Truvo, Tronox, Bear Island, Lehman, SCO: Bankruptcy

The Chapter 11 cases for units of Truvo Luxemburg Sarl, a Belgium-based publisher of directories, may test whether a U.S. bankruptcy court can or should eliminate debt on European companies that aren’t in bankruptcy in the U.S. or abroad.

Truvo missed a June 1 interest payment on two issues of second-priority notes. Some non-operating subsidiaries sought Chapter 11 protection on July 1 and filed a reorganization plan on July 14. The plan was negotiated with holders of 80 percent of the 778 million euros ($993 million) of first-priority senior debt and holders of 15 percent of the second-priority debt.

Truvo will face opposition from the official creditors’ committee at a Sept. 1 hearing for approval of the disclosure statement explaining the plan. The committee comprises two holders of the second-lien debt and their indenture trustee. The members are AllianceBernstein LP, Normandy Hill Capital LP and Bank of New York Mellon-London Branch as indenture trustee.

The case’s outcome will turn on whether the bankruptcy court finds that the plan properly carries out a so-called enforcement sale under an intercreditor agreement governed by English law. The agreement provides that if there is a default on the first-lien debt, the senior creditors may sell the stock of the subsidiaries for cash at a public auction or at fair market value determined by an internationally recognized investment bank. If the sale is properly invoked, liens on the assets of the operating subsidiaries are canceled along with liens on the stock of the subsidiaries.

The committee contends that the Chapter 11 case isn’t properly carrying out an enforcement sale. The panel points out that the non-bankrupt affiliates hold all the assets and businesses. The companies in Chapter 11, the committee says, have no operations, employees, trade creditors or “hard assets.”

The committee contends that the plan violates the intercreditor agreement in several respects. The transaction isn’t a sale for 600 million euros cash, because the cash would be repaid by the end of the day when the plan is consummated. Further, there was no marketing or public sale, nor has there so far been a fair-market valuation by an investment bank, the committee says.

To start the process of an enforcement sale, there must be a default on the senior debt. The committee says there was no senior debt default before the Chapter 11 filing. There is still no default, according to the committee, aside from the Chapter 11 filing itself. To give the notice of default required in the intercreditor agreement, Truvo is asking the bankruptcy court to modify the so-called automatic stay.

In addition, the payment default on the second-lien debt was “manufactured,” the committee says, because the company had sufficient cash to continue paying the senior and junior lenders.

The committee says bankruptcy law doesn’t allow the court to terminate liens and give releases to subsidiaries not in bankruptcy. The U.S. Trustee in New York also filed papers saying releases for non-bankrupt subsidiaries is improper.

The indenture for the second-lien debt doesn’t include a consent to jurisdiction in the U.S., and the bonds were sold in Europe, the committee says. Some of the bondholders, according to the committee, don’t have connections to the U.S. and thus aren’t subject to jurisdiction of the U.S. court.

The issues in the case may break down as follows: (1) Does U.S. bankruptcy law give the bankruptcy court power to release the non-bankrupt subsidiaries from the debt? (2) If bankruptcy law alone won’t suffice to terminate the second liens and turn over ownership of the subsidiaries to the senior lenders, is the Chapter 11 plan a proper implementation of an enforcement sale under the intercreditor agreement? (3) Should the U.S. court implement a reorganization for non-bankrupt companies whose assets and operations are abroad and whose debt was sold in Europe?

With regard to the last question, a bankruptcy in the U.S. for the subsidiaries might not constitute a “foreign main proceeding” under the standards in Chapter 15 for cross-border insolvencies. Thus, even if the subsidiaries were to file their own bankruptcies in the U.S., foreign courts might not recognize the U.S. as the court having the right to take the lead in the reorganizations.

Truvo’s plan would give the senior lenders the new equity plus 600 million euros in new debt. The disclosure statement estimates the senior lenders’ recovery will range between 63.8 percent and 84.1 percent.

If the plan works, the holders of 595 million euros on two issues of second-priority notes would receive 15 million euros and warrants for 14 percent of the stock at a 150 million euros strike price. The estimated recovery is 2.8 percent to 4.8 percent. If the class votes against the plan, they are to receive nothing.

For the 174 million euros owing on pay-in-kind third-priority notes, holders would receive warrants for 1 percent of the stock, said in the disclosure statement to be worth a 0.5 percent recovery. If the class votes against the plan, they are to receive nothing.

The new debt for the senior lenders would consist of 350 million euros in first-lien debt, 100 million euros in second-lien debt and 150 million euros in pay-in-kind debt.

