Madoff, Tribune, Oriental Trading, Lehman, Orleans: Bankruptcy

The trustee liquidating Bernard L. Madoff Investment Securities Inc. sued UBS AG, alleging that the Zurich-based investment bank “actively assisted” in the Madoff fraud by sponsoring international feeder funds. The complaint alleges that UBS continued participating with Madoff even though its “due diligence” turned up “indicia of fraud,” the Madoff trustee said in a statement.

Many factual allegations in the complaint are filed under seal, the Madoff trustee said, because UBS believes information it turned over is confidential. The trustee is asking the bankruptcy court to make the entire complaint public. For other Bloomberg coverage, click here.

The Madoff trustee said he is seeking to recover $2 billion in 23 counts of financial fraud for “collaboration” with Madoff. Without UBS, the trustee said Madoff would have had $1 billion less in customer funds.

UBS said the suit is “completely unfounded.” For details on the UBS response, 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 New York (Manhattan). The criminal case is U.S. v. Madoff, 09-cr- 00213, U.S. District Court, Southern District of New York Manhattan).

Updates

Tribune Has $35 Million Profit, Cash is $1.7 Billion

Publisher Tribune Co. reported a $35 million net profit for the month ended Oct. 24. The creditors’ committee was authorized to file an unredacted version of the Nov. 1 complaint to set aside fraudulent transfers resulting from the leveraged buyout in December 2007.

Tribune’s profit in October stemmed from revenue of $255.4 million. Operating income was $45.8 million. For the month, depreciation expense was $12 million and reorganization costs were $6.5 million.

Tribune ended the month with $1.729 billion cash, an increase of $77 million from the prior month.

When the committee originally filed its complaint, many of the facts were deleted because they were obtained under confidentiality agreements. This week, the judge authorized filing the entire complaint publicly.

Depending on which of four competing Chapter 11 plans is ultimately confirmed, the claims in the lawsuit will be waived. Consequently, the committee won’t be moving the lawsuit forward for the time being. The committee filed other lawsuits. One is for preferences to insiders and another would recover preferences from Tribune’s pre-bankruptcy professionals. All of the suits are on hold.

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, click here for the Oct. 25 Bloomberg bankruptcy report. The hearing to approve disclosure materials is set for Nov. 29.

The plans differ in how to deal with disputes arising from fraudulent transfer claims resulting from the $13.7 billion leveraged buyout in 2007 led by Sam Zell. For a summary of some of the examiner’s conclusions about possible defects and fraudulent transfers in the LBO, click here for the July 27 Bloomberg bankruptcy report.

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 of Delaware (Wilmington).

Oriental Trading Second Lien Settles to Support Plan

Oriental Trading Co., a direct marketer of home decor products, toys and novelties, should have smoother sailing at the Dec. 16 confirmation hearing now that the first- and second- lien lenders reached settlement on the Chapter 11 plan.

Originally, second-lien lenders were to receive only warrants for 2.5 percent of the stock with a strike price based on an enterprise value of $427.5 million. Assuming the second- lien lenders as a class vote for the plan, they will instead receive five-year warrants for 5 percent of the stock based on a $422 million enterprise value. They will also receive five-year warrants for 4.5 percent based on a $447 million enterprise value.

If the second-lien lenders vote “no,” their treatment reverts to what it would have been under the prior plan. In addition, a “yes” vote gets them $750,000 to apply toward reimbursement of counsel fees and expenses.

The amended plan requires re-solicitation of votes by the classes composed of first- and second-lien lenders and unsecured creditors. A ballot already cast remains the same unless the creditor changes the vote.

The plan gives the new stock plus cash or a new $200 million second-lien note to senior lenders owed $403 million. As the result of another 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. The plan was negotiated with the first-lien lenders before the Aug. 25 bankruptcy filing.

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. Although OTC sought a purchaser, no offer was enough to pay first-lien debt in full.

At the filing date, $180 million plus interest was owing 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. Wilmington Trust FSB is agent on the second-lien credit. Wachovia Bank NA serves as agent for the mezzanine debt.

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

FGIC Plan Up in the Air Over Insurance Subsidiary’s Troubles

The fate of FGIC Corp. and its reorganization plan are up in the air as a consequence of the failure of an exchange offer by the subsidiary Financial Guaranty Insurance Co., a bond insurer.

FGIC said in a bankruptcy court filing that the subsidiary may be taken over by New York insurance regulators. The previously negotiated plan may not work as a result.

