Tribune, Lehman, Advanta, Vitro, Trico: Bankruptcy

Tribune Co. and the three creditor groups received formal approval from the bankruptcy judge yesterday for disclosure materials explaining the four competing reorganization plans.

The confirmation hearing for approval of the plan will begin March 7. The voting deadline is Jan. 28. Tribune will report the results of the vote by Feb. 11.

Tribune is demanding electronic information from former Chief Executive Officer Randy Michaels, who allegedly deleted all e-mails and other data from his laptop computer when he resigned in October.

Voting procedures allow Tribune creditors to rank the plans in order of preference. Bankruptcy law permits confirmation of only one plan. If the bankruptcy judge determines that more than one plan can be confirmed, he will confirm the one he finds to be in creditors’ better interest.

Data on Michaels’s computer was being sought in discovery when the former CEO erased the hard drive, Tribune said in its motion to be argued in bankruptcy court on Dec. 15. Tribune will ask the bankruptcy judge for authority to compel Michaels to turn over all information, data and computers regarding the company. Tribune says some of the deleted data and e-mails may be found on other company computers and servers.

For a summary of the three plans filed by creditors, click here for the Nov. 1 Bloomberg bankruptcy report. For details of Tribune’s own plan, click here for the Oct. 25 Bloomberg bankruptcy report.

The plans differ in how they either settle or propose to litigate disputes tied to 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 in the LBO, click here for the July 27 Bloomberg bankruptcy report.

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

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

New Filing

Molecular Insight Files; Savitr to Buy 90% of Stock

Molecular Insight Pharmaceuticals Inc., a developer of therapeutic and imaging radiopharmaceuticals for cancer treatment, filed a Chapter 11 petition after signing an agreement where Savitr Capital LLC will acquire 90 percent of the stock in return for a $45 million investment.

By early this morning, no papers had been filed in U.S. Bankruptcy Court in Boston aside from the petition. It listed assets of $36.5 million and debt totaling $198.8 million.

The agreement with Savitr requires converting $195 million of bonds into $90 million in secured notes. At its election, the company could pay interest on the notes with more debt for four years.

The Cambridge, Massachusetts-based company will have a 30- day window to shop for a better deal, a statement said. Bondholders turned down the Savitr proposal, according to the statement.

Previously, the company said it was talking with bondholders about a debt-for-equity exchange. It had been operating under a series of forbearance agreements.

The case is In re Molecular Insight Pharmaceuticals Inc., 10-23355, U.S. Bankruptcy Court, District of Massachusetts (Boston).

Updates

SunCal-Lehman Automatic Stay Issue Still Unresolved

Neither SunCal Cos., a California developer, nor Lehman Brothers Holdings Inc. won in a decision yesterday from the U.S. Court of Appeals in Manhattan.

Lehman companies are part-owners and lenders to SunCal projects, which are in their own Chapter 11 reorganization in California. The so-called automatic stay protecting Lehman has had the effect of precluding SunCal from attempting to subordinate Lehman’s claim and from moving ahead with its Chapter 11 plan, which would affect Lehman mortgages.

Yesterday, the appeals court upheld the district court by ruling that the bankruptcy court didn’t err in declining to revoke Lehman’s automatic stay and thus permit SunCal to move ahead in its case with proceedings to affect Lehman’s claim.

The 2nd Circuit in Manhattan said its ruling is a result of the fact that SunCal is also seeking a modification of the Lehman automatic stay in California federal courts, where SunCal’s Chapter 11 case is pending. The appeals court noted that Lehman acceded to allowing the California federal courts to decide whether the Lehman stay should remain in place.

The automatic stay stops all manner of court proceedings pertaining to Lehman’s property, even proceedings in another bankruptcy court. The Bankruptcy Appellate Panel in California ruled that the Lehman stay should remain. The issue is now on appeal to the U.S. Court of Appeals in San Francisco.

If the 9th Circuit in San Francisco rules against SunCal and doesn’t modify the Lehman stay, the 2nd Circuit said its ruling yesterday is “without prejudice,” meaning that SunCal could return to the New York federal courts seeking to modify the stay.

