Syms, Ambac, Jefferson County, Peregrine: Bankruptcy
Dissident Syms Corp. (SYMSQ) creditors are dissatisfied with the plan negotiated by the official creditors’ committee and intend to block approval of the reorganization plan in bankruptcy court at the Aug. 29 confirmation hearing.
Through mediation in June, liquidated retailers Syms and subsidiary Filene’s Basement LLC reached settlement with the two official committees representing shareholders and creditors.
The revised Chapter 11 plan, filed last week, “turned the Bankruptcy Code on its head by proposing to pay equity before unsecured creditors,” Joe Sarachek, Managing Director of Special Situations at CRT Capital Group LLC said in an interview.
The plan allows existing shareholders to retain their stock while unsecured creditors of parent Syms are paid in full without interest over time on their $54 million in claims. The plan calls for Marcy Syms, who owns about 54.7 percent of the existing stock, to sell her holding to the company for $2.49 a share, or a total of $19.5 million.
Combined with other unsecured creditors with similar attitudes, Sarachek said there are enough dissent votes to block plan approval. Bankruptcy law requires that two-thirds in dollar amount of claims in each class must vote in favor of the plan. For details on Syms’ newly revised plan, click here for the July 13 Bloomberg bankruptcy report.
Bankruptcy law contains so-called cramdown provisions where the bankruptcy judge may approve a plan even if a class votes “no.” Using cramdown, however, requires that shareholders receive nothing. Were cramdown utilized, the settlement wouldn’t work because shareholders would receive nothing.
At a hearing on July 13 in U.S. Bankruptcy Court in Delaware, the judge approved disclosure material explaining the newly revised plan. Creditors now can vote in anticipation of the Aug. 29 confirmation hearing to approve the plan, court records show. For a Bloomberg story on the confirmation hearing, click here.
Sarachek said the plan is a “really poor result” that came about because “the creditors’ committee just got worn down.” He said it was “hubris” for the plan to make a “three year interest free loan” for the benefit of existing shareholders.
The plan provides that interest will only begin to accrue on unsecured creditors’ claims if they haven’t been paid full by October 2015.
“There is a real risk that this plan will be voted down,” Adam Moskowitz, managing partner from ASM Capital LP said in an interview. ASM owns unsecured claims it intends to vote against the plan, Moskowitz said.
The revised disclosure statement, filed last week, told shareholders that they can expect the stock they retain in the reorganized company to be worth $1.50 to $2 a share assuming the real estate in lower Manhattan is worth $147 million. If the property is developed and sold four or five years later, the value could rise as much as $120 million, increasing the value of equity by $7.22 a share, the disclosure statement shows.
A call to lawyers for the creditors’ committee after business hours wasn’t returned.
The Syms stock lost 48 percent of its value on July 12 when the new disclosure statement was filed. The stock closed that day at $4.05 in over the counter trading. The stock recovered some lost ground by rising 11.1 percent on July 13, closing at $4.50. During bankruptcy, the stock’s peak was $12.65 on Dec. 12, 2011. The shares last traded at $7.76 just before the Chapter 11 filing on Nov. 2.
Secaucus, New Jersey-based Syms purchased Filene’s through a bankruptcy auction in June 2009 in Filene’s second Chapter 11 reorganization. At the outset of Chapter 11 case in November, there were 25 Syms stores and 21 Filene’s locations.
The stores were closed and inventory sold. Leases were terminated, leaving Syms with owned real estate.
Assets were listed in the Chapter 11 petition for $236 million, including real estate on the books for $97.7 million. Liabilities were listed at $94 million, including $31.1 million owing on a revolving credit with Bank of America NA as agent. In addition, there were $11.1 million in letters of credit outstanding on the revolver.
The case is In re Filene’s Basement LLC, 11-13511, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Tribune Judge Ready to Sign Plan Confirmation Order
Tribune Co. finally has a Chapter 11 reorganization plan that passes muster. In a 35-page opinion handed down July 13, U.S. Bankruptcy Judge Kevin J. Carey dismissed the last objections to the plan, refused to modify prior rulings, and directed the parties to submit a confirmation order approving the plan.
Carey’s signature on a confirmation order will allow Tribune to emerge from a reorganization begun in December 2008, once federal regulators approve the transfer of media licenses.
Although objections were winnowed down to a handful, three classes of creditors, including senior noteholders and holders of so-called Phones notes, still voted against the latest iteration of the reorganization.
