Grace, Tribune, GM, Innkeepers, AmTrust: Bankruptcy

Specialty-chemical manufacturer W.R. Grace & Co. took a giant step toward completion of its almost 10-year-old reorganization when the bankruptcy judge signed a 79-page opinion yesterday recommending that the Chapter 11 plan be approved and confirmed.

Because resolution of Grace’s reorganization involves compromising asbestos claims, final approval and confirmation comes from a U.S. district judge.

The plan received an affirmative vote from all creditor classes other than general unsecured creditors. The plan dealt with claims of present and future personal-injury and property- damage claims related to asbestos. The class of unsecured creditors rejected the plan as the result of opposition from bank lenders who were being paid in full.

The banks contended they were entitled to interest at the higher default rate called for in the loan agreements. U.S. Bankruptcy Judge Judith K. Fitzgerald ruled in May 2009 that they weren’t entitled to the default rate, even though they weren’t being paid currently. For a discussion of Fitzgerald’s earlier ruling, click here for the May 20 Bloomberg bankruptcy report.

In 2009 Fitzgerald left several questions unanswered about the banks’ claims. Yesterday, she ruled against them on all issues. Among other things, she rejected the idea that the banks were impaired because they aren’t to receive interest at the higher default rate. She dodged the question of whether Grace is insolvent, saying that neither party presented evidence on the issue.

Insurance companies objected to the plan, arguing that the plan assigned their policies to a trust even though the policies prohibit transfer. Fitzgerald cited other asbestos cases where assigning insurance policies was held proper.

The official creditors’ committee objected to approval of the plan because the committee will cease to exist when the plan is confirmed. Fitzgerald noted that the committee is supporting the banks’ demand for the higher default rate of interest.

Given that the committee only wants to continue in existence to support banks and not the general unsecured creditor body, Fitzgerald said there was no basis on which to require the committee’s continued existence.

For other Bloomberg coverage, click here.

Fitzgerald ordinarily holds court in Pittsburgh. Early in the Grace case when the judges in Wilmington, Delaware, were short-handed and overwhelmed, she was named to preside over the Grace reorganization.

Grace’s Chapter 11 plan is based a settlement from April 2008 resolving all present and future asbestos personal injury claims and asbestos property damage claims. Columbia, Maryland- based Grace and 61 subsidiaries filed Chapter 11 petitions in April 2001 to deal with asbestos claims.

The bankruptcy case is In re W.R. Grace & Co., 01-01139, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Updates

Only Two Competing Plans Left for Reorganizing Tribune

Once, four reorganization plan were vying for approval at the Tribune Co. confirmation hearing scheduled to begin March 7. Now, there are only two.

The so-called bridge-loan lenders reached a settlement through mediation. They are withdrawing their plan and will now support Tribune’s plan. The bridge lenders include Marathon Asset Management LP and King Street Capital LP.

The settlement, to be incorporated into modifications in Tribune’s plan, calls for the bridge lenders to receive $64.5 million in cash, plus distributions from a trust set up under the plan.

The arrangers for the bridge loan can waive a distribution from the $64.5 million in return for releases from the other bridge lenders. The bridge lenders themselves will receive releases under the Tribune plan.

The bridge lenders are affiliates of JPMorgan Chase & Co., Merrill Lynch & Co. and Bank of America Corp.

The so-called step-one lenders withdrew their plan in December. For a summary of the plans filed by creditors, including the two that were withdrawn, 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 remaining creditors’ plan comes from Aurelius Capital Management LP, which calls itself the largest holder of bonds predating the 2007 LBO. Aurelius is joined by three indenture trustees for all of the pre-LBO debt. The terms describing the settlement with the bridge lenders were disclosed in a Jan. 28 filing by the mediator.

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

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

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

No Ruling Yet on Whether AmTrust Owes FDIC on Capital

Neither AmTrust Financial Corp., a holding company for a failed bank, nor the Federal Deposit Insurance Corp. won when a federal district judge handed down a 40-page opinion yesterday on whether there was a commitment to provide capital to the bank subsidiary.

The decision involves Section 365(o) of the Bankruptcy Code, which says that a bank holding company in Chapter 11 must make good on any “commitment” with the FDIC to maintain capital at a bank. Further, the commitment is an obligation to be paid in full in the Chapter 11 case and isn’t discharged at pennies on the dollar like pre-bankruptcy unsecured claims.

