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AmericanWest, Lehman, Workflow, Nicos: Bankruptcy

Oct. 29 (Bloomberg) -- A bankruptcy judge in Manhattan refused to allow Wells Fargo Bank NA to foreclose on a homeowner because the bank couldn’t prove it owned the note and mortgage.

The homeowner, an individual in Chapter 7 bankruptcy, admitted owing $355,400 to San Francisco-based Wells Fargo on a first mortgage on her home. The bank filed a motion seeking a modification of the so-called automatic stay to permit foreclosure.

U.S. Bankruptcy Judge Martin Glenn held a hearing on Oct. 20 and denied the motion in a written opinion on Oct. 27, saying Wells Fargo failed to prove it owns the note and mortgage.

The mortgage originally was made in favor of Lend America. There was evidence that the mortgage note was assigned immediately after it was made to Washington Mutual Bank FA. Glenn said there was no evidence to show the note had been assigned to Wells Fargo.

To foreclose requires proving ownership of both the note and mortgage. For lack of evidence of ownership of the note, Glenn refused to allow Wells Fargo to foreclose.

Although Glenn said the bank “arguably” proved it owned the mortgage, there were problems with the mortgage as well.

While the mortgage was initially assigned to Mortgage Electronic Registration System Inc. as agent for Lend America, Glenn said there were “issues” regarding the assignment of the mortgage by MERS to Wells Fargo. An officer of MERS signed the assignment in Florida while his signature was notarized by a notary in South Carolina.

At the hearing, Glenn queried the bank’s counsel about the mortgage assignment. Glenn’s opinion said the bank’s lawyer “was unable to answer any questions about the supporting documents.”

While Glenn denied the motion to permit foreclosure, he is allowing Wells Fargo to return to court when the documentation is cleared up.

The case is In re Mims, 10-14030, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

New Filings

AmericanWest Files in Spokane to Sell Bank Subsidiary

AmericanWest Bancorporation, a bank-holding company, filed a Chapter 11 petition yesterday in Spokane, Washington, initiating an expedited sale of the bank subsidiary for $6.5 million cash to SKBHC Holdings Inc.

To test whether there is a better offer, AmericanWest wants the bankruptcy judge to sanction the auction and sale procedures where other bids would be due Nov. 30, followed by an auction and sale-approval hearing on Dec. 10. There would be no auction if there are no other bids.

An integral part of the sale is the buyer’s agreement with regulators to inject a fresh $200 million in capital into the bank when the acquisition is completed. The bank has 58 branches with 77,000 customers in eastern Washington, northern Idaho and Utah. The holding company is based in Spokane.

The holding company owes $47.2 million on junior subordinated debt and $3,600 in trade debt. The petition says assets are less than $10 million while debt is less than $50 million. The holding company became insolvent in the first half of this year, court papers say.

Scott A. Kisting is chairman and chief executive officer of SKBHC, according to Bloomberg data.

The case is In re AmericanWest Bancorporation, 10-06097, U.S. Bankruptcy Court, Eastern District of Washington (Spokane).

Safety Harbor Resort Files to Deal with Mortgage Debt

The owner of the historic Safety Harbor Resort & Spa on the northeastern shore of Tampa Bay in Florida filed a Chapter 11 petition yesterday in response to default on a $29.7 million mortgage owing to Wells Fargo Bank NA.

The property has 175 rooms plus pools, tennis courts and a spa. It was acquired in late 2004 by Olympia Development Group Inc. The Chapter 11 filing was caused in part by the need to service debt on adjoining undeveloped property.

Revenue is down 40 percent since 2008, court papers say. In 2009, revenue was $10.4 million. So far this year, sales totaled $7.6 million.

In addition to the mortgage, the resort owes $540,000 to unsecured creditors. Chapter 11 will be used to reduce the mortgage to a manageable size, according to a court filing.

The case is S.H.S. Resort LLC, 10-25886, U.S. Bankruptcy Court, Middle District of Florida (Tampa).

Colorado’s Banning Lewis Project Files in Delaware

The developer of the Banning Lewis Ranch master-planned community in Colorado filed for Chapter 11 protection yesterday in Delaware, saying the assets are worth more than $50 million while debt exceeds $100 million.