Carey ruled that expense claims by indenture trustees for senior noteholders are properly classified along with claims on the notes themselves. The judge explained in his opinion why they shouldn’t be classified among general unsecured claims. He said that the indenture trustees always allied themselves with the noteholders, making it logical to classify their expense claims along with claims on the notes.
Resolving another classification dispute, Carey ruled that claims of tendering noteholders are subject to the subordination provisions governing the Phones notes and thus should be classified along with non-tendering Phones noteholder claims.
There was also a dispute over the lack of a reserve to cover the outcome of appeals regarding the classification of claims on the Phones notes. Carey said that reserves were properly removed from the plan because he has ruled on the treatment they are entitled to receive. Consequently, he said that the creditors must seek a stay pending appeal to preserve their claims.
Carey directed the parties to confer among themselves and give him a confirmation order to sign approving the plan, including language to reflect his rulings.
Carey’s latest rulings came as result of the last round of confirmation hearings that began June 7 after some creditor classes were permitted to vote on the plan again.
In April, Carey ruled that the $759.3 million in Phones notes are subordinated to senior notes when it comes to distributions from the trusts to be created under the plan. Wilmington Trust Co., indenture trustee for the Phones noteholders, along with Citadel Equity Fund Ltd. and Camden Asset Management, were among the parties with remaining objections to the plan.
The plan was revised after the judge ruled in October that neither Tribune’s plan nor a competing proposal could be approved. The judge decided that a modified company plan would be easiest to confirm.
Before the plan can be implemented, the Federal Communications Commission must approve a change in ownership of Tribune’s television stations.
For details on the judge’s opinion and defects he found in both plans, click here for the Nov. 1 Bloomberg bankruptcy report. For a summary of the company’s plan as modified in April 2011, just before the confirmation trial ended, click here for the April 7, 2011, Bloomberg bankruptcy report. For a report on how the bankruptcy judge modified his October ruling, click here for the Dec. 30 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. Tribune 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).
Wasendorf Confesses to 20-Year Fraud at Peregrine
Russell R. Wasendorf Sr. confessed to conducting a fraud for 20 years at futures broker Peregrine Financial Group Inc. where he was chief executive officer. A U.S. magistrate judge ordered him held in custody pending a preliminary hearing July 18.
Wasendorf said in a statement for prosecutors that he pulled off the fraud during the past 20 years by using his authority as Peregrine’s sole owner to prevent anyone else from seeing bank documents or interacting with the bank. He was therefore able to forge bank documents showing about $200 million more in customers’ deposits held at the bank than was actually the case.
The U.S. Commodity Futures Trading Commission alleged that more than $200 million in supposedly segregated customer funds has been misappropriated.
For Bloomberg coverage with details of Wasendorf’s confession, click here.
At a quickly-convened hearing on July 13, the bankruptcy judge authorized the Chapter 7 trustee to operate Peregrine’s business on a “limited basis” through Sept. 13.
The CFTC filed a receivership action on July 10 in U.S. District Court in Chicago, where the judge appointed a receiver and froze the assets the same day. The company itself filed a liquidating Chapter 7 petition later that day, with a trustee was appointed.
The fraud surfaced when Wasendorf unsuccessfully attempted suicide outside the firm’s head office in Cedar Falls, Iowa, on July 9. He left behind a suicide note disclosing the fraud.
The bankruptcy case is Peregrine Financial Group Inc., 12-27488, U.S. Bankruptcy Court, Northern District of Illinois (Chicago). The CFTC receivership case is U.S. Commodity Futures Trading Commission v. Peregrine Financial Group Inc., 12- cv-5383, U.S. District Court, Northern District of Illinois (Chicago). The criminal case is U.S. v. Wasendorf, 12-mj-131, U.S. District Court for the Northern District of Iowa (Cedar Rapids).
MF Global Parent’s Unpaid Fees Total $24.9 Million
Louis Freeh and lawyers from his firm who are representing him as trustee for MF Global Holdings Ltd. have run up $15.7 million in fees that can’t be paid because there isn’t available cash, according to the June operating report filed with the bankruptcy court in New York.
On top of fees for the trustee, lawyers for the official creditors’ committee have $9.2 million in currently unpayable fees.
MF Global Holdings is the parent of MF Global Inc., the liquidating commodities broker $1.6 billion short in accounts holding customer property. The expenses of the separate trustee for the broker are paid by the Securities Investor Protection Corp.
