Kodak, Tribune, Jefferson County, AMR, ATP: Bankruptcy

Eastman Kodak Co. (EKDKQ), the bankrupt photography pioneer, reported a net loss of $78.8 million in July on revenue of $162.5 million. The cost of sales exceeded revenue by $3.5 million.

The Kodak companies in bankruptcy reorganization ended July with $438.2 million in cash, a decline of $72 million on the balance sheet from June, according to the operating report filed with the U.S. Bankruptcy Court in Manhattan.

Kodak’s July loss from continuing operations was $52.3 million. In June, the comparable loss was $35.3 million.

The larger net loss last month was mostly the result of $12.6 million in interest expense and $12.2 million in reorganization costs.

Three times this month, Kodak pushed back the deadline to find the highest bids for digital-imaging technology. The hearing that would have been Sept. 7 will now go ahead on Sept. 19, assuming a buyer is found.

Kodak’s $400 million in 7 percent convertible notes due in 2017, which sold for 21.055 cents on the dollar on Aug. 9, last traded on Aug. 29 for 14.432 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The decline occurred after Kodak was unable to find a buyer for the digital imaging portfolio by the company’s self-imposed deadline earlier this month.

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.

Kodak’s Chapter 11 case is In re Eastman Kodak Co., 12-10202, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Updates

Tribune Reports $7.8 Million in July Operating Income

Tribune Co., publisher of the Los Angeles Times and Chicago Tribune, reported $7.8 million of income in July before reorganization costs, on $256.6 million in total revenue.

The month ended with a net loss of $97.5 million because of $105 million in reorganization costs as the Chicago-based company won confirmation of its exit plan.

The operating report filed this week with the bankruptcy court in Wilmington, Delaware, showed cash increasing in the month by $44 million to end at $2.38 billion.

Bankruptcy reorganization has been expensive. Through July, Tribune spent $270 million on professionals for itself and creditors. July’s professional cost alone was $11.9 million.

Creditors appealing approval of the reorganization plan were given an Aug. 29 deadline for posting a $1.5 billion bond as the cost of blocking Tribune from implementing the plan during an appeal. There is no evidence in court records of the filing of the bond. A federal district judge refused to reduce or eliminate the $1.5 billion bonding requirement imposed by the bankruptcy judge last week.

Implementing the plan will allow Tribune to exit the bankruptcy reorganization begun in December 2008. For discussion of the bankruptcy court’s opinion confirming the plan, click here for the July 16 Bloomberg bankruptcy report.

Tribune, the second-largest newspaper publisher in the U.S., listed $13 billion in debt for borrowed money and assets of $7.6 billion in its Chapter 11 petition. The company owns eight newspapers and 23 television stations.

The Chapter 11 case is In re Tribune Co., 08-13141, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Jefferson County Courthouse Lease Raises Questions

Jefferson County, Alabama, said it has sufficient courthouse facilities in Birmingham, so doesn’t need the newly built courthouse and jail in Bessemer, 15 miles (24 kilometers) to the southwest.

Abandoning the courthouse may raise a question about whether the lease for the facility was a bona fide lease or a disguised financing.

The Bessemer facility was built by the Jefferson County Public Building Authority using $87 million in bonds guaranteed by Ambac Assurance Corp. First Commercial Bank is indenture trustee for the bondholders.

The county was given permission from the bankruptcy court earlier this year to make an interest payment using a reserve fund. There is now $2.5 million left in the reserve fund, enough to cover the $2 million interest payment due Oct. 1.

The county leases the Bessemer facility from the authority. The bondholders’ security includes the income stream from the county. Otherwise, the authority isn’t liable to pay the bonds if the county doesn’t pay rent.

Primary funding for the courthouse rent was a county occupation tax that the state rescinded. Without replacement revenue, the county says it can’t cover the lease payments. Since there are adequate facilities in Birmingham, the county scheduled a Sept. 13 hearing for permission to terminate the lease.

The county said it negotiated unsuccessfully with Ambac and the indenture trustee to reduce debt on the bonds.

If the county terminates the lease and the judge concludes it was a lease and not a disguised financing, the damage claim for breach of lease would be limited under bankruptcy law to no more than three years’ rent, or a fraction of what’s owing on the bonds.

