Trico, Vitro, Madoff, WaMu, Old GM, OTB: Bankruptcy

Trico Marine Services Inc., a provider of support vessels for the offshore oil and natural-gas industry, filed a motion on Dec. 6 seeking approval of a settlement with holders of high-yield secured notes issued by operating companies not in bankruptcy.

If the settlement goes through, holders of the $400 million in 11.875 percent notes will end up owning the non-bankrupt subsidiaries that provide subsea services.

The parent company, in return, would take back five-year warrants for 5 percent of the subsidiaries’ stock. The warrants would have a strike price related to full payment on the high- yield debt. The settlement would absolve the parent of liability for guarantees on the subsidiaries’ debt.

As originally announced in November, Trico Marine reached an agreement with holders of 83 percent of the 11.875 percent senior secured notes due 2014 that were issued by the subsidiary Trico Shipping AS. The parent guaranteed the debt. The agreement calls for the noteholders to swap their debt for equity in Trico Supply AS, which owns other non-bankrupt operating companies.

The Trico Supply side of the arrangement is to be completed through an out-of-court exchange offer. If there aren’t enough tenders, the debt-for-equity swap will be accomplished by a prepackaged Chapter 11 filing by Trico Supply.

If the settlement isn’t approved, Trico Supply would go into Chapter 11 and sell the business. Holders of the high-yield notes would bid their secured debt rather than cash. In that event, Trico Marine says the price would be less than the debt, so the parent would receive nothing.

The settlement wouldn’t require the parent’s creditors’ committee to drop fraudulent transfer claims against the subsidiaries. The committee has a motion pending for permission to sue.

The committee says the issuance of the high-yield notes resulted in financial ruin.

Rather than seek bankruptcy relief, the committee says that the company instead had Trico Shipping issue $400 million in high-yield secured notes in October 2009. Trico Supply guaranteed and secured the debt, as did Trico Marine and sister companies in Chapter 11.

Trico said in a regulatory filing that the swap will reduce debt at the subsidiaries by $462 million. The Chapter 11 filing in August was the second by The Woodlands, Texas-based Trico Marine.

It completed a so-called prepackaged reorganization in early 2005 by exchanging $250 million in debt for equity. Shareholders received warrants.

Other than a Cayman Islands holding company, none of the foreign subsidiaries are in bankruptcy this time.

The consolidated balance sheet for June listed assets of $904 million against liabilities totaling $1.03 billion. The bankruptcy petition listed liabilities of $354 million for Trico Marine.

The case is In re Trico Marine Services Inc., 10-12653, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Updates

Vitro Bondholders Given Limited Discovery in U.S.

U.S. subsidiaries of Vitro SAB, Mexico’s largest glassmaker, won a second victory over dissident bondholders when a judge this week refused to allow the involuntary bankruptcy filing to be used as a means for taking discovery about an exchange offer the bondholders oppose.

Vitro previously prevailed on the bankruptcy judge to deny a motion by bondholders that would have effectively enjoined the exchange offer the parent company is conducting in Mexico.

Rather than allowing the bondholders to have wide-ranging discovery in the involuntary Chapter 11 case, U.S. Bankruptcy Judge Russell F. Nelms in Fort Worth, Texas, instead signed an order on Dec. 6 allowing one six-hour examination of a company officer under oath. The deposition is limited to identifying assets in the U.S., describing debts between the family of companies, and describing intercompany agreements.

Nelms is allowing the bondholders to compel the production of documents. Vitro, though, need only turn over documents identifying assets in the U.S., listing debts to sister companies, and showing the U.S. companies’ financial statements and cash-flow projections.

The bondholders released a statement yesterday saying that last week they filed papers in a Mexican court seeking injunctions and involuntary bankruptcy against the Vitro parent and its Mexican subsidiaries. They accuse Vitro of a creating $1.9 billion of intercompany debt and using the insider vote to gain acceptance of the reorganization, even though a majority of the noteholders will be opposed.

The noteholders, who wouldn’t be paid in full, object to how the reorganization would allow shareholders to retain equity. For other Bloomberg coverage, click here.

The involuntary petition was filed on Nov. 17 by holders of $75 million in bonds. Those bondholders are part of a larger group which says it holds at almost $700 million of $1.2 billion of bonds in default since the company first missed interest payments on them in February 2009.

