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Dynegy Posts Profit as Units Exit Chapter 11: Bankruptcy

Dynegy Inc. (DYN) reported third-quarter net income of $22 million on revenue of $446 million, three days after the last of the companies in the power producer’s group emerged from bankruptcy reorganization.

For the three quarters ended Sept. 30, the net loss was $265 million, Houston-based Dynegy said yesterday in a regulatory filing. Revenue for the nine months totaled $1.07 billion.

In August, Dynegy got permission from the bankruptcy judge to sell its non-operating Danskammer plant for $3.5 million and the assumption of environmental cleanup obligations. The collapse of a sale to another purchaser disabled the four so-called operating companies from implementing their plan until Nov. 4, although it was approved when the judge signed a confirmation order in March.

The Dynegy parent previously left bankruptcy under a separate plan.

For a rundown on the two bankruptcies and sale of the last plants, click here for the Aug. 23 Bloomberg bankruptcy report.

Dynegy Holdings and the four operating companies filed under Chapter 11 in November 2011. The ultimate parent Dynegy Inc. filed under Chapter 11 in July 2012 and emerged from bankruptcy along with Dynegy Holdings in October.

Dynegy rose 1.2 percent to $19.73 yesterday on the New York Stock Exchange. The shares reached a 12-month closing high of $24.76 on May 21 and a low of $17.96 on Nov. 11, 2012.

The case is In re Dynegy Holdings LLC, 11-bk-38111, U.S. Bankruptcy Court, Southern District of New York (Poughkeepsie). The case for the parent is In re Dynegy Inc., 12-bk-36728, in the same court.

Updates

Suntech Seeks Dismissal of Involuntary U.S. Bankruptcy

Suntech Power Holdings Co., once the world’s largest solar-panel maker, filed court papers urging a judge to dismiss the involuntary Chapter 7 bankruptcy petition filed in mid-October by four holders of some of the $541 million in convertible notes.

Based in Wuxi, China, Suntech advances several reasons why the involuntary bankruptcy is defective. Most prominently, Suntech says that at least two of the four involuntary petitioners acquired their claims expressly to file an involuntary petition, an action prohibited in bankruptcy law.

Suntech points out that none of the petitioning noteholders filed a required statement saying they hadn’t purchased the debt to file an involuntary petition. The petitioning noteholders include Trondheim Capital Partners LP and Michael Meixler.

The court should dismiss the case “in the interests of creditors and the debtor” under Section 305 of the Bankruptcy Code to ensure there is no disruption of ongoing negotiations with holders of a majority or more of the notes, Suntech said.

Dismissal of the involuntary petition will come to bankruptcy court for a hearing on Dec. 12.

Suntech says the four creditors own only 0.27 percent of outstanding debt. Suntech defaulted on the notes in March.

New York was also the wrong place to file, Suntech says, because the company has no place of business or assets in the U.S.

Instead, the New York court should allow Suntech to proceed with the bankruptcy it filed voluntarily in the Cayman Islands, the company said. Eventually, Suntech said, the four creditors will be allowed to vote on a reorganization to be proposed in the Cayman Islands, where the company is incorporated.

For other Bloomberg coverage, click here.

The involuntary bankruptcy is In re Suntech Power Holdings Co. (STP), 13-bk-13350, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

New Filings

Atlantic Club Casino Files in New Jersey to Sell Soon

The Atlantic Club Casino Hotel in Atlantic City, New Jersey, filed a Chapter 11 petition on Nov. 6 in Camden, New Jersey, designed to sell the property “in the near term.”

The property has 801 rooms, 75,000 square feet of gaming space, and seven restaurants. Last year, revenue of $103.8 million resulted in a $43.3 million net loss. For the first nine months of this year, revenue of $88.6 million threw off a $7.4 million loss before interest, taxes, and deprecation.

The ultimate parent, Resorts International Holding LLC, acquired the project along with three others in 2005 from Caesar’s Entertainment Inc. and Harrah’s Entertainment Inc. The others were sold or given to secured lenders, leaving Atlantic Club with no secured debt.

