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Colonial, Innkeepers, Tribune, Truvo: Bankruptcy

Updated on

Bank holding company Colonial BancGroup Inc. won a major victory over the Federal Deposit Insurance Corp. when the bankruptcy judge in Montgomery, Alabama, ruled on Aug. 31 that Colonial hadn’t made an enforceable agreement to make up a $1 billion capital deficiency at the bank unit.

The subsidiary was taken over by regulators on Aug. 14, 2009, and the deposits were transferred to Branch Banking & Trust Co. The Colonial holding company filed under Chapter 11 later in August.

In the year before the bank’s failure, the holding company signed a series of agreements with the Federal Reserve where the bank was compelled to increase its capital. The FDIC filed a motion in the holding company’s Chapter 11 case in November 2009 demanding that the holding company make up the $1 billion capital deficiency. If it couldn’t, the FDIC asked the bankruptcy judge to convert the Chapter 11 case to a liquidation in Chapter 7.

In the Aug. 31 opinion, supplemented by a 43-page revised opinion yesterday, U.S. Bankruptcy Judge Dwight H. Williams Jr. ruled against the FDIC and granted Colonial’s motion for summary judgment. The judge found there were no disputed issues of fact essential to his decision.

Williams’ ruling involved an interpretation of Section 365(o) of the U.S. Bankruptcy Code which compels a company in bankruptcy to cure any deficit under “any commitment by the debtor to a federal depository institutions regulatory agency” related to the maintenance of capital.

Williams concluded that the language in the underlying agreements didn’t comply with the definitions in 365(o). He said that the agreements did “not make the debtor either primarily or secondarily liable for the bank’s obligations.” The agreements only required the holding company to “assist” the bank. “Most importantly,” Williams said, the agreements didn’t “require the debtor to make a capital infusion, in any amount, in the bank.”

Williams also ruled that the agreements couldn’t be enforced because the bank already had been taken over when the holding company filed in Chapter 11.

Had Colonial lost, the FDIC would have had a $1 billion priority claim for the unpaid capital deficiency. Williams’ ruling can be appealed. A valid priority claim would have meant no recovery by the holding company’s unsecured creditors.

This week Colonial and the FDIC are arguing in bankruptcy court over who has the right to receive $247 million in tax refunds. Colonial and the FDIC previously agreed to hold tax refunds in a segregated account until ownership is decided.

There are other unresolved disputes between the holding company and the FDIC, including disagreement over the validity of three secured claims. The FDIC is claiming a security interest in several bank accounts at BB&T holding $38.4 million that had been deposit accounts of the holding company. Wilson, North Carolina-based BB&T contends it has a security interest in the same accounts. Alabama tax authorities are claiming $7 million.

Colonial sought Chapter 11 relief in August 2009 after the bank subsidiary was taken over by regulators. The Colonial holding company, based in Montgomery, listed assets of $45 million against debt of $380 million.

Colonial provided loans to mortgage loan originators to tide them over until mortgages could be packaged and sold to investors in securitizations. The holding company was being investigated with regard to accounting practices and the warehouse loan operation.

The case is In re Colonial BancGroup Inc, 09-32303, U.S. Bankruptcy Court, Middle District of Alabama (Montgomery).


Judge Won’t Approve Innkeepers Plan-Support Agreement

Shelley C. Chapman, one of the new bankruptcy judges in New York, is no pushover for lawyers representing bankrupt companies. At a hearing that concluded near 11:00 p.m. yesterday, Chapman refused to approve an agreement where a subsidiary of Lehman Brothers Holdings Inc. committed to support a reorganization plan for Innkeepers USA Trust.

Innkeepers, a real estate investment trust owned by Apollo Investment Corp., negotiated an agreement with Lehman Ali Inc. before the Chapter 11 filing in mid-July. The agreement committed the parties to a reorganization plan swapping Lehman’s $238 million in secured debt for the new stock. Lehman was obliged by another agreement to sell half the stock to Apollo for $107.5 million.

Midland Loan Services Inc., the servicer for the $825 million in mortgage debt, successfully opposed approval of the so-called plan support agreement. Midland argued that it wasn’t a bona fide plan support agreement because it garnered support for the plan from only one creditor. Typically, plan support agreements tie up multiple creditors to vote for a reorganization proposal, Midland said in its papers.

