WaMu, Capmark, Monorail, Ambac, Innkeepers: Bankruptcy

The examiner for Washington Mutual Inc. issued his 353-page report late yesterday afternoon, concluding that the proposed settlement with the Federal Deposit Insurance Corp. and JPMorgan Chase & Co. “reasonably resolves contentious issues.”

The examiner, Joshua Hochberg, said the settlement “will most likely result in no recovery for any classes of shareholders.” He concluded that litigation is “highly unlikely to materially benefit classes” like shareholders “that are out-of-the-money.”

Hochberg said his task was to evaluate the “ability to recover disputed assets against the guaranteed recovery” in the settlement. By approving the settlement, he said, unsecured creditors will be paid in full while subordinated creditors are “likely” to receive 70 percent to 80 percent. Not to approve the settlement, in his opinion, would put guaranteed recoveries at risk “in order to attempt to obtain speculative recoveries for shareholders.”

Hochberg said he “did not uncover facts likely to support viable claims against” JPMorgan. He said it “would be difficult to establish that JPMC’s actions caused the demise” of the bank subsidiary. He said it is “highly unlikely that any claims against the FDIC would succeed.”

The bankruptcy judge approved WaMu’s disclosure statement on Oct. 21. The voting deadline is Nov. 15. The judge set aside Dec. 1 through Dec. 3 for the confirmation hearing to consider approval of the WaMu’s Chapter 11 plan.

WaMu modified the plan in October to incorporate changes in the settlement. For a 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).


Capmark Settlement Approved in 93-Page Opinion

Capmark Financial Group Inc. emerged victorious from an October trial yesterday when the bankruptcy judge filed a 93-page opinion explaining his approval of a settlement with secured lenders. The creditors’ committee was opposed to the settlement and sought authority to sue the lenders.

U.S. Bankruptcy Judge Christopher Sontchi concluded that the settlement was better than the “lowest point of the range of litigation outcomes.” He also said the settlement was “fair and reasonable” and in the “best interests” of “all parties in interest.”

Sontchi refused to allow the creditors to sue lenders based on a $1.5 billion secured loan made 149 days before the Chapter 11 filing in October 2009. The committee said the loan was used to pay off unsecured debt owing to practically the same lenders. Because the loan was made more than 90 days before bankruptcy, it couldn’t be attacked as a preference. The committee would have challenged the security as a fraudulent transfer.

As a result of approval of the settlement, lenders will be paid 91 percent in cash on the $1.1 billion they’re still owed. In addition, the lenders will receive interest and reimbursement of fees spent in the Chapter 11 case.

Capmark argued that the settlement would save not less than $300 million, the judge said. The lenders gave up 9 percent in return for not being sued.

The settlement calls for the lenders to be paid cash and in return give up liens on collateral Capmark believes is worth $1.3 billion to $1.5 billion.

The committee contended there was no authority in bankruptcy law to pay off a secured claim before confirmation of a plan when the payment comes from cash that’s not part of the lenders’ collateral.

Sontchi said a lawsuit against the lenders had a “low probability” of success.

For other Bloomberg coverage, click here.

Capmark previously said it intends to reorganize around its non-bankrupt bank subsidiary by giving stock to unsecured creditors. Based in Horsham, Pennsylvania, Capmark was called GMAC Commercial Holding Corp. before control was sold in 2006. It had been GMAC’s servicing and mortgage banking business.

KKR & Co., Goldman Sachs Group Inc., Dune Capital Management LP and Five Mile Capital Partners LLC owned 75.4 percent of Capmark following a 2006 acquisition from General Motors Corp. for $1.5 billion cash and repayment of $7.3 billion in debt. Capmark’s debt includes a $1.5 billion term loan secured by all assets except Capmark’s bank’s assets, $234 million remaining under a bridge loan, a $4.6 billion senior credit, $2.34 billion in notes, and a $250 million junior subordinated debt. The bank had assets of $11.12 billion and deposits of $8.39 billion, according to a court filing.

