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Loehmann’s, C-Bass, Lehman, MGM, Madoff: Bankruptcy

Discount retailer Loehmann’s Inc., unable to complete an exchange offer in October, filed a Chapter 11 petition today in New York with agreement on a plan to swap $110 million in secured notes for the new equity.

The reorganization will be financed in part with a new $25 million investment from current owner Istithmar World PJSC and Whippoorwill Associates Inc., the owner of 70 percent of the notes. Istithmar, an investment firm owned by the government of Dubai, will provide 64 percent of the $25 million to purchase new convertible preferred stock.

Loehmann’s said the plan will be filed “shortly,” with an emergence from Chapter 11 to occur in the first quarter of 2011, the company said in a statement. Loehmann’s has 48 stores in 13 states and the District of Columbia.

In addition to the notes, secured debt includes $30.5 million outstanding on a $45 million revolving credit with Crystal Financial LLC. Crystal has agreed to provide a $45 million revolving credit for the Chapter 11 case.

Loehmann’s blamed financial problems on “declining sales” and a “highly leveraged corporate structure,” court papers say. Sales in 2009 were $422 million. The operating loss for the quarter ended July 31 was $12 million.

Assets were listed at $204.5 million with liabilities totaling $232.7 million. Trade suppliers are owed $15 million, a court paper says.

Although Whippoorwill supported the failed exchange offer, another large noteholder, Plainfield Asset Management LLC, didn’t go along. Whippoorwill, which initially had 33.9 percent of the notes, purchased Plainfield’s holding, raising its share to 70 percent. Istithmar in turn agreed to purchase half of the notes previously owned by Plainfield.

The agreement between Whippoorwill and Istithmar to support the reorganization plan was dated yesterday. The plan will reduce debt by $115 million.

The failed exchange offer would have swapped the existing notes for new notes with a different maturity. Although 92.4 percent of the notes were tendered, 97 percent were required for the restructuring to take place out of court.

The new restructuring agreement says that the treatment of unsecured creditors in Chapter 11 is still to be negotiated. Unsecured creditors are to receive cash or notes.

Loehmann’s said last week that it closed eight stores in November and had considered closing as many as 15. Loehmann’s has no plans to close more stores while in Chapter 11, company spokeswoman Lekha Rao said in an interview.

Loehmann’s emerged from a 14-month Chapter 11 reorganization with a confirmed plan in September 2000. At the time, it was operating 44 stores in 17 states. It was acquired by Istithmar in July 2006 in a $300 million transaction.

The case is In re Loehmann’s Holdings Inc., 10-16077, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

New Filings

C-Bass Files to Liquidate Remaining Assets in Chapter 11

Credit-Based Asset Servicing & Securitization LLC, better known as C-Bass, filed a Chapter 11 petition on Nov. 12 in New York to liquidate and distribute the remaining assets.

In its heyday before the collapse of the subprime market, C-Bass was a leading originator, issuer, servicer and securitizer of high-yield residential mortgages. The New York- based company is 91 percent-owned by affiliates of MGIC Investment Corp. and Radian Group Inc., which are both mortgage insurers and reinsurers. The remainder of the equity is held by current and former executives.

C-Bass has been undergoing continual restructurings and asset liquidations since 2007. At the time of the Chapter 11 filing, it still owed $170 million on the senior credit facility with JPMorgan Chase Bank NA as agent. At the peak, the facility provided about $1.9 billion in first-lien credit.

C-Bass said in a court filing that the remaining debt is “well in excess of the current fair market value” of the lenders’ collateral. The remaining assets consist of subordinate tranches of residential mortgage-backed securities, management rights on collateralized bond obligations, some loans and owned property, and potential lawsuits against third parties.

C-Bass made an agreement with the lenders in September containing a timetable for liquidating the remaining assets and requiring the lenders to vote in favor of a Chapter 11 plan with specified provisions. The agreement gives C-Bass the right to use $8.2 million of the lenders’ collateral to finance the remaining liquidation.

The list of 30 largest creditors shows more than $800 million still outstanding on repurchase agreements, more than $365 million on trust preferred securities, and almost $128 million on subordinated debt. C-Bass filed a motion asking for authority to abandon the trust preferred securities to the owner trustees.

