Intel Corp. (INTC), Ricoh Co. (7752), Nikon Corp. (7731), Motorola Solutions Inc. (MSI) and Apple Inc. (AAPL) are among the high-technology companies opposing Eastman Kodak Co.’s plan to sell digital-imaging technology at an auction tentatively scheduled for August.
Kodak filed court papers this month to set up procedures for what it calls a “flexible, competitive sale process” culminating in an auction. The technology companies filed papers on June 25 objecting to key aspects of the proposed sale. The bankruptcy court in Delaware will hold a hearing on July 2 to decide if sale procedures pass muster.
The companies object to selling the technology if the bankruptcy court simultaneously extinguishes licenses they signed with Kodak for the use of patents. Generally, they take issue with the proposition that the sale can eradicate their rights and defenses with regard to the technology.
Motorola, like Intel, argues that the bankruptcy court shouldn’t allow the technology to be sold with the proceeds placed in escrow, for later allocation among those claiming an interest. Motorola said it “cannot be compelled to accept money satisfaction” in place of rights under patent licenses.
Intel and others said that selling free and clear, with proceeds placed in escrow, “is simply not feasible.” The companies contend that the bankruptcy judge can’t summarily rule on their interests in technology through approval of a sale.
Instead, they say the extent and nature of their interests can only be decided through a lawsuit, like the one Kodak filed last week in bankruptcy court against Apple. In turn, Apple is attempting to remove the suit from bankruptcy court, saying only a federal district judge has the right to rule on patent disputes.
Kodak’s $400 million in 7 percent convertible notes due 2017 traded yesterday for 15.5 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
Kodak, based in Rochester, New York, filed for Chapter 11 reorganization in January, listing $5.1 billion in assets and $6.75 billion in debt. Liabilities for borrowed money, totaling $1.6 billion, included $100 million on a first-lien revolving credit and $96 million in outstanding letters of credit.
Other liabilities include $750 million in second-lien notes, $406.1 million in convertible notes, and $252.4 million in senior unsecured notes. Trade debt was $425 million.
Madoff Customers Raise New Defenses to Lawsuits
Customers of Bernard L. Madoff Investment Securities LLC filed a 50-page brief raising new arguments and asking U.S. District Judge Jed Rakoff to reverse an opinion he issued in late April when he sided with the trustee and ruled that fictional profits in an account statement can’t be used to offset the trustee’s fraudulent transfer claims.
The brief was filed on behalf of customers in about 300 lawsuits that Rakoff is handling together. The trustee will be filing his brief on July 25. The customers will file reply papers on Aug. 8 in anticipation of oral argument in Rakoff’s courtroom on Aug. 20.
Rakoff’s April 30 opinion denied customers’ defenses in 84 cases based on the notion that securities laws gave them the right to rely on account statements although no securities in reality were ever purchased.
Rakoff told customers’ lawyers in the 300 cases to raise new theories not addressed in the April 30 opinion. The customers responded with several arguments they contend are “issues of first impression” giving them the ability to fend off fraudulent transfer suits for taking out more principal than they invested.
Among other arguments, the customers contend they have the right to use claims for interest, consequential damages, and lost opportunity costs to offset the trustee’s fraudulent transfer claims. To read about Rakoff’s April 30 opinion, click here for the May 1 Bloomberg bankruptcy report.
Rakoff has ruled through a series of opinions that customers in substance don’t have defenses when sued for fictional profits received within two years of bankruptcy. In the process, Rakoff precluded trustee Irving Picard from suing to recover profits going back six years from bankruptcy. The issue of whether Rakoff was wrong in limiting suits to two years is going up on appeal to the U.S. Court of Appeals.
The Madoff firm began liquidating in December 2008 with the appointment of the trustee under the Securities Investor Protection Act. Bernard Madoff individually went into an involuntary Chapter 7 liquidation in April 2009. His bankruptcy case was consolidated with the firm’s liquidation. Madoff is serving a 150-year prison sentence following a guilty plea.
