WaMu, GSI, Tribune, Cabi, Station, Lehman: Bankruptcy

Washington Mutual Inc., the official equity holders’ committee and some creditors are trying to outsmart one another with legal strategies to push through or kill the global settlement that underpins WaMu’s reorganization plan.

The bankruptcy judge in Delaware sparked the maneuvering in April with a ruling that allowed shareholders to initiate a lawsuit in Washington State court compelling the bank holding company to hold an annual meeting. If the meeting were held, shareholders might succeed in ousting the board and installing their own candidates who then would have power to pull WaMu out of a global settlement the shareholders oppose.

Some creditors didn’t take it lying down. Early this month, the holders of $2.3 billion in debt securities filed a motion asking the bankruptcy judge to convert the Chapter 11 case to a liquidation in Chapter 7 where a trustee would be appointed automatically. Alternatively, the noteholders want the judge to appoint a Chapter 11 trustee. The motion is scheduled for hearing on June 3.

If the noteholders were to win on either count, a trustee would supplant the board, thus preventing shareholders from having a new WaMu board back out of the global settlement.

WaMu has been employing its own legal tactics that could be designed to slow the movement toward a shareholders’ meeting. First, WaMu had the suit in Washington state court removed to federal court. From there, WaMu has a motion pending to send the case eventually to the bankruptcy judge in Delaware. The motion to transfer the case to Delaware is scheduled for argument June 11 in Washington, the equity committee says in court papers.

Meanwhile, holders of notes issued by the bank subsidiary filed papers urging the bankruptcy judge to appoint a trustee in either Chapter 7 or Chapter 11. The bank bondholders are also opposing the global settlement.

Having a Chapter 11 trustee might not interfere with creditors who favor the global settlement because WaMu’s exclusive right to file a Chapter 11 plan has elapsed.

If there’s a Chapter 11 trustee, creditors who favor the settlement could file a plan of their own even before the trustee decides whether to go ahead with the settlement. Thus, creditors could use a plan to bring the settlement to a confirmation hearing even if the trustee isn’t on board. Consequently, a Chapter 11 trustee wouldn’t necessarily kill a global settlement.

The U.S. Trustee, holders of trust preferred securities, bank bondholders, and bank noteholders filed objections to approval of WaMu’s disclosure statement. The U.S. Trustee says it’s improper to have a plan that doesn’t effectively allow creditors to opt out of giving third-party releases contained within the global settlement. The hearing for approval of the disclosure statement explaining the settlement is also scheduled for June 3. To read Bloomberg coverage, click here.

WaMu, the Federal Deposit Insurance Corp. and JPMorgan Chase & Co. have all signed a definitive settlement that can be implemented with the confirmation of WaMu’s Chapter 11 plan. To read about the global settlement, click here for the May 24 Bloomberg bankruptcy report.

The settlement enables WaMu to proceed with a Chapter 11 plan designed to distribute more than $7 billion to creditors. Click here to read the May 18 Bloomberg bankruptcy report for a summary of WaMu’s plan.

Shareholders and bank bondholders believe WaMu and the FDIC are giving up too cheaply and should continue lawsuits with JPMorgan.

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).


Centerbridge/Paulson, Blackstone Win Extended Stay

Centerbridge Partners LP, Paulson & Co. and Blackstone Group LP, with a bid of $3.9 billion, ended up winning the auction for Extended Stay Inc., the operator of more than 680 long-term lodging properties in 44 states, two people familiar with the matter said.

The Centerbridge group was bidding against hotel operator Starwood Capital Group LLC and TPG. Starwood and TPG bid up to $3.88 billion.

The Centerbridge group will acquire all of the equity, with the cash going toward $4.1 billion in mortgage loans. As a result of the shortfall on secured debt, there will be no distribution for holders of $3.3 billion on mezzanine loans.

Before the auction, the buyers were to acquire only part of the equity, with cash, new mortgages and some of the equity going toward secured debt. The auction began on the morning of May 27 and continued until dawn the next day.