C-Bass filed a motion to sell the collateral-management business to FIG LLC for $2.4 million. The business is run by C- Bass Investment Management LLC, a registered investment adviser. It provides collateral-management services for 17 collateralized-bond obligations.

C-Bass proposed holding a hearing on Nov. 19 for approval of sale procedures. If the bankruptcy judge goes along, other bids would be due Dec. 13, followed by an auction on Dec. 14 and a hearing to approve the sale on Dec. 22.

To read other Bloomberg coverage, click here.

The case is In re Credit-Based Asset Servicing & Securitization LLC, 10-16040, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Joseph-Beth Booksellers Files to Close Some Stores

Joseph-Beth Booksellers LLC, a nine-store book retailer, filed for Chapter 11 reorganization on Nov. 11 in Lexington, Kentucky, with plans to close four locations.

The Cincinnati-based company blamed bankruptcy on the under-performance of newer stores. Books represent 55 percent of sales, a court filing says. Some stores have an attached café called Bronte.

Debt includes $7.5 million owing on a revolving credit with Webster Business Credit Corp. Book supplier Ingram Book Group Inc. has a junior lien securing a debt of $3.5 million. Ingram is a junior lender on the revolving credit and had given Webster a $4 million letter of credit to protect the senior lender against loss.

The company filed in Chapter 11 when the lender wouldn’t make larger advances and inventory for Christmas would be inadequate without more financing.

Webster is offering to provide an $8 million revolving credit to support the Chapter 11 effort. The stores are in Ohio, Kentucky, North Carolina, Virginia, and Tennessee.

The case is In re JB Booksellers Inc., 10-53593, U.S. Bankruptcy Court, Eastern District of Kentucky (Lexington).

Updates

Judge Strikes Claim of Kuntz, Frequent Lehman Critic

Lehman Brothers Holdings Inc. succeeded in extinguishing the claims of an individual who’s been a thorn in its side for two years.

William Kuntz III has appeared at “many if not most monthly omnibus hearings,” U.S. Bankruptcy Judge James M. Peck said in his Nov. 10 opinion striking all of Kuntz’s claims.

Peck noted that Kuntz filed about 50 pleadings and made 18 objections. In addition, he offered “his mostly unflattering views regarding the work of the retained professionals,” Peck said in his opinion.

Kuntz, from Nantucket, Massachusetts, filed several claims for about $18,000, contending a Lehman subsidiary should be liable to him for zero-coupon notes he held that were obligations of liquidated supermarket chain Grand Union.

Dismissing the claims, Peck said Kuntz produced no documents to support the claim. Peck said it was proper to dismiss the claims because “the Court is unable to discern any merit whatsoever to Mr. Kuntz’s theory of liability.”

Peck said Kuntz is a “seasoned pro se litigation veteran” and “has been more active in the Lehman case than any other individual creditor.” The judge said that Lehman’s objective in dismissing Kuntz’s claims “cannot be purely economic.”

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).

Changes in MGM Plan Not Material, Judge Rules Nov. 12

Metro-Goldwyn-Mayer Inc. secured a critical ruling permitting a quick exit from Chapter 11 when the bankruptcy judge ruled on Nov. 12 that changes made to the plan after creditors voted weren’t material and don’t require re- solicitation.

MGM filed a so-called prepackaged reorganization on Nov. 3 and prevailed on the bankruptcy judge to schedule a Dec. 2 confirmation hearing for approval of the plan. Creditors voted before the Chapter 11 petition was filed.

After the vote was taken, MGM negotiated a settlement with Carl Icahn that entailed changing corporate governance rules and dropping a combination with Cypress Entertainment Group Inc. and Garoge Inc. The changes necessitated modifications in the plan. The bankruptcy judge ruled last week that the changes weren’t material. Were it otherwise, creditors would have been required to vote again.

The judge directed MGM to file the revised plan and details on the corporate arrangements by Nov. 23.

At the Nov. 12 hearing, the judge also approved an agreement for $500 million in financing to support the exit from Chapter 11. For Bloomberg coverage of the hearing and approval of other so-called first day motions, click here.

MGM’s plan will swap $4.89 billion of debt under a credit agreement for most of the equity. The plan pays general unsecured claims in full while existing stockholders receive nothing.

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

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

Bankruptcy Judge to Rule Who is Innkeepers Adversary

The bankruptcy judge will be deciding who will be the primary adversary for Innkeepers USA Trust, a real estate investment trust.