The MF Global companies under Freeh’s control generated $2.25 million in cash in June, when the outflow was $4 million. The net outflow in the month was $2.25 million.
Freeh ended June with $16.5 million in cash still available for use in paying expenses other than professional fees. During June, $1.66 million of cash was used from so-called cash collateral of secured lender JPMorgan Chase Bank NA. (JPM)
At the outset of bankruptcy in October, the holding company had no available cash other than $25.3 million in an account held by the bankrupt finance subsidiary MF Global Finance USA Inc. The account was maintained at JPMorgan, which claimed the money in the account was collateral for loans the bank made and could only be used with the bank’s permission. Arrangements were later made to use the bank’s cash collateral to pay expenses other than professional fees.
Last week, the bankruptcy judge approved $17.3 million in fees for the primary counsel for James Giddens, the trustee liquidating the brokerage subsidiary. The approved fees cover the period from the beginning of the case through Feb. 29. About $3 million in fees, or 15 percent, are being held back for payment later in the case. SIPC approved the amount of fees paid.
The MF Global Holdings parent and the commodity brokerage subsidiary went into separate bankruptcies on Oct. 31.
The holding company’s Chapter 11 case is In re MF Global Holdings Ltd. (MFGLQ), 11-15059, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The liquidation of the broker is In re MF Global Inc., 11-02790, in the same court.
Dewey Has Approval for Returning Files to Clients
Dewey & LeBoeuf LLP, the defunct law firm, was given permission from the bankruptcy judge last week to return files to clients and hire nine law firms and other professionals to assist the liquidation.
U.S. Bankruptcy Judge Martin Glenn approved procedures where clients or former Dewey lawyers will have 45 days to decide whether to take possession of files. Former clients must pay the cost of retrieving files in storage.
Glenn for now isn’t allowing Dewey to discard or destroy files clients don’t want. Disposing of unwanted files presents ethical problems because files contain confidential information. If files were merely discarded rather than shredded, confidential client information or communications might be disclosed. Shredding several hundred thousand boxes of files would be costly.
Glenn scheduled another hearing on July 25 to resume discussion of how to dispose of unwanted client files.
The judge gave final approval to hire Dewey’s primary bankruptcy counsel and another firm to deal with pension matters.
Glenn refused to allow Dewey to hire Proskauer Rose LLP for employment law issues resulting from failure to give workers 60 days’ notice before being fired. The U.S. Trustee charged that the Proskauer firm had a conflict of interest because, among the 63 partners, lawyers and staff it hired from Dewey, some would be entitled to sue for lack of notice.
The judge is allowing Dewey to make a revised request to hire Proskauer for other employment-related matters. The judge also allowed Dewey to hire seven non-lawyer professional firms to assist in managing the liquidation.
Dewey once had 1,300 lawyers before the liquidation under Chapter 11 began in May. There are two official committees, one representing creditors and the other for former partners.
There is secured debt of about $225 million and accounts receivable of $217.4 million at the outset of bankruptcy, the firm said. The petition listed assets of $193 million and liabilities of $245.4 million as of April 30.
The case is In re Dewey & LeBoeuf LLP, 12-12321, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
Ambac Shareholder Settlement Upheld in Appeals Court
Ambac Financial Group Inc. (ABKFQ), the holding company for an insurance company partially in rehabilitation, defeated shareholders when the U.S. Court of Appeals in Manhattan ruled that the bankrupt company had the right to settle a shareholders’ class-action suit.
Shareholders were attempting to overturn a ruling from December by a U.S. District Judge who upheld the bankruptcy court’s approval of settlement of class-action securities lawsuits begun by shareholders before Ambac filed for bankruptcy reorganization. The settlement, upheld by the appeals court on July 12, means that shareholders can’t proceed with lawsuits against officers and directors even though some of them believe the settlement is inadequate.
The lawsuits, naming Ambac and executives as defendants, alleged that the company didn’t accurately reflect liabilities being taken on guaranteeing bonds. While in Chapter 11 reorganization, Ambac took the position that it owns the lawsuit and had the power to settle. The bankruptcy court and the district court agreed.
In the settlement, Ambac paid $2.5 million the company put into escrow before bankruptcy. Insurance companies providing directors’ and officers’ liability policies agreed to pay $24.6 million. The settlement was contingent on barring dissent shareholders from continuing the suits or filing new ones. Lawyers representing plaintiffs in derivative suits were excluded from the mediation leading to the settlement.