Until the question of the Lehman stay is resolved, the U.S. bankruptcy judge in Santa Ana, California, has put a hold on confirming a reorganization plan in SunCal’s Chapter 11 case.

The SunCal cases with the competing plans involve about 20 companies. SunCal says that Lehman values the properties at $461 million while SunCal says the value is $246 million. Lehman’s disputed claim is $1.94 billion, SunCal says.

The SunCal Chapter 11 filings occurred in November 2008 after Lehman’s bankruptcy shut off funding for the projects. SunCal was California’s largest developer of master planned communities, with 250,000 residential lots and 10 million square feet of commercial space in 50 projects.

The case in which the papers are filed is In re Palmdale Hills Properties LLC, 08-17206, U.S. Bankruptcy Court, Central District California (Santa Ana).

Vitro Noteholders Sue in New York on Defaulted Debt

Noteholders launched another attack yesterday against Vitro SAB when they sued Mexico’s largest glassmaker in state court in Manhattan.

Elliott International LP and The Liverpool LP, saying they hold $85 million of the $1.2 billion in senior notes, sued Vitro and its Mexican subsidiaries over notes that have been in default for two years. The noteholders are suing to recover interest and principal on the notes.

The noteholders say they can sue in Manhattan because Vitro consented to being sued in New York. They couldn’t sue Vitro’s U.S. units because another group of noteholders filed an involuntary Chapter 11 petition against them on Nov. 17 in Fort Worth, Texas.

Vitro has said it will commence court reorganization in Mexico by Dec. 16. It said this week that it has enough votes for approval of a reorganization under Mexico’s version of Chapter 11, even though few noteholders tendered their debt in the exchange offer. Noteholders say Vitro has enough votes only because it created $1.9 billion of intercompany debt that would be voted for the reorganization.

Vitro has said that proceedings in Mexico will be accompanied by a Chapter 15 filing in the U.S. Vitro could use the Chapter 15 case to stop the New York state court suit.

Holders of $75 million of the bonds filed the involuntary Chapter 11 petition against Vitro’s U.S. subsidiaries. The U.S. Vitro companies implied they will fight the petition, saying that they are paying debts as they come due.

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.

Vitro, based in Monterrey, Mexico, previously said noteholders would recover as much as 73 percent by exchanging existing debt for cash, new debt or convertible bonds. Because noteholders won’t be paid in full, they object to how the reorganization would allow shareholders to retain equity.

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).

Advanta Committee Seeks Right to File Competing Plan

Advanta Corp. wants the bankruptcy judge to approve its disclosure statement at a Dec. 16 hearing where the creditors’ committee will seek permission to file a competing plan.

The committee contended in a motion filed this week that Advanta’s plan “favors the debtors’ insiders at the expense of third-party creditors.” The proposal insulates insiders from lawsuits while preventing creditors from attempting to disallow or subordinate $51.8 million in insider claims, the creditor group said.

The claims are being made by Chief Executive Officer Dennis Alter and President William Rosoff. The committee says its plan would “largely mirror” Advanta’s while correcting “terms intended to favor the debtors’ insiders.”

Advanta’s plan provides that holders of $140.6 million in unsecured notes could be paid in full while general unsecured creditors, with as much as $180.6 million in claims, might see up to 71.3 percent.

The committee has opposed provisions in the Spring House, Pennsylvania-based company’s plan releasing top managers for conduct after the Chapter 11 filing in November 2009. The committee also claims the plan isn’t structured to avoid a so- called change in control.

The committee has argued that a change of control could validate the $51.8 million in benefit and severance claims made by Alter and Rosoff. Their claims amount to one-sixth of all unsecured claims, according to the committee.

The disclosure statement accompanying Advanta’s plan shows the company as having $105.8 million cash. Assets for distribution are projected to increase to between $157.8 million and $179.8 million. For more details on the plan, click here for the Nov. 15 Bloomberg bankruptcy report.

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.

Advanta’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).

