Innkeepers, Caribe, Inverness, Cordia, Vitro: Bankruptcy

A joint venture between Cerberus Capital Management LP and Chatham Lodging Trust (CLDT) won this week’s auction for 64 of the 72 hotel properties owned by Innkeepers USA Trust.

Their offer was about $1.13 billion, according to the buyers’ statement. Chatham won yesterday’s auction for five other properties with a bid of more than $190 million, according to a person with knowledge of the auction. For other Bloomberg coverage, click here.

The auction, which began May 2, opened with an offer for 65 hotels from Lehman Ali Inc. and Five Mile Capital Partners LLC. Lehman Ali, a non-bankrupt subsidiary of Lehman Brothers Holdings Inc., has $238 million in floating-rate mortgages on 20 of the properties. Had the Lehman unit and Five Mile won the auction, they were to acquire the properties through confirmation of a Chapter 11 plan.

With other buyers prevailing, it won’t be known until details are made public whether the Cerberus-Chatham acquisition will be through a plan or by a sale before plan confirmation.

It is also as yet unclear whether Chatham will have smooth sailing in purchasing the other five properties, given possible opposition from Innkeepers’ preferred shareholders. An argument could be made that the five weren’t properly up for auction yesterday.

Midland Loan Services Inc. is the servicer for $825 million of fixed-rate mortgage debt on 45 of the 72 properties. Under the plan with Lehman Ali and Five Mile, Midland was to have a 75 percent recovery from $622.5 million in new mortgages on revised terms. The improvement in Midland’s recovery won’t become known until details of the auction are released.

From the outset of the Innkeepers Chapter 11 case, Midland insisted on an auction, which Innkeepers didn’t originally contemplate holding.

The plan was intended to give Lehman Ali a 91 percent recovery on its mortgages. The improvement, if any, in Lehman Ali’s recovery likewise isn’t publicly known yet. For details on the prior Lehman Ali-Five Mile plan covering 65 hotels, click here for the March 14 Bloomberg bankruptcy report.

A hearing is currently scheduled on May 10 for approval of a disclosure statement approving Innkeepers’ Chapter 11 plan. The confirmation hearing for approval of the plan is tentatively set for June 23.

Innkeepers, based in Palm Beach, Florida, has 72 extended- stay and limited-service properties with 10,000 rooms in 20 states. Apollo Investment Corp. (AINV) acquired the company in July 2007 in a $1.35 billion transaction. The Innkeepers Chapter 11 petition filed in July 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 of New York (Manhattan).

New Filings

Caribe Media Files Facing Fraudulent Transfer Claims

Yellow-pages publisher Caribe Media Inc. and affiliates until yesterday were non-bankrupt subsidiaries of Local Insight Regatta Holdings Inc., part of a group of publishers that filed under Chapter 11 in November.

Caribe and affiliates sought Chapter 11 relief yesterday in Delaware at the demand of senior secured bondholders, the company said in bankruptcy court papers. The bondholders insisted on a filing by May 3 to preserve the ability to sue for the recovery of $44.2 million in dividends that Caribe paid to Local Insight between May 2009 and September 2010.

The bondholders already filed proofs of claim based on the dividends they contend represented fraudulent transfers.

Caribe violated covenants on the senior bonds in the third quarter of 2010. The debt was accelerated in April and access to the revolving credit was cut off.

Debt includes $127 million on the senior bonds and $57 million on senior subordinate notes. Cantor Fitzgerald Securities is the agent for the senior bondholders. WACS Capital Partners IV LP holds the subordinated notes, court papers say.

Caribe, which publishes yellow page directories in Puerto Rico and the Dominican Republic, said it has no known unsecured debt. Just in case, the company is asking the bankruptcy court for the ability to pay any pre-bankruptcy unsecured claims without awaiting confirmation of a Chapter 11 plan.

Caribe was acquired by Local Insight in 2006 in a transaction that gave rise to the $184 million in debt that is the subject of the Chapter 11 case.

