Idearc, AMR, ResCap, Circus & Eldorado, K-V: Bankruptcy

A witness for Verizon Communications Inc. (VZ) from JPMorgan Securities Inc. (JPM) testified that yellow-page unit Idearc Inc. was a “very good ongoing company” when it was spun off from the parent in 2006.

Yesterday’s testimony came in the second week of a trial where Idearc creditors are suing New York-based Verizon for $9.8 billion, contending the spinoff entailed fraudulent transfers that left the unit insolvent immediately.

Jennifer Nason, head of JPMorgan Securities’ technology, media and telecom unit, said that the bank committed to lending $250 million and still held $125 million in debt when Idearc filed for bankruptcy. Nason said she believed Idearc was properly capitalized, with about $3.5 billion in equity and $9 billion in debt.

On cross-examination, Nason told lawyers for Idearc creditors that JPMorgan made $36 million in fees on the financing transaction.

An expert witness for creditors testified last week that Idearc was insolvent by more than $1 billion when it became independent. Earlier this week, an expert witness for Verizon testified that Idearc was “completely stable” at the time of the spinoff.

The trial is scheduled to run through the end of the week in U.S. District Court in Dallas, where Idearc was based. The case will be decided by the judge without a jury.

Now named SuperMedia Inc. (SPMD), Idearc went bankrupt 28 months after the spinoff and completed a Chapter 11 reorganization with a plan creating a creditors’ trust that brought the suit.

Idearc, formerly the second-largest U.S. publisher of yellow-page directories, in January 2010 implemented a reorganization plan that was mostly worked out before the Chapter 11 filing in March 2009. The plan reduced debt to $2.75 billion from $9 billion.

The creditors’ lawsuit is U.S. Bank National Association v. Verizon Communications Inc., 10-01842, U.S. District Court, Northern District of Texas (Dallas). The bankruptcy case was In re Idearc Inc., 09-31828, U.S. Bankruptcy Court, Northern District of Texas (Dallas).

Updates

Marathon Wants Examiner for AMR’s Embraer Settlement

Marathon Asset Management LP is trying to block or delay a settlement under which AMR Corp. and lenders agreed to cut the costs of operating 216 smaller-capacity regional jets manufactured by Embraer SA. (EMBR3)

The jets are operated by American Eagle Inc., the feeder airline for American Airlines Inc.

Marathon, based in New York, points to the period between June and November 2011, when AMR was trying to avoid bankruptcy and attempting to spin off American Eagle to shareholders. To spruce up American Eagle’s balance sheet, ownership of 263 smaller jets was transferred to AMR from the regional airline.

Marathon contends there may be fraudulent transfer claims to bring against lenders because AMR may have received less in value that it gave up when it assumed about $2.3 billion in liability on the planes. The lenders targeted by Marathon are Brazil’s Agencia Especial de Financiamento Industrial and Banco Nacional de Desenvolvimento Economico e Social.

Marathon filed papers yesterday objecting to approval of the settlement with the financing parties. The bankruptcy court in New York will hold a hearing on Oct. 30 to consider approval.

Marathon also asked the bankruptcy judge to appoint an examiner. Marathon says it’s not advocating for lawsuits yet and only wants an examiner to say before the settlement is approved that no valuable claims are being lost.

The papers filed by Marathon cite AMR as saying that the aircraft transferred to the parent were worth $1.8 billion at the time, or about $400 million less than the debt AMR assumed. AMR said that American Eagle canceled some of the debt owing to the parent, so that it would be an even exchange without fraudulent transfers.

Marathon’s request for appointment of an examiner is on the Nov. 8 calendar for the New York bankruptcy court.

For details on proposed refinancing of the Embraer aircraft, click here for the Oct. 15 Bloomberg bankruptcy report.

AMR, based in 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 case is In re AMR Corp., 11-15463, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

ResCap Won’t Have Borrower-Homeowner Official Committee

Whether Residential Capital LLC should have an official committee representing homeowners was a “very close question,” U.S. Bankruptcy Judge Martin Glenn said. He nonetheless concluded in his 16-page opinion yesterday that borrowers hadn’t shown another committee is required.