In AmTrust’s case, the FDIC pointed to three documents allegedly making a commitment to supply needed capital before the bank subsidiary failed. AmTrust contended that the same documents showed there was no commitment.

U.S. District Judge Donald C. Nugent in Cleveland said the documents were ambiguous. He told the parties to begin a trial on April 18, where he will rule whether the documents constitute a commitment to supply capital. If there is a commitment, AmTrust’s obligation to make up the failed bank’s capital deficiency will come ahead of the claims of unsecured creditors.

The same issue arose in five other cases, the judge said. In each, language in the governing documents was different, so the outcome in other cases didn’t determine if there is liability in AmTrust’s case.

AmTrust filed for Chapter 11 protection in November 2009, four days before regulators took over the bank subsidiary. As receiver for the failed bank, the FDIC sued in bankruptcy court to recover the capital deficiency.

At the request of the FDIC, the dispute was transferred to the district court on account of issues involving non-bankruptcy law. AmTrust and the FDIC agree, according to a court filing, that the outcome of the dispute will determine whether the Chapter 11 case must be converted to a liquidation in Chapter 7.

AmTrust’s bank subsidiary was taken over and transferred by the FDIC to New York Community Bank.

Based in Cleveland, AmTrust said the family of companies had assets of $11.7 billion and debt of $11.5 billion before the bank failed. At the start of the Chapter 11 case, the assets of the companies in bankruptcy included ownership of the non- bankrupt subsidiaries, $7.3 million in cash, and $23 million of fixed assets at book value. Debt of the companies in bankruptcy included $169.5 million for borrowed money, made up of $99.5 million on senior notes and $51.6 million on subordinated notes.

The opinion in the district court is Federal Deposit Insurance Corp. v. AmTrust Financial Corp., 10-1298, U.S. District Court, Northern District Ohio (Cleveland). The Chapter 11 case is In re AmFin Financial Corp., 09-21323, U.S. Bankruptcy Court, Northern District Ohio (Cleveland).

Apartheid Claims Against Old GM Dismissed by Judge

Old General Motors Corp. defeated a class-claim where citizens of South Africa alleged that the one-time largest automaker in the U.S. aided and abetted the system of apartheid.

The class claim was filed under the federal Alien Tort Statute which allows foreigners to bring suits in U.S. courts for violation of international law.

While stating his personal “abhorrence of apartheid,” U.S. Bankruptcy Judge Robert Gerber said he was compelled to dismiss the claim under authority from a Circuit Court of Appeals decision in September called Kiobel. Gerber said that the Circuit Court in Manhattan ruled in Kiobel that no corporation has ever been held liable for alleged violations of international law of human rights.

Gerber noted that one judge on the panel issued what he called a “vigorous dissent.” The appeals court is currently considering a motion for the Kiobel case to be reheard by all active judges on the circuit court.

Gerber also said it wasn’t proper to have a class claim. While there would be some common issues among the members of the class, Gerber said “individual issues would predominate.” For other Bloomberg coverage, click here.

Gerber signaled his approval in December for old GM’s disclosure statement. The confirmation hearing for approval of the liquidating plan will begin March 3. Filed in August, the plan creates 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 on 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).

Innkeepers Has $2.26 Million December Operating Loss

Innkeepers USA Trust, a real estate investment trust, reported a net loss of $8.34 million in December on total revenue of $19.82 million.

The operating report filed in bankruptcy court in New York showed an operating loss of $2.26 million. The net loss from continuing operations was $4.6 million. Reorganization items in the month totaled $3.7 million.

Innkeepers has a new reorganization structure where Lehman Ali Inc. and Five Mile Capital Partners LLC would share ownership after Chapter 11. For details on the new plan structure, click here for the Jan. 18 Bloomberg bankruptcy report. The bankruptcy court will hold a hearing on March 8-9 to consider setting up auction procedures and approving agreements underlying the new proposal.

Palm Beach, Florida-based Innkeepers has 72 extended-stay and limited-service properties with 10,000 rooms in 20 states. For details on the first Innkeepers plan the bankruptcy judge rejected, click here for the Aug. 31 Bloomberg bankruptcy report.

Apollo Investment Corp. acquired Innkeepers in July 2007 in a $1.35 billion transaction. The Innkeepers petition listed assets of $1.5 billion against debt totaling $1.52 billion.

The case is In re Innkeepers USA Trust, 10-13800, U.S. Bankruptcy Court, Southern District New York (Manhattan).