Since Innkeepers filed under Chapter 11 in July, the chief antagonist has been Midland Loan Services Inc., the servicer for $825 million in mortgage debt on 45 of Innkeepers’ properties. Although Midland was selected by holders of a majority of the debt, LNR Partners LLC claims it has the right to replace Midland as servicer for Innkeepers’ largest creditor.

LNR filed suit in October in state court in New York to remove Midland as servicer. The state-court judge denied immediate relief and scheduled a Nov. 12 hearing to consider removing Midland. Before the hearing was held, Midland removed the lawsuit to federal court on Nov. 10 and requested that it be transferred to the bankruptcy judge as a dispute related to the Innkeepers Chapter 11 reorganization.

Court filings don’t say whether having LNR as servicer would result in a different strategy in the Innkeepers case. With Midland leading the attack, the bankruptcy judge in August refused to allow Innkeepers to lock in an agreement where the new equity would have been split between Apollo Investment Corp., the current owner, and Lehman Ali Inc., a subsidiary of Lehman Brothers Holdings Inc.

Lehman is Innkeepers’ other primary creditor, with $238 million in floating-rate mortgages on 20 properties.

Innkeepers, based in Palm Beach, Florida, has 72 extended- stay and limited-service properties with 10,000 rooms in 20 states. For details on Innkeepers’ rejected plan and Midland’s competing proposal, 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).

Zazzali Files Lawsuit After DBSI Plan Confirmation

James R. Zazzali, in his new roles in the liquidation of DBSI Inc., didn’t waste time in filing lawsuits following the late-October confirmation of the Chapter 11 plan.

Zazzali, former chief justice of the New Jersey Supreme Court, is suing former executives and pre-bankruptcy lawyers for DBSI, which the examiner said was an “elaborate shell game” that operated like a Ponzi scheme before the Chapter 11 filing in November 2008. The examiner’s report resulted in Zazzali’s appointment as Chapter 11 trustee in September 2009.

The liquidating plan for DBSI, once a seller and servicer of fractional interests in commercial real estate, created two trusts to bring lawsuits after confirmation. Zazzali, who is trustee for both trusts, is filing 850 lawsuits in bankruptcy court against 1,300 defendants to collect preferences and fraudulent transfers, according to Brian J. McMahon, a lawyer with Gibbons PC which represents Zazzali as trustee.

In addition, Zazzali filed two lawsuits this month in U.S. District Court in Delaware against former insiders, including Douglas L. Swenson, DBSI’s founder and president. Another suit is against DBSI’s former lawyers, Moffatt Thomas Barrett Rock & Fields Chartered, a firm with four offices in Idaho.

The suit against the insiders claims the officers constructed a “massive scheme of corporate looting” where “positive cash flow came only from new investor money.” The other suit says the Moffatt firm gave “knowing aid and assistance” in a scheme where more than $80 million was misappropriated. A call to the Moffatt firm for comment wasn’t immediately returned.

DBSI’s disclosure statement predicted an 18.5 percent recovery for many creditors.

DBSI filed under Chapter 11 in November 2008 along with almost 150 affiliates. More filed later. Based in Meridian, Idaho, the company claimed it managed real estate valued at more than $2.65 billion and raised $1.5 billion in capital over 29 years.

The case is In re DBSI Inc., 08-12687, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Boston Generating Dispute with Algonquin Back in Bankruptcy

Whether Boston Generating LLC can reject a contract to supply transportation for natural gas is back in the bankruptcy court thanks to a Nov. 12 ruling by U.S. District Judge Denise Cote in Manhattan.

Early this month Cote ruled that the bankruptcy court had the right to preside over the sale of Boston Generating, the owner of five electric generating plants in the Boston area. At the same time, she said the district court was required to rule on whether Boston Generating could terminate a transportation contract with Algonquin Gas Transmission LLC, a subsidiary of Spectra Energy Corp.

In her ruling on Nov. 12, Cote said the rejection issue could return to bankruptcy court because both sides agree that the Federal Energy Regulatory Commission must decide if it’s in the public interest to terminate the contract. If FERC gives approval, the bankruptcy court can rule on rejection.