Extended Stay filed a motion on May 28 asking the bankruptcy judge to authorize paying $9.15 million in reimbursement of lawyers’ fees and other expenses incurred by the Starwood group. Extended Stay says the payment is be justified because Starwood contributed to making the auction a success.

Before the auction, Extended Stay scheduled a June 17 hearing for approval of a disclosure statement describing a reorganization plan to incorporate and implement the outcome of the auction. Extended Stay was aiming for a confirmation hearing for approval of the plan on July 20. To read Bloomberg coverage of the auction, click here.

Extended Stay’s Chapter 11 petition in June 2009 listed assets of $7.1 billion against debt totaling $7.6 billion, including $4.1 billion in mortgage loans and $3.3 billion in 10 different mezzanine loans.

Based in Spartanburg, South Carolina, Extended Stay says it’s the largest operator of midpriced extended stay hotels in the U.S. The properties are almost all managed by HVM LLC, an affiliate that didn’t file in Chapter 11.

The case is In re Extended Stay Inc., 09-13764, U.S. Bankruptcy Court, Southern District New York (Manhattan).

Station Casinos Auction and Disclosure Hearing Set

Casino operator Station Casinos Inc. is firming up the endgame for the bankruptcy reorganization that began in July


At a hearing last week, the bankruptcy judge in Reno, Nevada, ruled that a group including current owners Frank and Lorenzo Fertitta would make the first bid of $772 million to take control of substantially all of the businesses. The auction will be held Aug. 6.

The hearing for approval of the disclosure statement explaining the Chapter 11 plan originally was scheduled for June

10. The hearing was pushed back to July 15 and 16. A revised disclosure statement will be filed by June 15.

The existing reorganization plan, modified in April, incorporates an agreement structured around the auction with the first bid from the Fertitta group. Approval of auction procedures consumed three days of hearing in May.

Station Casinos filed under Chapter 11 in July. It has 13 properties in Las Vegas plus five joint ventures. It also operates casinos for American Indian tribes. Station’s debt was the result of a leveraged buyout in November 2007 by Feritta Colony Partners LLC.

The case is In Re Station Casinos Inc., 09-52477, U.S. Bankruptcy Court, District of Nevada (Reno).

Houlihan Lokey Should Lose Half of Fees: U.S. Trustee

Houlihan Lokey Howard & Zukin Capital Inc., the financial advisers and investment bankers for ethanol producer Aventine Renewable Energy Holdings Inc., should forfeit half its $4.9 million in fees, the U.S. Trustee in Delaware says.

The U.S. Trustee says that Los Angeles-based Houlihan was 10 months late in disclosing connections with two of Aventine’s noteholders who were also providing contested financing for the Chapter 11 case. The U.S. Trustee said in papers filed last week that Houlihan disclosed the connections only after she made inquiry. The two noteholders and lenders had interests adverse to the Aventine, the company Houlihan represented, the U.S. trustee said.

Given the firm’s experience in bankruptcy cases, the U.S. Trustee said it was “difficult to understand” why the lack of disclosure was “inadvertent rather than willful.” She recommended that the bankruptcy judge cut Houlihan’s fees by half at the fee-approval hearing on July 15.

After inquiry from the U.S. Trustee, Houlihan disclosed that the two noteholders and lenders were among groups that the firm advised in other ethanol-related cases.

Aventine implemented its reorganization plan in March. Holders of $315.5 million in unsecured notes received 80 percent of the new stock which they share with unsecured creditors owed $15 million. To read details about the plan, click here for the Dec. 10 Bloomberg daily bankruptcy report.

The Chapter 11 petition filed in April 2009 by Pekin, Illinois-based Aventine listed $799 million in assets against debt totaling $491 million. It had two plants in operation and two in construction. The operating plants had an annual capacity of 207 million gallons of ethanol. The two plants being built were designed to produce 220 million gallons.

The case is In re Aventine Renewable Energy Holdings Inc., 09-11214, U.S. Bankruptcy Court, District of Delaware (Wilmington).