If Ambac or the indenture trustee were to convince the judge it’s a disguised financing, unsecured claims against the county might include the unpaid balance owing on the bonds.

Although it’s unclear whether the bankruptcy judge will make rulings about the courthouse lease, he will be making a decision about the limits of the bankruptcy court’s power over internal operations of a governmental unit in Chapter 9.

The county decided to close the inpatient portion of the Cooper Green Mercy Hospital. The city of Birmingham responded by filing suit in state court to block the closing. The city contends the county has the responsibility under state law to bear the cost of providing medical care for indigents.

The county replied by asking the bankruptcy judge to halt the suit as a violation of the so-called automatic stay that bars legal actions outside of bankruptcy court. Birmingham answered, contending the suit is an exercise of regulatory powers not halted by bankruptcy.

The dispute also involves the question of constitutional and statutory limitations on the power of a federal or bankruptcy court to direct the operations of a state or municipal government.

The bankruptcy judge said he will issue a ruling later. For a Bloomberg story on yesterday’s hearing, click here.

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 holders can look only to the sewer system for payment.

The Chapter 9 case is In re Jefferson County, Alabama, 11-05736, U.S. Bankruptcy Court, Northern District of Alabama (Birmingham).

AMR Negotiating with Investors to Help Fund Reorganization

AMR Corp. is talking with a group of 10 investors about providing “equity and other financings” to assist the parent of American Airlines Inc. in formulating a Chapter 11 plan and emerging from bankruptcy reorganization.

AMR filed papers this week in bankruptcy court for permission to pay the group’s professional expenses while they investigate the possibility of investment. The group could form the basis of a reorganization plan to fend off a merger sought by US Airways Group Inc. (LCC)

If approved by the Manhattan bankruptcy judge at a Sept. 20 hearing, AMR would pay the standard hourly fees for Milbank Tweed Hadley & McCloy LLP, the group’s lawyers. The airline would give Houlihan Lokey, the financial adviser, a $150,000 monthly fee and a so-called success fee if the work ends up with a transaction.

Potential investors in the group include J.P. Morgan Securities, Claren Road Asset Management LLC and King Street Capital Management LP. AMR said the investors are already “substantial creditors.” For other Bloomberg coverage, click here.

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).

Syms, Filene’s Confirm Liquidating Chapter 11 Plan

Liquidating retailers Syms Corp. (SYMSQ) and subsidiary Filene’s Basement LLC won the signature of the bankruptcy judge yesterday on a confirmation order approving the companies’ Chapter 11 plan. Creditors of Syms are being paid in full. Filene’s aren’t.

Because Syms creditors with $54 million in claims are to be fully paid over several years, shareholders were permitted to retain their stock. Creditors will be paid post-bankruptcy interest on their claims at the federal judgment rate, which is a fraction of 1 percent.

Technically, the Syms plan isn’t a liquidation. The company will remain in existence, shareholders retain stock and the business can take advantage of accumulated tax losses to offset income generated as remaining real estate is sold.

Through mediation in June, Syms and subsidiary Filene’s Basement LLC reached a settlement with the two official committees representing shareholders and creditors.

Marcy Syms, who owns more than 54 percent of the existing stock, will sell her shares to the company for $2.49 each, or a total of $19.5 million. For details on the plan, click here for the July 13 Bloomberg bankruptcy report.

Syms closed unchanged yesterday at $3.55 a share in over- the-counter trading. During bankruptcy, the closing peak was $12.65 on Dec. 12. The low was $2.70 on Aug. 17.

For Bloomberg coverage of the confirmation hearing, click here.

Syms, based in Secaucus, New Jersey, acquired Filene’s through a bankruptcy auction in June 2009 in Filene’s second Chapter 11 reorganization. At the outset of the bankruptcy 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 to sell after emerging from bankruptcy.

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).

Hawker Beechcraft to File Plan with Superior in a Week

Hawker Beechcraft Inc. told the bankruptcy judge at a hearing yesterday that it’s about a week away from filing a definitive agreement selling the business to Superior Aviation Beijing Co. Ltd.