A lawyer representing 30 homeowners filed papers in late August seeking appointment of an official committee to represent borrowers. ResCap is the mortgage-servicing subsidiary of non- bankrupt Ally Financial Inc. (ALLY)

Aside from the one homeowner on the creditors’ committee, the borrowers contended that everyone else on the panel has interests adverse to homeowners.

Rather than the expense attendant to having another official committee where ResCap would pay professional fees, Glenn said he favored an initiative by the creditors’ committee to hire special counsel “with expertise in homeowners’ foreclosure issues.”

Glenn said the creditors’ panel will notify homeowners and borrowers about the availability of the special counsel. Even if there was an official borrower’s committee, Glenn said it would be ethically improper for an official group to represent the interests of individual homeowners in disputes with ResCap.

The homeowners contend they have claims against ResCap for fraud, violation of state and federal consumer protection laws, civil claims for violation of the Racketeer Influenced and Corrupt Organizations Act, fraudulent foreclosure and servicing misconduct.

Auctions began yesterday, with Fortress Investment Group LLC (FIG) making the first bid for the mortgage-servicing business. Berkshire Hathaway Inc. is to be the stalking horse for the remaining portfolio of mortgages. A hearing to approve the sales is set for Nov. 5.

The $2.1 billion in third-lien 9.625 percent secured notes due 2015 traded yesterday for 102.75 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The $473.4 million of ResCap senior unsecured notes due April 2013 traded on Oct. 22 for 27.063 cents on the dollar, according to Trace.

The case is In re Residential Capital LLC, 12-12020, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Circus & Eldorado Casino Confirms Reorganization Plan

Circus & Eldorado Joint Venture, the operator of the Silver Legacy Resort Casino in Reno, Nevada, can exit bankruptcy protection after a judge signed a confirmation order yesterday approving a Chapter 11 reorganization plan.

Confirmation without a fight was made possible when the casino’s owners reached a settlement this month with noteholder Black Diamond Capital Management LLC.

Negotiated before the Chapter 11 filing in May with some of the noteholders, the plan restructures $142.8 million in 10.125 percent senior secured notes that matured March 1. The casino is a joint venture between MGM Resorts International (MGM) and Eldorado Resorts LLC.

With Black Diamond in opposition, the noteholder class originally voted down the plan. A spate of litigation ensued between the casino and Black Diamond. Ultimately, both sides dropped most claims, except Black Diamond agreed to pay the casino $325,000 for legal expenses incurred in the effort to knock out Black Diamond’s opposition vote.

With noteholders voting for the plan, it gives them about $92.8 million in cash along with a new second-lien note for $27.5 million, for a predicted 88.8 percent recovery, according to the disclosure statement.

Unsecured creditors are being paid in full on about $5 million in claims. The owners are making new capital contributions.

The notes traded on Oct. 17 for 86 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

The casino listed assets of $264.1 million against liabilities of $174.4 million. Debt owing to trade suppliers was estimated to be $4.3 million, according to a court filing.

The case is In re Circus & Eldorado Joint Venture, 12-51156, U.S. Bankruptcy Court, District of Nevada (Reno).

K-V Pharmaceutical’s Cash Set to Increase by $6.5 Million

K-V Pharmaceutical Co. is generating another $6.5 million in cash from the generic pharmaceutical business that was sold in June 2011.

When Zydus Pharmaceuticals USA Inc. and Nesher Pharmaceuticals USA LLC bought the business, $7.5 million was placed in escrow to cover the buyers if they were sued by users of the products. The escrow was to end one year after the sale.

The buyers made claims against the escrow. K-V and the buyers agreed to a settlement under which $6.5 million will be released to K-V, $475,000 goes to the buyers and $500,000 remains in escrow.

This week, the bankruptcy court in Manhattan scheduled a Nov. 16 hearing to approve the escrow settlement.

The settlement will augment K-V’s cash, which stood at $29.6 million at the end of September, according to a monthly operating report filed with the bankruptcy court. The company has another $9.6 million in restricted cash.

K-V, a distributor of branded pharmaceuticals, filed for Chapter 11 protection in August. The main business is the sale of Makena, a drug reducing the risk of premature birth.

