April 22 (Bloomberg) -- The bankruptcy judge overseeing Lehman Brothers Holdings Inc. formally required creditors to participate in non-binding mediation to resolve disputed claims. Some of the more than 120 objections filed by financial institutions and creditors were incorporated into the mediation procedures approved yesterday.
Once Lehman objects to a claim, the creditor is automatically precluded from conducting discovery or filing papers in bankruptcy court to litigate the claim dispute. Lehman can initiate the process by making an offer of settlement. If the creditor doesn’t accept the offer within 15 days, the claim disputes goes to mediation.
If an indenture trustee doesn’t have authority under the indenture to mediate or settle on behalf of the holders, holders will be requested to give authority. If the indenture trustee isn’t given authority to mediate, the claim dispute will go to bankruptcy court as if mediation failed.
Once Lehman picks a claim for mediation, the mediation will begin within 60 days and must be completed within 120 days after commencement.
The mediator will have authority to combine several claims into a single mediation. While the proceedings will take place in New York, a creditor can participate by telephone with the consent of the mediator and the parties.
Lehman pays the mediators’ fees.
Yesterday Lehman filed a motion for approval of a settlement that will generate $99 million cash for the bankrupt estates. The settlement will be up for hearing May 12.
The settlement involves the return of Lehman’s capital as a limited partner in an investment vehicle of Millennium Management LLC. The fund will pay Lehman $99 million, equating to Lehman’s capital account plus some interest.
Lehman will allow $8 million in general unsecured claims in favor of affiliates of New York-based Millennium. The allowed claims arise from a default by a Lehman subsidiary in a partnership where the Millennium fund is a limited partner. To read Bloomberg coverage, click here.
Lehman has a Chapter 11 plan on file that is expected to give creditors of the holding company, including those with so-called guarantee claims, a 14.7 percent recovery. Creditors of subsidiaries will see varying recoveries, such as the Lehman Commercial Paper unit, whose expected dividend according the disclosure statement is 44.2 percent. The Lehman Brothers Special Financing unit is projected to provide a 24.1 percent recovery.
To read more about the Lehman disclosure statement, click here for the April 15 Bloomberg bankruptcy report. For more about the plan, click here for the March 16 Bloomberg bankruptcy report.
The Lehman holding company filed under Chapter 11 in New York on Sept. 15, 2008, and sold office buildings and the North American investment banking business to London-based Barclays Plc one week later. The Lehman brokerage operations went into liquidation on Sept. 19, 2008, in the same court. The brokerage is in the control of a trustee appointed under the Securities Investor Protection Act.
The Lehman holding company Chapter 11 case is In re Lehman Brothers Holdings Inc., 08-13555, while the liquidation proceeding under the Securities Investor Protection Act for the brokerage operation is Securities Investors Protection Corp. v. Lehman Brothers Inc., 08-01420, U.S. Bankruptcy Court, Southern District New York (Manhattan).
Plot of 17.7 Acres on Las Vegas Strip Files for Sale
FX Luxury Las Vegas I LLC, the owner of 17.7 acres slated for redevelopment on the Las Vegas Strip, filed a Chapter 11 petition yesterday along with a plan where the first-lien lenders will take ownership if an auction doesn’t bring more than $265 million.
The petition, filed in Las Vegas, resulted from the failure to implement agreements reached in December with holders of $195 million in second-lien debt. The principal amount of the debt owing to the first-lien creditors is $259 million.
If there isn’t a bid a auction exceeding $265 million, the plan, filed yesterday along with the petition, would give title to the first-lien creditors while the second-lien noteholders and unsecured creditors receive nothing.
The first-lien creditors are permitting the use of cash during the Chapter 11 case. Annual revenue currently is $15.9 million, according to a court filing.
FX filed a motion asking the bankruptcy judge to hold a hearing within 20 days to set up bidding and auction procedures. Initial bids are to be submitted 65 days after the bid-procedures hearing, with the auction itself occurring 75 days after the hearing.
The property currently is under the control of a receiver put in place as part of a foreclosure action. By agreement, the receivership will terminate with the company in bankruptcy.
The current plan is vastly more simple than the agreements negotiated last year. In November FX announced agreement with the first-lien lenders on a prepackaged reorganization where the lenders would refinance an insiders’ purchase of the property, absent a better offer.
The agreement was modified in December to wrap in second-lien creditors, owed $195 million.
Under the December agreement, the property would have been purchased by insiders and second-lien creditors. The insiders, including Chairman Robert Sillerman and President Paul Kavanos, own more almost 45 percent of the parent FX Real Estate & Entertainment Inc., according to data compiled by Bloomberg.
The December plan called for the first-lien lenders to finance the $260 million purchase price. The insider group was to make a $13 million cash deposit toward the price.
A bankruptcy court filing says that the December agreement was terminated in February when the parties could not reach agreement on definitive documents to implement the transaction.