If there isn’t a higher bid at auction, Constellation Energy Group Inc. will buy the facilities for $1.1 billion. Competing bids were initially due Nov. 1. Final bids are due tomorrow in advance of the Nov. 15 auction. The hearing for approval of the sale will take place Nov. 17.

Cote withdrew the reference of the motion to reject the contract because FERC has exclusive jurisdiction over rates charged by gas pipelines. Withdrawal of the reference is the technical term for a procedure when a particular dispute is required by bankruptcy law to be decided in district court rather than in bankruptcy court.

In her first opinion this month, Cote said there was no need to withdraw the motion to approve the sale because federal law requires that FERC must also approve the sale.

The bankruptcy case is In re Boston Generating LLC, 10- 14419, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Tribune Committee Asks Authority for Preference Suits

The creditors’ committee for Tribune Co. filed a motion last week for permission to file additional lawsuits against Sam Zell, JPMorgan Chase Bank NA and what the panel calls “former and likely future owners” of the publisher.

At a Nov. 29 hearing, the committee wants the bankruptcy judge to expand authority given in October to file suits insuring no fraudulent transfer claims will be lost by the expiration of time limits under the statute of limitations in bankruptcy. In the new motion, the committee wants authority to bring additional claims for preferences.

The committee says it will file suits without moving the cases forward since some of the competing Chapter 11 plans will settle the claims.

Four plans are competing to reorganize Tribune. For a discussion of the three plans filed by creditors, click here for the Nov. 1 Bloomberg bankruptcy report. For details on Tribune’s own plan filed, click here for the Oct. 25 Bloomberg bankruptcy report.

Tribune withdrew a prior version of a reorganization in August following the examiner’s report finding a likelihood the second phase of the leveraged buyout in December 2007 could be attacked successfully as a constructively fraudulent transfer. The examiner found less likelihood that the first phase of the transaction in June 2007 could be attacked successfully.

The second part of the buyout entailed the issuance of $2.1 billion on the senior credit and a $1.6 billion bridge loan. For a summary of some of the examiner’s conclusions, click here for the July 27 Bloomberg bankruptcy report. Tribune’s abandoned plan would have forced through a settlement some creditors opposed.

The $13.7 billion leveraged buyout in 2007 was led by Zell.

Tribune is the second-largest newspaper publisher in the U.S. It listed $13 billion in debt for borrowed money and assets of $7.6 billion in the Chapter 11 reorganization begun in December 2008. It owns the Chicago Tribune, Los Angeles Times, six other newspapers and 23 television stations.

The case is In re Tribune Co., 08-13141, U.S. Bankruptcy Court, District Delaware (Wilmington).

Advanta Files Plan Opposed by Creditors’ Committee

Advanta Corp., the holding company for a failed bank, proposed a Chapter 11 plan earlier this month where holders of $140.6 million in unsecured notes could be paid in full while general unsecured creditors, with up to $180.6 million in claims, could see as much as 71.3 percent.

The creditors’ committee isn’t on board with the plan. The hearing for approval of the disclosure statement is set for Dec. 16.

Where Advanta contends the differences with the committee are not “economic” in nature, the creditors’ panel said in a court filing that the plan will depress recoveries.

The committee doesn’t want the plan to contain releases in favor of top managers for conduct after the Chapter 11 filing in November 2009. The committee also believes the plan isn’t structured to avoid a so-called change in control.

The committee points out that a change of control will help validate $51.8 million in benefit and severance claims filed by Chief Executive Dennis Alter and President William Rosoff. The committee filed a motion for permission to perform an investigation as the basis for an objection to the executives’ claims.

Advanta has a motion on file, to be heard in bankruptcy court on Nov. 24, for 60-day extension of the exclusive right to file a plan until March 4.

The disclosure accompanying the plan shows Advanta as having $105.8 million cash. Assets for distribution eventually are projected to increase to $157.8 million to $179.8 million.

Holders of the so-called investment note claims and ready- reserve claims should get between 64.4 percent and full payment on their $140.6 million in claims. The initial distribution to them should be 30 percent, the disclosure statement says.

General unsecured claims against Advanta, estimated to range between $20.8 million and $180.6 million, should see a return between 37.7 percent and 71.3 percent.

Holders of subordinated notes, with $96.5 million in claims, might receive nothing as a consequence of the subordination agreement. In the best case, they’ll take home 29.5 percent.

Creditors of affiliates are treated separately and will receive different recoveries, mostly smaller.