A revised Chapter 11 reorganization plan will be filed at the same time, the aircraft maker’s lawyer said.

There was no mention at yesterday’s hearing of the judge’s Aug. 24 rejection of a bonus program for eight top executives. The program was fatally defective because it “pays a bonus for confirming a plan that is likely to occur,” the judge ruled.

For a Bloomberg story on yesterday’s hearing, click here.

Hawker filed under Chapter 11 in May with a reorganization plan already negotiated that would have converted secured and unsecured debt to equity, reducing debt by $2.55 billion. Although the plan was filed in late June, Hawker announced in July there was a tentative agreement for a sale to Superior for $1.79 billion. Superior is 40 percent-owned by the Beijing municipal government.

For details on the original swap plan, click here for the July 3 Bloomberg bankruptcy report. For details on Superior’s tentative offer, click here for the July 10 Bloomberg bankruptcy report.

Hawker’s $183 million in 8.5 percent senior unsecured notes due in 2015 traded on Aug. 24 for 15.75 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 Aug. 9 for 17.25 cents, Trace said.

The Wichita, Kansas-based designer and manufacturer of light and medium-sized jet, turboprop and piston aircraft generated revenue of $2.34 billion in 2011.

Total debt for borrowed money is $2.55 billion, according to the proposed disclosure statement. Other claims include pensions underfunded by $493 million, according to a court filing.

The case is In re Hawker Beechcraft Inc., 12-11873, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Madoff Trustee, Lawyers to Receive $59.3 Million in Fees

The trustee liquidating Bernard L. Madoff Investment Securities LLC and his lawyers received approval this week from the bankruptcy judge to be paid $59.3 million, including $43.3 million covering work performed from Oct. 1 through Jan. 31.

The other $16 million was for previously approved fees that were held back from payment. For a rundown on the fees and the cuts imposed by the Securities Investor Protection Corp., click here for the Aug. 20 Bloomberg bankruptcy report.

The trustee was given authority this month to make a distribution of about $2.4 billion to customers, representing 33.5 percent of their claims. Customers previously received 4.6 percent. Although about $11 billion has been collected toward payment of customers’ $17 billion in claims, trustee Irving Picard is precluded from making additional distributions on account of appeals some customers are taking from rulings by the bankruptcy judge.

Whether customers are eventually paid in full may turn on the outcome of an appeal later this year in the U.S. Court of Appeals. A district judge ruled that Picard could file lawsuits to recover payments going back only two years before bankruptcy. If Picard wins the appeal, his suits will reach back six years.

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 Madoff liquidation case 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).

ATP Failed to Disclose $70 Million in Bond Demands

While ATP Oil & Gas Corp. was winning interim approval to finance the bankruptcy reorganization begun on Aug. 17, the company didn’t disclose that it had received a demand from the U.S. Interior Department requiring the posting of $70 million in bonds to cover the plugging and abandonment of wells, two creditors contend.

ATP is a producer and developer of oil and gas wells mostly in the Gulf of Mexico. After a hearing on Aug. 21, it won approval of secured financing, including interim authorization for part of the financing intended ultimately to include $250 million in new borrowing power.

In addition, the court allowed the lenders to convert about $365 million in pre-bankruptcy secured debt into a post- bankruptcy obligation.

Warrior Energy Services Corp. and Superior Energy Services LLC (SPN) contended in a court filing yesterday that ATP failed to disclose to the parties or to the court that it had received the Interior Department’s demand for bonds on Aug. 17. The creditors say the demand for bonds may be a default under the newly approved interim financing agreement.

The creditors are asking the bankruptcy judge in Houston to reconsider approval of the financing, especially the conversion of $365 million in pre-bankruptcy debt. The reconsideration hearing is on the court’s calendar for Sept. 6.

Although a creditors’ committee has been formed, it hasn’t selected lawyers, the creditors said. According to the creditors, the company said it intended to discuss the bonding demand with the newly formed committee.

A call to ATP’s lawyers for comment wasn’t returned.

ATP filed under Chapter 11 in its Houston hometown with cash down to $10 million. ATP listed assets of $3.6 billion and liabilities of $3.5 billion on the March 31 balance sheet.

