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WaMu, Lehman, Orleans, Lehman, Rock J.V.: Bankruptcy

Even though the examiner for Washington Mutual Inc. won’t issue his report until Nov. 1, U.S. Bankruptcy Judge Mary F. Walrath ruled at a hearing yesterday that she will approve the disclosure statement explaining the Chapter 11 plan after final changes are made.

The voting deadline is Nov. 15. Walrath set aside Dec. 1 through Dec. 3 for the confirmation hearing to consider approval of the plan.

Walrath turned down a request by shareholders to hold off disclosure statement approval until the examiner’s report is published. A lawyer for noteholders told Walrath that the plan, revised to incorporate settlements with creditor groups, is supported by all constituencies that have a realistic chance of receiving a distribution.

For Bloomberg coverage, click here and here.

The examiner, Joshua Hochberg, was selected to analyze the merits of a settlement among WaMu, the Federal Deposit Insurance Corp. and JPMorgan Chase & Co. The plan was modified this month to incorporate modifications to the settlement. For an discussion of the changes, click here for the Oct. 7 Bloomberg bankruptcy report. WaMu’s revised plan is designed to distribute over $7 billion to creditors. To read about the settlement before it was modified, click here for the May 24 Bloomberg bankruptcy report. Click here to read the May 18 Bloomberg bankruptcy report for a summary of WaMu’s plan.

The WaMu holding company filed under Chapter 11 in September 2008, one day after the bank subsidiary was taken over. The bank, which had been the sixth-largest depository and credit-card issuer in the U.S., was 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 $4.49 billion against liabilities of $7.83 billion.

The holding company Chapter 11 case is In re Washington Mutual Inc., 08-12229, U.S. Bankruptcy Court, District of Delaware (Wilmington).


Lehman Using Lazard to Find Investor in Lamco

Lehman Brothers Holdings Inc. is asking to use Lazard Freres & Co. LLC as an investment banker to assist in “exploring a strategic relationship with a third party” with regard to Lehman subsidiary Lamco Holdings LLC. Lehman’s cash topped $20 billion while professional costs exceeded $1 billion.

Lehman created Lamco during the Chapter 11 case to provide property-management services for the assets in Lehman’s portfolio. After realizing that Lamco could provide services to third parties, Lehman decided to look into whether an outsider might buy part of Lamco.

Lehman wants the bankruptcy court to modify the terms by which Lazard has served as investment banker since the outset of the Chapter 11.

If approved by the judge, Lazard’s monthly fee would rise from $200,000 a month to $350,000 retroactive to June 1. In addition, Lazard would receive a $1.25 million fee if there is a sale or investment in Lamco.

At the outset of the Chapter 11 case, Lazard’s monthly fee was $400,000. The fixed fee was reduced by agreement to $200,000. Lazard’s engagement also called for separate fees on the completion of asset sales.

If there’s an objection, a hearing will be held on Nov. 17 to consider changing the terms of Lazard’s retention.

Lehman had $20.28 billion cash at the end of September, the holding company for the liquidating broker said in a monthly operating report filed with the bankruptcy court yesterday. Cash grew about $462 million during the month.

Cash receipts in the month were $1.035 billion.

Lehman Brothers Special Financing Inc. leads the Lehman companies with $7.465 billion cash. In second place is Lehman Commercial Paper Inc. with $3.685 billion, followed by the holding company with $2.509 billion.

Professional fees and expenses since the case began two years ago now total $1.013 billion, including $49.84 million in September and fees for the U.S. Trustee system.

Alvarez & Marsal LLC, the financial advisers, billed $13.97 million in September, bringing the total since September 2008 to $356.4 million. The fees for Weil Gotshal & Manges LLP, chief bankruptcy counsel, now total $237.04 million, including $16.18 million in September. Attorneys for the official creditors’ committee from Milbank Tweed Hadley & McCloy LLP have been paid $71.18 million, including $1.91 million in September.

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. Lehman said it intends on amending the plan in the last quarter of the year and have the plan approved in a confirmation order by March.

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, both in U.S. Bankruptcy Court, Southern District New York (Manhattan).

Orleans Homebuilders Paying CEO $700,000 to Go Away

Orleans Homebuilders Inc., a homebuilder scheduled for approval of a Chapter 11 plan at a Nov. 16 confirmation hearing, negotiated a settlement where Chairman and Chief Executive Officer Jeffrey P. Orleans will be paid $700,000 cash to resign and waive claims.

Secured lenders, who will take control when the plan is implemented, evidently have no need for continuing services from Orleans, who says he would have a $1 million claim solely resulting from the termination of his employment agreement.