The mass cases are being handled by Rakoff in Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities LLC, 12-mc-00115, U.S. District Court, Southern District of New York (Manhattan). The Madoff liquidation in bankruptcy court is Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities Inc., 08-01789, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The criminal case is U.S. v. Madoff, 09-cr-00213, U.S. District Court, Southern District of New York (Manhattan).
AMR Would Have Been Break-Even Absent Bankruptcy Cost
AMR Corp., the parent of American Airlines Inc., would have been roughly break-even in May were it not for expenses associated with Chapter 11 reorganization.
The airline reported a $132 million net loss for May on operating revenue of $2.17 billion, according to an operating report filed with the U.S. Bankruptcy Court in New York.
Operating income of $55 million in the month turned into a net loss as the result of $55 million in interest expense and $134 million in reorganization costs.
The Chapter 11 costs were composed of $23 million in professional fees and $111 million from renegotiation and rejection of leases and financings for aircraft and facilities.
June 29 is the current deadline for the airline to reach agreements with unions on new contracts. Absent a consensus on concessions, the bankruptcy judge must rule on whether AMR can modify existing contracts with unions for pilots, flight attendants and mechanics. Negotiations are complicated because the unions have a stated preference for merging with US Airways Group Inc.
AMR, based at the airport midway between Dallas and Fort Worth, Texas, listed assets of $24.7 billion and debt totaling $29.6 billion in the Chapter 11 reorganization begun in November. American Airlines entered bankruptcy with 600 aircraft in the mainline fleet and another 300 with American Eagle, the feeder airline.
The case is In re AMR Corp., 11-15463, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
LightSquared’s ‘LP’ Lenders Object to Cost Allocations
Some secured lenders to LightSquared Inc. are questioning how the expenses of the Chapter 11 case should be allocated between the company and affiliate LightSquared LP.
Some of the so-called LP lenders disagree with the idea of charging 80 percent of costs to LP under the proposed financing agreement. They are owed $1.7 billion from a secured borrowing in October 2010 by LightSquared LP.
The LP lenders noted in their court filing that the company says LP is “wildly solvent.” Consequently, they contend expenses should be charged to LightSquared Inc. or its shareholders.
There will be a hearing tomorrow in U.S. Bankruptcy Court in Manhattan for interim approval of a $30 million credit to help finance the Chapter 11 effort. The LP lenders aren’t opposing interim approval of financing. The new facility is being provided by the so-called Inc. lenders owed $322.3 million.
LightSquared already has approval to use incoming cash representing collateral for both the Inc. lenders and the LP lenders.
LightSquared is developing a wireless communications systems using earth-based and satellite technology. It filed in Chapter 11 on May 14 after the Federal Communications Commission denied permission to build out the system on concern it would interfere with reception by global positioning devices.
Assets were listed for $4.48 billion, with liabilities totaling $2.29 billion. The company says it spent $4 billion developing the satellite system. Philip Falcone’s Harbinger Capital Partners LLC acquired LightSquared in March 2010 for $1.05 billion in cash.
The case is In re LightSquared Inc., 12-12080, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
Colgan Air Crash Victims Seeking Punitive Damages
Three years before Pinnacle Airlines Corp. filed for Chapter 11 protection, its Colgan Air Inc. flight 3407 crashed near Clarence Center, New York, on Feb. 12, 2009 during an ice storm. The crash has been blamed on crew fatigue, pilot error, inclement weather and inadequate training.
Ensuing lawsuits were halted by Pinnacle’s filing for bankruptcy reorganization. Pinnacle and the victims’ families are now fighting over whether the lawsuits can continue and on what terms.
Colgan offered to allow the suits to go forward seeking punitive damages, so long as the plaintiffs would collect only from insurance. The plaintiffs refused the offer, seeking to have punitive damages assessed against the bankrupt company in the event insurance was exhausted or not available.
The airline is in bankruptcy court today opposing the plaintiffs’ request for modification of the so-called automatic stay allowing the suits to go ahead seeking punitive damages. Colgan is opposing, saying that punitive damage awards could be “among the largest unsecured claims in these cases” if not payable by insurance companies.
The plaintiffs also want the judge to require Colgan to turn the insurance policies over to them. Colgan allowed some suits to go ahead and settle when the plaintiffs agreed to collect only from insurance.