When a sale fell through this year, the owners saw no alternative to bankruptcy given their unwillingness to fund losses and buyers’ reluctance to purchase the property without protection from bankruptcy court. A sale while in bankruptcy requires approval from state gaming regulators.

Liabilities include $5.7 million in taxes and $1.7 million on capital leases. There is $9 million in accounts payable and $16.6 million in accrued expenses on the balance sheet, according to a court filing.

The casino rebranded itself for appeal to local gamblers, devoting 70 percent of the gaming space to so-called penny slots.

The bankruptcy will be financed with a $15 million secured loan provided by an affiliate of Northlight Financial LLC. The loan will pay 11.75 percent interest.

The Revel casino, also in Atlantic City, emerged from Chapter 11 in May with a reorganization plan approved by the bankruptcy judge in Camden.

The assets and debt of the Atlantic Club are both less than $50 million, according to the petition

The case is In re RHI Acquisitions NJ LLC, 13-34483, U.S. Bankruptcy Court, District of New Jersey (Camden).

Indianapolis Hotel Owner Files to Stop Foreclosures

The owner of the Hilton Garden Inn hotel in Mount Laurel, New Jersey, and six other hotels owned by Bharat N. Patel filed petitions for Chapter 11 protection on Nov. 4 in U.S. Bankruptcy Court in Indianapolis to stop lender National Republic Bank from installing receivers in foreclosure proceedings.

The Chicago-based bank has a disputed mortgage in the amount of $21.3 million on the Mount Laurel property, according to a filing in bankruptcy court. Taking all seven hotels together, the bank is owed $121 million, National Republic said in a court filing.

The New Jersey hotel opened in October 2011. It has 140 rooms and is 16 miles (26 kilometers) from Center City, Philadelphia.

Patel owns three dozen hotels in the U.S.

The bank is opposing the use of cash representing collateral for the mortgages.

The petition lists the assets and debt as both exceeding $10 million on the Mount Laurel property.

The first-filed case is In re Mt. Laurel Lodging Associates LLC, 13-bk-11697, U.S. Bankruptcy Court, Southern District of Indiana (Indianapolis).

Statistics

Bankruptcy Filings Show More Signs of Bottoming Out

Bankruptcy filings in the U.S. remain on track to end up at the fewest in five years. Statistics in October suggest there might be an uptick in consumer bankruptcies in coming months.

The trend for business bankruptcies and corporate reorganization remains down.

The approximately 90,000 bankruptcies of all types in October brought the year’s total to 892,000, a 13 percent decline from the same period last year, according to data compiled from court records by Epiq Systems Inc. (EPIQ)

October’s total filings were 17 percent more than September on a daily basis, although 2.5 percent fewer than the same month in 2012.

Suggesting filings might mount in coming months, October recorded the fourth highest this year and the most since May.

The approximately 3,500 commercial bankruptcies of all types in October were the second-fewest in 2013 and 27 percent lower than October 2012.

October this year had the fewest Chapter 11s of any October since the recession. Chapter 11 is where larger companies reorganize or sell assets. October basically tied for the fewest Chapter 11s in 2013. Chapter 11 filings can be more volatile, because one company may file with 50 affiliates and each counts as a separate filing statistically.

The states with the most bankruptcies per capita in October were Tennessee, Georgia and Alabama. That order has held since earlier this year, when Georgia replaced Alabama in second place.

Bankruptcies throughout the U.S. declined 14 percent in 2012 to 1.19 million from 1.38 million the year before.

The 2011 figure represented a 12 percent decline from the 1.56 million in 2010, the most since the record 2.1 million in 2005. In the last two weeks before the laws tightened in 2005, 630,000 American sought bankruptcy protection.

Bankruptcy Video

Listening in the Dark at the NCBJ; Executive Benefits

Bloomberg Law’s Lee Pacchia asks Bloomberg News bankruptcy columnist Bill Rochelle how he responded when the lights went out during his luncheon keynote speech at the annual convention of the National Conference of Bankruptcy Judges last week in Atlanta.

