Bayou, WaMu, Lehman, Blockbuster, Orleans: Bankruptcy

The decision by Goldman Sachs Execution & Clearing LP to arbitrate rather than submit to a lawsuit in bankruptcy court could have been a $20.6 million mistake as the result of a Nov. 30 decision by U.S. District Judge Jed S. Rakoff in Manhattan.

Goldman Sachs was sued by the creditors’ committee for Bayou Group LLC, a hedge fund that turned out to be a Ponzi scheme. Before fraud was discovered, Bayou kept customer funds in accounts at Goldman Sachs. The broker invoked a provision in the account agreement and had the lawsuit sent to arbitration under the auspices of the Financial Industry Regulatory Authority.

After arbitrators told Goldman Sachs to pay $20.6 million to the Bayou creditors, the broker filed suit in New York federal district court alleging that the award was invalid as the result of “manifest disregard” of controlling law.

Rakoff disagreed and upheld the award.

He said brokers often elect arbitration as a “quick and cheap alternative to litigation.” He noted how arbitrators are not required to give reasons for their awards and their decisions are “essentially unappealable.” Because Goldman Sachs “voluntarily” chose arbitration, Rakoff said it must “suffer the consequences.”

Looking at the evidence in arbitration, Rakoff said the arbitrators implicitly found that Goldman Sachs “failed to engage in the diligent investigation that would have revealed Bayou’s fraud.”

The judge said the arbitration award must stand because Goldman Sachs hadn’t shown “egregious misconduct” by the arbitrators. He also concluded that the arbitrators had not “intentionally and erroneously disregarded clear and plainly applicable law.”

The Chapter 11 plan for Bayou was approved by a confirmation order in December 2009. The money initially distributed under the plan represented recoveries of payments to investors before the fraud was discovered. The bankruptcy judge ruled that everyone, even those who had no idea a fraud was being conducted, were obliged by fraudulent transfer law to give back fictitious profits. He also decreed that investors who were able to recover principal must give it back too if they had seen “red flags” indicating a fraud was being conducted.

When the Bayou fund was operating, the broker was named Spear Leeds & Kellogg LP. It was acquired by Goldman Sachs Group Inc. and renamed.

After evidence came to light indicating Bayou was being operated as a Ponzi scheme, a federal district judge in White Plains, New York, appointed a receiver for Bayou in April 2006. The receiver continued running Bayou during the Chapter 11 proceeding.

The Bayou fraud resulted in three guilty pleas. Daniel Marino, the head of finance, was sentence to a 20-year prison term despite his cooperation with prosecutors. James Marquez, a Bayou co-founder, was sentenced to four years and three months in prison and told to pay $6.2 million in restitution. Another founder, Samuel Israel III, was sentenced to 20 years following his guilty plea in September 2005.

Israel faked suicide immediately before he was to begin serving his sentence. He was captured and sent to prison.

The opinion by Rakoff is Goldman Sachs Execution & Clearing LP v. Official Unsecured Creditors’ Committee of Bayou Group LP, 10-5622, U.S. District Court, Southern District of New York (Manhattan). The Chapter 11 case is In re Bayou Group LLC, 6-22306, U.S. Bankruptcy Court, Southern District of New York (White Plains).

Updates

Preliminary Round in WaMu Confirmation Held Yesterday

The process of confirming the reorganization plan for Washington Mutual Inc. began yesterday with a hearing on a motion for summary judgment on a complaint filed in July by a group of funds that purchased $1 billion of trust preferred securities issued by the bank holding company.

The judge said she would rule when she decides whether to confirm the Chapter 11 plan. The confirmation hearing proper begins today.

The plaintiffs contend in their complaint that they remain the owners of collateralized securities. The judge should rule, they say, that the trust preferred securities were never properly converted into equity immediately before WaMu’s bank was taken over by regulators and sold. WaMu argues that the exchange happened automatically, without need for exchanging paper securities.

Plaintiffs in the suit include funds affiliated with Black Horse Capital Advisors LP, Greywolf Capital Partners, Lonestar Partners LP, Riva Ridge Capital Management LP, and Whitebox Advisors LLC. They believe there was collusion between WaMu and the Office of Thrift Supervision that voids the conversion of the trust preferred securities into equity.