According to the company’s court filing, Orleans filed a claim for $129,000 and was in a dispute with the company over the use of trademarks. Orleans also said he would be entitled to $500,000 under the company’s incentive bonus program.

If the settlement is approved by the bankruptcy court on Nov. 8, Orleans will give up any claims to trademarks and trade names, in addition to giving the company a complete release in return for the $700,000 payment. He will resign all positions with the company.

Orleans had a $1.1 million salary, plus a pre-bankruptcy bonus equal to 3 percent of pretax earnings.

Orleans builds homes and condominiums in seven states. The plan will give stock and new secured debt to revolving credit lenders owed $234 million. Unsecured creditors are to receive recoveries from lawsuits and a sharing in proceeds from sales of properties after secured debt is paid.

The disclosure statement estimates that the revolving credit lenders will recover between 67 percent and 87 percent for a vote in favor of the plan. Unsecured creditors should see between 3.4 percent and 5.25 percent if they vote “yes” as a class.

The plan reduces debt from more than $400 million to less than $200 million, the company said in a statement. Orleans negotiated the plan with holders of more than 80 percent of the secured debt.

The Chapter 11 filing in March by Bensalem, Pennsylvania- based Orleans followed maturity of the revolving credit the month before. Approximately $325 million was owing to the banks at maturity, not including $15 million on letters of credit. The March 31 balance sheet listed assets of $591 million against total liabilities of $560 million.

The case is In re Orleans Homebuilders Inc., 10-10684, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Competing Offer for Rock JV’s Madison Ave. Building

Although U.S. subsidiaries of Rock Joint Ventures Ltd. didn’t intend to hold an auction for the two office buildings they own in Manhattan, a higher offer was nonetheless submitted for the property on Madison Avenue.

The companies filed under Chapter 11 on Sept. 15 aiming for quick confirmation of a reorganization plan selling the two buildings for a combined $168.7 million. The buildings are 100-104 Fifth Ave. and 183 Madison Ave. The originally intended buyers are offering $93.5 million for the Fifth Avenue property and $75.2 million for the building on Madison Avenue.

Scott Pudalov and Alan Wildes submitted an offer last week of $76.2 million for the Madison Avenue property. The companies referred to Pudalov and Wildes in a court filing as “disgruntled former employees of the management company” who were fired “for cause.” The two have been claiming they have a right of first refusal on the Madison Avenue property.

The plan was accepted before the Chapter 11 filing by Bank of Scotland Plc, the agent for the senior and subordinated secured lenders. The lenders are owed $267 million on the senior debt and $26 million on the subordinated obligation. The plan is premised on the idea that no creditors aside from the senior lenders will receive anything. The bankruptcy court in Delaware scheduled a hearing on Nov. 9 both to approve the disclosure statement and confirm the plan.

Based on the previously negotiated sale prices, the plan would give senior lenders a 63.2 percent recovery. The $98.1 million deficiency claim would be treated as an unsecured claim receiving nothing. A court filing says there is another $381,000 in unsecured claims.

The parent is in administration in the U.K. The administrators control the U.S. companies that filed in Chapter 11.

The case is In re Rock US Holdings Inc., 10-12892, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Franchise Brands Buys Taco Del Mar Assets at Auction

Franchise Brands LLC, with an offer of $3.25 million, was the winning bidder for the assets of Taco Del Mar Franchising Corp., a franchiser of quick-service Mexican food restaurants. The auction had three bidders. The first bid was $1.95 million.

Franchise Brands is acquiring a business with more than 200 locations. Some of the buyer’s other brands are Personal Training Institute, Mama DeLuca’s Pizza Now! and HomeVestors of America Inc.

Unsecured creditors, with $12 million in claims on file, will receive distributions from the portion of the sale price above about $2 million, according to a court filing by a financial adviser for the official creditors’ committee.

Taco Del Mar listed asset of $314,000 and debt totaling $3.02 million in the Chapter 11 petition filed in January. The company is located in Kenmore, Washington.

The case is In re Taco Del Mar Franchising Corp., 10-10528, U.S. Bankruptcy Court, Western District Washington (Seattle).

Daily Podcast

Old GM DIP Loan, First Amendment and Chapter 11, Conduits: Audio

Possible problems with the government’s loan to old General Motors Corp., the First Amendment right to disparage a company in Chapter 11, and an expansion of the “mere conduit” defense to fraudulent transfers are analyzed in the new bankruptcy podcast on the Bloomberg terminal and To listen, click here.

Briefly Noted

Rosenbloom to Be Point Blank Creditors’ Board Observer

Point Blank Solutions Inc., a manufacturer of soft body armor for the military and law enforcement, settled a motion by the creditors’ committee for the appointment of a Chapter 11 trustee by agreeing to the appointment of Eric J. Rosenbloom to be an observer of the board of directors. Rosenbloom, who was general counsel for Hilco/Great American Group, will report to the official committees representing stockholders and unsecured creditors.

