Loehmann’s, Lehman, Vitro, Dreier, Trico: Bankruptcy

Discount retailer Loehmann’s Inc. received approval from the bankruptcy court for a commitment agreement allowing its reorganization plan to be partly financed with a new $25 million investment from current owner Istithmar World PJSC and Whippoorwill Associates Inc.

The Dec. 15 order by U.S. Bankruptcy Judge Robert E. Gerber in Manhattan gives Loehmann’s the right to terminate the agreement if it turns out that further pursuit of the underlying Chapter 11 plan “would constitute a breach of its fiduciary duties.”

The company announced this week that the plan, worked out in principle before the Chapter 11 filing on Nov. 15, gained support from the official creditors’ committee when the pot for unsecured creditors was increased to $2 million.

Whippoorwill owns 70 percent of the secured notes. Istithmar, an investment firm owned by the government of Dubai, is to provide 64 percent of the $25 million to purchase new convertible preferred stock. For a summary of the plan, click here for the Dec. 16 Bloomberg bankruptcy report.

A hearing for approval of the disclosure statement is scheduled for Jan. 5. If the plan isn’t working, a loan agreement requires filing a motion by Jan. 14 to sell the business. The loan requires the plan to be confirmed and implemented by Feb. 18.

Loehmann’s had 48 stores in 13 states and the District of Columbia when it filed for bankruptcy. The store count is now 46 in 12 states, the company said in an e-mailed statement.

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

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

Updates

Lehman Given Permission to Settle Flip Clause Dispute

Lehman Brothers Holdings Inc. received permission from the bankruptcy judge yesterday to settle one litigation over a so- called flip clause in swap agreements.

The amounts going to Lehman and to the counterparty weren’t disclosed in court papers to maintain Lehman’s negotiating leverage in similar disputes.

The settlement involved a transaction with Saphir Finance Plc, which was appealing a January ruling by the bankruptcy judge in favor of Lehman. The settlement headed off a ruling by the district judge where an adverse result would be a setback for Lehman in similar cases.

To read about the flip-clause issue, click here for the Nov. 29 Bloomberg bankruptcy report. To read about the January decision regarding flip transactions, click here and see the Advance Sheets item in the Feb. 1 Bloomberg bankruptcy report.

The Lehman holding company and its non-brokerage subsidiaries filed their revised Chapter 11 plan and disclosure statement in April. For details, click here and here for the April 15 and 16 Bloomberg bankruptcy reports.

Paulson & Co. and nine other creditors holding $12 billion in claims filed a competing plan and disclosure statement this week. The Paulson plan proposes substantive consolidation. Lehman’s plan doesn’t. For a description of the Paulson plan and substantive consolidation, click here for the Dec. 16 Bloomberg bankruptcy report.

Bank of America NA filed an appeal and offered to post a $660 million bond in return for a stay of enforcement of the $501.8 million judgment Lehman won in November for violation of the so-called automatic stay. The Charlotte, North Carolina- based bank must also pay about $94 million in pre-judgment interest.

In addition, the bankruptcy judge will conduct further proceedings to decide whether to award sanctions for violating the stay. The $501.8 million plus interest is only the money damages for property the bank improperly took, in the judge’s opinion. For details on the controversy, click here for the Dec. 7 Bloomberg bankruptcy report.

The Lehman holding company filed under Chapter 11 in New York on Sept. 15, 2008, and sold office buildings and the North American broker-dealer business to London-based Barclays Plc one week later. Lehman’s brokerage operations went into liquidation on Sept. 19, 2008, in the same court and are 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 Investor Protection Corp. v. Lehman Brothers Inc., 08-01420, both in U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Dreier Firm’s Trustee Files One Dozen Fraud Lawsuits

The trustee for the law firm that bore the name of convicted swindler Marc Dreier filed a dozen fraudulent transfer lawsuits yesterday as the door was slamming shut on the two- years for starting litigation. The Dreier firm began its bankruptcy liquidation two years ago yesterday.

The trustee’s biggest target is Westford Asset Management LLC, a long-time buyer in Marc Dreier’s scam to sell fraudulent notes. The trustee is aiming to recover $137.6 million from Westford based on allegations it knew or should have known that the note program was fraudulent.

The Westford firm recovered all of the $115 million it invested, the complaint says, plus what the trustee called fictitious profits of $22.6 million.