Soon after the Chapter 11 filing in November 2009, Spring House, Pennsylvania-based Advanta said it intended to distribute the last $100 million cash in a manner “that benefits stakeholders fairly.”

Advanta’s bank subsidiary ceased issuing new credit cards and stopped allowing new charges on existing cards in May 2009. It was taken over by regulators in March 2010.

The holding company’s petition listed assets of $363 million against debt totaling $331 million in September 2009. Originally, Advanta listed debt as including $138 million in senior retail investment notes and $89 million in subordinated notes. Debt owing to trade creditors was listed as $5 million.

The case is In re Advanta Corp., 09-13931, U.S. Bankruptcy Court, District of Delaware (Wilmington).

TerreStar Committee Opposing Quick Sale to EchoStar

The newly appointed creditors’ committee for TerreStar Networks Inc. is joining with other creditors in opposition to approval of financing and a so-called plan support agreement which would commit TerreStar to pursue a plan giving control to EchoStar Corp., the largest secured creditor.

The committee said the financing from EchoStar and the so- called PSA are “inequitable to all interested parties except EchoStar.” Noting how the proposed plan would give unsecured creditors a “pittance,” the committee says the agreements would “chill any serious competitive offer” to buy TerreStar while giving “complete control over the entire Chapter 11 process” to EchoStar.

The objections will be hashed out at a hearing in bankruptcy court tomorrow.

TerreStar filed the proposed plan and explanatory disclosure statement earlier this month. Approval of the disclosure statement is set for consideration at a Dec. 12 hearing. To read about objections from other creditors and details on the plan, click here for the Nov. 10 Bloomberg bankruptcy report.

TerreStar, based in Reston, Virginia, provides mobile satellite coverage throughout the U.S. and Canada where traditional mobile networks are unavailable. EchoStar, a television equipment and satellite services company, is offering financing for the Chapter 11 case.

EchoStar, based in Englewood, Colorado, and New York hedge fund Harbinger Capital Partners LLC are TerreStar Corp.’s largest shareholders, according to Bloomberg data.

TerreStar Networks listed assets of $1.4 billion and debt totaling $1.64 billion. In addition to $944 million in 15 percent senior secured pay-in-kind notes and $179 million in 6.5 percent exchangeable pay-in-kind notes, debt includes $86 million on a purchase money credit agreement. The purchase money debt would remain in place under the TerreStar plan.

The case is In re TerreStar Networks Inc., 10-15446, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Madoff Trustee Sues Former Workers for $48 Million

The trustee liquidating Bernard L. Madoff Investment Securities Inc. filed lawsuits last week in bankruptcy court to recover $48 million in fraudulent transfer to four of the firm’s employees. The defendants are Enrica Cotellessa-Pitz, Madoff’s former controller; Daniel Bonventre, former head of operations; and employees Annette Bongiorno and Jo Ann Crupi.

To read Bloomberg coverage of the suits, click here.

The Madoff firm began liquidating in December 2008 with the appointment of a trustee under the Securities Investor Protection Act. Bernard Madoff individually went into an involuntary Chapter 7 liquidation in April 2009. His bankruptcy case was consolidated with the firm’s liquidation. Madoff is serving a 150-year prison sentence following a guilty plea.

The Madoff liquidation case is Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities Inc., 08-01789, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The criminal case is U.S. v. Madoff, 09-cr- 00213, U.S. District Court, Southern District of New York (Manhattan).

Daily Podcast

Ambac, Innkeepers, Madoff, and Pro Se Bankrupts: Audio

The rationale for the settlement between Ambac Financial Group Inc. and the Wisconsin insurance commissioner, the possibility of settlement for Innkeepers USA Trust, a possibly worthless $1 billion judgment won by the trustee for Bernard L. Madoff Investment Securities Inc., and discrimination against individuals who represent themselves are analyzed in the bankruptcy podcast on the Bloomberg terminal and Bloomberglaw.com. To listen, click here.

Briefly Noted

Blockbuster Quarterly Operating Loss is $17.5 Million

Blockbuster Inc., the bankrupt movie-rental chain, reported a $53.5 million net loss for the quarter ended Oct. 3. Sales fell 19 percent from a year earlier to $737 million. The quarterly operating loss widened to $17.5 million from $10.2 million.