Greenfield BLR Partners LP and Farallon BLR Investor LLC, which between them own 85 percent of the stock, also hold $141 million in debt.

KeyBank NA is owed another $65 million on a bank loan, court papers say.

The 21,000-acre project is 20 minutes northeast of Colorado Springs, according to the website.

For Bloomberg coverage, click here.

The case is In re Banning Lewis Ranch Co. LLC, 10-13445, U.S. Bankruptcy Court, District of Delaware (Wilmington).


Lehman Wants to Use $90 Million More D&O Insurance

Lehman Brothers Holdings Inc. for a fourth time is asking the bankruptcy judge to increase the amount that directors’ and officers’ insurance companies can pay toward the defense costs and settlements of lawsuits involving company managers.

Lehman has already eaten through $70 million of the $250 million of directors’ and officers’ liability coverage for the policy year May 2007 to May 2008. At a Nov. 17 hearing, Lehman is asking the court to let the insurance companies provide defense costs for another $55 million, bringing the total to $125 million, or half the available coverage for the year.

For the 2008 to 2009 policy year, Lehman wants the court to allow using as much as $35 million from the $250 million policy.

Richard Fuld, Lehman’s former chief executive officer, will use $10 million from the insurance coverage to settle a suit by the Booth Foundation. For Bloomberg coverage, click here.

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 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 to amend the plan in the last quarter of the year and to have the plan approved in a confirmation order by March.

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 Investor Protection Corp. v. Lehman Brothers Inc., 08-01420, both in U.S. Bankruptcy Court, Southern District New York (Manhattan).

Workflow Can’t Retain Arnold & Porter, Judge Rules

The bankruptcy judge in Norfolk, Virginia, declined to approve the retention of Arnold & Porter LLP as special counsel for Workflow Management Inc. at an Oct. 27 hearing.

The U.S. Trustee and the first- and second-lien lenders objected to hiring Washington-based Arnold & Porter. Silver Point Finance LLC, as agent for the second-lien lenders, argued that the firm in other matters simultaneously represents Perseus LLC, Workflow’s Washington-based controlling shareholder and a subordinated creditor.

Workflow, a provider of promotional-marketing services and printed business documents, filed for Chapter 11 protection in late September in Norfolk. McGuireWoods LLP serves as primary bankruptcy counsel. Silver Point claimed that Perseus wanted “a loyal firm on the inside.”

A call for comment to a lawyer at Arnold & Porter wasn’t returned.

Holders of first- and second-lien debt were blocking an out-of-court restructuring, court papers said. Workflow filed a proposed Chapter 11 plan calling for creditors holding both types of debt to be placed into classes by themselves. Creditors holding only first- or second-lien obligations would be classified separately. For details of the plan, click here for the Oct. 1 Bloomberg bankruptcy report.

Workflow, based in Dayton, Ohio, owes $146.5 million on first-lien debt, including $30.2 million on a revolving credit, and $111.5 million on a term loan. The second-lien debt is $196.5 million.

With 49 offices, 17 distribution centers and nine plants, Workflow had about $600 million revenue in 2009.

The case is Workflow Management Inc., 10-74617, U.S. Bankruptcy Court, Eastern District of Virginia (Norfolk).

Innkeepers Files Papers to Retain Plan Exclusivity

Innkeepers USA Trust, whose first proposal for reorganization was rebuffed by the bankruptcy judge, is asking for a first extension of the exclusive right to propose a Chapter 11 plan. If granted by the bankruptcy judge at a Nov. 10 hearing, the deadline would go out four months to March 16.

At the same Nov. 10 hearing, the bankruptcy judge will rule on a previously filed motion by the agent for one of the secured lenders to terminate so-called exclusivity. Midland Loan Services Inc., as servicer for $825 million in mortgage debt on 45 of Innkeepers’ 72 properties, has been working on its own reorganization plan to be financed by selling the new stock for $236 million to Five Mile Capital Partners LLC.

Innkeepers, a real-estate investment trust, says the court should give time for “considering all practicable plan structures” rather than endorse “the next available plan option.” Innkeepers said it’s using a “list of parties” that are “being considered as potential stalking horses as a plan sponsor.”