GSI Plan Confirmed, Sweetened Stockholder Treatment

GSI Group Inc., a provider of laser-based systems to aid manufacturing, has a confirmed Chapter 11 plan. The bankruptcy judge approved the plan at a May 27 hearing.

The new plan allows shareholders to retain up to 87.3 percent of the stock if they participate to the maximum in an $85 million equity rights offering. If stockholders buy to the fullest extent, noteholders will have 12.7 percent of the reorganized equity and $90 million in new secured notes. For details on the plan, click here for the May 12 Bloomberg bankruptcy report.

The original version of the plan and explanatory disclosure statement were filed along with the Chapter 11 petition in November. The original plan was rejected by holders of 80 percent of the stock. When the plan was sweetened for stockholders, they went along, permitting the judge to confirm last week with all classes voting in favor.

The petition in November listed assets of $555 million and debt totaling $370 million. Bedford, Massachusetts-based GSI has no substantial secured debt.

The case is In re MES International Inc., 09-14109, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Tribune Disclosure Statement Lacking Judge’s Approval

Newspaper publisher Tribune Co. walked out of the May 28 hearing still without an approved disclosure statement.

Tribune is still working with junior creditors to craft a discussion of their treatment. Tribune said it hopes to have the disclosure statement ready for the judge’s approval by the end of this week.

To read Bloomberg coverage of the May 28 hearing, click here.

Tribune’s plan filed in April is designed to implement a settlement negotiated with some creditors. Holders of $3.6 billion in pre-bankruptcy secured debt immediately came out opposing the plan and the settlement. To read about the plan, the proposed settlement, and the parties’ arguments, click here for the April 13 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. It 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 Delaware (Wilmington).

Cabi Settles, to Give Ownership to Bank of America

Cabi Downtown LLC, the owner of the 49-story Everglades on the Bay condominium in Miami, settled with the construction lender Bank of America NA and filed a revised Chapter 11 plan and explanatory disclosure statement last week.

The Charlotte, North Carolina-based bank will take title to the project while the developer remains as manager. The bank, owed $207 million, is entitled to vote on the plan although the disclosure statement says the bank is paid in full.

General unsecured creditors owed $2.4 million are to be paid 20.8 percent in cash.

Potential buyers who allegedly defaulted on their contracts have two options for recovery on their $19.9 million in deposits. They may continue suing to recover the deposits being held in escrow or they may be paid 7.5 percent of the contract purchase price in cash if the deposit was 20 percent of the purchase price. If the deposit was 30 percent of the contract purchase price, the cash payment is 17.5 percent of the purchase price. The full amount of the deposits may not be applied to the purchase price of an apartment because Cabi takes the position that the buyers are in breach of their contracts.

Creditors must vote on the new plan. A hearing date has not yet been set to approve the revised disclosure statement.

Prior to settlement, Cabi had a plan where Bank of America was being offered a five-year secured note with 2.5 percent interest paid in cash. The interest rate would have been the London interbank offered rate plus 2.5 percent, with the difference paid in more debt.

Unsecured creditors were being offered 6.7 percent in cash.

Finding the prior plan inadequate and unconfirmable, the bank had filed a motion to dismiss the Chapter 11 case. Perhaps contributing to the settlement, the bankruptcy judge in February denied the bank’s request to foreclose the project.

Cabi filed for Chapter 11 reorganization in August, hours after the bank began foreclosure on a $34.1 million loan, according to court papers.

The company is owed by GICSA, which says it is the largest and most profitable real estate developer in Mexico.

The case is In re Cabi Downtown LLC, 09-27168, U.S. Bankruptcy Court, Southern District Florida (Miami).

U.S. Trustee Wants Disclosure of Spheris Sale Price

Spheris Inc., a transcriber of medical dictation for doctors and hospitals, shouldn’t make a secret of the price it’s willing to accept for selling a $17.5 million subordinated note received from purchasers who bought the business in April for $98.83 million.