Pinnacle, based in Memphis, Tennessee, began a Chapter 11 reorganization on April 1 in Manhattan, listing assets of $1.54 billion against debt totaling $1.43 billion. At the time, Pinnacle was providing service as Delta Connection, United Express and US Airways Express.
In addition to $74.3 million in financing for the bankruptcy provided by Delta Air Lines Inc. (DAL), secured debt includes $690 million owing to Export Development Canada and $34 million on a revised loan with an affiliate of CIT Group Inc. (CIT)
For the nine months ended Sept. 30, there was an $8.8 million net loss on $938.1 million in operating revenue. Operating income in the period was $23.1 million. Net income was $12.8 million in 2010 on operating revenue of $1.02 billion.
The case is In re Pinnacle Airlines Corp., 12-11343, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
Yucaipa’s Two AFA Plants Sold for $11.6 Million
AFA Foods Inc., a ground-beef processor controlled by Yucaipa Cos., received authority from the bankruptcy judge at a hearing yesterday to sell two plants for a combined $11.6 million.
Tri West Investments LLC, having submitted the only bid, is buying the plant in Los Angeles for $4.4 million. FPL Food LLC, in an auction with another bidder, came out on top with an offer of $7.2 million for the Georgia plant.
AFA was one of the largest ground-beef producers in the U.S. It filed for Chapter 11 protection on April 2 in Delaware after publicity about so-called pink slime “dramatically reduced the demand for all ground beef products,” the company said.
The Chapter 11 case is being financed with a loan of about $60 million provided by existing lenders General Electric Capital Corp. and Bank of America Corp.
AFA said that assets are on the books for $219 million, with debt totaling $197 million. Liabilities at the outset included $11.5 million on a term loan and $47.9 million on a revolving credit owed to first-lien lenders GECC and Bank of America.
A Yucaipa affiliate has a $75.6 million second lien. There was $60 million owing to trade suppliers, according to court filing.
Pink slime is the name commonly given to what AFA calls boneless lean beef trimmings, a beef-based additive that serves as filler for ground beef. The product was made by rendering trimmings at low temperature and using ammonium hydroxide to kill bacteria.
AFA’s products were sold under brand names Moran’s, Stone River Ranch and Miller Quality Meats. Yucaipa created the company through several acquisitions since 2008. Los Angeles-based Yucaipa owns 92 percent of the common stock and all of the preferred stock, in addition to the second-lien debt. Revenue in 2011 was $958 million.
The case is In re AFA Investment Inc., 12-11127, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Ritz Camera Has Interim Approval for $3 Million Loan
Ritz Camera & Image LLC, the operator of 265 camera stores and an Internet business, filed for Chapter 11 reorganization for a second time on June 22 and was given approval three days later for an interim $3 million loan.
At a final financing hearing on July 17, the financing will increase to a $15.6 million revolving credit and a $4.9 million term loan.
Ritz, based in Beltsville, Maryland, calls itself the largest camera-store chain in the U.S., with net sales of $254 million for the year ended in April. Stores will be shed during Chapter 11, the company said.
Pre-bankruptcy debt includes $16.3 million owing to Crystal Financial LLC, a secured lender with liens on all assets.
The camera stores and the Internet business were both in bankruptcy before. The stores currently operate under names including Ritz Camera, Wolf Camera and The Camera Shop.
The new case is Ritz Camera & Image LLC, 12-11868, U.S. Bankruptcy Court, District of Delaware (Wilmington).
The prior case for the camera stores was In re RCC Liquidating Corp., 09-10617, U.S. Bankruptcy Court, District of Delaware (Wilmington).
4Kids Sale Approved with Excess for Shareholders
4Kids Entertainment Inc., a producer of children’s entertainment and a licensor of merchandising rights, received approval yesterday from the bankruptcy court in New York to sell the business for $15 million to two buyers.
The price will pay creditors in full, with a “substantial” amount left over for owners, the company said in a court filing.