Midland also objected to the agreement because court approval would have prevented Innkeepers from negotiating a better plan with anyone else. Midland presented evidence to show that Innkeepers never sought an offer improving on Lehman’s.

Chapman has yet to rule on a motion by preferred shareholders for the appointment of an examiner and on Innkeepers’ motion for authority to use cash representing collateral for secured lenders. The hearing continues this afternoon.

Chapman did approve a $17.5 million secured loan to be made by Lehman so Innkeepers can make improvements on the 20 properties covered by Lehman’s mortgages.

Midland, which has liens on 45 of Innkeepers’ 72 properties, is asking Chapman for permission to file a competing plan. Midland’s plan would be financed by selling the new stock for $236 million to Five Mile Capital Partners LLC. Midland says its plan would provide a greater return for creditors.

For details on Innkeepers’ plan and Midland’s competing plan, click here for the Aug. 31 Bloomberg bankruptcy report.

In total, Palm Beach, Florida-based Innkeepers has 72 extended-stay and limited-service properties with 10,000 rooms in 20 states.

Apollo acquired the company in July 2007 in a $1.35 billion transaction. The Innkeepers petition listed assets of $1.5 billion against debt totaling $1.52 billion.

The case is In re Innkeepers USA Trust, 10-13800, U.S. Bankruptcy Court, Southern District New York (Manhattan).

Tribune Examiner’s Report Costing $5.15 Million

Another bankruptcy judge will serve as mediator to help newspaper publisher Tribune Co. reach agreement with creditor groups on a reorganization plan.

Tribune’s bankruptcy judge, Kevin J. Carey, yesterday signed an order appointing another Delaware bankruptcy judge, Kevin Gross, to be the mediator. Gross is charged with helping the contending parties reach agreement on a plan. He will also help them hash out what Carey called “an appropriate resolution” of claims that the leveraged buyout in 2007 included fraudulent transfers that can be unraveled in bankruptcy.

Each party to the mediation is to give Gross a so-called mediation statement within 10 days containing a five-page outline of a plan that would be acceptable. One party won’t know other parties’ statements. Each participant in the mediation must also give Gross complete disclosure about every form of security owned in connection with Tribune, including swaps and long and short positions.

There is no timetable for the mediation. While the mediation continues, Carey put a halt to all litigation regarding the LBO, including taking evidence from witnesses and producing documents.

Tribune appointed a special committee of the board to work on a plan. To read other Bloomberg coverage about the mediation, click here.

The collapse of Tribune’s reorganization plan resulted from the report of the examiner, Kenneth N. Klee, who concluded that there was some likelihood that the second phase of the leveraged buyout in December 2007 could be attacked successfully as a constructively fraudulent transfer. Klee found less likelihood that the first phase of the transaction, in May 2007, could be unraveled as a fraudulent transfer.

Klee and his law firm filed their final fees requests on Aug. 31. If approved by the judge in the full amount, the examiner’s report will cost Tribune about $5.15 million. From the total, the fee for Klee himself is $663,300. Most of the remainder are fees for his firm.

The hearing on Klee’s fee application is set for Oct. 22. For a summary of some of the examiner’s conclusions, click here for the July 27 Bloomberg bankruptcy report.

Had Tribune not abandoned the plan, there would have been a confirmation hearing this week. Nov. 8 is the tentative date for a confirmation hearing on a new plan.

The plan that Tribune dropped 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 withdrawn 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 of Delaware (Wilmington).

Tronox Sets Sept. 23 Disclosure Statement Approval

Tronox Inc., the world’s third-largest producer of the white pigment titanium dioxide, filed a revised reorganization plan yesterday telling unsecured creditor with $445.6 million in claims that they may have a full recovery.

Tronox also filed a revised disclosure statement setting out recoveries under the plan. The hearing for approval of the disclosure statement will take place Sept. 23. The official equity committee is scheduled to file a competing plan today.

Tronox announced on Aug. 30 that it reached agreement on a revised plan with “all key creditor stakeholders.” The centerpiece of the plan is a settlement of environmental claims.

The plan is financed in part by a $170 million equity rights offering backstopped by holders of 58 percent of the outstanding notes. Stock can be purchased in the offering at a 34 percent discount to the enterprise value underlying the plan.

Other funding for the plan includes $470 million in first-lien debt and $15 million paid by the backstop parties 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. The disclosure statement says the recovery is 75 percent to 100 percent.

Existing shareholders, if they vote for the plan, will have warrants for 5 percent of the stock.