The plaintiffs contend there was an undisclosed agreement to downstream the trust preferred securities to the failing bank rather than retain them at the holding company level. The holders of the securities believe that their theory combined with success by the WaMu holding company in other lawsuits would result in full payment to WaMu’s creditors. For other Bloomberg coverage of yesterday’s hearing, click here.

To confirm the plan, the bankruptcy judge must also approve settlements with the Federal Deposit Insurance Corp. and JPMorgan Chase & Co. The examiner concluded in his Nov. 1 report that the plan “reasonably resolves contentious issues.” Confirmation will also require the judge to use the so-called cramdown process on six classes of creditors that voted “no” on the plan. Four classes voted “yes,” including senior notes, senior subordinated notes, general unsecured creditors, and senior notes for the bank subsidiary.

WaMu’s revised plan is designed to distribute over $7 billion to creditors. For a summary of changes WaMu made to its plan in October, click here for the Oct. 7 Bloomberg bankruptcy report. To read about the settlement before it was modified, click here for the May 24 Bloomberg bankruptcy report. Click here to read the May 18 Bloomberg bankruptcy report for a summary of WaMu’s plan.

The WaMu holding company filed under Chapter 11 in September 2008, one day after the bank subsidiary was taken over. The bank, which had been the sixth-largest depository and credit-card issuer in the U.S., was the largest bank failure in the country’s history. The holding company filed formal lists of assets and debt showing property with a total value of $4.49 billion against liabilities of $7.83 billion.

The holding company Chapter 11 case is In re Washington Mutual Inc., 08-12229, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Blockbuster Loses $36.5 Million and Closes 18 Stores

Blockbuster Inc., the movie rental chain, reported a $36.5 million net loss from the beginning of the bankruptcy reorganization on Sept. 23 through the end of October. Revenue in the period was $177.8 million.

Blockbuster announced that it’s closing 18 more stores in 13 states.

Since the Chapter 11 filing, the operating loss through the end of October was $21.4 million. However, operating activities generated $21.2 million in positive cash flow, according to the cash flow statement accompanying the report.

Reorganization items of $11.8 million contributed to the net loss.

The current schedule has Blockbuster filing the Chapter 11 plan by Dec. 15. Before entering bankruptcy, Blockbuster negotiated a plan with holders of 80 percent of the $630 million in 11.75 percent senior-secured notes. The plan would give them the new stock. General unsecured creditors would have warrants for 3 percent of the stock. Holders of the $300 million in 9 percent subordinated notes would receive nothing.

Dallas-based Blockbuster 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 while the rest are franchised.

The petition listed assets of $1.017 billion against 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 of New York (Manhattan).

JPMorgan Counterclaims in Lehman Brothers Suit

JPMorgan Chase Bank NA filed counterclaims for $8.6 billion plus damages yesterday in a lawsuit begun in May by Lehman Brothers Holdings Inc. and its creditors’ committee.

Lehman’s complaint accused the bank of stripping “a faltering Lehman Brothers of desperately needed cash” in the days and weeks before the commencement of Lehman’s bankruptcy in September 2008.

JPMorgan countered by contending it was stuck with unpaid loans among the $70 billion it advanced to the brokerage subsidiary after the Lehman parent went bankrupt. JPMorgan was Lehman’s clearing bank. Lehman contends the bank used the inside information it gained in the course of business to “leapfrog” other creditors, “not just for clearing obligations, but for any and all possible obligations” owing by Lehman and its subsidiaries.

For Bloomberg coverage of the JPMorgan counterclaim, 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 of New York (Manhattan).

St. Vincent Hiring CB Richard Ellis to Arrange Sale

St. Vincent Catholic Medical Centers, a shuttered 727-bed acute-care hospital in Manhattan’s Greenwich Village, has begun the process in earnest of selling what it refers to as the Manhattan hospital campus.

In a motion filed in bankruptcy court yesterday, the hospital is seeking authorization to hire CB Richard Ellis Inc. as its real estate adviser to assist in a sale.

After the prior bankruptcy and before the new one, the hospital was working a project with the Rudin family where a smaller hospital would be built and existing buildings would be redeveloped into residential properties.