There will be a pivotal hearing beginning Nov. 13 with Hologic Inc. (HOLX), which sold the Makena business to K-V in 2008 and is owed about $95 million plus royalties. Hologic has a lien on the right to distribute the product to recover the remaining payments. Hologic wants the bankruptcy judge to grant permission to foreclose rights to Makena.

K-V, based in St. Louis, is operating with use of cash representing collateral for $225 million in senior notes. At the outset of bankruptcy, K-V had $40.1 million in cash, including $8.7 million in restricted cash, according to court papers.

K-V listed assets of $236.6 million against debt totaling $728 million. It ceased manufacturing and distributing almost all drugs in January 2009 after the discovery that some tablets were oversized. Liabilities include $30 million on a mortgage loan.

Liabilities include $455.6 million in long-term debt, including $225 million on the senior secured notes due in 2015. The first-lien notes traded yesterday for 45 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

There is $200 million owing on 2.5 percent contingent convertible subordinated notes due in 2033. The notes traded yesterday for 6.875 cents on the dollar, according to Trace.

The case is In re K-V Discovery Solutions Inc., 12-13346, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Solar Millennium Schedules Dec. 20 Plan Confirmation

Solar Millennium Inc. (S2M) sold two of its solar power projects and scheduled a Dec. 20 confirmation hearing for approval of the liquidating Chapter 11 plan.

The bankruptcy court in Delaware approved disclosure materials yesterday so creditors can begin voting on the plan.

Opening the door to completion of the Chapter 11 case, the company sold the two projects under an arrangement that eventually may generate $110 million in value. The plan calls for paying creditors in the order of priority called for in bankruptcy law, taking settlements into consideration.

General unsecured creditors with $42.5 million in claims were told to expect a recovery between 14 percent and 20 percent.

NextEra Energy Inc. (NEE) bought the 1,000-megawatt facility in Blythe, California, in July. On completion, it will be the world’s largest solar power plant. In August, Solar Millennium sold the 500-megawatt project under development in Desert Center, California, to BrightSource Energy Inc. (BRSE) for a price that may reach about $30 million, if all contingent payments are made.

For the larger project, Solar Millennium initially said NextEra would pay $10 million in cash plus as much as an additional $40 million when the project is completed.

The company has been unable to sell the 500-megawatt project planned for Amargosa Valley, Nevada. Global Finance Corp. started a lawsuit in bankruptcy court in June contending that Solar Millennium lost its ownership interest in the project by not moving forward with development.

Solar Millennium is a U.S. subsidiary of Germany’s Solar Millennium AG. The Oakland, California-based company filed under Chapter 11 in April when rent was coming due the 7,000-acre Blythe project.

The company’s solar-power projects were all in the development stage and generated no income. There was only $200,000 in secured debt at the outset.

Financing had been provided by the German parent and Ferrostaal AG, the owner of a 30 percent interest in the joint venture developing the U.S. projects. Ferrostaal provided no financing for two years and the German parent suspended financing in late 2011 after initiating its own insolvency proceedings in Germany.

The case is In re Solar Trust of America LLC, 12-11136, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Trident Microsystems Has Dec. 13 Confirmation Hearing

Approval of the Trident Microsystems Inc. (TRIDQ) reorganization plan will be the topic for a Dec. 13 confirmation hearing. The U.S. Bankruptcy Court in Delaware approved the explanatory disclosure statement on Oct. 22.

Support for the plan by the two official committees was made possible by a settlement. One committee represents creditors and the other is for shareholders.

After filing for Chapter 11 protection in January, Trident sold the businesses and generated $90 million, leaving $71 million at the end of June, according to the disclosure statement.

Before a settlement, the largest impediment to distribution was disagreement over the $73.2 million claim that Trident has against affiliate Trident Microsystems (Far East) Ltd., which is now represented by liquidators appointed by a court in the Cayman Islands.

The settlement provides for the liquidators to receive as much as $14.9 million in cash, allowing unsecured creditors of TMFE to have a recovery of 55 percent to 81 percent on $96.4 million in claims.

Other unsecured creditors with claims against TMFE will be paid 90 percent on claims of $16.6 million.

Unsecured creditors with claims of about $3 million against Trident will be paid in full, allowing a distribution of as much as 28 cents a share for stockholders.