Local Insight filed its Chapter 11 petition in November after learning that the lenders failed to file a financing statement to perfect liens on collateral securing the loan. The bankruptcy occurred soon enough that the company may be able to void the security interest as a preference. The lenders are owed $337 million.

Local Insight publishes 870 directories for 115 phone companies. Debt on the Regatta Holdings companies includes a secured $311 million term loan and a $26 million revolving credit. JPMorgan Chase Bank NA is agent for the lenders. In addition, $221 million is owing on senior subordinated notes.

At the Local Insight line of companies there are $258 million in bridge loans now owing to venture capital investor Welsh, Carson, Anderson & Stowe, the controlling shareholder. The Local Insight companies owe another $214 million on two issues of subordinated notes.

Trade suppliers are owed $8 million, according to court papers.

The Caribe case is In re Caribe Media Inc., 11-11387, and The Local Insight case is In re Local Insight Media Holdings Inc., 10-13677, both in U.S. Bankruptcy Court, District of Delaware (Wilmington).

Sun Capital’s Furniture Maker Berkline to Liquidate

Berkline/BenchCraft Holdings LLC, the manufacturer of Berkline reclining sofas, filed in Delaware to liquidate in Chapter 11.

The company is more than 90 percent owned by private-equity investor Sun Capital Partners Inc. Berkline, based in Morristown, Tennessee, blamed its business failure on the recession and the resulting “steep decline” in sales. Management decided to liquidate in late March, the company said in its May 2 filing.

In April, Hilco Merchant Resources LLC beat five other liquidators at an auction for the right to sell the inventory.

Hilco guarantees a recovery of no less than $2.78 million. Once sales cover the guarantee, Hilco will take the next $500,000 plus expenses of the sale. Additional recoveries are split, with Berkline receiving 80 percent and Hilco keeping 20 percent.

Wells Fargo Capital Finance LLC is the first-lien lender owed $4.29 million. The $140 million second lien has an affiliate of Goldman Sachs Group Inc. (GS) as syndication agent. There are $12.5 million in unsecured subordinated notes, mostly held by affiliates of Boca Raton, Florida-based Sun Capital.

The case is In re Berkline/BenchCraft Holdings LLC, 11-11- 11369, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Cordia Communications Files to Sell CLEC Business

Cordia Communications Inc. filed for Chapter 11 protection on May 1 in Orlando, Florida, intending to sell its business as a competitive local exchange carrier.

The filing was made to meet a deadline set by Verizon Communications Inc. (VZ) and the business will be sold through auction and sale procedures, according to court papers. No buyer is yet under contract.

Cordia, based in Winter Garden, Florida, generates $35 million in annual revenue in 27 states.

There are $16.9 million in priority tax claims and about $6.6 million in unsecured claims. The company doesn’t believe there are any valid secured claims. Court papers don’t put a value on the assets.

The case is In re Cordia Communications Inc., 11-06493, U.S. Bankruptcy Court, Middle District of Florida (Orlando).

Robinson’s Movie Distributor Inverness Files Chapter 15

Movie distributor Inverness Distribution Ltd. filed a petition for Chapter 15 protection in New York yesterday, owing $74.1 million to a group of European banks.

The company was set up to distribute movies outside the U.S. and Canada that were produced by Morgan Creek Productions Inc., according to Inverness’s Bermudian liquidators. “Ace Ventura: Pet Detective” is one of Morgan Creek’s movies.

The company went into provisional liquidation in January in Bermuda, where the company was registered. The liquidators say Inverness’s only office was in Bermuda. They don’t say where executives conducted the company’s business.

Inverness was managed by James Robinson, the company’s sole shareholder and the founder and chief executive officer of Morgan Creek, the liquidators said in court papers.

The liquidators said they were informed by the lenders that they have reason to suspect that assets of Inverness were “used to benefit other entities affiliated with Robinson.”

Societe Generale is agent for the lenders. The bank debt was in default before the insolvency proceedings began in Bermuda.