The current Chapter 11 case is St. Vincent’s second. This one is a liquidation. The new petition in April listed assets of $348 million and debt totaling $1.09 billion. The hospital ended the prior reorganization in July 2007 with a Chapter 11 plan claimed at the time to have a “a realistic chance” of paying all creditors in full. The prior reorganization left the medical center with more than $1 billion in debt. When the first bankruptcy started in July 2005, St. Vincent had seven operating hospitals. Five were sold.

The main facility has 941,000 square feet in 10 buildings. The not-for-profit hospital is sponsored by the Catholic Diocese of Brooklyn and the Sisters of Charity. It was founded in the mid-19th century.

The new case is In re Saint Vincent Catholic Medical Centers of New York, 10-11963, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The prior case was In re Saint Vincent Catholic Medical Centers of New York, 05-14945, in the same court.

Workflow Given December 10 Deadline for Plan Filing

First- and second-lien lenders made some progress at a Nov. 30 hearing in ousting Workflow Management Inc. from control of the reorganization of its business of providing promotional marketing services and printed business documents.

Credit Suisse AG, Cayman Islands Branch, as agent for the first-lien lenders, and Silver Point Finance LLC, agent for the second-lien lenders both sought to end Workflow’s exclusive right to propose a reorganization plan. Although the bankruptcy judge in Norfolk, Virginia, denied the motion to end exclusivity, he gave Workflow a Dec. 10 deadline for filing a revised plan.

The judge will take up the exclusivity issue again at a Dec. 15 hearing, according to court records. The judge also continued the use of cash until the next hearing on Dec. 15, which previously was set to be the date for a hearing to approve a disclosure statement.

The lenders contended that Workflow’s reorganization is fatally defective and time shouldn’t be wasted waiting for the company’s plan to fail. They believe the business is worth less than secured debt.

Workflow contends its plan would pay all creditors in full over time while allowing stockholders to retain the equity. Both lender groups believe Workflow’s plan would leave the company insolvent and saddled with more debt than before. They also believe the new debt they are being offered is worth less than the face amount.

For details on the Workflow plan, click here for the Nov. 12 Bloomberg bankruptcy report.

Dayton, Ohio-based Workflow said initially that it owed $146.5 million on first-lien debt, including $30.2 million on a revolving credit, and $111.5 million on a term loan. The second- lien debt was $196.5 million at the outset, papers said.

With 49 offices, 17 distribution centers and 9 plants, Workflow had about $600 million revenue in 2009.

The case is Workflow Management Inc., 10-74617, U.S. Bankruptcy Court, Eastern District of Virginia (Norfolk).

Lehman Has Demands on Interest Swap with Congregation

Lehman Brothers Holdings Inc. says that Congregation Machne Chaim has ignored a subpoena for six months to turn over financial information pertaining to an interest rate swap where Lehman says it’s “in the money” by $1.9 million.

At a hearing on Dec. 15, Lehman will ask the bankruptcy judge to compel the congregation to turn over documents demanded by the subpoena. Lehman says the congregation has made no payments on the swap since June 2008.

Located in Brooklyn, the congregation is also known as Bais Sarah Education Center for Girls. Lehman wants to know if the congregation has funds to make good on the swap liability.

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 of New York (Manhattan).

Dreier Firm Filing 50 Preference Suits for $4 Million

The trustee for the law firm that bore the name of convicted swindler Marc Dreier filed upwards of 50 preference lawsuits to recover up to $4 million, according to Joseph L. Steinfeld, a lawyer for the trustee.

Steinfeld is with the law firm Ask Financial LLP, which specializes in helping trustees and bankrupt companies recover preferences. A preference is a payment within 90 days of bankruptcy on account of an overdue unsecured debt. There are several defenses or offsets that can reduce or eliminate liability on a preference.

There is a two-year window after bankruptcy for filing preference suits. In the case of Dreier LLP, the deadline is Dec. 16.

Dreier himself pleaded guilty in May 2009 to charges of money laundering, conspiracy, securities fraud and wire fraud in a scheme that cost victims $400 million, prosecutors alleged. He was also ordered to make $387 million in restitution.