FGIC’s assets consist of $11.3 million cash and the ability of the reorganized company to utilize a $4 billion net operating loss carryforward. The contemplated plan called for splitting up the cash and stock among lenders on the $46 million revolving credit and the $345 million unsecured notes. The holders of 90 percent of the common stock had agreed to go along with the plan and waive their $7.2 million unsecured claim.

In view of the uncertainty regarding a plan, the Nov. 23 hearing that had been set to approve a disclosure statement was pushed back to Dec. 14. FGIC also obtained an extension until Feb. 1 of the exclusive right to propose a Chapter 11 plan.

FGIC’s petition in early August listed $11.5 million in assets and $391.5 million in debt. Wilmington Trust FSB is trustee for the bondholders and JPMorgan Chase Bank is agent for the lenders.

The case is In re FGIC Corp., 10-14215, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Lehman Selling Heritage Fields Debt Again

Lehman Brothers Holdings Inc. filed a new motion for approval to sell the debt it holds against the Heritage Fields master planned community in Irvine, California. The purchaser, an affiliate of State Street Corp., will pay $125 million plus repayment of a $32 million participation interest.

Lehman filed a motion in June to sell the debt to State Street. Lehman withdrew the motion in September.

Heritage Fields is a 3,723-acre project. If the sale goes through this time, Lehman also is entitled to receive contingent payments. For Bloomberg coverage, click here.

The Lehman holding company filed under Chapter 11 in New York on Sept. 15, 2008, and sold office buildings and the North American investment banking business to London-based Barclays 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 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).

Orleans Homebuilders Haggling over Loan Terms

Homebuilder Orleans Homebuilders Inc., which is currently scheduled for approval of the reorganization plan at a Nov. 30 hearing, is haggling with lenders over details in financing to support an exit from Chapter 11.

The bankruptcy court previously authorized Orleans to accept $155 million in exit financing to be provided by JPMorgan Chase Bank NA, as administrative agent for lenders. The financing is to be composed of a $30 million revolving credit and a $125 million term loan. Click here to read Bloomberg coverage about the terms under discussion with the lenders.

For a summary of the Orleans plan, click here for the Nov. 8 Bloomberg bankruptcy report.

Bensalem, Pennsylvania-based Orleans builds homes and condominiums in seven states. The Chapter 11 filing in March followed maturity of the revolving credit the prior month. Approximately $325 million was owing to the banks at maturity, not including $15 million on letters of credit. The March 31 balance sheet listed assets of $591 million against total liabilities of $560 million.

The case is In re Orleans Homebuilders Inc., 10-10684, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Point Blank Arranging Auction, Minimum $14 Million

Point Blank Solutions Inc., a manufacturer of soft body armor for the military and law enforcement, intends on holding an auction for the business on Dec. 15 to comply with the dictates of financing for the Chapter 11 case begun in April.

Although Point Blank has letters of intent from six potential buyers, no one is yet under contract. The bankruptcy court scheduled a Dec. 1 hearing to approve procedures for auction and sale.

The price cannot be less than $14 million, Point Blank’s court papers say. The company wants bids by Dec. 13, followed by a Dec. 15 auction and a Dec. 17 hearing to approve the sale. The financing agreement requires completion of the sale by the year’s end.

The official shareholders’ committee earlier this month said it had a “fully funded plan of reorganization” that would serve creditors better than a sale of the business. The stockholders’ panel also said it had a “fully funded alternative financing facility” to take over if existing lenders don’t extend their loan beyond the year’s end.

In the papers setting up the auction, Point Blank said the committee hadn’t shown committed financing.

Point Blank said that proposals to sponsor a Chapter 11 plan will be accepted at the auction.

Point Blank has a plant and head office in Pompano Beach, Florida. A second plant is in Jacksboro, Tennessee. Revenue in 2009 exceeded $153 million. The former chief executive and chief operating officer of Point Blank were convicted in September of orchestrating a $185 million fraud.

The Chapter 11 petition in April listed assets of $64 million against debt totaling $68.5 million. Debt included a $10.5 million secured loan paid off by financing for the Chapter 11 case. Point Blank said it also owes $28.2 million to trade suppliers.

The case is In re Point Blank Solutions Inc., 10-11255, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Almatis Junior Lenders Can’t Have Confidential Info

Some of the junior lenders to Almatis BV were precluded by the bankruptcy judge from having their new lawyers gain access to confidential materials produced in litigation during in the Chapter 11 case. The Almatis reorganization plan was confirmed and implemented in September.