Chapter 15 isn’t a full-blown reorganization like Chapter 11. If the bankruptcy judge in New York decides that Bermuda is home to the “foreign main proceeding,” the U.S. court will allow the foreign court to collect the assets, adjudicate claims and make distributions to creditors.

Chapter 15 gives the liquidators the ability to stop creditor actions in the U.S. and collect assets in this country. The injunction against creditor actions isn’t automatic in Chapter 15. The liquidators will hold a hearing where they can ask for preliminary relief, such as an injunction against creditor suits.

The case is In re Inverness Distribution Ltd., 11-12106, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Updates

Sun Capital’s Arch Aluminum Bids for U.S. Vitro Business

A Sun Capital Partners Inc. affiliate bid $45 million for U.S. units of Vitro SAB, topping an existing offer even before a bankruptcy judge approved procedures to auction the companies.

Sun Capital, the Boca Raton, Florida-based owner of Vitro rival Arch Aluminum & Glass Co., is familiar with bankruptcy sales. More than a dozen of the private-equity investor’s companies have filed for Chapter 11 protection since January 2006 and it bought Arch Aluminum out of bankruptcy in January 2010 for $53.8 million.

Sun Capital is offering $1 million more than the existing offer of $44 million from an affiliate of Grey Mountain Partners LLC, based in Boulder, Colorado. In addition, Sun Capital is willing to be the so-called stalking horse without being promised a breakup fee if outbid at auction.

Grey Mountain’s contract calls for a 3 percent breakup fee that amounts to $1.3 million.

In a filing yesterday in U.S. Bankruptcy Court in Fort Worth, Texas, Sun Capital said that Vitro’s managers, “potentially perceiving new employment opportunities with a financial buyer like Grey Mountain,” excluded Arch Aluminum from the sale process until last month.

A May 6 hearing is scheduled in bankruptcy court where the judge will decide whether Arch Aluminum or Grey Mountain should be the stalking horse with the first bid at auction.

Vitro’s U.S. subsidiaries are in Chapter 11 in response to involuntary bankruptcy petitions filed in November by holders of defaulted notes. When Vitro put the four U.S. subsidiaries into Chapter 11 on April 6, it immediately filed a motion proposing a sale to Grey Mountain.

The Vitro parent is reorganizing in Mexico. It is also the subject of a Chapter 15 proceeding in New York where it is asking a U.S. judge to enforce whatever reorganization a judge in Mexico approves. Bondholders have a motion pending to transfer the New York case to Texas, a move Vitro opposes.

A group holding more than 60 percent of Vitro’s $1.2 billion in defaulted bonds is opposing the Mexican reorganization. They say it would be a misuse of Chapter 15 because Vitro intends to cram down a plan on noteholders by using votes arising from $1.9 billion in inter-company claims.

In the Mexican reorganization, Vitro is offering noteholders what it said would be a recovery of as much as 73 percent by exchanging existing debt for cash, new debt and convertible bonds. The bondholders claim Vitro is worth enough to pay them in full.

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

The Chapter 11 case in Texas is In re Vitro Asset Corp., 11-32600, U.S. Bankruptcy Court, Northern District of Texas (Fort Worth). The Chapter 15 case in New York is In re Vitro SAB, 11-11754, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

WaMu Wins Approval to Pay $13 Million to Settle Class Suit

Washington Mutual Inc. (WAMUQ) received authority this week to pay $13 million to settle a class action on behalf of individuals who allegedly were charged improper fees when they paid off home loans.

WaMu said it decided to settle even though it believed the suit to be “entirely without merit.” For details on the suit that began in 2005, click here for the April 5 Bloomberg bankruptcy report.

Creditors are once again voting on WaMu’s modified reorganization plan. Voting ends May 13. The confirmation hearing for approval of the plan is set for June 6.

The judge wrote a 109-page opinion on Jan. 7 explaining why she couldn’t confirm a prior version of the plan. For details on the revised plan, click here for the Feb. 14 Bloomberg bankruptcy report. For details on WaMu’s last-minute changes in the disclosure, click here for the March 21 Bloomberg bankruptcy report. For details on the opinion denying confirmation of the prior plan, click here for the Jan. 10 Bloomberg bankruptcy report.