An affiliate of Tokyo-based Konami Corp. (9766) is purchasing the licenses for the Yu-Gi-Oh! animated television programs. Kidsco Media Venture LLC, affiliated with Saban Capital Group Inc., is buying the programming agreement with the CW Network LLC.
The eventual sale represented a $3.2 million improvement over the $11.8 million bid Saban made for all the assets at auction. After the auction, 4Kids worked out a joint offer that improved the effective net sale price.
Konami develops video-game software and arcade games.
4Kids previously generated $9 million from a settlement with the owner of the licenses for Yu-Gi-Oh!. The settlement followed a decision by U.S. Bankruptcy Judge Shelley C. Chapman in Manhattan concluding that the license wasn’t terminated before bankruptcy.
4Kids filed for Chapter 11 protection in April 2011 to prevent the termination of the licenses. 4Kids produced programming shown on the five-hour Saturday morning program block on stations affiliated with the CW Network.
The Chapter 11 petition listed assets for $23.4 million and debt of $16.5 million. The company reported a $27.2 million net loss in 2010 on revenue of $14.5 million. The operating loss for the year was $20.4 million. Selling, general and administrative expenses were about twice revenue.
The Chapter 11 case is In re 4Kids Entertainment Inc., 11-11607, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
Hawker Beechcraft Reports $89.7 Million Loss in May
Aircraft manufacturer Hawker Beechcraft Inc. reported a net loss of $89.7 million in May on sales of $144.8 million.
The cost of sales exceeded revenue by $3.3 million, according to the operating report filed with the U.S. Bankruptcy Court in Manhattan. The net loss stemmed mostly from a $33 million operating loss and $43.8 million in interest expense. Reorganization costs were another $4.8 million.
The Wichita, Kansas-based designer and manufacturer of light and medium-sized jet, turboprop and piston aircraft filed for Chapter 11 reorganization on April 3 after negotiating a plan to be filed by June 30. The plan will be designed for the conversion of all secured and unsecured debt into equity. For details on the plan, click here for the May 8 Bloomberg bankruptcy report.
Revenue was $2.34 billion in 2011. Total debt for borrowed money is $2.38 billion, according to a court filing. Other claims include pensions underfunded by $493 million.
The $183 million in 8.5 percent senior unsecured notes due in 2015 traded on June 22 for 19.3 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
The $302 million in 8.875 percent senior unsecured notes due in 2015 traded on June 5 for 15.5 cents, Trace said. The $145 million in 9.75 percent senior subordinated notes traded on May 18 for 3.05 cents on the dollar, according to Trace.
The case is In re Hawker Beechcraft Inc., 12-11873, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
Paulson, Winthrop Resorts Report $9.8 Million Loss
The resorts owned by Paulson & Co. and Winthrop Realty Trust (FUR) reported a net loss of $9.8 million in May on revenue of $35.2 million.
The operating report filed with the bankruptcy court in New York shows an $8 million loss from continuing operations. The month’s loss stemmed largely from $7 million in interest expense and $5.5 million in charges for depreciation and amortization.
The Doral Golf Resort and Spa in Miami was sold to Donald Trump, reducing mortgage debt by at least $140 million, the resort operators said. The remaining resorts are the Grand Wailea Resort Hotel and Spa in Hawaii; the La Quinta Resort and Club and the PGA West golf course in La Quinta, California; the Arizona Biltmore Resort and Spa in Phoenix; and the Claremont Resort & Spa in Berkeley, California.
After foreclosing last year, Paulson and Winthrop put all five resorts into bankruptcy in February 2011 to prevent foreclosure of $1 billion in mortgages and $525 million in maturing mezzanine debt.
The properties listed assets of $2.2 billion and liabilities of $1.9 billion. An affiliate of Morgan Stanley (MS) purchased the five resorts in 2007 for $4 billion. Revenue in 2010 was $465 million.
The case is In re MSR Resort Golf Course LLC, 11-10372, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
Colorado’s Cordillera Golf Club Files in Delaware
The owner of the four-course golf club at the Cordillera resort community in Edwards, Colorado, filed for Chapter 11 protection yesterday in Delaware as the result of what the club called a “mass exodus of members.”