In the video, like his talk at the NCBJ, Rochelle analyzes the two bankruptcy cases coming to the U.S. Supreme Court this term. He explains why the seemingly less important case, Law v. Siegel, may end up being more significant than Executive Benefits Insurance Agency v. Arkison, dealing with whether someone can waive the right for a final ruling by a life-tenured federal district judge.

Rochelle believes Law could be a watershed in federal jurisprudence if the opinion subjugates federal courts’ historical equity powers to the plain language of an imperfect statute.

The video concludes with a proposal for a federal Court of Bankruptcy Appeals to resolve the 10 circuit splits that arose in the last year alone. Having uniformity in bankruptcy law throughout the country would bring an added benefit by deterring forum shopping, Bill says. To listen, click here.

Advance Sheets

Defaulting Is No Waiver of Stern v. Marshall Rights

A default judgment doesn’t provide implied consent for the entry of a final judgment in bankruptcy court on an issue where the bankruptcy judge otherwise doesn’t have final adjudicatory power, U.S. District Judge Edgardo Ramos ruled on Nov. 6.

The trustee for a trust created under a confirmed Chapter 11 plan sued in bankruptcy court alleging fraudulent transfer claims against company insiders. None of the defendants answered the complaint after it was served twice by mail.

After a default judgment was entered, the defendants in substance made a motion to vacate the default. In the process they raised a defense about the power of the bankruptcy court under the Supreme Court’s Stern v. Marshall opinion two years ago.

The bankruptcy judge denied the motion for rehearing and entered judgment. On appeal, the defendants won.

The trustee argued that defaulting amounted to implied consent waiving defenses under Stern. Ramos disagreed.

Ramos said that courts finding waiver had cases where the Stern defense wasn’t raised until after trial and lengthy pretrial proceedings. Thus, Ramos said there was no implied consent for entering a final judgment in bankruptcy court.

Consequently, Ramos treated the bankruptcy court’s rulings as proposed findings of fact and conclusions of law, not as final judgments reviewed under Section 158(a)(1) of the Judiciary Code.

Ramos went on to find that the default judgment should have been vacated. He sent the case back to bankruptcy court for further proceedings because vacating the default didn’t necessarily mean that the defendants had valid defenses defeating the lawsuit.

The case is Ariston Properties LLC v. Messer (In re FKF3 LLC), 13-bk-03310, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Web Addresses, Phone Number Aren’t Estate Property

A competitor has no standing to reopen a bankruptcy and have the trustee sell property that wasn’t scheduled and therefore not abandoned automatically, U.S. District Judge Liam O’Grady in Alexandria, Virginia, ruled yesterday in overturning a decision in bankruptcy court.

A company that ended up in Chapter 11 allegedly didn’t schedule all of its property, such as computer servers, Web addresses and telephone numbers. A competitor, after the case was closed, filed papers to reopen the case.

The Chapter 7 trustee later held an auction where the competitor came out on top with an offer of $28,000, outbidding officers of the bankrupt company who had opened a business of their own using property they believed to be abandoned.

O’Grady first ruled that the competitor lacked the standing, thus invalidating the subsequent sale.

The judge next examined individual items of property to determine if they were or weren’t scheduled and thus abandoned.

He said that servers fall within the rubric of “computers” listed on the schedules and therefore were abandoned and beyond the ability of the trustee to sell.

Looking to Virginia law, O’Grady said that a customer has no property interest in a Web address or phone number, thus taking those items beyond the trustee’s ability to sell. He said that “subjective value does not equate to ownership under Virginia law.”

Even if the Web name and phone numbers were property and weren’t scheduled, they were executory contracts with the service providers automatically rejected when they weren’t assumed. Since the underlying contracts went up in smoke, there was nothing for the trustee to sell later.

The case is Alexandria Surveys LLC v. Alexandria Consulting Group LLC, (In re Alexandria Surveys International LLC, 13-bk-00891, U.S. District Court, Eastern of District Virginia (Alexandria).

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

To contact the editor responsible for this story: Andrew Dunn at adunn8@bloomberg.net

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