The WaMu holding company filed under Chapter 11 in September 2008, one day after the bank subsidiary was taken over. The bank, once the sixth-largest depository and credit- card issuer in the U.S., was the largest to fail 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).

Alabama Aircraft Sets June 6 Auction for Business

Alabama Aircraft Industries Inc. (AAII), a provider of scheduled maintenance for U.S. military aircraft, will sell the business at auction on June 6.

Under procedures approved yesterday by the bankruptcy court in Delaware, bids are due initially by June 2. AAI must disclose the winner of the auction by June 7, in advance of a June 13 hearing for approval of the sale.

No buyer is yet under contract. A sale is necessary because AAI was unable to arrange financing.

At yesterday’s hearing, the judge also approved a so-called distress termination of the pension plan that is under-funded by $31.4 million. The bankruptcy judge already held a trial on termination of the existing union contract. The parties are awaiting a decision.

Previously known as Pemco Aeroplex Inc., AAI operates under a long-term lease at the Birmingham International Airport in Alabama. It chiefly maintains and repairs transport, tanker and patrol aircraft.

Pension Benefit Guaranty Corp. was listed as having the largest unsecured claim at $68.5 million. A fund affiliated with Tennenbaum Capital Partners LLC is owed $2.5 million on a note. Assets were valued at more than $32 million in September, according to a court paper.

The case is In re Alabama Aircraft Industries Inc., 11- 10452, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Geothermal Plant Owner Raser Gets Interim Loan Approval

Raser Technologies Inc. (RZTI), the owner of a six-megawatt geothermal electric generating plan in Utah, filed a Chapter 11 petition on April 29 in Delaware and received interim approval yesterday for a $750,000 loan.

At the final financing hearing on May 19, Raser aims for approval of the entire $8.75 million loan package, from which $6 million will be used to pay off existing debt.

Before the Chapter 11 filing, Raser negotiated terms for a reorganization where Linden Advisors LP and Tenor Capital Management LP will acquire all the new stock. Linden and Tenor are supplying the financing. They own about half the $57.2 million currently owing on 8 percent convertible senior unsecured notes, according to a bankruptcy court filing.

In addition to the one plant, Raser has interests in geothermal rights for seven projects in four western states covering 270,000 acres, plus rights in another 100,000 acres in Indonesia.

The petition listed assets of $41.8 million and debt totaling $107.8 million. The company had revenue of $4.25 million in 2010, resulting in a $71.9 million operating loss. The net loss last year was $101.8 million.

Liabilities of the Provo, Utah-based company include a $10.3 million secured debt on the plant. A Merrill Lynch & Co. affiliate has a $22.6 million unsecured debt arising from financing for the plant.

The contemplated plan calls for Linden and Tenor to buy the company for $19.8 million, composed of $2.5 million cash and exchange for debt.

The case is Raser Technologies Inc., 11-11315, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Charlie Brown’s Seeks Restitution from Former Execs

The former operator of Charlie Brown’s Steakhouse restaurants is pursuing information to enhance the chance it can recover some of the criminal restitution payment to be made by two former corporate executives.

In bankruptcy court papers filed this week, Charlie Brown’s describes how former Chief Executive Officer Russell D’Anton and former Vice President Michael Mulligan were charged by federal prosecutors in a criminal information last year with receiving kickbacks from suppliers.

In 2009, D’Anton agreed to pay the company $275,000 in return for dropping a lawsuit. The government recently told the federal district judge in the criminal action that the two should made criminal restitution of about $1 million.

Charlie Brown’s wants the bankruptcy court to force the two former executives to turn over information useful in having the district court award the company recoveries from restitution payments. The company and the two individuals are disputing whether the 2009 settlement barred the ability to collect restitution.