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 wouldn’t receive anything.

Blockbuster, based in Dallas, has 5,600 stores, including 3,300 in the U.S., with the remainder abroad. Among the U.S. stores, 3,000 are owned and the rest are franchised.

The petition listed assets of $1.02 billion against debt of $1.47 billion. Blockbuster estimated that 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 of New York (Manhattan).

Watch List

Bain’s Guitar Center ‘Unsustainable,’ Says Moody’s

Guitar Center Holdings Inc., parent company of the largest musical instrument retailer in the U.S., has a “capital structure that is unsustainable over the medium term,” in the judgment of Moody’s Investors Service.

In its Nov. 12 report, Moody’s noted that Guitar Center must begin paying cash interest in April on senior unsecured notes where interest currently is being paid with more notes. Moody’s calculates that the company can’t “fully cover its interest expense through internally generated cash flow.”

Moody’s doesn’t believe Guitar Center can increase sales and profits enough to avoid a “distressed exchange.” The crunch may not come until 2013, when some of the notes must be redeemed in April of that year. The revolving credit expires in October 2013.

Moody’s lowered the corporate rating by one notch to Caa2. The $628 million secured term loan slipped one grade to Caa1.

In early 2007, Guitar Center used a Chapter 11 sale to purchase the assets of Dennis Bamber Inc., also known as The Woodwind & The Brasswind. Guitar Center paid $29.5 million plus $2 million in debt assumption. Bamber had been the third-largest musical instrument retailer in the U.S.

Guitar Center, based in Westlake Village, California, has about $2 billion a year in revenue, Moody’s said. It is controlled by Bain Capital LLC, according to data compiled by Bloomberg.

Downgrade

Terra-Gen’s Coso Geothermal Downgraded to Mid-Junk

Coso Geothermal Power Holdings LLC, a special purpose company that sold and leased back four geothermal projects, lost investment-grade status in August 2009 and was downgraded another three notches on Nov. 12 by Moody’s Investors Service. The pass-through certificates are now rated B1.

Moody’s noted that electric generation for the year ended in September was 26 percent below projections, even after capital improvements made possible from equity investments by the sponsor.

The project has three generation facilities in California with a rated capacity of 302 megawatts and one in Nevada with 17.7 megawatts of so-called nameplate capacity.

Coso is owned by Terra-Gen Power LLC.

Bank Failures

Three Bank Failures Bring Year’s Total to 146

Three bank failures on Nov. 5 in Georgia and Arizona brought the year’s total to 146, six more than the number taken over by regulators in all of 2009.

The failed banks had combined assets of $1 billion and will cost the Federal Deposit Insurance Corp. $204.4 million.

To read Bloomberg coverage, click here.

The 140 bank failures in 2009 were five times more than 2008. The failures in 2009 were the most since 1992, when 179 institutions were taken over by regulators.

Advance Sheets

Interest Rate on Tax Loans Can’t Be Reduced, 5th Circuit Says

The U.S. Court of Appeals in New Orleans came down on the side of lenders who make loans so homeowners can pay real estate taxes.

The opinion on Nov. 11 involved a lender named Tax Ease Funding LP that made an $11,600 loan to a homeowner to pay outstanding real estate taxes. In return the lender received a transfer under Texas law of the taxing authority’s tax lien.

Where the interest rate on the loan from Tax Ease was 14.8 percent, the individuals persuaded the bankruptcy judge to confirm a Chapter 13 plan where the interest rate was reduced to 5 percent.

The lender appealed the reduction of the interest rate and won in the district court. It won again in the 5th Circuit Court of Appeals in New Orleans in an opinion written by Senior Circuit Judge Thomas M. Reavley.

The case turned on Section 511 of the Bankruptcy Code which says that a bankruptcy court cannot alter the interest rate on a “tax claim.”

The bankruptcy judge reasoned that the lender couldn’t have a tax claim because the taxes were paid. Reavley disagreed. Looking at state law, he concluded that the lender still had a claim for taxes. The result could be different in other states.

Reavley held that the Chapter 13 plan had to call for interest at the original contract rate. Chief Circuit Judge Edith H. Jones was on the panel.

The case is Tax Ease Funding LP v. Thompson (In re Kizzee- Jordan), 09-20777, 5th U.S. Circuit Court of Appeals (New Orleans).

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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