The 2nd Circuit Court of Appeals agreed with the lower courts that once in bankruptcy, the “derivative claims became property” belonging to Ambac. Consequently, the circuit court ruled in its unsigned, two-page opinion that shareholders didn’t have any “cognizable interest” in how the suit was settled because it belonged to the company, not to them.
For details on the lower court’s opinions, click here for the Dec. 30 Bloomberg bankruptcy report.
Ambac Financial Group Inc. overcame opposition from shareholders and won the signature of the bankruptcy judge on a confirmation order in March approving a Chapter 11 reorganization plan. Creditor classes were all in support of the plan. For details on the plan, click here for the March 15 Bloomberg bankruptcy report.
The Ambac parent filed under Chapter 11 in November 2010. It listed assets of $90.7 million and liabilities totaling $1.624 billion, virtually all unsecured. Most of the debt was $1.622 billion owing on seven note issues. One issue for $400 million was subordinated.
The circuit court appeals case is Police and Fire Retirement System of the City of Detroit v. Ambac Financial Group Inc. (In re Ambac Financial Group Inc.), 11-4743, 2nd U.S. Circuit Court of Appeals (Manhattan). The appeal in district court was Police and Fire Retirement System of the City of Detroit v. Ambac Financial Group Inc. (In re Ambac Financial Group Inc.), 11-7529, U.S. District Court, Southern District of New York (Manhattan). The parent’s Chapter 11 case is In re Ambac Financial Group Inc., 10-15973, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The state insurance rehabilitation case is In re The Rehabilitation of Segregated Account of Ambac Assurance Corp., 2010cv001576, Dane County, Wisconsin, Circuit Court (Madison).
Jefferson County Bondholders Headed to Circuit Court
Jefferson County, Alabama, sewer bondholders are being permitted to appeal directly to the U.S. Court of Appeals in Atlanta from a ruling on Jan. 6 by the bankruptcy judge. In his opinion early this year, the bankruptcy judge ruled that the county’s Chapter 9 municipal bankruptcy filing automatically divested a receiver from control of the sewer system and its revenue.
U.S. Bankruptcy Judge Thomas B. Bennett in Birmingham said at the end of February that the appeal from his January opinion involved “a matter of public importance.” Avoiding an intermediate appeal to a U.S. district judge, he said, would “materially advance the progress of the case.”
The Court of Appeals agreed and signed a series of orders on July 12 permitting the bondholders to avoid an intermediate appeal in district court.
Bennett concluded in his 57-page opinion in January that the county’s filing for municipal debt adjustment automatically divested the receiver who had been appointed by the state court to take over the sewer system at the behest of bondholders. In favor of the bondholders, the judge ruled that the lien continues on sewer revenue.
Both the bondholders and the county are appealing various aspects of the Jan. 6 opinion. For details on Bennett’s January opinion, click here for the Jan. 9 Bloomberg bankruptcy report.
Where bondholders lost in January, they won on June 29 when Bennett ruled that the bond indenture limits what the county may deduct from sewer revenue before paying the remainder to bondholders. Bennett said that the Bankruptcy Code doesn’t permit deductions greater than those allowed by the indenture. The county is deciding whether to appeal.
Jefferson County began the country’s all-time largest Chapter 9 municipal bankruptcy in November, saying long-term debt is $4.23 billion, including about $3.1 billion in defaulted sewer debt where the debt holders can look only to the sewer system for payment. The sewer debt default is at the core of the county’s financial ills.
The appeal in circuit court is Assured Guaranty Municipal Corp. v. Jefferson County, Alabama, 12-13654, U.S. 11th Circuit Court of Appeals.
The Chapter 9 case is In re Jefferson County, Alabama, 11-05736, U.S. Bankruptcy Court, Northern District Alabama (Birmingham). The lawsuit over control of the sewers and revenue is Bank of New York Mellon v. Jefferson County, Alabama (In re Jefferson County, Alabama), 12-00016, U.S. Bankruptcy Court, Northern District Alabama (Birmingham).
Wynnchurch Set to Buy Northstar for $70 Million
Northstar Aerospace (USA) Inc. received no competing bids and as a result will ask judges in the U.S. and Canada on July 24 to approve sale of the business to private-equity investor Wynnchurch Capital Ltd. for $70 million.
The company said the price won’t be enough to repay first- lien lenders in full. Northstar makes gears and gearboxes for military helicopters.