The 20 Charlie Brown’s locations were sold for $9.5 million. The 12 Bugaboo Creek stores fetched $10 million. The seven The Office Restaurants generated $4.68 million.

Charlie Brown’s, the official creditors’ committee and the principal lender have an agreement in principle giving part of the sale proceeds to unsecured creditors. Financing for the Chapter 11 case required quick sales. Forty-seven stores were closed before the Chapter 11 filing in November.

At the outset of the Chapter 11 case, the lenders were owed $70.2 million. In addition, debt at the beginning of the case included $14 million owing on second-lien senior subordinated notes and $30 million on a mezzanine loan. The company is controlled by Trimaran Capital Partners.

The senior secured lenders are Ableco Finance LLC, Wells Fargo Capital Finance Inc. and Ally Commercial Finance LLC.

The case is CB Holding Corp., 10-13683, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Brundage-Bone Concrete Pumping Confirms Reorganization Plan

Brundage-Bone Concrete Pumping Inc. and JLS Concrete Pumping Inc., which began reorganization in January 2010 in their hometown of Denver, are on the cusp of emerging from Chapter 11 after a bankruptcy judge signed an order confirming the exit plan on May 2.

Unlike most smaller companies in bankruptcy, the Brundage- Bone Chapter 11 case was a reorganization, not a liquidation. Discussions with equipment lenders allowed the company to renegotiate financing and retain some vehicles to remain in business.

Unsecured creditors are to receive notes paying 5.4 percent of their claims.

The Chapter 11 experience didn’t come without cost. The company paid $2.9 million in counsel fees by November, not including almost $1 million in unpaid fees, according to the disclosure statement.

The company’s Chapter 11 petition listed assets of $326 million against debt totaling $230 million. At the outset, there were 800 concrete pumps.

The bankruptcy filing resulted from a decline in construction. Revenue fell to $120 million in fiscal 2009 from $200 million in fiscal 2008.

The case is Brundage-Bone Concrete Pumping Inc., 10-10758, U.S. Bankruptcy Court, District of Colorado (Denver).

Tubo Says Plan Near, Wants Exclusivity Extended

Tubo de Pasteje SA and its Cambridge-Lee Holdings Inc. unit said negotiations on a Chapter 11 plan “are nearing completion” as they filed a sixth motion for an extension of the exclusive right to propose a reorganization plan.

A consensual plan likely will be filed “soon,” the companies said. If approved by the bankruptcy court in Delaware at a May 25 hearing, the new deadline will be June 8.

Tubo is a subsidiary of Mexico City-based Industrias Unidas SA. IUSA said in February it had an agreement in principle with creditors for a $371 million debt swap. Tubo’s Chapter 11 filing in December 2009 followed a payment default the preceding month on $200 million in 11.5 percent senior notes due 2016.

IUSA manufactures copper and electrical products. Cambridge-Lee, the U.S. subsidiary, is based in Reading, Pennsylvania. IUSA is the issuer of notes secured by a pledge of Cambridge-Lee stock.

The case is In re Tubo De Pasteje SA de CV, 09-14353, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Sexy Hair Chapter 11 Plan Confirmed Inside Five Months

Sexy Hair Concepts LLC, a distributor and marketer of hair- care products, filed under Chapter 11 in December and emerged from reorganization last week, owned by a private-equity investor.

The investor was identified in a creditor’s court filing as a company affiliated with TSG Consumer Partners and existing lenders.

For $43 million, the investor took the new stock and enabled the payment of $28 million in secured debt. Another $35 million in secured claims were assumed. Trade suppliers were paid in full, though other general unsecured creditors weren’t.

Sexy Hair, based in Chatsworth, California, was acquired in April 2008 by a group led by private-equity investor Thoma Bravo LLC, which owned a 37 percent stake. In the Chapter 11 case, Sexy Hair was represented by the Los Angeles law firm Peitzman, Weg & Kempinsky LLP.