The case is In re Capmark Financial Group Inc., 09-13684, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Monorail Reorganization May Proceed; Appeal Denied

Las Vegas Monorail Co. won out over bondholders who wanted the reorganization halted entirely pending appeal from a ruling by the bankruptcy judge in April concluding that the company has the right to reorganize in Chapter 11.

U.S. Bankruptcy Judge Bruce A. Markell in Las Vegas previously ruled that Monorail isn’t a municipality and is therefore entitled to reorganize in Chapter 11. Bondholders appealed.

Were Monorail a municipality, it would have been eligible only for reorganization under Chapter 9, and the Chapter 11 case would have been dismissed. For a discussion of Markell’s ruling, click here for the April 27 Bloomberg bankruptcy report.

Markell denied a motion to stay the Chapter 11 case pending appeal. The motion for a stay was made by Ambac Assurance Corp., which provided insurance for the bondholders.

On appeal, U.S. District Judge James Mahan in Reno upheld the bankruptcy judge and refused to stop the Chapter 11 case in an opinion handed down Oct. 29. Mahan also ruled that the appeal wasn’t being taken from a so-called final order. Mahan said he therefore wouldn’t hear the appeal on eligibility for Chapter 11 until the reorganization is concluded.

Mahan also agreed with Markell by saying that the bankruptcy rules don’t allow halting an entire Chapter 11 case when an appeal is taken from one decision.

The Monorail winds its way behind casinos on the east side of the Las Vegas Strip. It filed a proposed Chapter 11 plan in August. The senior bondholders, owed $451 million, oppose the plan which would give them notes totaling $18.5 million for their secured and deficiency claims.

Monorail, a nonprofit corporation, began operation in 2004. It built the 3.9-mile driverless transportation system running behind the Las Vegas Strip to the convention center. Revenue was never enough to service debt.

Making seven stops, the monorail takes 15 minutes for the entire trip.

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

Ultimate Escapes Sells Properties to Three Buyers

Ultimate Escapes Inc., a destination club operator that filed for Chapter 11 protection on Sept. 20, was authorized to sell the properties last week.

Secured lender CapitalSource Finance LLC is buying most of the properties in exchange for $52.7 million in secured debt. Laurence Development LP bought 10 properties for $14.3 million cash. One property went for $1.8 million cash.

Kissimmee, Florida-based Ultimate Escapes owned or leased 119 residences in 45 destinations and had approximately 1,250 members. The June 30 balance sheet listed $189 million in assets against total liabilities of $222 million.

The case is In re Ultimate Escapes Holdings LLC, 10-12915, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Oriental Trading to Confirm Prepack on Dec. 14

Oriental Trading Co., a direct marketer of home decor products, toys and novelties, scheduled a Dec. 12 confirmation hearing for approval of the Chapter 11 plan when the bankruptcy judge in Delaware signed an order yesterday approving the explanatory disclosure statement.

The unsecured creditors’ committee and the first-lien lenders support the plan.

OTC yesterday reported a $6.7 million net loss from the beginning of the Chapter 11 case on Aug. 25 through the end of September. Revenue for the period was $46.1 million. Earnings before interest, taxes, depreciation and amortization were $4.8 million. The net loss largely resulted from interest expense of $5.6 million and $3.1 million in reorganization items.

Confirmation of the plan may be opposed by second-lien lenders who are to receive only warrants for 2.5 percent of the stock with a strike price based on an enterprise value of $427.5 million.

The disclosure statement contains no estimate for the percentage recovery by senior or junior lenders.

The plan gives the new stock plus cash or a new $200 million second-lien note to senior lenders owed $403 million.

As the result of a settlement with the creditor’s committee, first-lien lenders are providing $1.1 million for unsecured creditors with $6.8 million in claims, assuming the class votes for the plan.

Oriental Trading missed an interest payment in May on second-lien debt. The plan was negotiated with the first-lien lenders before the Aug. 25 bankruptcy filing.