The firm he founded once had 250 lawyers. It is being liquidated in a Chapter 11 case begun in December 2008. Dreier himself is in a Chapter 7 liquidation where a trustee was appointed automatically.

Dreier’s individual Chapter 7 case is 09-10371, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The Chapter 11 case for the firm is In re Dreier LLP, 08-15051, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The criminal case is U.S. v. Dreier, 08-mag-2676, U.S. District Court, Southern District of New York (Manhattan). The civil case is SEC v. Dreier, 08-cv-10617, U.S. District Court, Southern District of New York (Manhattan).

U.S. Government Objects to Point Blank Sale Timing

The U.S. government, which claims to be the largest customer of Point Blank Solutions Inc., argues in a court filing that the timetable for auctioning the assets is backward. Point Blank makes soft body armor for the military and law enforcement.

At a hearing now set for tomorrow, Point Blank wants the judge to authorize an auction on Dec. 15. No one as yet is under contract.

The government complains that it would be required to object to the assignment of its contracts by Dec. 14, although by that time it won’t know who’s to be the buyer of the business.

Point Blank wants to have a $14 million minimum bid at auction.

The official shareholders’ committee is also objecting, contending it has put together a backstopped and funded reorganization plan superior to a sale.

Based in Pompano Beach, Florida, Point Blank has two plants. 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).

Investors Objecting to Sale of Adviser GSC Group

GSC Group Inc., which calls itself a “diversified alternative investment manager,” will present U.S. Bankruptcy Judge Arthur J. Gonzalez with a difficult question to answer at a Dec. 6 hearing for approval of the sale of the business to Black Diamond Capital Finance LLC. Black Diamond, whose funds hold a majority of the $206.6 million owing to secured lenders, won the auction with a bid of $235 million.

According to objections from several investors in funds managed by GSC, the business provides personal services which can’t be sold or assigned in bankruptcy without consent from parties receiving the services. The objectors contend that silence can’t be equated with consent, given the difficulty of contacting investors who have the actual economic interest in the money being managed by GSC.

GSC filed under Chapter 11 at the end of August and held the auction at the end of October. The bankruptcy judge allowed Black Diamond to bid the secured claim rather than cash. Black Diamond is also agent for the lenders.

For other Bloomberg coverage, click here.

Originally named Greenwich Street Capital Partners Inc. when it was a subsidiary of Travelers Group Inc., GSC became independent in 1998 and at one time had $28 billion of assets under management. Market reverses, termination of some funds, and withdrawal of customer’s investments reduced funds under management at the time of bankruptcy to $8.4 billion.

Based in Florham Park, New Jersey, GSC listed assets of $119.8 million against debt totaling $313.6 million.

GSC also owes $10.2 million to Calyon New York Branch on an interest rate swap agreement.

The case is In re GSC Group Inc., 10-14653, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Homebuilder Orleans Confirms Reorganization Plan

Orleans Homebuilders Inc. has an approved reorganization plan given the signature of the bankruptcy judge on a confirmation order yesterday.

The plan gives stock and new secured debt to revolving credit lenders owed $234 million. Unsecured creditors are to receive recoveries from lawsuits and a share in proceeds from sales of properties after secured debt is paid.

The disclosure statement estimated that the revolving credit lenders will recover between 67 percent and 87 percent. Unsecured creditors should see between 3.4 percent and 5.25 percent for voting “yes.” Orleans said in a statement that it intends on implementing the plan and emerging from Chapter 11 this month.

The plan reduces debt from more than $400 million to less than $200 million, the company said in a statement. Orleans negotiated the plan with holders of more than 80 percent of the secured debt. Orleans builds homes and condominiums in seven states.

The Chapter 11 filing in March by Bensalem, Pennsylvania- based Orleans followed maturity of the revolving credit the month before. 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).

Rock US Confirms Plan for Madison Ave. Building Sale

The second of the U.S. subsidiaries of Rock Joint Ventures Ltd. confirmed its reorganization plan on Nov. 29, 20 days after the first company won approval of its plan.

The second plan dealt with the property on Madison Avenue in Manhattan. Previously, a plan was confirmed to provide for the sale of the building on Fifth Avenue in Manhattan. The companies filed under Chapter 11 on Sept. 15 aiming for quick confirmation of a reorganization plan selling the two buildings for a combined $168.7 million. The buildings are 100-104 Fifth Ave. and 183 Madison Ave.