Innkeepers also will seek approval on Nov. 10 to hire law firm Fried Frank Harris Shriver & Jacobson LLP to represent a newly formed special committee of the board that is being given some responsibility for the plan.

In August, U.S. Bankruptcy Judge Shelley C. Chapman refused to allow Innkeepers to lock in an agreement where the new equity would have been split between the current owner, Apollo Investment Corp., and Lehman Ali Inc., a subsidiary of Lehman Brothers Holdings Inc. that has $238 million in floating-rate mortgages on 20 properties.

Fried Frank disclosed in a court filing that it currently represents both Apollo and Lehman in other matters.

Innkeepers, based in Palm Beach, Florida, has 72 extended-stay and limited-service properties with 10,000 rooms in 20 states. For details of Innkeepers’ rejected plan and Midland’s competing proposal, click here for the Aug. 31 Bloomberg bankruptcy report.

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 of New York (Manhattan).

Rockwood Buys Ownership of Cabi from Bank of America

The official creditors’ committee for Cabi Downtown LLC, owner of the 49-story Everglades on the Bay condominium in Miami, was able to negotiate an extra $250,000 for unsecured creditors at the Oct. 27 confirmation hearing where U.S. Bankruptcy Judge Laurel M. Isicoff said she would approve the Chapter 11 plan.

Originally scheduled for Oct. 7, Cabi’s confirmation was postponed because the secured construction lender, Bank of America NA, was on the cusp of selling the $207 million loan. At the Oct. 27 confirmation hearing, Charlotte, North Carolina-based Bank of America announced that the loan was sold for an undisclosed price to Rockwood Capital LLC, attorney Michael Budwick said in an interview. Budwick and his firm, Meland Russin Budwick, represent the creditors’ committee.

Disappointed bidders for the Bank of America debt appeared at the confirmation hearing and complained about the sale process, Budwick said. Initially, the committee was asking Isicoff to hear arguments about the sale of the mortgage note. The committee withdrew its request when Rockwood agreed to increase the distribution to unsecured creditors by $250,000.

Isicoff eventually ruled that she didn’t have the right to look into the sale of the mortgage note because it wasn’t property belong to the bankrupt company, Budwick said. A confirmation order should be signed by Isicoff in several days, Budwick said.

The plan resulted from a settlement between Cabi and the bank where the lender will take ownership while the developer remains manager.

Originally, the plan would give unsecured creditors $750,000, for a 25 percent recovery on $3 million in claims. Budwick said that the additional money will raise the recovery to 32 percent.

Cabi filed for Chapter 11 reorganization in August 2009, just after the bank began foreclosure. The company is owned 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 of Florida (Miami).

Chapter 11 Veteran Penn Traffic Confirms Plan Again

Former supermarket operator Penn Traffic Co. has now confirmed its third Chapter 11 plan. The bankruptcy judge in Delaware put his signature on an Oct. 27 confirmation order approving the liquidating plan.

The plan was projected to generate a 6 percent to 17 percent recovery for unsecured creditors. Claims filed by unsecured creditors totaled $185 million, the disclosure statement said. Creditors voted almost unanimously for the plan, which had support from the official creditors’ committee.

Tops Markets LLC purchased almost all of Penn Traffic’s stores as a going concern by paying $85 million in cash. The sale structure enabled Penn Traffic to avoid a $72 million claim for pension plan termination and a $27 million claim by the principal supplier.

Based in Syracuse, New York, Penn Traffic was in Chapter 11 twice before. The most recent filing, in November 2009, was designed to sell the business. The petition listed assets of $150 million against debt totaling $137 million.

Debt at the outset of the newest bankruptcy included $63.2 million owing to secured creditors, including $41.8 million to General Electric Capital Corp. on a senior secured facility and $10 million on a supplemental real estate credit with Kimco Capital Corp. serving as agent.

Penn Traffic operated stores Pennsylvania, upstate New York, Vermont and New Hampshire using the names BiLo, P&C and Quality.