The U.S. Vitro companies said in their bankruptcy court filing that third-party debt of the parent is $1.96 billion, with $1.2 billion owing on the unsecured bonds. The parent is proposing a court restructuring in Mexico designed to deal with about $1.5 billion in debt, a court filing said.

To complete the restructuring, Vitro previously said there would be a companion Chapter 15 filing in the U.S. to ensure that creditors in the U.S. abide by rulings from the Mexican court. The U.S. companies previously implied they will fight the involuntary petition when they said that they are paying their debts as they come due.

Vitro, based in Monterrey, Mexico, said noteholders would recover as much as 73 percent by exchanging existing debt for cash, new debt or convertible bonds.

The bondholders who filed the involuntary petition are Lord Abbett Bond Debenture Fund, Davidson Kempner Distressed Opportunities Fund LP, Brookville Horizons Fund LP, and Knighthead Master Fund LP.

The first-filed involuntary case is In re Vitro Asset Corp., 10-47470, U.S. Bankruptcy Court, Northern District of Texas (Fort Worth).

Point Blank Equity, Creditors Agree on Reorganization Plan

Point Blank Solutions Inc., a manufacturer of soft body armor for the military and law enforcement, may not be sold now that the official committees of creditors and shareholders agreed on a reorganization plan and secured replacement financing.

The company’s future may be decided at a hearing tomorrow. The hearing also will cover the company’s motion to approve auction and sale procedures where the minimum bid was proposed to be $14 million. Point Blank was required by the lending agreement to conduct an auction next week.

The equity committee first came forward opposing a sale and saying it arranged replacement financing. The creditors’ committee initially was skeptical.

Now, the two committees are in accord with a group of investors who will provide replacement financing and make an equity investment to help confirm a reorganization plan. The investors are Lonestar Partners LP, Privet Fund Management LLC and Prescott Group Capital Management.

The investors are offering $25 million in financing to repay the existing loan. They will backstop a $15 million to $25 million equity offering under the Chapter 11 plan that will be open to unsecured creditors and stockholders.

The plan will include creation of a litigation trust with initial funding of $1 million. Initially, net recoveries will be split so unsecured creditors receive 80 percent, with the remainder going to the company. Once unsecured creditors have recovered 100 percent plus interest at 8 percent, the company will take home 70 percent of the trust’s recoveries, with the remainder going to existing shareholders.

The agreement on financing and the plan requires filing the plan by Jan. 10, obtaining approval of a disclosure statement by Feb. 18, and confirming the plan by March 31.

The motion by the committees says the company can’t support their plan and financing on account of obligations under the loan agreement. One term of the arrangement provides that Lonestar’s $8.5 million unsecured claim will be approved.

The committees want the bankruptcy judge to approve both the replacement loan and the so-called plan-support agreement.

Based in Pompano Beach, Florida, Point Blank has two plants. Revenue in 2009 exceeded $153 million. The former chief executive officer and chief operating officer 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).

Fulton Homes, Lenders Adjourn to Talk Plan Settlement

Fulton Homes Corp. and bank lenders began a contested confirmation hearing last week where the creditors have been claiming that the company’s proposed reorganization doesn’t comply with law and can’t be confirmed. The lenders have a competing reorganization plan of their own.

After two days of trial last week, the parties agreed it would be prudent to adjourn the confirmation hearing and work on settlement. The bankruptcy judge adjourned the hearing to Jan. 5. The lending group includes Bank of America NA, JPMorgan Chase Bank NA, and Wells Fargo Bank NA.

Fulton’s plan presumes the company is solvent. It offered the banks a “substantial cash payment” on confirmation and senior liens to secure their remaining debt. The new plan offered secured suppliers a 60 percent payment on confirmation in return for their $1.2 million in claims, with the remainder secured by a lien subordinate to the banks’. The suppliers also must agree to provide “normal trade terms.”

Bank of America, based in Charlotte, North Carolina, is the agent for unsecured lenders owed about $164 million. Fulton has no substantial secured debt. In addition to suppliers, general unsecured claims amount to $1.2 million.

Fulton previously said it accumulated $65 million in cash during the Chapter 11 case that began in January 2009. The company says it generated a cumulative profit of $8.5 million while in reorganization.