The club is located at the 7,000-acre Cordillera development, which has 1,087 residential lots. Non-equity club membership is open to community residents. The club has three golf courses, one short course, five swimming pools and tennis facilities.
Debt includes $12.7 million owing to senior lender Alpine Bank. Owner David Wilhelm is owed $7.5 million, according to court papers. Assets and debt both exceed $10 million, according to the petition.
The club blames bankruptcy on a “small but vocal minority of current and former club members” who undertook a campaign intended to force a sale at a below-market price, according to court papers. Litigation is outstanding between the club and members who resigned “in substantial numbers” and boycotted the facilities, court filing states.
The club intends to use Chapter 11 to sell one of the courses. Only portions of the facilities are currently operating, according to a court filing.
The case is In re Cordillera Golf Club LLC, 12-11893, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Stockton, California, Votes to File Bankruptcy
Stockton, California, will be filing for Chapter 9 municipal bankruptcy after the city council voted 6-1 yesterday to adopt a budget for operating in bankruptcy.
The filing may be made today.
The budget calls for defaulting on $10.2 million in debt payments and cutting $11.2 million in employee pay and benefits under union contracts. For the Bloomberg story, click here.
Stockton will be the largest U.S. city to file bankruptcy.
The city council previously voted to authorize the city manager to file for Chapter 9 municipal bankruptcy absent concessions from creditors.
The state-mandated period for mediation ended June 25.
Satellite Photographer GeoEye Downgraded to B- by S&P
GeoEye Inc., a provider of high-resolution satellite photographs, said on June 25 that it may lose a significant chunk of government business and as a result received a two-notch downgrade yesterday from Standard & Poor’s.
The new corporate rating is B-.
There is a “heightened risk” of lower revenue from the government later this year or next, S&P said. The government program being cut provided 41 percent of revenue. Government contracts produced 64 percent of a year’s revenue, S&P said.
Based in Herndon, Virginia, GeoEye reported $13.2 million of net income in the first quarter on revenue of $89.3 million. For 2011, revenue of $356.4 million generated net income of $46.9 million.
GeoEye rose 1.9 percent yesterday to $14.51 in Nasdaq Stock Market trading. The stock dropped 22 percent the previous day, following the announcement.
Junk Defaults to Remain Benign, Moody’s Predicts
The decline in the stock market since early May and the turmoil in Europe aren’t reflected in statistics predicting bankruptcy among junk-rated companies.
The list of non-financial companies with junk ratings of B3 or below and with negative outlooks includes 166 names, compared with 176 three months ago and 174 a year ago, according to a June 25 report from Moody’s Investors Service. There are 1,250 companies with junk ratings from Moody’s.
The current default rate is 11.7 percent for companies with B3 negative or lower ratings. During the height of the recession, in 2009, the comparable default rate was 47 percent and 300 companies were on the list of lowest-rated junk companies.
Moody’s continues predicting that the default rate will remain benign for junk-rated companies. Currently at 3.1 percent, the junk default rate will rise to 4 percent in October before declining to 3 percent a year from now, Moody’s predicts.
The average junk default rate since 1992 is 4.6 percent, Moody’s said.
Houghton Mifflin Venue, Hostess Union Opinion: Bankruptcy Audio
Houghton Mifflin Harcourt Publishing Co., the educational publisher, shouldn’t have filed its prepackaged bankruptcy reorganization in New York, according to the opinion discussed on the podcast with Bloomberg Law’s Lee Pacchia and Bloomberg News bankruptcy columnist Bill Rochelle. The ruling may have significance as a precedent for future cases, although the practical importance for Houghton is limited because the judge also approved the Chapter 11 plan. Analyzing a decision by another bankruptcy judge in New York, Rochelle uses the reorganization of Hostess Brands Inc. to explain why a bankruptcy court can’t modify a union contract that expired by its terms. The podcast wraps up by discussing a case in Chattanooga, Tennessee, where a lender was bound by representations its lawyer made in court even though the Chapter 11 plan was to the contrary. To listen, click here.
To contact the reporter on this story: Bill Rochelle in New York at email@example.com.