Atkinson Brothers’ Properties Being Sold by US Fidelis

US Fidelis Inc., which marketed automobile-service contracts, is selling property received in the settlement where the Atkinson brothers who founded the company gave up most of their assets.

This week, the U.S. Bankruptcy Court in St. Louis approved the $4.75 million sale of the St. Louis home owned by Darain Atkinson and his wife. The St. Louis Post-Dispatch reported that the home cost at least $26.7 million to build.

The bankruptcy judge also established procedures to sell the home in Truckee, California, owned by Cory Atkinson and his wife. The company has an offer of $2.45 million for the home, which is near Lake Tahoe. Other bids are due Dec. 20, with an auction the next day and a hearing for approval of the sale on Dec. 22.

The brothers and others settled after being sued for $101 million claimed to be “wrongfully and improperly appropriated” from the company.

US Fidelis stopped writing new business in December 2009 and filed for reorganization on March 1. The petition by the Wentzville, Missouri-based company claimed assets are $74.4 million against debt totaling $25.8 million, including $14.5 million owing to a secured creditor.

The case is In re US Fidelis Inc., 10-41902, U.S. Bankruptcy Court, Eastern District of Missouri (St. Louis).

Trico Marine Selling Truckee River a Second Time

Trico Marine Services Inc., a provider of support vessels for the offshore oil and natural-gas industry, is attempting to sell the vessel Truckee River for a second time.

A buyer was unable to complete the $950,000 sale the bankruptcy court approved in October. Trico has another buyer, Riverman Nigeria Ltd., to purchase the vessel for the same price. Trico wants the bankruptcy judge to approve the sale at an expedited hearing on Dec. 14 without holding an auction.

Trico is embarking on a restructuring where holders of $400 million in 11.875 percent notes will end up owning currently non-bankrupt subsidiaries that provide subsea services. For details of the proposed transaction, click here for the Dec. 8 Bloomberg bankruptcy report.

The Chapter 11 filing in August by the Trico parent was the second by the company, based in The Woodlands, Texas. 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.

Liabilities include $202.8 million on secured convertible debentures and $150 million owing on unsecured convertible debentures. Non-bankrupt Trico Shipping owes $400 million on the 11.875 percent senior secured notes.

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

AbitibiBowater Implements Confirmed Chapter 11 Plan

AbitibiBowater Inc., the largest newsprint maker in North America, implemented the reorganization plan yesterday that the bankruptcy court in Delaware approved with a Nov. 23 confirmation order.

A judge in Canada also approved the reorganization. It reduced debt by 88 percent, to $850 million from $6.8 billion. For a summary of the plan, which treated creditors differently at each of the 40 affiliated companies, click here for the Nov. 23 Bloomberg bankruptcy report.

The company was formed in October 2007 by a merger between Montreal-based Abitibi-Consolidated Inc. and Greenville, South Carolina-based Bowater Inc. Abitibi is a producer of newsprint, uncoated mechanical paper and lumber. Bowater also makes newsprint along with papers, bleached kraft pulp and lumber.

The Montreal-based company began reorganizing with 24 pulp and paper mills plus 30 wood-product plants. Revenue in 2008 was $6.8 billion. In Chapter 11 petitions filed in April 2009, the combined companies listed assets of $9.9 billion and debt totaling $8.8 billion as of September 2008.

The case is AbitibiBowater Inc., 09-11296, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Probe Resources Subsidiaries Permitted Cash Use

Probe Resources Ltd., an oil and natural-gas exploration and production company from Vancouver, British Columbia, put U.S. subsidiaries into Chapter 11 on Nov. 16 in Houston. This week, the subsidiaries were given authorization by the bankruptcy court to use cash representing collateral for the claims of the secured lender.

The lender, K2 Principal Fund LP, is owed $25.5 million, according to a court filing. A final hearing for the use of cash is scheduled to be held on Dec. 22.

Four subsidiaries originally filed for reorganization. A fifth filed this week, also in Houston. The subsidiaries are based in The Woodlands, a Houston suburb.