The petition lists assets for 1.04 billion euros against liabilities totaling 1.67 billion euros.

Truvo is the leading directory publisher in Belgium, Ireland and Romania. Through a joint venture, it is the leading directory publisher in Portugal.

The case is In re Truvo USA LLC, 10-13513, U.S. Bankruptcy Court, Southern District of New York (Manhattan).


Tronox Has New Plan Supported by All Creditor Groups

Tronox Inc., the world’s third-largest producer of the white pigment titanium dioxide, said it has an agreement with “all key creditor stakeholders” on the “framework” for an amended reorganization plan giving stock to unsecured creditors.

The plan is supported by federal, state and local governments on account of their environmental claims. According to the company’s statement, the plan will be financed in part by a $170 million equity rights offering fully backstopped by some creditors and noteholders. For their commitment, the backstop parties will receive 4.7 percent of the new common stock.

Other funding for the revised plan will include $468 million in first-lien debt, a $90 million increase from the prior plan. In addition, the backstop parties will pay $15 million to purchase convertible preferred stock.

General unsecured creditors are to receive 16.9 percent of the new stock plus the right to participate in the rights offering for 78.4 percent of the stock. Existing shareholders, if they vote for the plan, will have warrants for 5 percent of the stock.

For their environmental claims, state, federal and local governments will receive $270 million in cash plus an 88 percent interest in the pending lawsuit against Kerr-McGee Corp and its parent Anadarko Petroleum Corp. The suit aims to recover environmental remediation costs Tronox was given when spun off from Kerr-McGee in March 2006.

Holders of personal-injury tort claims are to receive $12.5 million cash, plus 12 percent of the lawsuit against Kerr-McGee and Anadarko.

The new plan is outlined in a so-called plan support agreement that is scheduled for approval in the bankruptcy court on Sept. 16, the same day as the postponed hearing for approval of the disclosure statement explaining the plan. The agreement requires emergence from Chapter 11 by the end of the year.

The previous version of the plan, filed in July, provided that unsecured creditors with an estimated $471 million in claims would see a recovery between 80 percent and 100 percent by taking most or all of the new common stock. For details on the prior plan, click here for the July 16 Bloomberg bankruptcy report. Tronox hasn’t yet filed amendments to the plan and disclosure statement incorporating the plan support agreement.

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. didn’t file.

The case is In re Tronox Inc., 09-10156, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Competition to Purchase Bear Island, White Birch

There is competition to purchase the assets of Bear Island Paper Co. LLC and its Canadian parent White Birch Paper Co.

Sixth Avenue Investment Co LLC submitted a proposal to serve as the so-called stalking horse in place of a group that holds 65 percent of the first-lien debt. Sixth Avenue is a group that includes Blue Mountain Capital Management LLC, Lombard General Insurance Co. of Canada, and Macquarie Bank Ltd.

Sixth Avenue says it will raise the cash portion of the purchase price to $100 million, compared with $90 million cash being offered by BD White Birch Investment LLC, the group the company intends on having make the first bid at auction. BD White Birch includes affiliates of Black Diamond Capital Management LLC, Credit Suisse Group AG and Caspian Capital Advisors LLC.

Sixth Avenue says that the members of the BD White Birch group, in their roles as buyers and lenders, stands to earn $10.6 million in breakup fees and other payments if someone else buys the property. Sixth Avenue is willing to forgo a breakup fee, receive only $1.5 million in expense reimbursement, sign a contract with no financing condition, and complete the sale with no further financial investigation.

Otherwise, Sixth Avenue says it is willing to sign a contract on the same terms as BD White Birch. Sixth Avenue will also provide replacement financing for the Chapter 11 case. The price offered by BD White Birch is liquidation value, according to the Canadian monitor’s report cited by Sixth Avenue.

The hearing to approve bidding procedures and select a stalking horse is currently scheduled to be held tomorrow.

Based in Nova Scotia, White Birch and U.S. subsidiaries filed for reorganization simultaneously in the U.S. and Canada in February. White Birch is the second-largest newsprint maker in North America.

Secured liabilities include $438 million on a first-lien term loan, $104 million on a second-lien term loan, $50 million on an asset-backed revolving credit, and $51.5 million on swap agreements. Trade suppliers are owed $9.5 million. The companies had $667 million in sales during 2009, with $125 million attributable to Bear Island. White Birch has three pulp and paper mills in the province of Quebec. The Bear Island plant is in Ashland, Virginia. White Birch is controlled by Brant-Allen Industries, according to Bloomberg Data.