The new financing is being provided by some of the same lenders owed $365 million on a first-lien loan where Credit Suisse Group AG (CSGN) serves as agent. There is $1.5 billion on second-lien notes with Bank of New York Mellon Trust Co. as agent.

ATP’s other debt includes $35 million on convertible notes and $23.4 million owing to third parties for their shares of production revenue.

Trade suppliers have claims for $147 million, ATP said in a court filing.

The second-lien notes traded yesterday for 26.4 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

ATP reported a net loss of $145.1 million in the first quarter on revenue of $146.6 million. Income from operations in the quarter was $11.8 million.

For 2011, the net loss was $210.5 million on revenue of $687.2 million. The year’s operating income was $152.7 million.

The case is In re ATP Oil & Gas Corp., 12-36187, U.S. Bankruptcy Court, Southern District of Texas (Houston).

Sun Capital Completes Acquisition of Pemco World Air

Pemco World Air Services Inc., a provider of heavy maintenance and repair services for commercial jet aircraft, witnessed the first court-approved sale of the business fall apart. The second sale, to secured lender Sun Capital Partners Inc., was approved by the bankruptcy court on Aug. 9 and completed on Aug. 24.

Sun Capital, based in Boca Raton, Florida, stepped in when the originally approved sale to an affiliate of VT Systems Inc. didn’t work out. For details on the sale to Sun Capital and a settlement between the firm and unsecured creditors, click here for the Aug. 8 Bloomberg bankruptcy report.

The buyer is taking over Pemco’s name. The bankrupt company is changing its name to WAS Services Inc.

A Sun Capital affiliate acquired the $31.8 million in senior secured debt from Merrill Lynch Credit Products LLC and was also the holder of a $5.6 million subordinated secured loan. In addition, Sun Capital provided $6 million in financing for the Chapter 11 effort.

Pemco’s facilities are in Tampa, Florida, and Erlanger, Kentucky. An operation in Dothan, Alabama was closed. Pemco also converts passenger aircraft to cargo service. The petition stated that assets and debt were both less than $100 million.

The case is In re Pemco World Air Services Inc., 12-10799, U.S. Bankruptcy Court, District of Delaware (Wilmington).

AFA Foods’ Last Plant Brings $300,000 Extra at Auction

AFA Foods Inc. held an auction on Aug. 28 for the last unsold plant, resulting in a $300,000 increase in the purchase price for the New York facility.

Before the auction, a group of four buyers were anointed as the so-called stalking horse with an offer of $2.21 million. They were outbid at auction by a group including BiditUp Auctions Worldwide Inc., with an offer of $2.5 million.

The bankruptcy court in Delaware on Aug. 29 approved the sale to the BiditUp group.

AFA was one of the largest ground-beef producers in the U.S. It filed for Chapter 11 protection in April after publicity about so-called pink slime “dramatically reduced the demand for all ground beef products,” the company said.

Controlled by Yucaipa Cos., AFA already sold plants in California, Georgia, Pennsylvania and Texas.

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 Corp. (BAC)

Previous sales generated enough to cover the first lien, AFA said. A Yucaipa affiliate has a $75.6 million second lien. There was $60 million owing to trade suppliers, according to court filing.

The case is In re AFA Investment Inc., 12-11127, U.S. Bankruptcy Court, District of Delaware (Wilmington).

New Filings

Sheepshead Bay Condos File with $32 Million in Debt

Emmons-Sheepshead Bay Development LLC, the owner of 49 unsold condominium units on Emmons Avenue in Brooklyn, New York, filed for Chapter 11 protection yesterday in Brooklyn.

The units at the waterfront project are worth $14 million according to the petition. Debt, almost all secured, is more than $32 million. TD Bank NA (TD) is the principal lender.

The filing was precipitated by foreclosure, according to a court paper. A slowdown in sales “completely deprived it of cash flow,” the company said in a court filing.

The case is In re Emmons-Sheepshead Bay Development LLC, 12-46321, U.S. Bankruptcy Court, Eastern District of New York (Brooklyn).

Western Mohegan Tribe Tries Bankruptcy a Second Time

The Western Mohegan Tribe and Nation of New York, which calls itself a tribe although it’s not yet formally recognized by the Bureau of Indian Affairs, is making another stab at reorganization in Chapter 11.

