than two years earlier by Moody’s Investors Service.

The new S&P corporate peg is B-.

S&P acted because it found the Pregis “unable to pass through significant resin price increases due to competitive industry pricing conditions.” S&P noted that Pregis will need to refinance a $50 million revolving credit that matures in October 2011.

Pregis Holding II Corp., based in Deerfield, Illinois, had a net loss of $15.8 million for the first half of 2010 on sales of $427.8 million.

Clearing Provider Penson Lowered to B+ on 2nd Lien

Penson Worldwide Inc., a provider of clearing and margin lending services for the brokerage industry, received a one- notch downgrade yesterday from Standard & Poor’s that reduced the rating on the $200 million in second-lien debt to B+.

S&P said that earnings for Dallas-based Penson declined amid “extremely low market volumes and the continued low interest-rate environment.”

Pension reported a net loss of $16.6 million for the first three quarters of 2010 on net revenue of $208.3 million.

Advance Sheets

Judge Uses ‘Equity’ to Save Employee’s Injury Claim

A federal judge in Monroe, Louisiana, took a fresh approach to situations where an individual with a confirmed Chapter 13 plan didn’t amend schedules by disclosing an asset that arose after confirmation.

U.S. District Judge Robert G. James had a case where an individual confirmed a Chapter 13 plan in March 2005. More than three years later, she was injured in an accident at work. At the time, she was still making payments to creditors under her plan.

James ruled in line with seven federal circuit courts of appeal that she had a continuing duty to disclose the claim against her employer because she hadn’t received a bankruptcy discharge when the accident took place. James also found that all of the requirements were met for the doctrine of judicial estoppel to apply and bar the lawsuit against her employer.

James nonetheless denied the employer’s motion to dismiss the suit. He noted, “as a purely equitable consideration,” that the bankruptcy trustee wouldn’t have attempted to modify her Chapter 13 plan to require more payments to creditors. Even if the suit were disclosed, he said it was unclear whether creditors would have attempted to modify the plan “based on the possibility that she might recover a future judgment.”

James denied the employer’s motion to dismiss the suit after “balancing all of the equities.”

The case is Gilbreath v. Averitt Express Inc., 09-1922, U.S. District Court, Western District of Louisiana (Monroe).

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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