State, federal and local governments with environmental claims will receive $320 million cash plus an 88 percent interest in the pending lawsuit against Kerr-McGee Corp and its parent Anadarko Petroleum Corp. The disclosure statement says the recovery is “unknown.” The suit hopes to claw back environmental remediation costs Tronox was given when spun off from Kerr-McGee in March 2006.

Personal injury tort claimants are to receive $16.5 million cash plus 12 percent of the lawsuit against Kerr-McGee and Anadarko. Their recovery likewise is “unknown.”

The prior version of the plan, filed in July, predicted that unsecured creditors would see recovery between 80 percent and 100 percent. For details on the prior plan, click here for the July 16 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. didn’t file.

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

Texas Rangers Lenders Lose Dispute on Aircraft Rent

The buyers of the Texas Rangers baseball club came out on top in the largest remaining dispute after the team was sold last month to a group including team President Nolan Ryan and sports lawyer Chuck Greenberg.

The secured lenders, owed $525 million, argued that the buyers and not the company in bankruptcy should pay some $2 million for rental of the team’s airplane for October and November. If the former owner pays aircraft rent, the recovery by the lenders would decrease by the same amount.

U.S. Bankruptcy Judge Michael Lynn wrote an opinion yesterday saying that the buyer’s contract, which he approved in August, requires the bankrupt company to pay rent. The lenders unsuccessfully argued that the buyer said during the auction that they would pick up the rent.

Lynn said that there had to be clear and convincing evidence if he were to revise the written contract, which has the former owner paying the rent. The judge said the lenders evidence came up short of showing that the contract should be rewritten.

The team emerged from reorganization in August with a confirmed Chapter 11 plan where the club was purchased for $385 million following an all-day auction.

The Rangers filed under Chapter 11 on May 24 with a sale contract and a plan that claimed to be paying all creditors in full. The original contract with the Ryan-Greenberg group had a cash price of $304 million. Michael “Buzz” Rochelle, brother of Bloomberg reporter Bill Rochelle, is a lawyer for an agent for the lenders.

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

White Birch-Bear Island Auction Approved for Sept. 15

Bear Island Paper Co. LLC and its Canadian parent White Birch Paper Co. will conduct an auction on Sept. 15 to test whether the $90 million cash offer from BD White Birch Investment LLC is the best bid for their businesses. The bankruptcy judge approved auction and sale procedures yesterday.

Other bids are due Sept. 3. The hearing for approval of the sale will take place Sept. 22.

Before the sale procedures hearing, Sixth Avenue Investment Co. LLC said it was willing to pay $10 million more. Sixth Avenue is a group that includes Blue Mountain Capital Management LLC, Lombard General Insurance Co. of Canada and Macquarie Bank Ltd.

BD White Birch includes affiliates of Black Diamond Capital Management LLC, Credit Suisse Group AG, and Caspian Capital Advisors LLC. It holds 65 percent of the first-lien debt.

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).

Creditors Oppose Mexicana Airline’s Chapter 15 Case in New York

Compania Mexicana de Aviacion SA de CV, the Mexican airline known as Mexicana, will face opposition from a secured lender, an aircraft owner and airport authorities at a Sept. 8 hearing for approval of the Chapter 15 petition filed on Aug. 2 in New York.

Mexicana simultaneously began a reorganization in Mexico called a concurso mercantile. The airline soon ceased selling new tickets and announced on Aug. 27 that flight operations were terminating.

Banco Mercantil del Norte SA, a lender with security interests in credit card receivables, filed papers yesterday objecting to approval of the Chapter 15 petition. The bank contends that Mexicana is using parallel proceedings in Mexico and the U.S. as an “elaborate jurisdictional shell game.”

When the bank objected to temporary injunctions issued by the U.S. court, the airline agreed that the bank wouldn’t be subject to provisions halting creditor actions in the U.S., the bank said in its papers. Two days later, according to the bank, Mexicana had the Mexican court enter an injunction prohibiting the bank from exercising remedies in Mexico and the U.S.

The bank is asking the U.S. court not to approve the Chapter 15 petition without giving it protections for its interests in collateral in the U.S.

Several airport authorities are likewise objecting to the Chapter 15 petition unless the court makes arrangements for them to be paid.

GE Capital Aviation Services Ltd., the lessor of 12 aircraft, wants the U.S. judge to continue a so-called carveout in which injunctions in the U.S. don’t reach GECAS, which says it terminated the leases.