Townsends Has Loan Approved until February Sale

Townsends Inc., a vertically integrated chicken producer, received final approval on Jan. 28 for an additional $5 million in secured financing on top of $7 million already approved.

Townsends is scheduled to sell the business at auction on Feb. 15. With financing expiring in February shortly after the sale, the order approving financing requires the company to convert the case to liquidation in Chapter 7 if there is no cash remaining to pay expenses.

The financing order also requires the lenders to allow the use of sale proceeds to pay some of the cost of goods delivered within 20 days of Townsends’ Chapter 11 filing.

Townsends filed under Chapter 11 on Dec. 19. Based in Georgetown, Delaware, the family-owned company is capable of producing 700 million pounds of poultry a year and 1.3 million eggs a week. The four production facilities are in Arkansas and North Carolina.

Townsends listed assets of $131 million and liabilities of $127 million. Liabilities include $20.7 million owing to secured lenders on a term loan and $40 million on a revolving credit. Twelve-month revenue was $504 million. Townsends contracts with over 300 growers who operate 1,200 chicken houses.

The case is In re Townsends Inc., 10-14092, U.S. Bankruptcy Court, District of Delaware.

RR Donnelley, Gould Paper on Orchard Brands Committee

Subsidiaries of retailer Orchard Brands Corp., which began their prepackaged reorganization on Jan. 19, have an official creditor’s committee with seven members. The committee’s assignment includes investigating whether the proposed reorganization can be improved for unsecured creditors who otherwise will receive nothing unless they fall within the category of selected trade suppliers.

The committee includes R.R. Donnelley & Sons Co., Gould Paper Corp. and Eastman Footwear Group Inc.

The Orchard Brands companies operate 55 retail stores. The agreement with lenders requires either consummation of a Chapter 11 plan or a sale of the business not later than May 21.

The plan was worked out with holders of 80 percent of the first-lien debt and all of the second-lien obligations.

The plan would give the stock and new debt to the secured creditors. For details on the plan, which would reduce debt by $420 million, click here for the Jan. 20 Bloomberg bankruptcy report.

Debt includes $115 million owing to trade suppliers and $725.1 million for borrowed money. Orchard is controlled by private-equity investor Golden Gate Capital Corp. Orchard, a holding company, is not itself in Chapter 11.

Beverly, Massachusetts-based Orchard has 17 brands, including Appleseed’s, Draper’s & Damon’s, Gold Violin, Haband and Norm Thompson. The stores sell clothing, footwear, and household goods. They appeal to shoppers over age 55. Orchard also sells through catalogues and the Internet.

The case is In re Appleseed’s Intermediate Holdings LLC, 11-10160, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Palm Harbor Reports $5.3 Million December Net Loss

Palm Harbor Homes Inc., a maker of factory-built homes, filed an operating report showing a $5.3 million net loss on revenue of $12.7 million for the period Nov. 30 through Dec. 24.

The loss before interest, taxes, depreciation and amortization for the period was $4.75 million.

Palm Harbor is to auction most of the business on March 1, with an opening bid from Fleetwood Enterprises Inc., a venture between Cavco Industries Inc. and a fund advised by Third Avenue Management LLC. Dallas-based Palm Harbor filed under Chapter 11 in late November.

Fleetwood is providing as much as $55 million in secured financing. To purchase, Fleetwood will pay the greater of $50 million or whatever is outstanding on financing, plus $6.5 million for the assumption of liabilities on warranties. The price is subject to possible downward adjustment. In addition, $3 million cash will be set aside to fund expenses for winding down the bankruptcy.

Fleetwood was purchased out of Chapter 11 in 2010 for $26 million by Cavco, a producer of manufactured homes from Phoenix.

Palm Harbor’s petition said assets are $321 million with debt totaling $280 million. On top of $34 million owing to Textron Financial Corp., there is $53.8 million owing on 3.25 percent convertible senior notes due 2024.

The case is In re Palm Harbor Homes Inc., 10-13850, U.S. Bankruptcy Court, District of Delaware.

New Filings

Evans Oil, Petroleum Distributor, Files in Florida

Evans Oil Co. LLC, a Naples, Florida-based distributor of bulk petroleum products, filed for Chapter 11 protection on Jan. 30 in Fort Myers, Florida, owing $34 million to the secured lender Fifth Third Bank.

Evans listed assets of $32.4 million against debt totaling $44.2 million, including the bank debt.