The case is In re Penn Traffic Co., 09-14078, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Recycler Nicos Polymer in Mediation with 5th Street

A plastics recycler known as Nicos Polymer Group filed under Chapter 11 on Oct. 13 to stop foreclosure and was sent to mediation yesterday with the secured lender Fifth Street Mezzanine Partner II LP.

Fifth Street, which says it is owed more than $20 million, filed a motion to dismiss the Chapter 11 case, saying the purported reorganization is only a two-party dispute between out-of-the-money shareholders and the secured lender. Fifth Street says it would foreclose, continue operations and pay almost all unsecured trade debt.

Nicos listed assets of $21.9 million and debt totaling $24.6 million. In addition to the Fifth Street obligation, there is a $3.1 million unsecured note. Nicos said the book value of cash, accounts receivable and inventory is $4.3 million.

The company was formed in 2007 by two acquisitions.

The case is In re Crownbrook Debco LLC, 10-15345, U.S. Bankruptcy Court, Southern District New York (Manhattan).

Watch List

A&P May Have ‘Near Term’ Illiquidity, S&P Says

Great Atlantic & Pacific Tea Co. “may be illiquid in the near term,” Standard & Poor’s said yesterday while issuing a second downgrade in three months and the fourth in 16 months.

The corporate grade is now CC.

S&P doesn’t expect “material improvements in operating performance” and said the company will have “a difficult time paying the full principal amount of its 2011 maturities.” A&P may become illiquid even if it sells assets or obtains new financing, S&P said.

A&P last week reported a $161.4 million operating loss for the 28 weeks ended Sept. 11 on sales of $4.48 billion. The net loss in the period was $276.3 million. Comparable-store sales declined 6.6 percent in the September quarter, which had a loss of $45 million before interest, taxes, depreciation and amortization. The company had $181 million of credit availability at the quarter’s end, A&P said.

A&P’s is facing the maturity of $165 million in convertible debt on June 15. In 2012, maturities are more than $900 million, including bonds, a term loan and revolving credit, according to data compiled by Bloomberg.

A&P had a $876 million net loss and an $802 million loss from continuing operations for the fiscal year ended in February, on sales of $8.81 billion. The loss from operations in the year was $600.6 million.

The unaudited balance sheet was upside down in September, with total assets of $2.53 billion and total liabilities of $3.21 billion.

A&P, based in Montvale, New Jersey, had 428 stores in September, mostly in New York, New Jersey and Pennsylvania. In addition to A&P, the brands include Pathmark, Food Emporium and Waldbaum’s.

Daily Podcast

New Filings, a Chapter 15 Test Case, Jurisdiction: Audio

New filings by a truck-stop operator in Chicago and two affordable-housing projects in Houston, Awal Bank BSC as a test case for coordinating cases in Chapters 11 and 15, and an important appeals court ruling that limits bankruptcy court jurisdiction after plan confirmation are topics discussed in the new bankruptcy podcast on the Bloomberg terminal and To listen, click here.

Briefly Noted

Movie Gallery Confirms Second Chapter 11 Plan

Movie Gallery Inc., a former movie-rental chain, won approval of the liquidating Chapter 11 plan at yesterday’s confirmation hearing, court records show.

First-lien lenders unanimously accepted the plan. Among unsecured creditors, 98 percent voted “yes.” For details of the plan, click here for the Sept. 14 Bloomberg bankruptcy report.

Movie Gallery liquidated the last 1,028 movie-rental stores. It had some 2,600 stores in operation on filing under Chapter 11 for a second time in February. The new filing was less than two years after a previous bankruptcy reorganization. Debt when the new case began 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.

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

Circor’s Leslie Controls Confirms Asbestos Prepack

Leslie Controls Inc., a unit of Circor International Inc., won approval of the Chapter 11 plan at a confirmation hearing yesterday. The plan, negotiated with plaintiffs’ lawyers before the July Chapter 11 filing, deals with 1,307 asbestos personal-injury claims. The plan creates a trust for asbestos claimants funded with $74 million in cash from Circor, plus a $1 million note secured by the stock of Leslie. The trust will also have the right to sue insurance companies.

The plan must be approved by a federal district judge in Delaware because the case deals with the settlement of asbestos claims.