The plan was accepted before the Chapter 11 filing by Bank of Scotland Plc, the agent for the senior and subordinated secured lenders. The lenders are owed $267 million on the senior debt and $26 million on the subordinated obligation. The plan assumed that no creditors aside from the senior lenders would receive anything.

The original offer for the Fifth Ave. property was $93.5 million and $75.2 million for the building on Madison Ave. The price for the Fifth Ave. property didn’t budge. For the Madison Ave. property, the price increased to $85.1 million.

If both plans were confirmed at the original prices, the plan would have given senior lenders a 63.2 percent recovery. The deficiency claim was to be treated as an unsecured claim receiving nothing. A court filing said there was another $381,000 in unsecured claims.

The parent is in administration in the U.K. The administrators control the U.S. companies that filed in Chapter 11.

The case is In re Rock US Holdings Inc., 10-12892, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Secured Lender Has Plan for Fiddler’s Creek Project

Fiddler’s Creek LLC, the developer of a master-planned community in Naples, Florida, has had long enough to formulate a Chapter 11 plan, according to Colonnade Naples Land LLC, a secured lender owed $52.6 million.

Colonnade scheduled a preliminary hearing on Dec. 16 where it will ask the bankruptcy judge in Tampa, Florida, to end Fiddler’s Creek’s exclusive right to propose a reorganization. Colonnade attached a plan of its own as an exhibit to the motion to end exclusivity.

Colonnade called Fiddler’s a “horizontal fractured real estate project.” It said there is “nothing unique or special” to distinguish the Fiddler’s case from the “fractured condominiums that have permeated the docket of this court and courts throughout the nation during the last two years.”

There is $98 million in other secured debt, Colonnade said.

The creditor said Fiddler’s is generating almost no income while consuming $6.5 million in secured financing provided by an affiliate which was given a lien prior to existing debt. Colonnade said there were no “meaningful discussions” about a Chapter 11 plan.

Fiddler’s filed for bankruptcy reorganization in February, saying assets and debt both exceed $100 million. At completion, the project is to have 100 communities situated on nearly 4,000 acres.

The case is being heard by U.S. Bankruptcy Judge Alexander L. Paskay, who has been on the bankruptcy bench since 1963.

The case is In re Fiddler’s Creek LLC, 10-03846, U.S. Bankruptcy Court, Middle District of Florida (Fort Myers).

NutraCea Emerges from Reorg with Full-Payment Plan

NutraCea, a processor of byproducts from rice milling, emerged from Chapter 11 on Nov. 30 by implementing the reorganization plan that the bankruptcy court in Phoenix approved in a confirmation order in October.

The company sold a non-core facility in Phoenix for $4.5 million and paid off remaining secured debt. The plan is designed ultimately to pay all unsecured creditors in full with interest. The distribution to unsecured creditors will be about $6.2 million.

NutraCea filed under Chapter 11 in November 2009, listing assets of $83.7 million and debt totaling $18.9 million. NutraCea developed processes for converting raw rice bran into stabilized rice bran for use in food and feed products.

The case is In re NutraCea, 09-28817, U.S. Bankruptcy Court, District of Arizona (Phoenix).

Majestic Star’s Exclusivity Extended to Jan. 15

Majestic Star Casino LLC surmounted opposition from the official creditors’ committee and received an extension until Jan. 15 of the exclusive right to propose a reorganization plan.

The casino operator filed a Chapter 11 plan in September and had been scheduled for approval of the disclosure statement this week. The hearing was postponed to a date to be determined. For details on the plan, click here for the Sept. 21 Bloomberg bankruptcy report.

Majestic Star has four casinos, plus hotels with 806 rooms serving the two riverboat casinos in Gary, Indiana. The other casinos are in Tunica, Mississippi, and Black Hawk, Colorado. Majestic Star’s financial condition suffered when convenient access by customers from Chicago to the Indiana properties was cut off by the indefinite closing of a bridge for structural repairs.