FX Real Estate had intended to develop the property into a hotel, casino and other businesses until the financial markets collapsed and the Las Vegas gaming market declined. After default on the first mortgage, a receiver was appointed in June.
The petition listed assets of $140 million against debt totaling $493 million. A court filing says the property has a liquidation value of $137 million.
The case is In re FX Luxury Las Vegas I LLC, 10-17015, U.S. Bankruptcy Court, District of Nevada (Las Vegas).
Fuddruckers, Koo Koo Roo Parent Files for Sale
Magic Brands LLC, the parent of the Fuddruckers and Koo Koo Roo restaurant brands, filed a Chapter 11 petition yesterday in Delaware to sell the business for $40 million to Tavistock Group.
Austin, Texas-based Magic Brands will close 24 corporate-owned Fuddruckers locations, leaving more than 85 company-owned stores in operation in 11 states, according to a statement. There are 13 Koo Koo Roo stores in California. Of the company-operated locations, 70 stores are leased and the remainder owned.
The Chapter 11 case will be financed with $14 million provided by Wells Fargo Capital Finance Inc.
Revenue in fiscal 2008 of $152 million declined to $144 million in fiscal 2009. Same store sales were down 10 percent at the end of 2009, a court paper says.
The secured lender is owed $23.5 million, according to a court filing. Magic Brands’ owner is owed more than $10 million on subordinated debts.
The sale price would be $9 million less without lease restructurings agreed to just before the Chapter 11 filing.
The petition says assets are less than $10 million while debt is less than $50 million.
The Koo Koo Roo stores were in bankruptcy once before. Owned by Prandium Inc., they were sold to Magic Brands through Chapter 11 in 2004. Prandium had confirmed a prepackaged Chapter 11 plan in June 2002, only to file once again in October 2003.
The 135 Fuddruckers stores in 32 states owned by franchisees aren’t in the bankruptcy.
The case is In re Magic Brands LLC, 10-11310, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Majestic Star Panel Changes Lien-Invalidity Theory
The creditors’ committee of Majestic Star Casino LLC have a hearing scheduled for April 27 where they will argue for authority to sue secured lenders on a theory that the security interests in two riverboat casinos in Gary, Indiana, are defective. Although the company waived the right to challenge liens as part of an agreement for financing, Majestic Star suggested in an April 20 court filing that the judge not rule on the motion for at least 90 days.
The delay in ruling, according to the casino operator, would “allow the parties to settle the claims.”
Originally, the committee contended that the floating casinos are no longer vessels because they are now permanently attached to the land. To have valid security interests, the committee originally argued that liens must have been perfected as fixtures.
After reading the lenders’ analysis of the legal issues, the committee changed its theory, now contending that the floating casinos are actually real estate. Since no mortgages were filed, the committee argues the liens are invalid.
The secured lenders countered by saying that the new theory comes too late by having been submitted a month after the deadline for attempting to invalidate security interests.
The committee is seeking to void liens not only of the first-lien banks but also of the second-lien noteholders.
Majestic Star filed under Chapter 11 in November. It has four casinos in total, plus hotels with 806 rooms serving the two riverboat casinos in Gary, Indiana. The other casinos are in Tunica, Mississippi, and Black Hawk, Colorado.
Debt includes $79.3 million owing on the senior secured credit facility, with Wells Fargo Capital Finance Inc. as agent. Senior secured noteholders with a second lien are owed $300 million. Majestic Star owes $200 million on unsecured senior notes and $63.5 million on discount notes. Assets were $406 million and debt was $750 million in the quarterly report for the period ended June 30.
The case is In re Majestic Star Casino LLC, 09-14136, U.S. Bankruptcy Court, District of Delaware (Wilmington).
WaMu May Have Annual Shareholders’ Meeting
Shareholders’ meeting are seldom held during Chapter 11 cases for fear a new slate of directors will disrupt the reorganization. Washington Mutual Inc. is an exception.
At a hearing yesterday, U.S. Bankruptcy Judge Mary F. Walrath granted a motion by the official equity committee allowing a suit to be filed in Washington state where stockholders will seek to compel the holding of an annual meeting.
The controversy is the latest development in a dispute between the bank holding company and shareholders. The same day in January when the official equity committee was appointed, WaMu filed a motion asking Walrath to disband the committee.
Walrath denied the motion to disband. The committee returned the favor by filing a motion in early March to compel holding a shareholders’ meeting.
To read other Bloomberg coverage of the hearing, click here.
It’s too early to predict the effect a change in board composition may have on the case. WaMu filed a reorganization plan and explanatory disclosure statement in late March designed to effectuate a settlement announced on March 12 to end disputes with JPMorgan Chase & Co.