Probe said that the filing became necessary when a so- called debt-restructuring agreement expired along with a forbearance agreement. As a result, the lender swept all unrestricted cash, precipitating the Chapter 11 filings.

The case is In re Probe Resources US Ltd., 10-40395, U.S. Bankruptcy Court, Southern District Texas (Houston).

Broadstripe Says Committee Overboard on Preferences

While it’s typical for a creditors’ committee to sue for recovery of preferences, Broadstripe LLC, a St. Louis-based broadband cable operator, says it isn’t appropriate in its case.

Broadstripe performed its own analysis to determine which creditors received potential preferences. The company also investigated whether suppliers had complete or partial defenses. According to the company, the committee’s list of potential preference defendants had four times as many targets and 20 times as much in amount of preferences.

For example, Broadstripe said that three potential defendants had water-tight defenses against $4.55 million in preference claims.

At a hearing on Dec. 13, Broadstripe is amenable to allowing the committee to sue for preferences, although not against customers and suppliers that have valid defenses.

Preference suits must be begun by Jan. 2, when Broadstripe will have been in Chapter 11 for two years.

A preference is a payment within 90 days of bankruptcy on account of an overdue debt. There are several defenses or offsets against payments that otherwise would be preferential.

Any creditor can file a plan because Broadstripe has been in Chapter 11 more than 18 months. The company was saying it couldn’t reorganize until there is resolution of a lawsuit where the unsecured creditors’ committee contends that secured lenders’ claims should be subordinated or recharacterized as equity. In addition, there are two claims by rival cable operators totaling almost $160 million based on Broadstripe’s alleged failures to complete asset-purchase agreements.

Broadstripe filed a reorganization plan in January 2009 centered on an agreement reached before the Chapter 11 filing with holders of the first- and second-lien debt. At the outset of Chapter 11, Broadstripe had 93,000 customers in Maryland, Michigan, Washington State and Oregon.

It was created through four acquisitions in 1998 and 1999 and filed for Chapter 11 reorganization in January 2009.

The case is In re Broadstripe LLC, 09-10006, U.S. Bankruptcy Court, District of Delaware (Wilmington).

PPI Creditor Beats Preference with New Value Defense

A creditor of Precision Parts International Services Corp. named Gibraltar Industries Inc. is an example of how a supplier can sometimes fight a preference and end up owing almost nothing.

PPI alleged that Buffalo, New York-based Gibraltar received $3.23 million within 90 days of bankruptcy that had to be returned as a preference. Gibraltar raised the so-called new value defense, and emerged with a settlement where it will pay only $2,000.

A preference is a payment shortly before bankruptcy on account of an overdue debt. The new value defense allows a creditor to deduct a subsequent extension of unsecured credit from allegedly preferential payments.

In Gibraltar’s case, it appears the supplier must have given about the same in new credit that it received in preferential payments. Although the preference went by the wayside, Gibraltar still has an unsecured claim to be paid a small percentage along with other creditors. Gibraltar also likely paid counsel fees to beat back the preference claim.

PPI has a liquidating plan on file where unsecured creditors are told in the accompanying disclosure statement that they might recover 0.15 percent on their $103 million in claims. PPI filed for reorganization in December 2008 and sold the assets in March 2009, generating net proceeds of $16 million. Secured lenders received $9.8 million immediately.

The plan in part results from a settlement with secured lenders under which $575,000 was carved out for creditors with lower priorities. In addition to $150,000 cash, unsecured creditors are to receive some recoveries from lawsuits, plus other excess cash, if any.

The Rochester Hills, Michigan-based company had six plants in North America making metal-formed components for the auto and aerospace industries. It owed more than $85 million on bank loans to Golub Capital and Norwest Mezzanine Partners II LP.

Court papers listed other debts as including $184.5 million in secured and unsecured loan obligations, plus $30 million owing to trade suppliers. The revolving credit and term loans totaled $89 million, and there was an $88.5 million mezzanine loan. First Atlantic Capital Ltd. acquired control of the company in 2005.