Some of the junior lenders hired Herrick Feinstein LLP as their new lawyers. The Nov. 24 opinion by U.S. Bankruptcy Judge Martin Glenn says it was “quite clear” that the information was being sought to lay the groundwork for a lawsuit against the senior lenders. Glenn’s opinion notes that the confirmed plan does not prohibit the lenders from suing one another after bankruptcy.

Glenn said it would be a misuse of the bankruptcy process to turn over the information. The Chapter 11 case is essentially over, and the information can’t be used for any purpose in the bankruptcy case.

Glenn said the junior lenders can sue and use discovery rights in a new lawsuit to gain access to the same materials.

Almatis is a producer of specialty alumina products. The plan was based on a settlement between junior lenders and Oaktree Capital Management LLC, a first-lien lender that originally intended to assume ownership. Oaktree objected to turning over the confidential materials.

The plan as ultimately confirmed gave Oaktree full payment with interest at the default rate. Other holders of the $676 million in first-lien debt receive the same treatment. For details on the plan, click here and here for the Aug. 27 and July 26 Bloomberg bankruptcy reports.

Rotterdam-based Almatis listed total debt of $1.3 billion, including $681 million on first-lien obligations, $77.7 million on second-lien debt, and $200.6 million on mezzanine debt. There is junior mezzanine debt of $80.6 million, plus trade debt of $20 million. Assets were listed for $1.53 billion.

The case is In re Almatis BV, 10-12308, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

American Safety Razor Completes Sale to Energizer

American Safety Razor Co. completed the $301 million sale of the assets on Nov. 23 to Energizer Holdings Inc., the maker of Schick shavers, the buyer said in a statement. Energizer won the auction on Oct. 8, beating out the original bid from secured lenders who offered to buy the business in exchange for the $244.4 million they were owed on a first-lien revolving credit and term loan.

ASR originally turned down the offer from Energizer, contending that a sale would never close given the possibility of objection from federal antitrust regulators. At a hearing on Sept. 30, U.S. Bankruptcy Judge Mary F. Walrath overruled ASR’s decision and required holding another auction where Energizer could bid. As it turned out, Energizer received necessary antitrust waivers.

Energizer was required to complete the acquisition by Nov. 23 or the lenders would have taken ownership in exchange for debt. Second-lien creditors, owed $178.1 million, had urged Walrath to hold the second auction where Energizer could bid.

ASR filed under Chapter 11 in July, saying at the time that it would give second-lien creditors an opportunity to arrange a sale at a price more favorable than swapping the business for the first-lien debt. The topping bid from Energizer “validates that there was value in the lenders’ strategy,” Jesse Austin, a lawyer from Paul Hastings Janofsky & Walker LLP, said in an e- mailed statement. Paul Hastings represented the investment bankers for the first-lien lenders.

Mezzanine lenders are owed $60 million. The agent for the first-lien lenders is UBS AG.

Cedar Knolls, New Jersey-based ASR had revenue of $330 million in 2009. It had U.S. plants in Virginia and Tennessee. Affiliates abroad aren’t in bankruptcy. It was acquired for $625 million in July 2006 by London-based Lion Capital LLP.

ASR has the largest market share for private-label blades, although only 8 percent when branded goods are included, according to Moody’s Investors Service.

The case is In re American Safety Razor Co., 10-12351, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Reorganized MGM’s Board, Governance Rules Disclosed

Metro-Goldwyn-Mayer Inc. disclosed the identity of most of the members of the board of directors to take office when the prepackaged Chapter 11 plan is confirmed and implemented. To read about the board members, click here for Bloomberg coverage.

The papers filed in bankruptcy court on Nov. 23 also included revised corporate governance documents that were important in reaching settlement with Carl Icahn, who can designate a board member.

MGM started the court reorganization on Nov. 3 and is scheduled for approval of the plan at a Dec. 2 confirmation hearing. Creditors voted before the Chapter 11 petition was filed.

The plan swaps $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).

Daily Podcast

Big Decision for Servicers, Texas Rangers Transcript: Audio

An important decision stopping servicers from suing on mortgage notes, the unsealed transcript of a chambers conference in the Texas Rangers reorganization, and more than 1,000 pages of briefs to wrap up the trial by Lehman Brothers Holdings Inc. against Barclays Plc are topics analyzed in the bankruptcy podcast on the Bloomberg terminal and Bloomberglaw.com. To listen, click here.

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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