The settlement resolves disputes over who is entitled to $4 billion of WaMu’s money that was on deposit at WaMu’s bank subsidiary when it was taken over by regulators and sold to JPMorgan Chase & Co. The settlement would give $4 billion to WaMu while JPMorgan, the Federal Deposit Insurance Corp. and WaMu share $5.4 billion to $5.8 billion in income tax refunds. WaMu is to receive between $1.8 billion and $2 billion of the tax refunds.
The plan will create a liquidating trust to distribute approximately $7 billion to creditors. The disclosure statement has blanks where creditors eventually will be told the percentage recovery they can expect. To read about the plan, click here for the March 29 Bloomberg bankruptcy report.
The WaMu holding company filed under Chapter 11 in September 2008, one day after the bank subsidiary was taken over. The bank was the sixth-largest depository and credit-card issuer in the U.S. and the largest bank failure in the country’s history. The holding company filed formal lists of assets and debt showing property with a total value of $4.485 billion against liabilities of $7.832 billion.
The holding company Chapter 11 case is Washington Mutual Inc., 08-12229, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Simon Brings New $1 Billion to Offer for General Growth
Simon Property Group Inc. has four co-investors who will provide an additional $1 billion and join in the bid to provide some of the financing so shopping mall owner General Growth Properties Inc. can confirm a reorganization plan. To read Bloomberg coverage about the improving Simon offer, click here.
To read about the offer from Simon and others, click here for the April 20 Bloomberg bankruptcy report. For details about the reorganization structure proposed by General Growth in late March based on the $6.55 billion investment from the three potential plan sponsors, click here to see the April 1 Bloomberg daily bankruptcy report.
General Growth has a hearing on April 29 to approve warrants for the stalking horse investors that Simon says are unnecessary. The judge at the same hearing is to decide on a schedule for completing the reorganization. Initial bids were to have been submitted by April 19.
General Growth intends on having a July 30 hearing for approval of a disclosure statement and a confirmation hearing for approval of a plan on Sept. 30.
In seven batches of confirmations since December, General Growth formally reorganized and implemented Chapter 11 plans for property-owning subsidiaries with $12 billion in debt. In addition to the holding company, plans for subsidiaries with $1.8 billion in debt remain to be formally reorganized.
General Growth began the largest real estate reorganization in history by filing under Chapter 11 in April 2009. The books of Chicago-based General Growth had assets of $29.6 billion and total liabilities of $27.3 billion as of Dec. 31, 2008. It owns or manages more than 200 shopping-mall properties.
The case is In re General Growth Properties Inc., 09-11977, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
Tronox Has March Loss from Environmental Costs
Tronox Inc., the world’s third-largest producer of the white pigment titanium dioxide, reported a $53 million net loss in March on $66.5 million in net sales. The loss largely resulted from a $55.6 million charge for environmental remediation.
Reorganization items in the month were $2 million.
In March Tronox mostly survived a motion to dismiss a lawsuit in bankruptcy court against former parent Kerr-McGee Corp. Anadarko Petroleum Corp., which acquired Kerr-McGee for $18.4 billion in August 2006, is also a defendant.
Tronox sued Kerr-McGee and Anadarko in May to recover environmental remediation costs it was saddled with when the company was spun off in March 2006.
While the outcome of the suit could boost creditors’ recoveries, Tronox has said it’s “brokering” a “fully consensual” reorganization plan between the equity holders’ committee and creditor representatives. To read about Tronox’s contemplated stand-alone reorganization plan, click here for the Jan. 21 Bloomberg bankruptcy report.
The Chapter 11 petition by Tronox in January 2009 listed assets of $1.56 billion against debt totaling $1.22 billion. Debt includes $213 million on a secured term loan and revolving credit, $350 million in 9.5 percent senior notes, and a $40.7 million accounts receivable securitization facility. Tronox’s products are used in paints, coatings, plastics, paper and consumer products. The operations outside of the U.S. did not file.
The case is In re Tronox Inc., 09-10156, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
Broadstripe Plan Stuck Over Same Two Disputes
Broadstripe LLC, a St. Louis-based broadband cable operator, is seeking an extension for a fifth time of the exclusive right to propose a plan.
If granted by the bankruptcy court at a May 4 hearing, the new deadline would be July 2, the maximum 18 months permitted in bankruptcy law.
According to Broadstripe, it’s not feasible to complete the case until a suit by the unsecured creditors’ committee is resolved, which contends that claims of the secured lenders should be subordinated or recharacterized as equity.
Broadstripe says the suit will have a “profound effect” on the distribution to creditors. In addition, the committee vows to oppose a plan that validates secured claims, while the lenders promise to defeat a plan that doesn’t uphold their claims.
In addition, Broadstripe says there are two claims by rival cable operators totaling almost $160 million for alleged failures to complete asset purchase agreements. The company says the outcome likewise will have a “profound impact” on a plan because the claims would be 10 times greater than other unsecured creditors combined.