The case is In re Bear Island Paper Co. LLC, 10-31202, U.S. Bankruptcy Court, Eastern District Virginia (Richmond).

Stations Casinos Reorganization Plan Confirmed

Station Casinos Inc. won approval of its reorganization plan at an Aug. 27 hearing when the bankruptcy judge in Reno, Nevada, signed a confirmation order. The plan was accepted by all creditor classes entitled to vote. The creditors’ committee ended up supporting the reorganization.

For details on the revised plan, click here for the July 29 Bloomberg bankruptcy report.

Station Casinos filed under Chapter 11 in July 2009. 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).

SCO Group Trustee to Sell Assets at October Auction

The Chapter 11 trustee for software developer SCO Group Inc. will sell the assets at auction on Oct. 25.

At a hearing last week, the bankruptcy judge in Delaware approved sale procedures where bids are due Oct. 15. No buyer is yet under contract. The hearing for approval of the sale will take place Nov. 8.

The bankruptcy judge called for a Chapter 11 trustee in August 2009, about one month before the U.S. Court of Appeals in Denver ruled in the company’s favor after six years of litigation with Waltham, Massachusetts-based Novell Inc. The case went back to the district court, where the judge and jury further clarified SCO’s rights in certain Unix software incorporated in software for network systems.

With the property interest clarified, the trustee is now selling the assets.

After bankruptcy in September 2007, SCO and an affiliate filed schedules listing combined assets of $14.2 million and debt totaling $5.2 million.

The case is In re SCO Group Inc., 07-11337, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Spheris Wins Court Confirmation of Liquidating Plan

Spheris Inc., which had been a transcriber of medical dictation for doctors and hospitals, has an approved Chapter 11 plan in which unsecured creditors and holders of senior subordinated notes were told in the disclosure statement that they should have a recovery up to about 23 percent.

The bankruptcy judge in Delaware signed a confirmation order on Aug. 26.

Spheris is now formally called SP Wind Down Inc. It sold its business for $98.83 million cash and a note that was later sold for $13.77 million. As of Jan. 31, secured lenders were owed $75.6 million. Unsecured claims consist chiefly of $125 million on subordinated notes.

Franklin, Tennessee-based Spheris originally listed assets of $61 million and debt of $225 million, including $75.6 million on a senior secured credit and $125 million on subordinated notes. For the 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).

FairPoint Has $30.4 Million Six-Month Operating Loss

FairPoint Communications Inc., a local exchange carrier with 1.7 million access lines, reported a net loss of $112.2 million for six months ended June 30. Its operating loss in the first half, as reported in a filing with the Securities and Exchange Commission, was $30.4 million.

The largest component of the net loss was $70.4 million in interest expense. Reorganization costs for the half year were $15 million.

Lenders are to own FairPoint when it emerges from Chapter 11. The bankruptcy judge couldn’t confirm the Chapter 11 plan in May because of the lack of regulatory approval from Vermont, New Hampshire and Maine. The judge overruled other objections to confirmation. Since then, FairPoint made settlements with New Hampshire and Maine. For details on the plan, click here for the March 12 Bloomberg bankruptcy report.

FairPoint’s Chapter 11 petition listed assets of $3.236 billion and debt of $3.234 billion. Funded debt, aggregating $2.7 billion, included $2 billion under a secured credit facility, $575 million in senior unsecured notes, and $88 million on interest rate swap agreements.

The case is In re FairPoint Communications Inc., 09-16335, U.S. Bankruptcy Court, Southern District New York (Manhattan).

National Envelope Has $5 Million Net Loss in July

National Envelope Corp., which was authorized last week to sell its business, reported a $5 million net loss in July on revenue of $51.8 million. Earnings before interest, taxes, depreciation and amortization were $1.4 million.

It had restructuring charges of $3.8 million and interest expenses of $1.4 million in July.

The bankruptcy judge approved a sale to affiliates of Gores Group LLC under a contract valued at $208 million, including cash of $149.85 million. The price increased at auction. Beforehand, Gores was under contract for $134.5 million.

National Envelope called itself the largest privately held envelope manufacturing company in the U.S. It filed under Chapter 11 on June 10. The loan agreement with General Electric Capital Corp., the lenders’ agent, required a quick sale.

Based in Uniondale, New York, National Envelope has 14 manufacturing plants in 11 states, plus three warehouses. Net sales in 2009 were $676 million, resulting in a $44.2 million net loss. The petition says assets and debt are both less than $500 million. Liabilities include $74.3 million on a secured term loan, $70.6 million on a secured revolving credit, and $89 million owed on unsecured debts to trade suppliers.