The former chief executive and chief operating officer were convicted in September of orchestrating a $185 million fraud.

Point Blank has a plant and head office in Pompano Beach, Florida, and a second plant in Jacksboro, Tennessee. Revenue in 2009 exceeded $153 million. The petition listed assets of $64 million against debt totaling $68.5 million. Debt included a $10.5 million secured loan paid off by financing for the Chapter 11 case. Point Blank said it also owes $28.2 million to trade suppliers.

The case is In re Point Blank Solutions Inc., 10-11255, U.S. Bankruptcy Court, District of Delaware.

Spheris Plan Paying 23 Percent of Unsecured Creditors’ Claims

Spheris Inc., a transcriber of medical dictation for doctors and hospitals before the business was sold, should be paying its unsecured creditors about 23 percent, the trustee for the liquidating trust said in a statement yesterday. The Chapter 11 plan confirmed in August was implemented on Sept. 20.

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

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

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

New Filings

Robert Schuller’s Crystal Ministries Files Chapter 11

Crystal Cathedral Ministries, a mega-church in Garden Grove, California, filed for Chapter 11 protection yesterday in Santa Ana, California, saying assets and debt both exceed $50 million.

The web site says the church has more than 10,000 members. The church was founded by Robert H. Schuller and is known for the Hour of Power television show.

Schuller said in July that he was retiring, to be succeeded by his daughter Sheila Schuller Coleman.

For Bloomberg coverage of the filing, click here.

The case is In re Crystal Cathedral Ministries, 10-24771, U.S. Bankruptcy Court, Central District California (Santa Ana).

North Carolina’s Northfield Investments Files Chapter 11

Northfield Investments Inc., the owner of developments in Pineville, Charlotte and Huntersville, North Carolina, filed for Chapter 11 protection yesterday in Charlotte, listing assets of $10.8 million against debt totaling $13.1 million.

The petition says $10.18 million is owing to secured lenders Berkadia LLC and an affiliate of Wells Fargo & Co. Northfield believes that both lenders can be repaid in full from the value of the properties.

The case is In re Northfield Investments Inc., 10-33044, U.S. Bankruptcy Court, Western District North Carolina (Charlotte).

Advance Sheets

Bankruptcy Trustee Cannot be Class-Action Plaintiff

Because a bankruptcy trustee owes a fiduciary duty to creditors of the estate, U.S. District Judge G. Patrick Murphy in East St. Louis, Illinois, ruled that the trustee has a conflict of interest precluding him from suing a bank creditor in a putative class action where the bankrupt would have been the class representative.

In his Oct. 15 opinion, Murphy pointed out how the bankruptcy trustee would carry two fiduciary duties were the trustee to be the class plaintiff. On one hand the trustee would owe fiduciary duties to the bankruptcy estate, and on the other the trustee would owe fiduciary duties to members of the class.

Murphy barred the trustee from being a class plaintiff under a 2003 decision from the 7th U.S. Circuit Court of Appeals in Chicago named Dechert v. Cadle Co.

The case is Centrue Bank v. Samson (In re Thompson), 10-381, U.S. District Court, Southern District Illinois (East St. Louis, Illinois).

Inflated Claim No Basis for FDCPA Class-Action Suit

Filing an inflated claim against an individual bankrupt isn’t the basis for a lawsuit claiming a violation of the federal Fair Debt Collection Practices Act, the 2nd U.S. Circuit Court of Appeals ruled on Oct. 5.

A lender filed a $2,039 claim against a couple in bankruptcy. After the bankruptcy court reduced the claim to $1,100, the couple filed a class-action suit alleging a violation of FDCPA. The district court dismissed the suit, and the 2nd Circuit in Manhattan affirmed.

The appeals court said that the FDCPA is “designed to protect defenseless debtors and to give them remedies against abuse by creditors.” In the opinion of the appeals court, “there is no need to protect debtors who are already under the protection of the bankruptcy court.”

If the bankrupts believed they were wronged, the circuit court said they should have exercised remedies under the U.S. Bankruptcy Code, including contempt.

The circuit court ruled in the bankrupts’ favor on the issue of defendants’ attorneys’ fees.

The district judge assessed the lenders’ costs and attorneys’ fees against the bankrupts. The appeals court reversed, saying the suit wasn’t filed in bad faith because “the merits turned on a question of law that was, until this opinion, not decided in this Circuit.”

The case is Simmons v. Roundup Funding LLC, 09-4984, 2nd U.S. Circuit Court of Appeals (Manhattan).

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