Assets of the Omaha, Nebraska-based company were on the books for $463 million on April 3. Liabilities totaled $756.6 million. Net sales for the fiscal year were $485.4 million. Although OTC sought a purchaser, no offer was enough to pay first-lien debt in full.

At the filing date, $180 million plus interest was owing on the second-lien debt plus $120 million in mezzanine debt.

An affiliate of the Carlyle Group purchased 68 percent of OTC in July 2006 from private-equity investor Brentwood Associates, which continues to own about 24 percent of the equity.

JPMorgan Chase Bank NA is agent for the first-lien creditors. Wilmington Trust FSB is agent on the second-lien credit. Wachovia Bank NA serves as agent for the mezzanine debt holders.

The case is In re OTC Holdings Corp., 10-12636, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Taylor Bean Plan Partly Pays $8 Billion in Claims

Taylor Bean & Whitaker Mortgage Corp., once the largest independent mortgage originator in the U.S., has a hearing on Nov. 5 for approval of the disclosure statement explaining the liquidating Chapter 11 plan supported by the official creditors’ committee.

The disclosure statement says assets to be administered under the plan eventually will total from $322 million to $521 million. After claims with higher priority are paid, between $264 million and $354 million will remain for unsecured creditors with claims totaling more than $8 billion.

The distribution to unsecured creditors is expected to range between 3.3 percent and 4.4 percent, according to the disclosure statement.

The largest claim, $3.25 billion, belonged to the Federal Deposit Insurance Corp. The claim was settled and will be paid under the plan.

Lee Farkas, the former chairman, faces trial this month on an indictment charging him with concealing mortgage assets that were worthless or losing value and representing them as being securitized and sold into the secondary market. The government has frozen his assets.

Taylor Bean filed under Chapter 11 in August 2009, three weeks after federal investigators searched the offices of the Ocala, Florida-based company. The day following the search, the Federal Housing Administration, Ginnie Mae and Freddie Mac prohibited the company from issuing new mortgages and terminated servicing rights.

Taylor Bean managed an $80 billion mortgage servicing portfolio. The petition said assets and debt both exceed $1 billion.

The case is Taylor Bean & Whitaker Mortgage Corp., 09-07047, U.S. Bankruptcy Court, Middle District of Florida (Jacksonville).

Honolulu Symphony Settles with Musicians’ Union

The Honolulu Symphony orchestra, which filed for Chapter 11 reorganization in December, negotiated a settlement of an unfair labor practices complaint with the union representing musicians. The symphony said in a filing with the U.S. Bankruptcy Court in Honolulu that it was “highly unlikely” there could have been a reorganization plan without a settlement with the union.

Assuming the symphony’s board and the union formally agree, the musicians will waive claims for back pay and severance. Absent waiver, the claims would have been administrative expenses requiring full payment.

The symphony said the settlement was “brokered” by the National Labor Relations Board.

The symphony said it cannot file a Chapter 11 plan until the settlement is formally approved. The symphony therefore filed a motion to extend the exclusive right to propose a plan. A hearing on the exclusivity motion will be held Dec. 18.

The symphony said bankruptcy resulted from a decline in donations.

The case is In re Honolulu Symphony Society, 09-02978, U.S. Bankruptcy Court, District of Hawaii (Honolulu).

No Class Claims Under Circuit City Liquidation Plan

The distribution to creditors under the confirmed Circuit City Stores Inc. Chapter 11 plan won’t be diluted by claims from workers in California.

Plaintiffs in purported class-action suits filed class proofs of claim in the Circuit City liquidation. The suits were based on alleged violation of California state labor law. The bankruptcy judge ruled that allowing or disallowing individual claims was the preferable method for dealing with the labor-law claims.

In an opinion on Oct. 29, a district judge in Richmond, Virginia, upheld the bankruptcy judge by ruling that class claims were not preferable under the facts of the Circuit City case. The district judge didn’t reach the question of whether class claims are even permissible in bankruptcy cases. The issue has divided the courts.

For a discussion of the opinion by the bankruptcy judge, click here for the June 2 Bloomberg bankruptcy report.