The case is In re PPI Holdings Inc., 08-13289, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Statistics

PIK-Toggle Debt More Likely to Default, Moody’s Says

Among 62 companies with debt having a so-called PIK-toggle feature, 30 percent defaulted by 2009, according to a Dec. 8 report from Moody’s Investors Service.

For companies without PIK-toggle debt, the default rate was 17 percent, Moody’s said.

A PIK toggle feature allows a company, at its election, to pay interest in kind by issuing more debt. Moody’s said that a quarter of companies with PIK-toggle debt still have ratings in the Caa range.

Moody’s said that “most” of the analyzed companies with PIK-toggle debt were controlled by private-equity investors Apollo Management LLC or TPG Capital.

Watch List

SuperMedia Aims to Buy Reorganization Debt Below Par

SuperMedia Inc., which consummated a Chapter 11 plan about a year ago when it was named Idearc Inc., is asking lenders for a temporary amendment to the loan agreement to allow the purchase of as much as $185 million of term-loan debt for less than the face amount, according to a report yesterday by Standard & Poor’s.

SuperMedia, the second-largest directory publisher, has almost $2.5 billion outstanding on a first-lien term loan. Lenders should recover between 50 percent and 70 percent if there is a payment default, S&P said.

SuperMedia in January implemented the reorganization plan that the bankruptcy judge in Dallas approved in a December 2009 confirmation order. The plan, mostly worked out before the Chapter 11 filing in March 2009, reduced debt to $2.75 billion from $9 billion.

SuperMedia, based near DFW Airport outside Dallas, was spun off from Verizon Communications Inc. in 2006. In September, as part of the Chapter 11 case, creditors sued Verizon alleging that the spinoff was a fraudulent transfer designed to generate $9.5 billion for the second-largest phone company in the U.S.

SuperMedia reported a $26 million net loss in the Sept. 30 quarter on revenue of $349 million. For nine months, the net loss was $252 million on revenue of $750 million. Before tax benefits, the loss in the quarter was $42 million, and would have been $393 million for the three quarters.

The stock closed yesterday at $7.25, up 71 cents in trading on the Nasdaq stock market.

The creditors’ lawsuit is U.S. Bank National Association v. Verizon Communications Inc., 10-01842, U.S. District Court, Northern District Texas (Dallas). The bankruptcy case was In re Idearc Inc., 09-31828, U.S. Bankruptcy Court, Northern District Texas (Dallas).

General Maritime Facing Maturities and Little Cash

General Maritime Corp., an operator of 37 crude oil and petroleum product tankers, has no borrowing ability on its revolving credit and holds less than $9 million cash, Standard & Poor’s said in a report yesterday.

In addition to debt maturities the company faces in 2011 and 2012, S&P said there is a “high probability of a covenant breach over the next quarter.”

S&P downgraded the corporate rating to CCC+ and the senior unsecured notes to CCC-. Holders of the notes shouldn’t expect to recover more than 10 percent in the event of default, S&P said.

For the quarter ended Sept. 30, the New York-based company reported a $22 million net loss on revenue of $98.3 million.

The stock closed yesterday at $3.65 in New York Stock Exchange composite trading. The three-year closing high was $22.87 on May 21, 2008.

Daily Podcast

Cuban, Crane and the Rangers, Pro Beach Volleyball: Audio

Why Mark Cuban and James Crane withdrew their $2.65 million reimbursement request in the Texas Rangers case, how the increase in bankruptcy filings may be leveling off, sales of new debt to finance special dividends to owners, and the chance to buy the pro beach volleyball tour are discussed in the bankruptcy podcast on the Bloomberg terminal and Bloomberglaw.com. To listen, click here.

Briefly Noted

Suit Filing Deadline Passed, Tribune and Madoff Cases Explored

Tribune Co. and Bernard L. Madoff Investment Securities Inc. were the subjects of two Bloomberg feature stories yesterday.

Now that the smoke has cleared following the end of Tribune’s two-year window for filing lawsuits, click here to read the story exploring how the remainder of the case will play out.

The two-year deadline for the Madoff trustee to file fraudulent transfer suits also was expiring this week. Click here to read how the suits will hold up.

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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