At a hearing for approval of the note sale on June 8, the U.S. Trustee will argue that it’s impermissible to keep the price a secret. In her papers filed last week, the U.S. Trustee asked, “How can creditors and parties-in-interest evaluate the propriety of the proposed sale if they do not have knowledge of the purchase price?”

Spheris, now formally named SP Wind Down Inc., is proposing to sell the subordinated note to Riva Ridge Master Fund Ltd. The five-year note starts off paying interest at 8 percent, rising to 12.5 percent. The purchasers of the assets have the right to prepay the note within six months for 77.5 percent of outstanding principal. The official creditors’ committee supports the sale to Riva Ridge.

The purchasers were subsidiaries of CBay Holding Ltd., a competing medical transcription services provider.

Franklin, Tennessee-based Spheris listed assets of $61 million against debt totaling $225 million. Liabilities included $75.6 million on a senior secured credit and $125 million on subordinated notes. For nine months ended in September, revenue was $120 million.

The case is In re SP Wind Down Inc., 10-10352, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Strauss Auto Revising Reorganization Plan Once Again

Although auto-parts retailer Strauss Discount Auto has an approved disclosure statement, it won’t seek approval of the Chapter 11 plan at the previously scheduled a June 21 confirmation hearing.

The company and the creditors’ committee decided that further changes in the plan are necessary. They therefore aren’t soliciting votes from creditors.

To protect against the loss of so-called exclusivity, Strauss filed a motion last week for a two-month extension until June 24 of the exclusive right to propose a plan. The exclusivity hearing will be held June 16.

Strauss filed an operating report for April showing a net loss of $1.23 million on total sales of $8.68 million. Gross profit in the month was $4.3 million while earnings before interest, taxes, depreciation and amortization were $68,200.

Restructuring expenses in the month were $970,000. The operating loss was $1.18 million.

Strauss didn’t say how the plan is being changed. The company had been promising to pay 65 percent to unsecured creditors with claims aggregating $18.7 million. If the group didn’t recover at least 45 percent, creditors would have ended up owning all the new stock.

If the 45 percent threshold were met, Chief Executive Officer Glenn Langsberg was to have an option to buy all the stock for $300,000.

There is a suit pending against the former Japanese owner, Autobacs Seven Co. Autobacs has a $44 million claim that creditors are hoping to have disallowed or subordinated.

The former parent was arguing that the plan wasn’t confirmable because a current owner could retain stock before unsecured claims were paid in full.

Strauss Auto is in Chapter 11 a third time. The stores are in New York, New Jersey and Pennsylvania. The new petition in February 2009 listed assets of $75 million against debt totaling $72 million. Debt initially was shown to include $44 million listed as owing to the parent under loan agreements, $9.6 million owing to suppliers, and $12 million in debt owing to landlords and other unsecured creditors.

There were 86 stores and no secured debt when the Chapter 11 case began. Twenty stores were closed.

The new case is In re Autobacs Strauss Inc., 09-10358, U.S. Bankruptcy Court, District of Delaware (Wilmington). The prior case was In re 1945 Route 23 Associates, 06-17474, U.S. Bankruptcy Court, District of New Jersey (Newark).

New York Chocolate Plant for Auction on June 30

New York Chocolate & Confections Co., which owns what had been the first chocolate factory in the U.S. owned by Nestle USA Inc., will be sold at auction June 30.

The company, which owns a 39-acre plant in Fulton, New York, hasn’t produced chocolate in four years, court papers say. The company is owned by a quasi-governmental agency of the West African nation of the Ivory Coast. The country is the world’s leading producer of cocoa beans.

The plant was purchased from Nestle in 2003. It had begun operations in the late 19th century. The minimum bid for all the assets at auction is $465,000, the debt owing on a secured loan owing to Fulton County. The county is entitled to bid its secured claim rather than cash at the auction.

Bids are initially due June 28. The hearing for approval of the sale will take place June 30 in U.S. Bankruptcy Court in Syracuse, New York.

The case is In re New York Chocolate & Confections Co., 10-30963, U.S. Bankruptcy Court, Northern District of New York (Syracuse).