The case is In re Fulton Home Corp., 09-01298, U.S. Bankruptcy Court, District of Arizona (Phoenix).

Madoff Trustee Lands $550 Million Settlement with Shapiro

The trustee liquidating Bernard L. Madoff Investment Securities Inc. announced a second settlement in the vicinity of a half billion dollars.

Yesterday, the trustee revealed a settlement where philanthropist Carl Shapiro and family will pay the trustee $550 million destined for distribution to Madoff customers. In addition, Shapiro will pay the federal government $75 million to end a forfeiture action.

In the six years before the Madoff fraud was exposed, the Shapiro family withdrew $1.05 billion from their accounts, the trustee said in his motion to approve the settlement. The family contended that the trustee improperly calculated the amount of their claims and didn’t give credit for $500 million they deposited into their accounts during the six-year period.

The Shapiro settlement is scheduled for approval in bankruptcy court on Dec. 21. Shapiro said last year that he lost $545 million investing with Madoff.

Yesterday, the trustee upped the ante on UBS AG by filing a new complaint to ask for an addition $555 million in damages on top of the $2 billion sought in the first suit on Nov. 24.

The complaint is under seal because information was supplied by Zurich-based UBS under a confidentiality agreement. The Madoff trustee says he will ask the bankruptcy court for authority to make the complaint public.

The trustee also sued Tremont Group Holdings Inc. and its owner, MassMutual Holding LLC, and MassMutual Life Insurance Co. Tremont, a Rye, New York-based money manager that operated the second-largest feeder fund for Madoff, was “repeatedly warned” and “ignored obvious warning signs of fraud,” the trustee said.

The Tremont complaint is under seal. MassMutual acquired Tremont in 2001.

The trustee once again said that UBS “aided and abetted” the Madoff fraud and funneled $1 billion into the Ponzi scheme. To justify recovering more from USB that its clients invested, the Madoff trustee said the Swiss bank and affiliates “reaped extraordinary financial benefit for themselves.”

In other Madoff developments, Fred Wilpon and his Sterling Equities Inc., the owner of the New York Mets baseball club, are in settlement negotiations with the trustee, both sides said in separate statements yesterday.

Although the Madoff trustee filed suit, the complaint is under seal given settlement discussions.

Wilpon and his company were exposed to claims for $47.8 million in fictitious profits. According to prior Bloomberg reports, they also were exposed to being sued for $522.7 million in principal taken out before the fraud surfaced.

The Sterling Equities statement said the “New York Mets will have all the necessary financial and operational resources to fully compete and win.”

The Madoff firm began liquidating on Dec. 11, 2008, with the appointment of a trustee under the Securities Investor Protection Act. The second anniversary of the bankruptcy is the deadline for the trustee to file lawsuits for recovery of withdrawals made as many as six years before the fraud was discovered.

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).

Luby’s Can’t Revise Fuddruckers Purchase, Creditors Say

The Magic Brands LLC creditors’ committee explained in court papers on Dec. 6 why the buyer of the Fuddruckers restaurant business, Luby’s Inc., has no right to terminate nine franchise agreement it assumed on completing the court-approved acquisition.

Luby’s contends that Magic Brands misrepresented the terms of franchise agreements that turned out to be unfavorable as the result of undisclosed amendments. A hearing on the dispute is on the bankruptcy court calendar for Dec. 13.

The creditors’ committee’s legal argument is based on a provision in the acquisition agreement saying that all representations terminated on closing.

The franchise operator that Luby’s doesn’t want says the buyer’s efforts are “a legally groundless exercise in sour grapes and unjustified buyer’s remorse.”

The committee claims that Luby’s examined documents which put it on notice that the nine franchise agreement were changed. The committee also pointed out that Luby’s performed its own due diligence.

Magic Brands changed its name to Deel LLC after the sale. It previously said the Luby’s sale could result in full payment for unsecured creditors. The creditors’ committee’s lawyers said the sale to Luby’s should generate “substantial recoveries for unsecured creditors.”

After closing stores, Austin, Texas-based Magic Brands had 62 company-owned Fuddruckers locations in 11 states. It also owned the Koo Koo Roo restaurant brand, with three stores in California. The petition said assets are less than $10 million while debt is less than $50 million.