Broadstripe has a reorganization plan on file to implement an agreement reached before the Chapter 11 filing in January 2009 with holders of the first and second-lien debt.
On entering Chapter 11, Broadstripe had 93,000 customers in Maryland, Michigan, Washington State, and Oregon. It was created through four acquisitions in 1998 and 1999 and filed for Chapter 11 reorganization in January 2009.
The case is In re Broadstripe LLC, 09-10006, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Ericsson Buying Again from Nortel, Now Takes Korean Venture
Ericsson AB, the world’s largest producer of wireless networks, agreed to pay $242 million cash for the half interest of Nortel Networks Corp. in a South Korean joint venture with LG Electronics Inc. named LG-Nortel Co. Nortel said in a statement that the sale must be approved by the court in Canada. To read Bloomberg coverage, click here.
Nortel, which had been North America’s largest communications equipment provider, has generated $2.6 billion from the sale of businesses. Ericsson previously bought Nortel’s primary wireless carrier business for $1.13 billion. It was also part of a group that made the $103 million high bid for Nortel’s so-called GSM business.
Other sales include the optical networking and carrier Ethernet networks business bought by Ciena Corp. in December for $769 million. Nortel also sold the internet telephony business for $182 million after adjustments.
The Toronto-based Nortel companies filed for bankruptcy reorganization in January 2009 in the U.S., Canada, and London. Together, the Nortel companies reported $11.6 billion in consolidated assets against debt totaling $11.8 billion as of Sept. 30. Revenue was $9.7 billion in 2007. For the first nine months of 2008, sales were $6.8 billion.
The Chapter 11 case is In re Nortel Networks Inc., 09-10138, and the parent’s Chapter 15 case is In re Nortel Networks Corp., 09-10164, both in U.S. Bankruptcy Court, District of Delaware (Wilmington).
League Takes Over Sale of Texas Rangers Baseball Club
Major League Baseball issued a statement yesterday evening saying it had taken control of the sale of the Texas Rangers, whose home field is between Dallas and Forth Worth, Texas.
The statement noted that the current owner, Thomas Hicks, selected Hall of Fame pitcher Nolan Ryan and Pittsburgh attorney Chuck Greenberg in December to be the buyers.
The league said that “any deviation or interference” with the sale of the club “will be dealt with appropriately by the commissioner.”
The team defaulted on $525 million of debt last year.
Credit Quality Improves Among Junk-Rated Companies
The default rate over the last year for junk-rated companies fell to 12 percent in March from 13.9 percent in February, according to a report released yesterday by Moody’s Investors Service.
As a result of the loosening of the credit markets, Moody’s predicts that the trailing 12-month junk default rate will decline to 3.1 percent by the end of the year.
Moody’s also described how credit quality is improving among junk-rated companies. In the first quarter of 2009, 13.6 percent of larger companies with junk ratings were downgraded. In the first three months of 2010, only 1.3 percent of the same sample were downgraded.
Proliance Has Liquidating Plan With Less Than 1% for Unsecureds
Proliance International Inc., a manufacturer of auto and truck aftermarket heat exchange and temperature control products, completed sales of most of the assets and filed a liquidating Chapter 11 plan. A hearing is scheduled for May 19 to approve a disclosure statement that tells unsecured creditors they stand to recover less than 1 percent. Secured creditors will have been paid in full. The bulk of the domestic assets were sold for $15 million cash to Centrum Equities XV LLC, the company that owns the aftermarket business spun off from Visteon Corp. in 2008. The Dutch affiliate went for 17.7 million pounds ($27.27 million.) Proliance’s petition in July listed assets of $160 million against debt totaling $134 million, including $40.1 million owing on a secured term loan and revolving credit. Trade debt amounted to $51.7 million, according to a court filing. Proliance’s 20 locations outside the U.S. were not in bankruptcy. Sales in 2008 were $350 million. The case is In re Proliance International Inc., 09-12278, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Volcano Permits Electronic Voting on Aleris Plan
Paper ballots are traditionally used in voting on Chapter 11 plans. When the volcanic eruption in Iceland shut down air service to Europe, Aleris International Inc. was concerned that foreign creditors might miss the April 29 voting deadline. The company prevailed on the bankruptcy judge to allow electronic voting. Ballots that were mailed on time will be counted although arriving late. The confirmation hearing for the producer of rolled and extruded aluminum products will be held May 13. To read about the plan, click here for the March 29 Bloomberg bankruptcy report. Aleris filed under Chapter 11 in February 2009, listing assets of $4.2 billion against debt totaling $4 billion, including $472 million on revolving credit and related facilities, plus more than $1.1 billion on secured term loans. In addition, there are $1.1 billion in unsecured notes. The case is In re Aleris International, 09-10478, U.S. Bankruptcy Court, District of Delaware (Wilmington).
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