Accentia Files Chapter 11 Plan to Emerge this Summer

Accentia Biopharmaceuticals Inc., majority owner of Biovest International Inc., filed a Chapter 11 plan on May 28 where shareholders will retain their stock, diluted by stock issued to secured and unsecured creditors under the plan.

Accentia says the plan provides full payment for all creditors, with part of the payment coming from the conversion of debt to stock.

Biovest filed its plan on May 14. The Biovest plan likewise provides for shareholders to retain their stock, although diluted. Biovest is working on the commercialization of BiovaxID, a personalized cancer vaccine for some types of non-Hodgin’s lymphoma.

Neither company as yet has filed a disclosure statement explaining the plans. The companies said in statements that they both intend to emerge from reorganization “this summer.”

The Biovest plan calls for the $3 million in financing for the Chapter 11 case to be converted into a two-year note at 16 percent interest with a first lien on assets.

The $24.9 million in pre-bankruptcy secured claims against Biovest will be converted to a two-year second-lien note with 8 percent interest paid at maturity. The lenders will have another second-lien note for $7.3 million with 8 percent interest paid at maturity in 3 years. The lenders are Laurus Master Fund Ltd. and Valens Offshore funds.

Biovest has the right to convert the lenders’ debt into common stock at 90 percent of the average closing price in 10 days before conversion. In return for the lenders’ pre-bankruptcy warrants, they will receive 10 percent of the new stock. In addition, they will be given a 6.25 percent perpetual royalty on product sales in return for pre-bankruptcy royalty rights.

Accentia’s $12 million in secured claims will convert into

17.6 million new Biovest shares. The 2008 secured debentures will be exchanged for a third-lien term loan maturing in 40 months. Holders of the debentures have the right to convert to common stock.

Unsecured creditors of Biovest have the option of being paid in full with interest 40 months after the plan is implemented. Instead, the holders can convert to a non-interest bearing note maturing in two years.

The Accentia and Biovest companies are developing drugs to treat blood cancers and autoimmune diseases such as multiple sclerosis. They filed under Chapter 11 in November 2008 in Tampa, Florida, saying at the time they intended to pay all creditors in full.

Accentia listed assets of $134.9 million against debt totaling $77.6 million.

The case is In re Accentia Biopharmaceuticals Inc., 08-17795, U.S. Bankruptcy Court, Middle District of Florida (Tampa).

New Filings

Involuntary Petitions Filed Against Rangers Owners

The entities that are the general and limited partners in the Texas Rangers professional baseball club were the target of involuntary Chapter 11 petitions filed on May 28 by holders of $144.4 million of the $525 million in secured debt against the team’s owners.

Monarch Master Funding Ltd. has $119.8 million of the debt. The remainder is held by funds affiliated Kingsland Capital Management, Sankaty Advisors LLC and Stonehill Capital Management LLC.

The Rangers initiated what they called a prepackaged reorganization on May 24 in Fort Worth, Texas, intending to sell the team in a transaction said to be worth $575 million. The buying group includes Rangers’ President Nolan Ryan and sports lawyer Chuck Greenberg. The lenders oppose the sale, saying the price is too low.

The bankruptcy judge tentatively scheduled a July 9 confirmation hearing for approval of the Chapter 11 plan which claims to be paying all claims in full and therefore doesn’t need a vote of creditors.

The bankruptcy judge can put the limited and general partners in Chapter 11 if they consent of if the judge concludes that the owners aren’t generally paying their debts as they come due. In the meantime, the filing of the involuntary petitions stops all creditor actions and precludes the owners from making major transactions without bankruptcy court approval.

The plan would pay the secured lenders $75 million because that’s the limit of the team’s debt to the secured lenders. Other companies controlled by owner Thomas Hicks are liable for the entire debt.

The terms of sale include less than $300 million cash plus debt assumption. The buyers will also acquire real estate adjacent to the ballpark for $5 million cash, a $53.2 million 4 percent note and 1 percent of the equity in the team. The adjacent property is owned by a company controlled by Hicks. The buyers will take over the lease for the 49,170-seat stadium halfway between Dallas and Fort Worth.