Hedge fund adviser Elliott Associates LP is being sued to void a security interest in $14.2 million of art. The lien on art was intended to be security for $99.9 million in notes that Elliott purchased, according to the complaint. The trustee contends the art lien is fraudulent because the items belonged to the firm and were being pledged for a loan to Marc Dreier.

Wachovia Bank NA and Wells Fargo Bank NA are being sued in a complaint filed under seal.

The trustee is suing to recover $9.2 million that Marc Dreier paid to the sellers of his beachfront home in East Quogue, New York, one of the so-called Hamptons communities on eastern Long Island. The trustee also filed a $4.7 million suit against the sellers of Marc Dreier’s condominium on Lexington Avenue in New York.

The trustee didn’t leave family members alone. She is suing Marc Dreier’s brother for $950,000 and his sister’s stepson for $300,000. The landlord for his former wife is a defendant in a $580,000 suit, while the landlord for an apartment on East 57th Street in Manhattan is being sued for $880,000.

Investment manager Armada Partners LP is being sued for $13.5 million on the theory that the law firm made transfers for Marc Dreier’s personal investments.

In some instances where the defendants can show they were in good faith and had no knowledge of fraud, they may have good defenses to the extent they provided valid consideration.

The trustee previously filed about 50 preference lawsuits to recover as much as $4 million.

Dreier himself pleaded guilty in May 2009 to charges of money laundering, conspiracy, securities fraud and wire fraud in a scheme that prosecutors said cost victims $400 million. Dreier also was 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 New York (Manhattan). The Chapter 11 case for the firm is In re Dreier LLP, 08-15051, U.S. Bankruptcy Court, Southern District 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).

Vitro Wins Victory over Noteholders in New York Court

Vitro SAB, Mexico’s largest glassmaker, won a victory yesterday in New York state court against dissident bondholders.

The state-court judge dissolved an attachment she issued this month that prevented Vitro from completing a swap with holders of $44 million in notes who tendered their debt. The judge ruled that the property located in New York was debt, not assets, and therefore couldn’t be attached.

The state judge stayed her ruling until the end of the day today so noteholders could ask for a longer stay from the appellate court. The attachment was made in a lawsuit where some noteholders are suing to recover defaulted principal and interest.

Vitro this week began reorganization proceedings in a court in Mexico and filed a petition under Chapter 15 in New York. Vitro’s U.S. subsidiaries were already the targets of involuntary Chapter 11 petitions noteholders filed against them in Fort Worth, Texas, in November.

The noteholders filed a motion in the Fort Worth bankruptcy court to transfer the New York Chapter 15 case to Texas. The so- called change-of-venue motion automatically halted proceedings in the New York bankruptcy court.

Vitro filed papers in the Texas bankruptcy court asking to lift the stay so the New York Chapter 15 case could go ahead until the venue question is decided. The Texas judge hasn’t officially acted on the stay-relief motion, court records indicate.

For a summary of Vitro’s proposed reorganization and a survey of the multiplicity of suits between Vitro and the noteholders, click here for the Dec. 15 Bloomberg bankruptcy report.

Vitro has been in default on $1.2 billion in bonds for about two years. Bondholders are opposing the reorganization, contending it couldn’t be approved without voting $1.9 billion of intercompany claims in favor of the plan. Bondholders say the Mexican reorganization shouldn’t be enforced in the U.S. because U.S. law doesn’t allow acceptance of a plan based on insider votes.

They may also argue that the Mexican reorganization violates principles of U.S. law because shareholders would retain stock, even though creditors oppose the plan and aren’t being paid in full.

Vitro previously said noteholders would recover as much as 73 percent by exchanging existing debt for cash, new debt and convertible bonds.

The first-filed involuntary case is In re Vitro Asset Corp., 10-47470, U.S. Bankruptcy Court, Northern District of Texas (Fort Worth). The Chapter 15 case is In re Vitro SAB, 10- 16619, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Point Blank Committees Have Permission to File Plan

The two official committees in the reorganization of Point Blank Solutions Inc. reached another milestone toward their goal of avoiding a sale and reorganizing the manufacturer of soft body armor.

At a Dec. 15 hearing, the bankruptcy judge signed an order allowing the two committees to file a Chapter 11 plan. Unless the judge grants a further extension, other creditors are prohibited from filing a plan before Feb. 9.

The company withdrew its motion for approval of auction and sale procedures given that the committees previously won approval for replacement financing. The prior loan supporting the Chapter 11 case required a quick sale.