The asbestos claims arise from valves made by Leslie that contained two components with asbestos. Leslie estimates it has $48 million in insurance coverage remaining.

Circor closed yesterday at $35.10, up 57 cents in New York Stock Exchange composite trading. Leslie generates about 5 percent of Circor’s consolidated revenue. Circor had a net loss of $5.5 million in the first half of 2010 and net income of $5.87 million in 2009.

The case is In re Leslie Controls Inc., 10-12199, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Vegas Monorail’s Loss Exceeds Revenue Before Interest

Las Vegas Monorail Co. filed an operating report showing a $2 million net loss in September on sales of $1.76 million. Depreciation expense for the month was $1.9 million. From the inception of the Chapter 11 case in January, the net loss of $18 million is largely attributable to $16.7 million in depreciation. The losses include no accruals for interest on the debt.

The 3.9-mile monorail winds its way behind casinos on the eastern side of the Las Vegas Strip. A nonprofit corporation, Monorail began operating in 2004 and revenue was never enough to service debt. It filed a proposed Chapter 11 plan in August opposed by the senior bondholders owed $451 million.

The case is In re Las Vegas Monorail Co., 10-10464, U.S. Bankruptcy Court, District of Nevada (Las Vegas).

US Fidelis Wins Approval to Settle Lawsuit With Founders

US Fidelis Inc. was given authority last week for a settlement with the Atkinson brothers, who founded the company. The brothers will give up most of their assets. They were sued for $101 million claimed to be “wrongfully and improperly appropriated” from the company. For details, click here for the Oct. 4 Bloomberg bankruptcy report. The company’s exclusive right to propose a Chapter 11 plan was pushed out to Dec. 31.

US Fidelis, based in Wentzville, Missouri, was a marketer of automobile service contracts.

It stopped writing new business in December and filed for reorganization on March 1. The petition claimed assets are $74.4 million against debt totaling $25.8 million, including $14.5 million owing to a secured creditor.

The case is In re US Fidelis Inc., 10-41902, U.S. Bankruptcy Court, Eastern District of Missouri (St. Louis).

Hawaiian Telcom Consummates Plan Confirmed in December

Hawaiian Telcom Communications Inc. implemented the reorganization plan today that the bankruptcy court approved in a December confirmation order. The delay was occasioned by the need for approval from the Federal Communications Commission and the Hawaii Public Utilities Commission. Senior secured creditors end up owning the new stock. For details on the plan that lowers debt from $1.15 billion to $300 million, click here to read the Nov. 16, 2009, Bloomberg bankruptcy report. For Bloomberg coverage, click here.

Hawaiian Telcom filed under Chapter 11 in Delaware in December 2008. The case was transferred to Honolulu on request by creditors. The company was created in May 2005 from a leveraged buyout where Carlyle Group bought the Hawaiian operations from Verizon Communications Inc. in a $1.6 billion transaction.

The case is Hawaiian Telcom Communications Inc., 08-02005, U.S. Bankruptcy Court, District of Hawaii (Honolulu).

Sea Launch Implements Plan Confirmed in July

Sea Launch Co. LLC, a provider of heavy-lift satellite launch services, implemented the Chapter 11 plan on Oct. 27 that the bankruptcy judge in Delaware approved in a July 27 confirmation order.

The plan enabled Russia’s S.P. Korolev Rocket & Space Corp. Energia to acquire 85 percent or more of the stock. For details of the plan, click here for the July 28 Bloomberg bankruptcy report.

Sea Launch was formed by an affiliate of Chicago-based Boeing Co. along with industry investors from Norway, Russia and Ukraine. At the outset of the Chapter 11 case in June 2009, debt included $476 million owing on several loan agreements plus $761 million to investors Boeing and Norway’s Aker Maritime Finance AS. In addition, investors were owed $119 million resulting from cost overruns in the late 1990s.

Most of the company’s launches were made from a semi-submersible platform stationed at the equator.

The case is Sea Launch Co. LLC, 09-12153, U.S. Bankruptcy Court, District of Delaware (Wilmington).

To contact the reporter on this story: Bill Rochelle in New York at

To contact the editor responsible for this story: David E. Rovella at

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