Northstar’s principal lender, Fifth Third Bank (FITB), is loaning a maximum of $22 million to finance the Chapter 11 effort. The bank is already owed $39.5 million on a revolving credit and $18.9 million on a term loan. There is also a $7 million junior loan from Boeing Co. (BA) financing the bankruptcy.
Northstar filed for Chapter 11 reorganization on June 14 with the sale to Wynnchurch already negotiated.
U.S. operations are based in Bedford Park, Illinois. Northstar makes components and assemblies for Chinook, Apache and Blackhawk helicopters, as well as the F-22 Raptor fighter. There are six facilities in the U.S. and Canada. Revenue in 2011 was $189.6 million. The two largest customers are the U.S. military and Boeing.
Northstar’s books show assets of $165.1 million, with liabilities totaling $147.5 million. Trade suppliers are owed $21.7 million. Canadian affiliates filed for reorganization in Canada under the Companies’ Creditors Arrangement Act.
The case is In re Northstar Aerospace (USA) Inc., 12-11817, U.S. Bankruptcy Court, District of Delaware (Wilmington).
LightSquared Lost $82 Million in 7 Weeks of Bankruptcy
LightSquared Inc. reported a net loss of $81.7 million on revenue of $5.8 million from the beginning of the bankruptcy reorganization on May 14 through the end of June.
The principal constituents of the loss were $20.7 million in operating expenses, $16.6 million in depreciation, and $45.1 million in interest expense. The results were disclosed in an operating report filed with the U.S. Bankruptcy Court in Manhattan.
There will be a hearing in bankruptcy court tomorrow for approval of $30 million in financing provided by the so-called Inc. lenders owed $322.3 million.
Some of the so-called LP lenders disagree with the proposal to charge 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.
LightSquared is developing a wireless communications systems using earth-based and satellite technology. It filed in Chapter 11 after the Federal Communications Commission denied permission to build out the system from 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 that LightSquared can’t implement for lack of FCC approval.
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).
Auto Hauler Allied Has Final OK for $20 Million Loan
Auto hauler Allied Systems Holdings Inc. received final approval near the end of last week for a $20 million loan from an affiliate of controlling shareholder Yucaipa Cos.
Previously, the bankruptcy court in Delaware had approved an interim $10 million loan. The loan is secured by liens ahead of existing debt.
Allied’s new bankruptcy began in May when secured creditors Black Diamond Capital Management LLC and Spectrum Group Management LLC filed an involuntary Chapter 11 petition. Controlled by Yucaipa, Allied consented to being in bankruptcy reorganization again in June. Allied emerged from a prior Chapter 11 reorganization in May 2007, 70 percent-controlled by Yucaipa.
Allied’s debt includes $244 million owing on a first-lien loan and $30 million on a second-lien obligation. The loans have been in default since 2009. Allied’s reorganization in 2007 gave creditors $265 million in first-lien debt plus $50 million on a second-lien obligation.
The new case is In re Allied Systems Holdings Inc., 12-11564, U.S. Bankruptcy Court, District of Delaware (Wilmington). The prior Chapter 11 was In re Allied Holdings, Inc., 05-12515, U.S. Bankruptcy Court, Northern District of Georgia (Atlanta).
NewPage, Creditors, Lenders to Mediate after Plan Filed
Paper maker NewPage Corp. has a mediator in its future.
The official creditors’ committee has been lobbying since early May for the right to sue secured lenders. NewPage has been saying in response that unsecured creditors are “hopelessly out of the money” and there is no theory under which success in a suit would bring them a recovery under a Chapter 11 plan.
At a hearing last week, the bankruptcy judge said he will appoint a mediator once the company files a reorganization plan, court records show.
The official committee contends that the lenders financed an acquisition in 2007 and a refinancing two years later that included fraudulent transfers. In return for financing to support the Chapter 11 case, the company is barred from suing, the committee says. For details on the creditors’ claims, click here for the May 9 Bloomberg bankruptcy report.
At a hearing in June, the bankruptcy court granted NewPage an extension until Sept. 1 of the exclusive right to propose a reorganization plan. NewPage is 80 percent-owned by Cerberus Capital Management LP.
NewPage listed assets of $3.4 billion and debt totaling $4.2 billion in the Chapter 11 reorganization begun in September. Liabilities included $232 million on a revolving credit plus $1.77 billion on 11.375 percent senior secured first-lien notes. Second-lien obligations include $802 million in 10 percent secured notes and $225 million in floating-rate notes.