Upon filing, the company said that debt totaled $88.7 million. It included $62.6 million owed to secured lenders, with Bank of Montreal (BMO) as agent. Northwestern Mutual Life Insurance Co., owed $24 million on a subordinated unsecured note, was an 8.2 percent owner.

Before the Chapter 11 filing, lenders exercised their rights as secured creditors to install a new board of directors and a chief restructuring officer, court papers said.

The case is Ecoly International Inc., 10-25919, U.S. Bankruptcy Court, Central District of California (Woodland Hills).

Ultimate Electronics Formally Converted to Chapter 7

Ultimate Electronics’ Chapter 11 reorganization was officially converted to a liquidation in Chapter 7, where a trustee will be appointed to dispose of the remaining assets and make distributions to creditors.

Yesterday’s conversion became the only option when the store liquidation was completed and the secured lender, General Electric Capital Corp., terminated the right to use cash. The store liquidations began shortly after the Chapter 11 filing in January because of a lack of financing. There were 46 stores.

Before conversion, a hearing was set for May 26 to approve the sale of trademarks, copyrights, websites and other intellectual property. Bids are due by May 23.

Controlled by Mark J. Wattles and based in Thornton, Colorado, Ultimate owed $64.8 million to GECC when the Chapter 11 case began. Assets at the time included $2 million in accounts receivable, $98 million in inventory and $12.8 million in real estate. The assets are collateral for GECC.

Wattles is president of Wattles Capital Management LLC, which owns 71 percent of Ultimate. He was chairman and founder of Hollywood Entertainment Corp., which was acquired by and later liquidated in Chapter 11 as part of Movie Gallery Inc.

Hewlett-Packard Co. owns 25 percent of Ultimate.

The case is In re Ultimate Acquisition Partners LP, 11- 10245, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Downgrade

Blackstone’s Apria Healthcare Demoted to B1 by Moody’s

Apria Healthcare Group Inc., a provider of home medical equipment, respiratory and infusion therapies, saw its corporate rating lowered one notch yesterday to B1 by Moody’s Investors Service.

Apria was acquired in October 2008 by Blackstone Group LP (BX) in a $1.57 billion transaction.

The $696.1 million in senior secured Series A-1 notes due 2014 were downgraded by one click to Ba3. The $317.5 million of senior secured Series A-2 notes due 2014 also slipped one grade, to B3.

The Lake Forest, California-based company reported operating income of $104.5 million in 2010 on revenue of $2.08 billion. The net loss for the year was $17.4 million after interest expense of $130.8 million.

In 2009, the net loss was $3.8 million. For the 10 months just before the acquisition, net income was $56.5 million.

Obituary

Thomas H. Kingsmill, Former New Orleans Bankruptcy Judge, Dies

Thomas Hartley Kingsmill, a U.S. bankruptcy judge in New Orleans from 1971 until 2003, died on May 1, the New Orleans Times-Picayune reported. He was 89.

When Kingsmill first took to the bench, bankruptcy judges were called bankruptcy referees. The word referee was used in the sense that bankruptcy cases were referred to them by district courts.

Kingsmill, a past president of the National Conference of Bankruptcy Judges, received his undergraduate and law degrees from Loyola University.

Daily Podcast

Cramdown, Lehman Plan, Two Investment Cases: Bankruptcy Audio

The Bloomberg bankruptcy podcast analyzes an important case at the outer limits of the cramdown process and looks at factors affecting the possibility of reversal on appeal. Bloomberg Law’s Lee Pacchia and Bloomberg News bankruptcy columnist Bill Rochelle discuss a state court opinion from Rhode Island explaining why states aren’t helpless in dealing with financial problems if they can’t pay their bills. The podcast looks at the importance of opposition by a Dutch bankruptcy trustee to the Lehman Brothers Holdings Inc. (LEHMQ) Chapter 11 plan. The podcast closes with a discussion of two new Chapter 11 cases. One presents the possibility of utilizing tax losses while the other represents an investment opportunity for someone interested in geothermal power projects.

To contact the reporter on this story: Bill Rochelle in New York at wrochelle@bloomberg.net

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net

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