The first effort came to naught when the Chapter 11 case was dismissed in June by the U.S. Bankruptcy Court in Chicago.

The tribe characterizes itself as an unincorporated association. It and its 200 members own a 250-acre parcel in Ulster County, New York. The tribe previously said its purpose is to “preserve the members’ way of life and to build a tribal business, including a gaming casino.”

The tribe originally filed under Chapter 11 in March in Chicago, where it claimed a joint venture was in bankruptcy. The U.S. Trustee sought dismissal of the case and won.

The U.S. Trustee said there was a fire on the Ulster County property that destroyed all existing buildings. There was no insurance, the U.S. Trustee said.

With no income from the property, the U.S. Trustee argued that reorganization was impossible. The bankruptcy judge elected to dismiss the case in June rather than convert to liquidation in Chapter 7.

The tribe filed again in Chapter 11, this time in Albany, New York. In the petition filed Aug. 29, the tribe wasn’t represented by a lawyer. The lawyer in the Chicago case withdrew, claiming financial hardship for not being paid.

Ordinarily, only individuals may file for bankruptcy without a lawyer. The tribe gave the court a case saying that a tribe can proceed in federal court without a lawyer.

The new petition lists assets of $2.5 million and debt totaling $8.4 million.

During the prior Chapter 11 effort, the tribe sought to have the bankruptcy transferred to district court, where it would have asked the judge to decide whether or not the group should be formally recognized as a tribe.

The district judge declined to remove the suit from bankruptcy court.

In the prior bankruptcy, the tribe said it had been seeking recognition for 10 years, running up $1.7 million of legal fees.

The new case is In re Western Mohegan Tribe and Nation of New York, 12-12252, U.S. Bankruptcy Court, Northern District of New York (Albany). The prior case was Western Mohegan Tribe and Nation of New York, 12-09292, U.S. Bankruptcy Court, Northern District of Illinois (Chicago).

Bankruptcy Podcast & Video

ResCap Bonuses, Vitro’s Defeat, Verizon Lawsuit

Residential Capital LLC had the unfortunate distinction of being the second company inside one week where the bankruptcy judge refused to approve a bonus program for senior executives, for reasons Bloomberg Law’s Lee Pacchia and Bloomberg News bankruptcy columnist Bill Rochelle discuss on their video and podcast. The video also covers the multi-billion dollar fraudulent transfer suit going to trial in October against Verizon Communications Inc. (VZ) To see the video, click here.

On the podcast, Rochelle and Pacchia talk about Vitro SAB, the Mexican glassmaker, and the major defeat it sustained when an appellate judge ruled that the bankruptcy court should have put several subsidiaries into involuntary bankruptcy last year.

The last item on the podcast explains why an auto dealer was saddled with almost $70,000 in actual and punitive damages for refusing to turn over a car worth only $10,000. To listen to the podcast, click here.

Advance Sheets

Collection Letter on Student Loan Ruled Deceptive

A collection agency used false, misleading and deceptive debt-collection practices when it sent a letter telling an individual her student-loan debt was “not eligible for bankruptcy discharge and must be resolved.”

The unsigned ruling was made yesterday by three judges on the U.S. Court of Appeals in Manhattan, reversing a district court which had dismissed a lawsuit against the collection agency brought under the federal Fair Debt Collection Practices Act. The individual sued on behalf of herself and 181 other New York residents who received the same letter.

The Second Circuit in Manhattan acknowledged that discharging student loan debt in bankruptcy is difficult, although not impossible, under Section 523(8) of the Bankruptcy Code.

The appeals court said that proper standard is whether the “least sophisticated consumer” would interpret the letter as meaning that student loan debt is never dischargeable. The district court erred, according to yesterday’s opinion, by analyzing whether the particular debt stood much chance of being discharged in bankruptcy.

In reinstating the suit, the appeals court said the letter was “false on its face” and “fundamentally misleading.”

The case is Easterling v. Collecto Inc., 11-3209, U.S. Court of Appeals for the Second Circuit (Manhattan).

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

To contact the editor responsible for this story: Stephen Farr at sfarr@bloomberg.net

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