Announcement of the settlement caused a 35 percent decline in Trident’s stock. It closed yesterday at 25 cents, unchanged in over-the-counter trading.

Trident’s television business was sold for about $22.5 million in cash to Sigma Designs Inc. (SIGM) Entropic Communications Inc. (ENTR) purchased the set-top box business for $65 million.

Before filing under Chapter 11 in January, Sunnyvale, California-based Trident was developing multimedia semiconductor products for the digital home entertainment market. The company and creditors together decided on selling the assets.

The petition listed assets of $310 million and debt of $39.6 million. The consolidated balance sheet contained in a regulatory filing listed assets of $236.8 million and total liabilities of $112.8 million as of Sept. 30.

For the nine months ended Sept. 30, revenue was $238 million, resulting in a $113.2 million operating loss and a $106.1 million net loss.

The case is In re Trident Microsystems Inc., 12-10069, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Digital Domain’s Post-Sale Bonuses Approved by Court

Digital Domain Media Group Inc. (DDMGQ) received court sanction for a $350,000 incentive bonus program when the U.S. bankruptcy judge in Delaware signed an approval order on Oct. 22.

The company modified the program in response to objections from the U.S. Trustee and representatives of former workers who weren’t given requisite notification before mass firings.

The changes aren’t public information because they were filed under seal.

The company originally sought authorization to pay bonuses so long as the business was sold for a price that was no less than the amount contained in a contract signed before the Chapter 11 filing on Sept. 11. The sale was approved by the judge on Sept. 25 and completed two days later.

The main part of the business was bought by a joint venture between Galloping Horse America LLC, an affiliate of Beijing Galloping Horse Co., and an affiliate of Reliance Capital Ltd. (RCAPT), based in Mumbai.

The opening bid at auction on Sept. 21 was $15 million. The eventual price was $36.7 million, including $3.6 million to cure defaults on contracts and $2.9 million to reimburse payroll costs.

Digital Domain listed assets of $205 million and liabilities totaling $214 million. Debt includes $40 million on senior secured convertible notes, plus $24.7 million in interest.

There is another issue of $8 million in subordinated secured convertible notes. Debt to trade suppliers and accounts payable totals $27.4 million, according to a court filing.

The company reported a $40.2 million operating loss and a $50.7 million net loss in the first half of 2012 on total revenue of $64.9 million. In 2011, there was a $75.1 million operating loss on total revenue of $98.6 million.

The case is In re Digital Domain Media Group Inc., 12-12568, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Saab’s U.S. Affiliate Has November Disclosure Hearing

Saab Cars North America Inc., the U.S. unit of bankrupt Swedish automaker Saab Automobile AB, filed a disclosure statement telling unsecured creditors with $77 million in claims why they might receive from 7 percent to 58.5 percent from the bankruptcy begun in January.

The disclosure statement explains the liquidating Chapter 11 plan filed last week. A Nov. 16 hearing is scheduled for approval of disclosure materials.

Creditors are told their eventual recovery depends on success in either knocking out, reducing or subordinating the parent’s claims, which total about $50 million.

A Sept. 30 balance sheet among the disclosure material shows the U.S. company as having $26.5 million cash.

The Swedish parent set up a new subsidiary to take over the distribution of parts in the U.S. The parent filed for bankruptcy in Sweden in December after running out of cash. Production first halted in March 2011.

Forty dealers filed an involuntary bankruptcy petition against the U.S. unit in January. Saab Cars didn’t oppose the petition and went officially into Chapter 11 in February.

The case is In re Saab Cars North America Inc., 12-10344, U.S. Bankruptcy Court, District of Delaware (Wilmington).

New Filing

Oxford, Alabama, Hotel Owner Files in Chapter 11

The owner of a Marriott Courtyard hotel in Oxford, Alabama, filed a petition for Chapter 11 protection on Oct. 16 in Decatur, Alabama.

Devi LLC’s petition listed assets of $8.4 million and liabilities totaling $11.4 million, almost all representing secured debt.

Branch Banking & Trust Co. (BBT) is owed more than $7.2 million, the mortgage lender said in a court filing. The hotel is worth less than the debt, the bank said.

The case is In re Devi LLC, 12-41973, U.S. Bankruptcy Court, Northern District of Alabama (Decatur).

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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