The U.S. court gave Mexicana temporary protection from creditor actions in the U.S. on Aug. 18. There will be a Sept. 8 hearing where Mexicana wants the U.S. court to rule that Mexico is properly home to the so-called foreign main proceeding. If the U.S. judge goes along, all creditor actions in the U.S. will be halted, except to the extent the U.S. judge rules otherwise.

The U.S. case is Compania Mexicana De Aviacion SA de CV, 10-14182, U.S. Bankruptcy Court, Southern District New York (Manhattan).

Ronson Aviation to be Sold in RCLC Chapter 11 Case

RCLC Inc., named as Ronson Corp. when it was known for its cigarette lighters, has a hearing in bankruptcy court today in Trenton, New Jersey, for final approval of $2.7 million in financing.

Based in Woodbridge, New Jersey, the company sold the Ronson business in February for $10.5 million cash to Zippo Manufacturing Co. and Nosnor Inc. The sale left RCLC with Ronson Aviation, a fixed-based aircraft maintenance and hangar business at the Trenton-Mercer Airport in Trenton, New Jersey.

The company listed assets of $16.4 million against debt totaling $10.4 million. Liabilities include $3.6 million owing to the secured lender Wells Fargo Bank NA, which is providing short-term financing for the Chapter 11 case.

The aviation business has fueling facilities plus hangar space for up to 49 aircraft, not counting tie-down space for another 60.

Before bankruptcy, there was a contract for Hawthorne TTN Holding LLC to buy the aviation business for $9.5 million cash. The buyer defaulted on the contract, which RCLC terminated, a court paper says.

Between the two businesses, revenue in 2009 was about $18.8, with some $11 million attributable to the aviation business. The aviation business had an $800,000 loss in 2009.

The case is In re RCLC Inc., 10-35313, U.S. Bankruptcy Court, District of New Jersey (Trenton).

Gems TV Sets Oct. 12 Approval for Almost-Full-Payment Plan

Gems TV (USA) Ltd., which had been a television retailer of gemstone jewelry products, scheduled an Oct. 12 confirmation hearing for approval of the liquidating Chapter 11 plan. The bankruptcy judge in Delaware approved the explanatory disclosure statement on Aug. 31.

The disclosure statement advises unsecured creditors with $28 million in claims that they can expect a recovery between 95 percent and 100 percent. Holders of $93 million in subordinated notes are expected to have a 2.1 percent recovery.

In case the plan doesn’t go through on schedule, the bankruptcy judge extended the exclusive right to propose a Chapter 11 plan until Nov. 1.

The ability to pay creditors almost in full came from a settlement where DirecTV Inc. waived its claims.

Gems TV should have some $25.85 million cash and eventually generate $31.5 million, leaving approximately $28 million available for distribution to unsecured creditors. The disclosure statement says that $1.97 million should remain for subordinated claims.

There are no remaining secured claims.

Reno, Nevada-based Gems TV shut down the business before filing under Chapter 11 on April 5. The petition said assets are less than $50 million while debt is expected to exceed $100 million.

The case is In re Gems TV (USA) Ltd., 10-11158, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Secured Lender Objects to Cozumel Caribe’s Chapter 15

Cozumel Caribe SA de CV isn’t entitled to approval of the Chapter 15 petition filed in July, according to CT Investment Management Co. LLC, the special servicer for secured lenders.

Cozumel Caribe sought Chapter 15 protection in New York to complement a reorganization called a concurso mercantile that began in a Mexican court in May. CT argued in its Aug. 30 court papers that the Mexican case shouldn’t be recognized as a “foreign main proceeding” until the Mexican court grants the concurso petition.

Even if Mexico is recognized as having the primary bankruptcy, CT wants the U.S. court to protect its interest in bank accounts in the U.S.

CT says that Cozumel is trying to bring bank accounts to Mexico that that contain some money belonging to Cozumel affiliates not in bankruptcy. Claiming it has a security interest in all the money in the accounts, CT wants protection for money not belonging to Cozumel.

The hearing for approval of the Chapter 15 petition is on the bankruptcy court calendar for Sept. 8.

Cozumel described its business and rendering “tourism and hostelry services” through the beachfront Hotel Park Royal Cozumel in Mexico.