For a description of Circuit City’s liquidating plan which was confirmed in September, click here for the Sept. 1 Bloomberg bankruptcy report.

The Chapter 11 filing was in November 2008, in Circuit City’s Richmond hometown. The petition listed assets of $3.4 billion and debt totaling $2.3 billion as of Aug. 31, 2008.

The case is In re Circuit City Stores Inc., 08-35653, U.S. Bankruptcy Court, Eastern District Virginia (Richmond).

Prepacks Coming

Ambac Parent Begins Soliciting Votes on Prepacked Plan

Ambac Financial Group Inc., which hasn’t received dividends since its principal insurance subsidiary was taken over by regulators, said yesterday that it’s working on a prepackaged Chapter 11 reorganization with an ad hoc committee of senior creditors.

Negotiating a so-called prepack became necessary because the company said it couldn’t raise additional capital.

If votes on a plan in advance of filing are insufficient to support a quick exit from Chapter 11, Ambac said it nonetheless intends to file under Chapter 11 by the year’s end.

Ambac said it won’t make the payment due yesterday on 7.5 percent debentures due 2023. The grace period is 30 days. The next interest payment is due Nov. 15. Total debt is $1.62 billion, Ambac said.

Ambac said it’s trying to avoid the loss of $7 billion in net operating loss tax carry forwards. For other Bloomberg coverage, click here.

Ambac previously said it might elect not to pay debt service as early as the second quarter of 2010 even though liquidity would be sufficient until the second quarter of 2011.

The Wisconsin insurance regulator created a so-called special account in March for some of $35 billion in policies issued by the principal operating subsidiary Ambac Assurance Corp. The policies in the segregated account are for credit default swaps, residential mortgage-backed securities, the Las Vegas Monorail, and some student loans. No claims on the policies will be paid until there is a rehabilitation worked out in the Wisconsin court.

The Wisconsin court so far has held back challenges to the regulator’s actions in the rehabilitation of the subsidiary. Among other things, the Wisconsin court held that there was no violation of the state or federal constitutions.

TV Movie Maker RHI Soliciting Votes on Prepack Plan

RHI Entertainment Inc., a producer and distributor of television programming, said yesterday in a regulatory filing that it commenced soliciting votes on a prepackaged Chapter 11 reorganization.

RHI is seeking votes from holders of first- and second-lien debt. Assuming affirmative votes are received, RHI hopes to file the Chapter 11 petition around Nov. 15. The company said unsecured claims of “certain critical” suppliers and foreign creditors would be paid after the bankruptcy filing.

If RHI fails to attract sufficient votes, the filing with the Securities and Exchange Commission said there will still be a Chapter 11 filing.

The terms of the offer weren’t spelled out, although current shareholders will lose their stock ownership.

RHI has $525 million in first-lien obligations and $75 million in second-lien debt, according to data compiled by Bloomberg. Both levels of debt are in default. The stock fell 1.3 cents yesterday to 4.3 cents in over-the-counter trading.

RHI’s balance sheet showed assets of $544.6 million and total liabilities of $827.8 million on June 30. For six months ended June 30, the net loss was $50.8 million on total revenue of $14.4 million.

New York-based RHI said the assets include 1,000 titles for more than 3,500 broadcast hours of long-form programming. RHI specializes in made-for-television movies and miniseries.

Chapter 15 Coming

Vitro Promises to Begin Court Reorganization Soon

Vitro SAB, Mexico’s largest glassmaker, is making another exchange offer and intends to file for bankruptcy reorganization in Mexico in the next two months, Chief Restructuring Officer Claudio del Valle said in a conference call with reporters yesterday.

To complement the Mexican proceedings, Vitro will file a Chapter 15 petition in the U.S., del Valle said.

The exchange offer would give creditors a recovery up to 73 percent, the company said. Dec. 1 is the deadline for the exchange offer where creditors are being offered cash, new debt or convertible bonds. For Bloomberg coverage, click here.