The Koo Koo Roo stores were in bankruptcy a second time. Owned by Prandium Inc., they were sold to Magic Brands through Chapter 11 in 2004. The 135 Fuddruckers stores in 32 states owned by franchisees aren’t in the bankruptcy case.

The case is In re Deel LLC, 10-11310, U.S. Bankruptcy Court, District of Delaware (Wilmington).

WaMu Confirmation Hearing Ends, Wait Begins for Ruling

The Washington Mutual Inc. trial over confirmation of the Chapter 11 plan ended yesterday. The judge said she will issue a written opinion. She didn’t say when. To read Bloomberg coverage of yesterday’s hearing, click here.

To approve the plan and sign a confirmation order, the judge must jump three hurdles. First, she must decide it is proper to cram the plan down on the six classes of creditors that voted “no.” Four classes voted “yes.”

Second, she must approve a settlement with the Federal Deposit Insurance Corp. and JPMorgan Chase & Co. that shareholders oppose because they receive nothing.

Third, she must rule against holders of $1 billion of trust preferred securities who contend their holdings weren’t converted to equity immediately before the bank subsidiary was taken over.

Once confirmed and implemented, the plan will distribute more than $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).

Old GM Plan Ready for Creditors to Vote

The bankruptcy judge ruled at a hearing yesterday that he will approve the disclosure statement explaining the Chapter 11 plan for old General Motors Corp.

After creditors vote, the confirmation hearing for approval of the plan will be held in March.

Old GM filed the liquidating Chapter 11 plan in August to create a trust for unsecured creditors designed to distribute the stock and warrants issued by new GM as consideration for the sale of the assets. New GM is formally named General Motors Co. For details of the plan, click here for the Sept. 1 Bloomberg bankruptcy report.

Old GM, now formally named Motors Liquidation Co., began the largest manufacturing reorganization in history by filing under Chapter 11 on June 1, 2009. The sale to new GM was completed on July 10, 2009. GM listed assets of $82.3 billion against debt totaling $172.8 billion.

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

NYC OTB Shutting Down after State Senate Negative Vote

Off-Track Betting Corp. in New York City was closing down last night after the state Senate voted down legislation for a bailout to be effected through a Chapter 9 bankruptcy reorganization plan. For Bloomberg coverage, click here.

New York’s outgoing Governor David Paterson crafted legislation for a state-sponsored bailout. Republicans in the state Senate blocked the measure.

Although the bankruptcy judge approved a disclosure statement explaining the reorganization, NYC OTB previously said it wouldn’t solicit creditors’ votes without approval of enabling legislation.

The bankruptcy judge ruled in March that NYC OTB is eligible to reorganize in Chapter 9. The petition, filed in December 2009, said assets were less than $50 million while debt exceeded $100 million. Liabilities included $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).

Helmet-Maker Schutt Reports $2.7 Million October Loss

Schutt Sports Inc., a football-helmet manufacturer, reported a $2.7 million net loss in October on sales of $5.3 million. The operating loss in the month was $86,000.

Reorganization expenses charged in the month were $2.4 million. Schutt has lost $4.4 million since the inception of the Chapter 11 case on Sept. 6. Sales in the period totaled $8.3 million.

There will be an auction on Dec. 14 to test whether a $25.1 million offer from Kranos Intermediate Holding Corp. is the best bid for the business. The hearing for approval of the sale will be Dec. 15. Schutt estimates that secured debt at the time of sale will be about $19.8 million, with administrative expenses amounting to $3.5 million more.

When Schutt filed under Chapter 11 in September, $34.8 million was owed to the secured lender, Bank of America NA. Another $17.5 million was owing on a subordinated note held by Windjammer Mezzanine & Equity Fund II LP. The pre-bankruptcy secured debt was replaced with a $34 million credit to finance the Chapter 11 case. Schutt 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).

Banning Lewis Development Secures $3.5 Million Loan

Banning Lewis Ranch, saying the right to use cash runs out Dec. 21, filed a motion on Dec. 6 for approval of $3.5 million in secured financing.

The hearing for preliminary approval of the loan is set for Dec. 21. The loan, to pay 10 percent interest, will come from DBL Investors LLC and Greenfield BLR Finance Partners LP. They are to be given a lien behind the collateral securing $65.5 million owing on the loan where KeyBank NA serves as agent. The loan will be prior to all other secured debt.