The company has assets of $658 million Mexican pesos ($51.36 million) and liabilities of $367 million pesos, according to court papers. There is another $109 million owing on secured debt where CT is the special servicer.

Court papers said that the U.S. court will be used to help secured access to revenue tied up by lenders.

If the U.S. bankruptcy judge decides that Mexico is home to the primary bankruptcy proceeding, the U.S. court will halt creditor actions in the U.S. and help collect assets. The Mexican court would be chiefly in charge of the reorganization.

The case is In re Cozumel Caribe SA de CV, 10-13913, U.S. Bankruptcy Court, Southern District New York (Manhattan).

New Filing

Pitcairn Properties Files to Deal with Preferreds

Pitcairn Properties Holding Inc., the owner of commercial real estate management and development businesses, filed a Chapter 11 petition yesterday in Delaware to deal with preferred shareholders.

Pitcairn, from Jenkintown, Pennsylvania, said in court papers that it currently has a portfolio with 3.5 million square feet of Class A office properties, a 168-unit apartment project, and 193 acres of undeveloped real estate. The properties are owned by non-bankrupt affiliates.

A court filing says the book value of the assets at Dec. 31 was $163 million, or $30 million more than liabilities. Revenue in 2009 was $15.8 million, including $12 million of rental revenue and $2.4 million in management fees.

Debt includes $10.3 million on a defaulted loan owing to Wells Fargo Bank NA.

Court papers describe how a preferred shareholder named Eric L. Blum is taking steps to gain control of the board in view of the failure to pay preferred dividends. The company contends loan agreements prohibit the payment of dividends.

Pitcairn says it intends “shortly” to file a reorganization plan paying all creditors in full. Dividend arrears on the preferred stock would be paid within two years while the preferred stock itself would be redeemed within five years, with interest.

If preferred shareholders were able to take over the board, the result would be a change of control that would result in the default on loan agreements.

Pitcairn says it usually invests with partners owning as much as 90 percent of a project. The projects themselves are not in bankruptcy, and Pitcairn is liable for “only a small portion” of the project-level debt. At Dec. 31 some $371 million was owing on project-level debt.

The case is In re Pitcairn Properties Holdings Inc., 10-12764, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Briefly Noted

No Ruling Yet on Truvo Disclosure Statement

The bankruptcy judge didn’t rule yesterday whether he will approve the disclosure statement explaining the Chapter 11 plan for Truvo Luxemburg Sarl, a Belgium-based international publisher of directories. Truvo will make changes in the disclosure statement prior to another hearing on Sept. 8. For a discussion of Truvo’s plan, click here to read the Aug. 30 Bloomberg bankruptcy report. If confirmed, the plan would eliminate debt on European-based subsidiaries that are not themselves in bankruptcy in the U.S. or abroad. Truvo believes that shedding the debt is permissible under an intercreditor agreement governed by English law. The plan is opposed by the unsecured creditors’ committee comprised of two holders of 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.

Truvo’s petition listed assets for 1.04 billion euros ($1.34 billion) against liabilities totaling 1.67 billion euros. It is the leading directory publisher in Belgium, Ireland and Romania. Through a joint venture, Truvo is the leading directory publisher in Portugal.

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

LifePoint Completes Purchase of Sumner Regional

LifePoint Hospitals Inc. completed the acquisition of the four non-profit acute-care hospitals in Tennessee belonging to Sumner Regional Health Systems, the buyer said in a statement yesterday. The price was $145 million cash plus working capital. Before the acquisition, LifePoint had 48 hospitals in 17 states.

Sumner, based in Gallatin, Tennessee, listed book assets of $212.7 million and liabilities totaling $180.7 million. Sumner’s largest facility was the 155-bed Sumner Regional. Debt includes $162 million on two issues of secured tax-exempt revenue bonds sold in 2007 and 2008. The bonds were issued as part of an expansion program.

The case is In re Sumner Regional Health Systems, 10-04766, U.S. Bankruptcy Court, Middle District of Tennessee (Nashville).

Daily Podcast

Old GM, Lehman, Tronox, Tribune, Circuit City: Audio

The liquidation plan for Old General Motors Corp., another important lawsuit for Wall Street regarding Lehman Brothers Holdings Inc., a Chapter 11 filing by fund manager GSC Group Inc., and reorganization plans for Tronox Inc., Tribune Co. and Circuit City Stores Inc. are discussed in the latest bankruptcy podcast on the Bloomberg terminal and To listen, click here.

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