The case is In re NEC Holdings Corp., 10-11890, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Omni Approved to Buy Amelia Island, Plan Confirmed

Omni Hotels, a subsidiary of TRT Holdings Inc., received formal authorization from the bankruptcy judge on Aug. 27 to buy Amelia Island Plantation, a 1,350-acre resort on Amelia Island in Florida. Omni, based in Irving, Texas, won the auction with a bid of $67.1 million.

In a companion order on Aug. 27 the bankruptcy judge confirmed the liquidating Chapter 11 plan. The plan was accepted by all voting classes, including club members.

The two secured lenders between them were owed $58.7 million. The lenders are BBVA Compass Bank and PRIAC Realty Investments LLC, an affiliate of Prudential Retirement Insurance & Annuity Co.

Current and former club members are to recover between 30 percent and 80 percent on their claims totaling about $46 million. The plan makes them members of a new club that will rent the facilities from the buyer with a view to purchasing.

General unsecured creditors with $13.9 million in claims are in line for an 11 percent recovery, the disclosure statement said.

The resort filed under Chapter 11 in Jacksonville, Florida, in November when it was faced with missing payroll. The resort has 249 rooms and three golf courses.

Revenue in 2008 was $69.5 million. Estimated revenue for 2009 was $57.3 million.

The case is In re Amelia Island Co., 09-09601, U.S. Bankruptcy Court, Middle District of Florida (Jacksonville).

New Filing

New York Apartment Owner Files to Stop Foreclosure

Beaver Creek Realty Corp. and three affiliates filed Chapter 11 petitions on Aug. 27 in White Plains, New York, to stop Astoria Federal Savings & Loan Assoc. from foreclosing their four apartment buildings.

Three of the buildings are in Manhattan’s Harlem neighborhood and one in Yonkers, New York. The monthly rent roll is $103,000, according to a court filing. The companies owe New York-based Astoria Federal $8.6 million on the mortgages.

Beaver Creek said that the mortgages became delinquent as a result of increasing taxes, mortgage amortization and capital expenditures.

The case is In re Beaver Creek Realty Corp., 10-23784, U.S. Bankruptcy Court, Southern District New York (White Plains).

Watch List

Skilled Healthcare Loses Motion to Vacate Judgment

Skilled Healthcare Group Inc., an operator of 78 nursing homes and 22 assisted-living communities, lost a motion asking the trial judge to vacate a $671 million California jury verdict. The company based its motion on alleged juror misconduct. To read Bloomberg coverage, click here.

With the motion to vacate denied, the Foothill Ranch, California-based company said it is appealing. The statement also said there are settlement discussions.

Revenue of $759.8 million in 2009 resulted in a $133.2 million net loss. For the first half of 2010, there was $13.4 million of net income on revenue of $390 million.

The balance sheet at June 30 had assets of $926 million and total liabilities $636 million.

The day before the jury award, the stock closed at $6.22 in New York Stock Exchange trading. It closed on Aug. 27 at $2.77, down 42 cents a share.

New Bankruptcy Judge

Sean Lane, Assistant U.S. Attorney, Becomes Manhattan Judge

The U.S. Bankruptcy Court in New York has a full complement of judges for the first time in two years.

Sean H. Lane, an assistant U.S. Attorney in Manhattan, was named by the U.S. Court of Appeals in New York to fill the vacancy left on the retirement of Prudence Carter Beatty. Lane was the chief of the tax and bankruptcy unit in the U.S. Attorney’s office.

He ascends to the bench on Sept. 7.

Daily Podcast

Federal Reserve Policies, 3rd Party Releases, Visteon: Audio

The credibility of statements by the Federal Reserve, third-party releases in Chapter 11 plans, and the Chapter 11 plan of Visteon Corp. are discussed in the latest bankruptcy podcast on the Bloomberg terminal and To listen, click here.

Briefly Noted

Barclays Continues Defense in Lehman Trial

Barclays Plc continued presenting defense witnesses on Aug. 27 against claims by Lehman Brothers Holdings Inc. that the bank took $11 billion more than it was entitled to receive when it purchased the brokerage business. To read Bloomberg’s trial coverage, click here. The trial began in May.

The Lehman holding company and its non-brokerage subsidiaries filed a revised Chapter 11 plan and disclosure statement in April. For details, click here and here for the April 15 and 16 Bloomberg bankruptcy reports. 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 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, both in U.S. Bankruptcy Court, Southern District New York (Manhattan).