Evans transported 50 million gallons of product in 2010 and generated $3.5 million in earnings before interest, taxes, depreciation, and amortization, a court filing said.

The company is owned and controlled by Randy M. Long. Immediately after the Chapter 11 filing, the company filed papers asking the bankruptcy judge to stop the bank from suing Long on a personal guarantee.

Evans says that forcing Long into his own bankruptcy would distract him from the important task for working on the company’s reorganization.

Evans provides product for Chevron-branded service stations and other bulk users such as municipalities.

Chevron Products Co., owed $2.45 million, is listed as the unsecured creditor with the largest claim.

The case is In re Evans Oil Co. LLC, 11-01515, U.S. Bankruptcy Court, Middle District Florida (Fort Myers.)

Waterfront Property in Madeira, Florida, Files Ch. 11

Hubbard Properties LLC, the owner of the John’s Pass Boardwalk in Madeira Beach, Florida, filed for Chapter 11 protection on Jan. 27 in Tampa, Florida, owing $22.6 million on a mortgage to Investors Warranty of America Inc.

The property has five buildings with 39,900 square feet and a 322-car parking garage. It was renovated in 2008, giving rise to the IWA mortgage.

The property has been owned by the Hubbard family since 1976. It includes a marina and the Friendly Fisherman Restaurant.

On the same day as the Chapter 11 filing, IWA filed a motion asking the bankruptcy judge to declare that the Hubbard is a so-called single-asset debtor. If the bankruptcy judge agrees, bankruptcy law requires Hubbard to file a reorganization plan within 90 days that has a “reasonable possibility of being confirmed within a reasonable time.” Absent a plan within the required time, IWA can foreclose.

The case is In re Hubbard Properties LLC, 11-01274, U.S. Bankruptcy Court, Middle District Florida (Tampa).

London’s Global General Files Third NY Chapter 15

London-based reinsurer Global General & Reinsurance Co. Ltd. became the subject of yet another Chapter 15 case begun yesterday in New York. The new filing is designed to support a so-called scheme of arrangement approved Jan. 28 by the High Court of Justice of England and Wales.

Global General hadn’t written any new policies since 2002 and was in runoff. With the latest approval last week, four lines of business have been the subject of arrangement schemes approved by the U.K. court. Last week’s approval dealt with what is referred to as the “mainstream portfolio,” related almost exclusively to reinsurance.

Without the intervention of a scheme, running off an insurance portfolio could take 20 years. The scheme in the U.K. court has the effect of accelerating liabilities on outstanding policies and allowing a quicker distribution to policy holders.

Two of the prior schemes were the subject of Chapter 15 cases in New York. One was approved by the U.S. Bankruptcy Court in 2007, and the other in 2009.

In Chapter 15, the U.S. court can stop suits in the U.S. and compel compliance with the U.K. arrangement.

To read Bloomberg coverage, click here.

The case is In re Global General & Reinsurance Co. Ltd., 11-10327, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Downgrades

JPMorgan’s NCO Group Lowered to Moody’s Caa1 Corporate

NCO Group Inc., an accounts receivable services manager, received a downgrade yesterday to a Caa1 corporate grade from Moody’s Investors Service, matching the action taken by Standard & Poor’s in December.

Moody’s pegged its action on “greater than expected revenue declines,” “deteriorating consumer payment patterns,” and a “potential breach of covenants.”

Moody’s also demoted the $165 million in senior floating- rate notes to Caa2. The $200 million in senior subordinated notes became Caa3.

In its December downgrade, S&P mentioned there was a 30 percent decline in earnings before interest, taxes, depreciation, and amortization over the last three quarters.

The Horsham, Pennsylvania-based company was acquired in May 2006 for $1.2 billion by a group including JPMorgan Chase & Co.

J. Crew to Be Downgraded by S&P on Leveraged Buyout

The upcoming leveraged buyout of retailer J. Crew Group Inc. means the corporate rating from Standard & Poor’s will fall by two notches to B.

The new senior unsecured notes will have a CCC+ rating.

TPG Capital and Leonard Green & Partners LP are proposing to take New York-based J. Crew private in a $3 billion transaction.

J. Crew has about 250 stores. The shares closed yesterday at $43.42, up 2 cents in New York Stock Exchange composite trading. The company reported net income of $43.9 million for the three quarters ended Oct. 31 on revenue of $414 million.

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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