Banning Lewis is a master-planned community northeast of Colorado Springs, Colorado. Other debt includes a $105 million mezzanine loan and a separate $23.5 million loan for which KeyBank also is agent.

The Banning Lewis project is 21,000 acres of undeveloped land. The petition said the assets are worth more than $50 million while debt exceeds $100 million.

Greenfield BLR Partners LP and Farallon BLR Investor LLC hold $141 million in debt. Together, they also have 85 percent of the stock and support having the case in Delaware.

KeyBank is owed another $65 million on a bank loan, court papers say.

The case is In re Banning Lewis Ranch Co. LLC, 10-13445, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Ciena Capital Implements 50% Unsecured Creditor Plan

Ciena Capital LLC, once the third-largest loan originator for the U.S. Small Business Administration, implemented a reorganization plan on Nov. 29 that the bankruptcy court in New York approved with a Nov. 12 confirmation order.

The plan pays about 50 percent to unsecured creditors with $31 million in claims. Secured lenders, with $327 million in claims, took all the new stock for an estimated recovery of less than 25 percent.

The plan in large part was the result of a settlement approved in June among the creditors’ committee, the SBA and Ciena’s parent, Ares Capital Corp. that was designed to generate the 50 percent dividend to unsecured creditors. For details, click here for the June 18 Bloomberg bankruptcy report.

Ciena filed under Chapter 11 in September 2008 after discovery that a Michigan employee was recording fraudulent loans. Ciena’s formal lists of assets and debt showed assets of $361 million against liabilities totaling $397 million, including $325 million in secured claims.

The Ciena case is In re Ciena Capital LLC, 08-13783, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Watch List

Bain’s Keystone Auto Needs Restructuring, Moody’s Says

Keystone Automotive Operations Inc., a distributor of aftermarket equipment to enhance the performance and appearance of automobiles, has a “very high likelihood of default,” according to a report yesterday from Moody’s Investors Service.

Moody’s characterized Keystone as having an “overleveraged capital structure,” with adjusted debt about 14 times more than earnings before interest, taxes, depreciation and amortization. Moody’s lowered the corporate rating to Ca from Caa2.

After currency translation, Keystone reported a net loss of $13 million for the nine months ended Oct. 2 on sales of $382.3 million. Operating income for the period was $7.8 million.

During the comparable three quarters in 2009, the loss was $16 million on sales of $366 million.

Moody’s said that Keystone is “exploring the possibility of restructuring its debt obligations and has engaged restructuring advisors.”

Keystone’s balance sheet is upside down. Assets as of Oct. 2 were $387.8 million, against total liabilities of $461.5 million. Keystone, based in Exeter, Pennsylvania, is controlled by Bain Capital LLC.

Statistics

Default, Distress Rates in U.S. Still Declining

The default rate in the U.S. on junk-rated debt declined in November to 3.5 percent from 14.7 percent a year ago, according to a Dec. 6 report from Moody’s Investors Service.

The November rate fell from 3.7 percent in October.

The percentage of junk debt trading at distress levels was 11.5 percent in November, down from 14.1 percent in October and 24.2 percent a year ago, Moody’s said.

Moody’s predicts the junk default rate will further decline to 3.1 percent by the end of 2010 and to 2.1 percent a year from now.

Downgrade

Isle of Capri Casinos Demoted to B3 Corporate Grade

Casino operator Isle of Capri Inc. received a downgrade yesterday from Moody’s Investors Service on account of “high” leverage.

Moody’s lowered the corporate rating by one notch to B3. The $357 million of senior subordinated notes went down one grade as well, to Caa2.

Moody’s said that consumers’ discretionary spending on gambling “will remain under pressure.”

Isle of Capri has 15 properties in Mississippi, Louisiana, Iowa, Missouri, Colorado and Florida. Revenue of $499 million for the six months ended Oct. 24 resulted in a $3.7 million net loss.

Daily Podcast

WaMu, Madoff, Louisville Symphony, Goodwill Industries: Audio

The evidence problems confronting Washington Mutual Inc. at the confirmation trial, the bankruptcy of two nonprofits, and the in pari delicto defense that HSBC Holdings Plc and JPMorgan Chase & Co. might raise in lawsuits filed against them by the trustee for Bernard L. Madoff Investment Securities Inc. are issues explored 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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