In addition to $200 million in 12 percent senior unsecured notes, there is $498 million owing on two issues of floating- rate pay-in-kind notes.
NewPage, based in Miamisburg, Ohio, has 16 paper-making machines operating in seven plants in the U.S. and Nova Scotia. The Canadian affiliate filed for reorganization in Nova Scotia. The company reported a $229 million net loss in the first half of 2011 on revenue of $1.79 billion, following a $674 million net loss in 2010 on revenue of $3.6 billion.
The case is In re NewPage Corp., 11-12804, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Impact Services Looks to Auction Assets Aug. 17
Impact filed a petition in May in U.S. Bankruptcy Court in Delaware for liquidation in Chapter 7 where a trustee was appointed. The trustee is asking the bankruptcy judge to hold an accelerated hearing on July 19 for approval of auction and sale procedures.
If the judge agrees, bids would be due Aug. 15 in advance of an auction two days later and a hearing on Aug. 20 for approval of a sale.
Assets being sold include a device called a pyrolysis machine that heats waste to 1,800 degrees Fahrenheit, reducing the waste to ash and lowering the cost of disposal. Impact owns the building, although it doesn’t own the underlying land.
There is a $13 million claim secured by the assets.
The trustee said he needs to sell the assets before he runs out of cash.
In a bankruptcy court filing, the company described the radioactive materials as “low level.” The company said it doesn’t believe the wastes “pose a threat of imminent and identifiable harm to public health or safety.”
The petition stated that assets are less than $10 million while debt exceeds $10 million.
The cases are In re Impact Holdings Inc. and In re Impact Services Inc., 12-11604 and 12-11605, both in U.S. Bankruptcy Court, District of Delaware (Wilmington).
BroadSign Files Plan with 10% for Unsecured Creditors
BroadSign International Inc., a developer of software for digital signs, completed the sale of the business at the end of May to secured lender JEDFam Group LLC in exchange for $5.5 million in secured debt plus cash needed to cure defaults on contracts going along with the sale.
There will be a hearing on Aug. 23 in U.S. Bankruptcy Court in Delaware for approval of disclosure materials so creditors can vote on a Chapter 11 reorganization plan.
The plan calls for JEDFam to take ownership of the company in return for its remaining secured claim. Unsecured creditors, with an estimated $3.35 million in claims, will be paid 10 percent in cash. JEDFam has a $5.5 million unsecured claim to receive no distribution.
BroadSign filed for Chapter 11 reorganization in March with the sale to a JEDFam already negotiated. When the bankruptcy began, BroadSign owed a total of $5.7 million to JEDFam on two first-lien obligations. JEDFam also owns 25 percent of the BroadSign stock.
Other secured lenders were owed a total of $6.8 million on obligations junior to the JEDFam debt, according to a court filing.
The case is In re BroadSign International Inc., 12-10789, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Lenny Dykstra Pleads Guilty to Bankruptcy Fraud
Lenny Dykstra, a former major league baseball player already serving three years in state prison for grand theft auto, pleaded guilty last week in federal court to three counts of bankruptcy fraud and other crimes. He will be sentenced on Dec. 3.
The former player for the New York Mets and Philadelphia Phillies was indicted in May 2011 on federal charges of bankruptcy fraud for selling or destroying $400,000 in property from his home. The indictment was modified to include charges that he withheld baseball memorabilia from his bankruptcy trustee.
Separately, Dykstra was sentenced to a concurrent nine- month state sentence for lewd conduct and assault. For Bloomberg coverage of the new plea, click here.
Dykstra filed for reorganization under Chapter 11 in July 2009 in Woodland Hills, California. A Chapter 11 trustee was appointed in September 2009, and the case was converted to a liquidation in Chapter 7 in October 2009.
Dykstra’s bankruptcy listed assets of $24.6 million against debt totaling $37.1 million. Debt included $12.9 million owing to JPMorgan Chase & Co.
The criminal case is U.S. v. Dykstra, 11-415, U.S. District Court, Central District of California (Los Angeles). The bankruptcy case is In re Lenny Kyle Dykstra, 09-18409, U.S. Bankruptcy Court for the Central District of California (Woodland Hills).
Broadview Networks Agrees with Lenders on Debt Swap
Broadview Networks Holdings Inc., a telecommunications provider based in Rye Brook, New York, agreed with first-lien bondholders and shareholders on a debt-for-equity exchange to swap $300 million in 11.375 first-lien senior secured notes maturing on Sept. 1. for $150 million of new five-year secured notes and a “vast majority” of the equity.