When Chapter 11 case began, Majestic Star’s debt was listed as including $79.3 million on the senior secured credit facility, with Wells Fargo Capital Finance Inc. as agent. Senior secured noteholders had a second lien for a $300 million debt. Majestic Star owed $200 million on unsecured senior notes and $63.5 million on discount notes. Assets were listed $406 million and debt was $750 million in the quarterly report for the period ended June 30, 2009.

The case is In re Majestic Star Casino LLC, 09-14136, U.S. Bankruptcy Court, District of Delaware (Wilmington).

NYC OTB Fate in Hands of New York Legislature

Off-Track Betting Corp. is poised either to reorganize or go out of business this week, depending on whether a special session of the New York legislature adopts enabling legislation. Absent approval, NYC OTB said it would close down this week for lack of cash.

Assuming the legislature acts, the bankruptcy judge yesterday signed an order approving a disclosure statement explaining the Chapter 9 municipal reorganization plan. NYC OTB said it wouldn’t solicit creditors’ votes unless the legislation proposed by outgoing New York Governor David Paterson passes.

To read Bloomberg coverage, click here.

The bankruptcy judge ruled in March that NYC OTC is eligible to reorganize in Chapter 9. The petition, filed in December 2009, said assets are less than $50 million while debt exceeds $100 million. Liabilities include $8 million in governmental statutory claims, $43.7 million owing to the racing industry, and $6.3 million in claims held by general unsecured creditors. There is almost no secured debt.

The case is In re New York City Off-Track Betting Corp., 09-17121, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Statistics

Junk Debt Maturing Sooner Than Stated Dates: Moody’s

Corporate debt maturities could increase substantially between 2011 and 2013, Moody’s Investors Service said in a report this week on what it calls the pull-forward effect.

Moody’s said that the stated maturities on bank debt owing by junk-rated companies is $117 billion from the years 2011 through 2013. The pull-forward effect will increase the maturities by almost $100 billion, to $215 billion, Moody’s said.

The pull-forward effect arises when a lender provides two or more credits, such as revolving credit and a term loan. If the revolving credit has a stated maturity of 2012 and the maturity of the term loan is 2013, the loan documents may provide that the later-maturing debt also must be refinanced at the earlier date. The same effect can occur when a loan agreement provides that the obligation will mature earlier if an unrelated debt isn’t refinanced.

Moody’s projects that the pull-forward effect will move $100 billion of 2014 maturities into prior years. The earlier maturities will represent 70 percent of the debt that otherwise would mature in 2014, Moody’s said.

Downgrade

TPG’s Axcan Pharmaceutical Downgraded to B2 Corporate

Axcan Intermediate Holdings Inc., a pharmaceutical company specializing in gastroenterology, received a downgrade yesterday from Moody’s Investors Service for itself and subsidiaries.

The corporate rating went down one notch to B2 while the $235 million in 12.75 percent senior unsecured notes due 2016 became Caa1.

Moody’s based its action two factors. Axcan, based in Quebec, began a tender offer to acquire Eurand NV for $583 million, and the Food & Drug Administration delayed approval of Ultrase and Viokase.

Revenue for a year ended in June was about $371 million, Moody’s said.

Axcan is controlled by TPG Capital.

Advance Sheets

Plaintiff Not Punished for Messenger Error in Filing

If a messenger service delivers a complaint to the wrong courthouse through no fault of the law firm, missing the filing deadline isn’t fatal, in the opinion of U.S. District Judge William J. Martini from Newark, New Jersey.

The case involved a complaint objecting to the discharge of a debt in bankruptcy. The plaintiff’s law firm gave the complaint to a messenger service in an envelope showing the correct address for the bankruptcy court. The messenger mistakenly delivered the complaint to the state courthouse instead. The state court clerk forwarded the complaint to the bankruptcy court where it arrived a few days after the deadline.

The bankruptcy judge dismissed the complaint, saying it was untimely.

On appeal, Martini reversed in his Nov. 30 opinion, relying on a doctrine called equitable tolling. He said the doctrine was applicable because the plaintiff “in some extraordinary way, has been prevented from asserting his rights.”

The case is Saddle River Valley Bank v. Garsia, 10-1922, U.S. District Court, District of New Jersey (Newark).

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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