New loan comes from Lonestar Partners LP, Privet Fund Management LLC and Prescott Group Capital Management. The three investors agreed to backstop a $15 million to $25 million equity offering to help finance a Chapter 11 plan. The offering would be open to unsecured creditors and stockholders. For details of the plan, click here for the Dec. 14 Bloomberg bankruptcy report.

At the hearing, the bankruptcy judge also authorized Point Blank to reject an uncompleted agreement to settle a class- action shareholders’ suit. Rejecting the agreement may result in the recovery of $32.5 million that was being held for payment to shareholders. It may also enable the company to sue former officers. For Bloomberg coverage, click here.

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 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).

Workflow Has Cash Use, Disclosure Hearing for Jan. 13

Workflow Management Inc., a provider of promotional marketing services and printed business documents, was given final approval yesterday to use cash representing collateral for the claims of secured lenders. The agreement for use of cash requires approval by Jan. 18 of a disclosure statement explaining the Chapter 11 plan.

The bankruptcy judged scheduled a Jan. 13 hearing to approve the disclosure statement. A motion by the lenders to terminate Workflow’s exclusive plan-filing rights was pushed back to the same hearing. The agents for the first-and second- lien lenders are Credit Suisse AG, Cayman Islands Branch, and Silver Point Finance LLC. The lenders previously said that Workflow’s plan is fatally defective because it would leave the company insolvent and encumbered with more debt than before.

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

The right to use cash will end on Dec. 29 if Workflow doesn’t file a plan acceptable to the lenders. The company may nonetheless apply to the court for authority to use cash over the lenders’ opposition.

Workflow, based in Dayton, Ohio, initially said 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 showed.

With 49 offices, 17 distribution centers and nine 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).

AVP Pro Beach Volleyball Sold to Owner-Lender RJSM

AVP Pro Beach Volleyball Tour Inc., a producer of beach volleyball tournaments, was authorized by the bankruptcy judge at a hearing this week to sell the business to RJSM Partners LLC, Ian S. Landsberg, a lawyer for AVP, said in an interview. RJSM, the secured lender owed $5.4 million, is also the 72 percent owner.

Brigitte Gomelsky, a lawyer with Landsberg & Associates, said there were no other bids at auction. AVP’s offer included $200,000 cash, a so-called credit bid of $50,000 of the secured claim, and an estimated $175,000 outstanding on the loan supporting the Chapter 11 case.

AVP, based in Torrance, California, filed under Chapter 11 at the end of October in Los Angeles after canceling the last five events of a 12-event season. AVP said it has more than 200 “top volleyball professionals under exclusive contracts.”

Unsecured debt is $5 million, according to court papers.

The petition says assets are less than $500,000 while debt exceeds $1 million.

The case is In re AVP Pro Beach Volleyball Tour Inc., 10- 56761, U.S. Bankruptcy Court, Central District of California (Los Angeles).

Statistics

Low-Rated Junk Companies Have $109 Billion in Maturities

The 182 companies with corporate rating of B3 or lower have $109.7 billion in debt maturing from 2011 to 2015, according to a Dec. 15 report from Moody’s Investors Service.

Moody’s reported that the peak comes in 2014, when maturities in the category exceed $40 billion. Less than $5 billion is maturing in 2011, Moody’s said.

Previously, more debt was maturing in 2011. Improving credit markets allowed companies to refinance. Moody’s didn’t estimate how much of the later-maturing debt may be refinanced if credit markets remain the same.

Daily Podcast

Lehman Substantive Consolidation, Vitro, A&P: Bankruptcy Audio

Topics covered in the bankruptcy podcast on the Bloomberg terminal and Bloomberglaw.com include predictions about substantive consolidation and the outcome of the reorganization of Lehman Brothers Holdings Inc., why a bankruptcy judge in Fort Worth, Texas, may decide the fate of the reorganization of Vitro SAB in Mexico, and obstacles standing in the way of a successful reorganization by Great Atlantic & Pacific Tea Co. To listen, click here.

Briefly Noted

Vertis Confirms Prepackaged Bankruptcy Plan Within a Month

Vertis Inc., a provider of advertising and marketing services, won the bankruptcy judge’s approval of the so-called prepackaged reorganization plan at a confirmation hearing yesterday.