When the lenders wouldn’t consent to a sale, Hicks put the team in Chapter 11 to complete the transfer to the Nolan Ryan group.

The entities that are the targets of the involuntary petitions are Rangers Equity Holdings LP and Rangers Equity Holdings GP LLC.

The case is In re Texas Rangers Baseball Partners, 10-43400, U.S. Bankruptcy Court, Northern District of Texas (Fort Worth).

RPM Files 2 Subsidiaries to Ditch Bondex Asbestos Liabilities

Specialty Products Holding Corp. and Bondex International Inc., two non-operating subsidiaries of RPM International Inc., filed Chapter 11 petitions yesterday in Delaware to resolve 10,000 asbestos claims, the companies said in bankruptcy court filings.

Specialty Products has operating subsidiaries that didn’t file in Chapter 11. The subsidiaries of Specialty Products produce $329 million in annual revenue and $19 million in pretax income. On a consolidated basis, RPM had revenue of $3.37 billion for the fiscal year ended May 31, 2009. RPM’s consolidated assets were $3.34 billion with $2.13 billion in liabilities as of Feb. 28.

RPM, a specialty-chemical producer based in Medina, Ohio, intends for a trust to be created that will become responsible for all present and future asbestos liability that resulted from acquiring a company named Reardon Co. in 1966. Bondex ceased operations in 1999.

Specialty Products filed a lawsuit yesterday in bankruptcy court where it hopes the bankruptcy judge will enjoin all asbestos claimants from suing non-bankrupt affiliates. RPM says none of the non-bankrupt companies has ever been found liable by a court on an asbestos claim.

Court papers say that annual asbestos costs ranged between $60 million and $82 million for the years 2005 to 2009.

The Chapter 11 cases are to be financed with a $40 million loan where Wachovia Financial Corp. (New England) will serve as agent. Bondex wants interim authority to borrow $5 million.

With the Chapter 11 filings, RPM said it will no longer consolidate Specialty Products and its subsidiaries on the balance sheet. RPM said its balance sheet in the future therefore won’t have a reserve for asbestos claims.

The Specialty Products and Bondex Chapter 11 petitions both said assets and debt exceed $100 million.

RPM fell 22 cents May 28 to $19.81 in New York Stock Exchange trading. The three-year high was $25.07 on June 5, 2008, and the low was $9.24 on March 6, 2009.

The case is In re Specialty Products Holding Corp., 10-11780, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Mount Vernon Cash-Machine Operator Put in Chapter 11

Mount Vernon Monetary Management Corp., a provider of automated teller machines, was put into Chapter 11 on May 27 by its federal court-appointed receiver. The company had book assets of $179 million and liabilities of $186 million on April, the receiver Allen D. Applbaum said in a court filing.

Company President Robert Egan and Chief Operating Officer Bernard McGarry were arrested and indicted in early 2008 on charges of bank fraud and conspiracy to commit bank fraud. Applbaum was appointed receiver on April 12, 2008, four days after the arrest.

Mount Vernon, based in the New York town of the same name, also operated check cashing and armored car services. The receiver intends on using Chapter 11 to sell the businesses and assets.

Liabilities include $60 million owing to customers that should have been covered by cash deposits but weren’t. At the time of the arrests, the Federal Bureau of Investigation seized $19 million in currency. The authorities told the receiver that they intend to continue holding the cash and distribute the money through a criminal forfeiture proceeding in the U.S. district court.

The case is In re Mount Vernon Monetary Management Corp., 10-23053, U.S. Bankruptcy Court, Southern District New York (White Plains).

Watch List

Publisher GateHouse ‘Unsustainable,’ Says S&P

Newspaper publisher GateHouse Media Operating Inc. has an “unsustainable” capital structure and “will seek to restructure its debt obligations,” in the judgment of Standard & Poor’s.