The company’s statement on July 13 didn’t disclose details of the transaction to be carried out in the “near future” through a so-called prepackaged Chapter 11 reorganization.
The agreement was reached with holders of more than two- thirds of the secured notes and shares, Broadview said.
The company said that holders of existing preferred stock will receive a “portion of the primary equity” along with warrants to purchase more stock.
The notes traded on July 13 for 67.8 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. Standard & Poor’s predicted last week that holders wouldn’t recover more than 30 percent following payment default.
Broadview reported a $5.3 million net loss on revenue of $88.5 million for the quarter ended March 31. The balance sheet was upside down, with assets of $258.3 million and total liabilities of $373.4 million.
For 2011, there was an $11.9 million net loss on revenue of $378.2 million.
Indiana Steel & Tube Files with Inventory Discrepancy
Indiana Steel & Tube Inc., a producer of steel tube from Brownstown, Indiana, filed for Chapter 11 reorganization last week after the discovery that actual inventory was substantially less than the amount shown on the books and records. The company is yet determine the cause of the discrepancy, according to a court filing.
Revenue in 2011 was more than $40 million. Debt includes $7.8 million on a revolving credit and $2.2 million on a secured term loan, both owing to Indiana Bank & Trust Co. The bank agreed to provide a $3.3 million credit for the Chapter 11 effort.
Assets and debt both exceed $10 million, according to the petition.
The case is In re Indiana Steel & Tube Inc., 12-91512, U.S. Bankruptcy Court, Southern District of Indiana (New Albany).
FTS International Inc. Demoted to B2 Corporate by Moody’s
FTS International Inc., one of the five largest providers of fracturing services for the oil and natural-gas exploration industry, was downgraded by one level on July 13 to a B2 corporate rating from Moody’s Investors Services.
Moody’s acted in view of “failed expectations of debt reduction,” greater liquidity “concerns,” and “lower pricing and higher operating costs.”
The $1.5 billion secured term loan was demoted to a B3 rating. The debt is secured by stock in FTS International Services LLC, the operating company.
Moody’s didn’t change the Ba3 rating on the $550 million in operating company senior notes.
FTS is controlled by Temasek Holdings Pte. and natural gas producer Chesapeake Energy Corp. (CHK) It was acquired in part by virtue of the $1.5 billion term loan.
In May, Standard & Poor’s downgraded FTS International Services to a B corporate rating. S&P based its action on lower natural gas prices that led to a 20 percent decline in the past year for FTS’s products and services, S&P said. S&P predicted that revenue would decline as much as 10 percent this year.
Formerly known as Frac Tech Services LLC, the company is based in Fort Worth, Texas.
Failed Missouri Bank Bring Year’s Total to 33
The single-branch Glasgow Savings Bank in Glasgow, Missouri, was taken over by regulators on July 13. It was the 33rd bank to fail this year.
With only $24.2 million in deposits, the cost to the Federal Deposit Insurance Corp. is an estimated $100,000.
In 2011, there were 92 bank failures, compared with 157 in 2010. The failures in 2010 were the most since 1992, when 179 institutions were taken over by regulators.
Bankruptcy Podcast & Video
Peregrine Options, Kodak Bonuses, J.C. Penney: Audio & Video
Customers of Peregrine Financial Group Inc. may end up with a larger recovery if the liquidation of the futures commission merchant is carried out by a receiver rather than a bankruptcy trustee, for reasons Bloomberg Law’s Lee Pacchia and Bloomberg News bankruptcy columnist Bill Rochelle explain on their podcast. Eastman Kodak Co. (EKDKQ) is proposing a program that could pay Chief Executive Antonio M. Perez a 200 percent bonus if unsecured creditors recover 30 percent. The last item on the podcast discusses the travails of retailer J.C. Penney Co. (JCP) To listen, click here.
On a Bloomberg bankruptcy video, Rochelle and Pacchia also discuss the advantages of a receivership for Peregrine, compared with a Chapter 7 bankruptcy. For the Bloomberg video, click here.
Circuit Court Makes Rules for Chapter 13 Family Size
The U.S. Court of Appeals in Richmond, Virginia, became the first federal circuit court to rule on calculating family size in deciding how much individuals in Chapter 13 must pay to creditors. There was a dissent on the three-judge panel.