Tribune Not Filing New Plan in View of Creditor Talks

Newspaper publisher Tribune Co. told its employees in an e-mail on Aug. 27 that it wouldn’t be filing an expected amendment to its reorganization plan in light of talks with creditors. Company officials wouldn’t elaborate. For Bloomberg coverage, click here.

After the examiner issued a report concluding there was some likelihood that the second phase of the leveraged buyout in December 2007 could be attacked successfully as a constructively fraudulent transfer, some creditors withdrew their support, and the company canceled a hearing that would have been held today for confirmation of the plan.

The examiner found less likelihood that the first phase of the transaction, in May 2007, could be unraveled as a fraudulent transfer. For a summary of some of the examiner’s conclusions, click here for the July 27 Bloomberg bankruptcy report.

Tribune’s plan would have settled claims that the $13.7 billion leveraged buyout led by Sam Zell contained fraudulent transfers. The plan was opposed by holders of $3.6 billion in debt. For details on the plan, the proposed settlement and the parties’ arguments, click here for the April 13 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 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 of Delaware (Wilmington).

OTB Chief Executive Threatens Workers with Liquidation

New York City Off-Track Betting Corp. says it needs voluntary or involuntary concessions from workers to avoid liquidation. For details on a press conference by NYC OTB’s Chief Executive Officer Greg Rayburn, click here for Bloomberg coverage.

The bankruptcy judge ruled in March that NYC OTB is eligible to reorganize in Chapter 9. The petition, filed in December, said assets are less than $50 million while debt exceeds $100 million. Liabilities include $8 million in governmental statutory claims, $43.7 million owing to the racing industry and $6.3 million in claims held by general unsecured creditors. There is almost no secured debt.

The case is In re New York City Off-Track Betting Corp., 09-17121, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Advance Sheets

Second Circuit Rules on Effect of No Credit Counseling

The U.S. Court of Appeals in Manhattan handed down a seminal opinion on Aug. 26 analyzing the effect of a bankruptcy petition filed by an individual debtor who didn’t receive statutorily required credit counseling.

Beyond bankruptcy cases, the ruling is important because it clarifies the status of a federal lawsuit that was defectively begun.

The appeal was a test case brought to the Second Circuit in Manhattan by the U.S. Trustee. Three individuals filed petitions in Chapters 7 and 13 without first having received credit counseling required by changes Congress made to the Bankruptcy Code in 2005. Rather than dismiss the case, the bankruptcy judge struck the petitions.

By striking the petitions rather than dismissing, the bankruptcy judge allowed the bankrupts to avoid limitations on subsequent filings that would have resulted were the cases dismissed.

The Circuit Court held that the U.S. Trustee, an arm of the Justice Department, had standing to take the appeal although she had no pecuniary interest in the outcome. The opinion by Circuit Judge Debra Ann Livingston, a former professor at Columbia University Law School, said that the U.S. Trustee had the right to appeal to protect the “public interest” inherent in enforcing the law. In addition, the situation was likely to recur and evade appellate review.

On the question of whether it was proper to strike the petition rather than dismiss the case, Livingston said that the majority of bankruptcy courts considering the issue come down in favor of dismissing. The bankrupts argued that it was proper to strike the petitions because they were not eligible to file in the first place.

Livingston rejected the notion a defective petition does not commence a case. She said it only prohibits a case “from being maintained as a proper voluntary case.” Interpreting the effect of a 2006 U.S. Supreme Court opinion called Arbaugh v. Y&H Corp., Livingston decided that the defect didn’t deprive the court of jurisdiction. To use legal terminology, the defect wasn’t jurisdictional.

Livingston went on to rule that the automatic stay came into effect even though the filing was defective. She said that “much of the value of the stay is in the clarity of its implementation.”

The Circuit Court didn’t reach the question of whether it was proper to strike rather than dismiss. Livingston sent the case back to the bankruptcy court to decide the proper fate of the cases in light of the appeals court’s ruling that the case actually was commenced.

The Second Circuit took almost two years to decide the case. Oral argument was in October 2008. The appeals court named Sanford I. Weisburst from the law firm Quinn Emmanuel Urquart & Sullivan LLP to write a brief and argue the case for the bankrupts who didn’t have a lawyer. Weisburst was a law clerk for Supreme Court Justice Clarence Thomas.

The case is Adams v. Zarnel (In re Zarnel, Finlay, and Elmendorf), 07-0090-0092 and 07-0097-0099, 2nd U.S. Court of Appeals (Manhattan).

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