S&P on May 28 lowered the corporate credit by one notch to CCC. The senior secured credit facility was reduced to CCC-, accompanied by a guess that holders won’t recover more than 30 percent in the event of default.

GateHouse negotiated an amendment to its credit agreement last year allowing it to repurchase parts of the debt for less than par.

Parent GateHouse Media Inc. reported a $17.3 million net loss for the first quarter on total revue of $133 million. The balance sheet was upside down with assets of $579.5 million and total liabilities of $1.63 billion. For 2009, the net loss was $530 million on total revenue of $585 million.

The Fairport, New York-based company has 87 daily publications, 261 weekly newspapers, 109 so-called shoppers and more than 250 websites.

Briefly Noted

Lehman Reduces 85 Derivates Claims by $58 Million

Lehman Brothers Holdings Inc. negotiated reductions in 85 derivatives claims. At a hearing on Aug. 4, Lehman will ask the bankruptcy judge to ratify settlements were some $455 million in derivatives claims will be reduced to $397 million.

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 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).

Movie Gallery Has Exclusivity Extended to July 31

While Movie Gallery Inc. is in the process of closing its last 1,028 movie-rental stores, the company won’t be distracted by competing Chapter 11 plans. The company’s exclusive right to propose a plan was extended by the bankruptcy judge last week until July 31. Great American Group Inc. won the right to close the last stores with a guarantee of $74.2 million.

Movie Gallery filed under Chapter 11 less than two years after the previous Chapter 11 case. It had approximately 2,600 stores in operation on filing under Chapter 11 again in February. At the outset of the new Chapter 11 case, debt included $100 million on a secured revolving credit, $394 million on a first-lien facility, and $146 million in claims held by second-lien creditors. Movie Gallery operates under the names Movie Gallery, Hollywood Video, and Game Crazy. It had 3,490 stores before the first bankruptcy, which concluded with a confirmed Chapter 11 plan in May 2007. For details on the second filing, click here.

The new case is In re Movie Gallery Inc., 10-30696, U.S. Bankruptcy Court, Eastern District Virginia (Richmond). The prior case is In re Movie Gallery Inc., 07-33849, in the same court.


Boyd Gaming Lowered to B+ on 2011 Covenant Issues

Casino operator Boyd Gaming Corp. was downgraded one notch by Standard & Poor’s to a B+ corporate rating on May 28. The senior subordinated notes were demoted to a B- rating coupled with a projection that the holders wouldn’t recover more than 10 percent following default.

S&P said Boyd would be “challenged to meet financial covenants in 2011.” S&P’s action was also based in part on a “reassessment of the value of the company’s Echelon project site on the Las Vegas Strip.”

Boyd had net income of $8.4 million in the first quarter on revenue of $350 million. For 2009, net income was $156 million on net revenue of $1.64 billion.

Las Vegas-based Boyd has 15 casinos in five states, plus a half interest in the Borgata casino in Atlantic City, New Jersey.

The new S&P rating lines up with the demotion issued in May 2009 by Moody’s Investors Service.

Vestar’s MediMedia Downgraded to B3 by Moody’s

MediMedia US Inc., a provider of health and information services, was demoted one notch on May 28 to a B3 corporate rating by Moody’s Investors Service.

Moody’s was reacting to a lack of internally generated growth plus a “thin cushion of compliance with bank financial covenants and high leverage.”

Yardley, Pennsylvania-based MediMedia generates $300 million a year in revenue, Moody’s said. The company is principally owned by New York-based Vestar Capital Partners.

Bank Failures

Five May 28 Bank Failures Bring Year’s Total to 78

Five more banks were taken over by regulators on May 28, costing the Federal Deposit Insurance Corp. $317 million. So far this year, 78 banks failed.

Last week’s failures were in Florida, California and Nevada.

To read Bloomberg coverage, click here.

There were 140 bank failures in 2009, five times more than

2008. The failures in 2009 were the most since 1992 when 179 institutions were taken over by regulators.

(This report contains items about companies both in bankruptcy and not in bankruptcy. Corrects RPM historical stock price in New Filings section.)
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