The case involved a bankrupt mother who had joint custody with her former husband of two minor children. The bankrupt’s current husband had joint custody of three children with a former wife.
The bankrupt wife contended there were seven in her household for the calculation of expenses in deciding how much income was left to pay creditors.
The bankruptcy judge disagreed, using a modified “economic unit” approach where the court calculated that the bankrupt’s two children each represented 56 percent of a child based on the number of days the children lived with the mother.
The bankruptcy judge decided that the new husband’s three children each were 49 percent of a child, also based on the number of days the children lived in the home.
The bankruptcy judge totaled the fractions to yield 2.59 children and rounded off to three. The bankruptcy court therefore decided that the household had five members and thus refused to approve the Chapter 13 plan until net disposable income was recalculated.
On appeal, Circuit Judge G. Steven Agee upheld in the lower court in a 32-page opinion, noting that no circuit court has addressed the issue that divides lower courts.
Agee said that the critical word “household” in the Bankruptcy Code is ambiguous. He said the word must be given a definition that best suits Congress’ purpose in ensuring that bankrupts “repay creditors the maximum they can afford.”
Agree rejected an approach of using the number claimed as dependents on tax returns as being “underinclusive” in calculating household size and expense. He rejected the “heads on a bed” method used by the U.S. Census as overincluding the number of individuals contributing to family expense.
Agee said that the bankruptcy court’s “economic unit” approach was correct.
Circuit Judge J. Harvie Wilkinson III dissented in nine- page opinion. He said he couldn’t agree with the idea of breaking “a debtor’s children into fractions for purposes of Chapter 13’s means test.” An approach like the bankruptcy court’s, in his view, “subjects debtors to needlessly intrusive and litigious proceedings.”
Wilkinson said that the majority’s method “lacks a foundation in statutory text.”
The case is Johnson v. Zimmer (In re Johnson), 11-2034, U.S. Court of Appeals for the Fourth Circuit (Richmond, Virginia).
Dischargeability Can’t Be Arbitrated, Circuit Rules
A bankruptcy court properly refused to allow arbitration when a creditor sought to have arbitrators decide whether there was a breach of contract and whether the resulting damages would be discharged in bankruptcy, the U.S. Court of Appeals in San Francisco ruled on July 9.
The decision followed an opinion in January in a case called Thorpe Insulation, where the Ninth Circuit concluded that a bankruptcy judge has discretion to refuse to enforce arbitration clauses in contracts in both core and non-core disputes.
U.S. District Judge Algenon L. Marbley from Ohio, sitting by designation on the Ninth Circuit, followed Thorpe and ruled that allowing arbitration would “conflict with the underlying purposes of the Bankruptcy Code.”
The case involved an individual who filed in Chapter 11. Creditors contended he was liable for $3 million in damages for breaching a construction contract.
Marbley said that the creditors “in actuality” were trying to have the arbitrators decide dischargeability of the debt. Because ruling on breach of contract was “so closely intertwined with dischargeability,” the bankruptcy judge was within his discretion to deny arbitration, even though it was required under the construction contract.
For a discussion of Thorpe, click here for the Feb. 2 Bloomberg bankruptcy report.
The case is Ackerman v. Eber (In re Eber), 10-56772, U.S. Court of Appeals for the Ninth Circuit (San Francisco).
No Copyright Jury Trial Following Stern v. Marshall
The case involved an individual who filed bankruptcy after being sued for copyright infringement. The creditors filed claims and a lawsuit in bankruptcy court to declare the debt nondischargeable.
The bankruptcy court denied the creditors a jury trial, awarded $14,250 in damages, and declared the debt not discharged.
The creditors appealed, contending they were entitled to a jury trial on the amount of damages. A district judge denied the appeal, and so did the Eighth Circuit in an eight-page opinion by Circuit Judge Raymond W. Gruender.
Gruender cited and relied on Katchan for the proposition that filing a proof of claim in bankruptcy waives the right to a jury trial. He read last year’s Stern v. Marshall decision and concluded that it “expressly distinguished” Katchan and remains good law.
In Stern v. Marshall, the Supreme Court held that a bankruptcy court lacks the power to enter a final judgment on a bankrupt’s state-law claim against a creditor.
The case is Pearson Education Inc. v. Almgren, 11-2723, U.S. Court of Appeals for the Eighth Circuit (St. Louis).
To contact the reporter on this story: Bill Rochelle in New York at email@example.com.
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