The plan was almost unanimously accepted by two classes of noteholders. For details on the plan, which eliminates $700 million in debt and was negotiated before the Chapter 11 filing on Nov. 17, click here for the Nov. 18 Bloomberg bankruptcy report.

Vertis is searching for a permanent chief executive officer, the company said in a statement. For Bloomberg coverage of confirmation, click here.

The new filing was just over two years after Vertis and American Color Graphics Inc. merged by confirming companion Chapter 11 reorganizations and reducing combined debt by almost $1 billion. ACG, based in Brentwood, Tennessee, was the third- largest insert printer in North America.

ACG had $528 million in debt before the prior bankruptcy, while the debt of Baltimore-based Vertis was $1.7 billion at the holding company.

The new case is In re Vertis Holdings Inc., 10-16170, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The prior cases were In re ACG Holdings Inc., 08-11467, and In re Vertis Holdings Inc., 08-11460, both in U.S. Bankruptcy Court, District of Delaware (Wilmington).

Oriental Trading Confirms Chapter 11 Reorganization Plan

Oriental Trading Co., a direct marketer of home decor products, toys and novelties, had the bankruptcy judge in Delaware approve the reorganization at a confirmation hearing yesterday after first- and second-lien lenders reached settlement on the Chapter 11 plan.

The plan gives the new stock, plus cash or a new $200 million second-lien note, to senior lenders owed $403 million.

For details of the plan and underlying settlement, click here for the Nov. 26 Bloomberg bankruptcy report. 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.

Carlyle Group purchased 68 percent of Oriental Trading in July 2006 from private-equity investor Brentwood Associates. Brentwood continued to own about 24 percent of the equity.

Assets of the Omaha, Nebraska-based company were on the books for $463 million on April 3. Liabilities totaled $756.6 million. Sales for the fiscal year were $485.4 million.

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

RHI Wins Interim Loan to Support Prepackaged Reorganization

RHI Entertainment Inc., a producer and distributor of television programming, received interim approval yesterday to borrow $7.5 million from a promised $15 million financing. A final hearing to approve financing is set for Jan. 11.

RHI began the so-called prepackaged reorganization on Dec. 10. The plan already was accepted by holders of all of the second-lien debt and 94 percent of the first-lien obligations. For detail of the plan, click here for the Dec. 13 Bloomberg bankruptcy report.

The petition says that assets are $524.7 million while debt totals $834.1 million. New York-based RHI said the assets include 1,000 titles for more than 3,500 broadcast hours of long-form programming. RHI specializes in made-for-television movies and miniseries.

The case is In re RHI Entertainment Inc., 10-16536, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Individual Blockbuster Creditor May Not Investigate Icahn

Blockbuster Inc. and the creditors’ committee defeated creditor Lyme Regis Partners LLC when the bankruptcy judge yesterday denied the firm’s motion for permission to use subpoenas and investigate Carl Icahn. The judge said investigation is the duty of the committee on behalf of all creditors. For Bloomberg coverage of the hearing, click here.

Before the Chapter 11 filing in September, 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. After two extensions, the deadline for filing the plan is now Jan. 14.

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

The petition listed assets of $1.02 billion against debt of $1.47 billion. Blockbuster estimated 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).

Trico Authorized Again to Sell Vessel Truckee River

Trico Marine Services Inc., a provider of support vessels for the offshore oil and gas industry, was authorized for a second time to sell the vessel Truckee River for $950,000.

The buyer is Riverman Nigeria Ltd. A prior buyer failed to complete a purchase the bankruptcy judge approved in October. Trico, based in The Woodlands, Texas, is closing down and selling all vessels associated with the towing and supply business.

To read about Trico’s proposed restructuring with holders of $400 million in 11.875 percent notes, click here for the Dec. 8 Bloomberg bankruptcy report. The Chapter 11 filing in August by the Trico parent was the company’s second. 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, no foreign subsidiary is 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).

Sheet Metal Installer OMC Reports November Net Loss

OMC Inc., a subcontractor that makes and installs sheet metal ductwork for heating and cooling systems, reported that the cost of goods sold in November exceeded revenue of $455,000. The net loss for the month was $140,000.

Since the Chapter 11 case began on Sept. 15, the cumulative net loss is $831,000 on revenue of $1.52 million. The largest contributor to the loss was a $550,000 bad debt expense.

The Chapter 11 petition said assets are less than $10 million while debt exceeds $10 million.

The case is In re OMC Inc., 10-14864, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

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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