Monterrey, Mexico-based Vitro has been attempting to restructure $1.2 billion in debt that’s been in default since last year.

Vitro first missed interest payments on the notes in February 2009. The noteholders since then accelerated the debt, making it all due and payable.

Chapter 15 isn’t a full-blown bankruptcy. If the U.S. bankruptcy judge finds that proceedings in Mexico afford adequate protections for creditors, the U.S. court will halt creditor actions in the U.S., thus forcing creditors to take their disputes with Vitro to the court in Mexico.

If the Mexican court approves a reorganization, the U.S. court could be used to compel compliance in the U.S.

Exchange Offer News

Corrugated Steel, Pipe Maker Contech Completes Swap

Contech Construction Products Inc., a West Chester, Ohio-based manufacturer of corrugated steel and plastic pipe, said yesterday that it completed a “balance sheet restructuring” that eliminated the $240 million owing in principal and interest on mezzanine debt.

Contech said that Goldman Sachs Mezzanine Partners has become majority owner. Covenants and the interest rate on the senior secured credit were also modified, the company said. Further details weren’t provided.

Before the announcement, Standard & Poor’s was giving the company a CC corporate rating.

Briefly Noted

Innkeepers Has $2.53 Million September Operating Income

Innkeepers USA Trust, a real estate investment trust, filed an operating report showing $24.6 million in revenue during September. Operating income of $2.53 million turned into a net loss of $4.41 million after $6.8 million of reorganization items.

Innkeepers’ initial proposal for reorganizing was rejected by the bankruptcy judge. Midland Loan Services Inc., as servicer for $825 million in mortgage debt on 45 of Innkeepers’ 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.

Until blocked by the judge, Innkeepers was behind a Chapter 11 plan 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.

Palm Beach, Florida-based Innkeepers has 72 extended-stay and limited-service properties with 10,000 rooms in 20 states. For details on Innkeepers’ rejected plan and Midland’s proposal for a competing plan, 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 New York (Manhattan).

Thompson Publishing Bonuses Approved With Proviso

Thompson Publishing Holding Co., a publisher of newsletters and loose-leaf services, was authorized yesterday by the bankruptcy judge to adopt two incentive programs. One would pay up to $345,500 to 28 employees. The other, for a maximum $500,000, is for 11 senior executives.

The court’s approval had a proviso. The secured lenders are not compelled to fund the bonuses. The lenders are planning to have the business sold at a Nov. 17 auction. Bids are due Nov. 12. The hearing for approval of the sale is set for Nov. 19. Absent other offers, the first-lien lenders intend to buy in exchange for $42 million in secured debt. The lenders also will assume liabilities on subscriptions and obligations to employees, including the bonuses, the company said in a court filing.

Based in Washington, Thompson has 300 products and 70,000 subscribers. The company expects revenue will decline this year to $49 million. Debt includes $122.6 million owing on first-lien debt with PNC Bank NA serving as agent. Second-lien creditors, owed $43.5 million, have Ableco Finance LLC as agent.

Controlled by Avista Capital Partners LP, Thompson generated 74 percent of income from subscription. The company also arranges conferences and employee training events.

The case is In re Thompson Publishing Holding Co., 10-13070, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Casino Operator Centaur Given More Exclusivity

Casino and racetrack operator Centaur LLC fielded no objections and was given an extension until Dec. 31 of the exclusive right to propose a reorganization plan. The extension was the third.

The bankruptcy court scheduled a confirmation hearing for Dec. 13 to approve Centaur’s plan.

Centaur LLC and 12 affiliates filed Chapter 11 petitions in March. Affiliates Centaur PA Land LP and Valley View Downs LP filed for bankruptcy reorganization in October 2009 to keep the Pennsylvania project alive. All the companies are subsidiaries of closely owned Centaur Inc., which isn’t in bankruptcy.

The March filings listed assets of $584 million and debt of $681 million. The newer cases resulted from the failure to make payments due in October 2009 on a $382.5 million first-lien debt and a $192 million second-lien credit. The companies have horse racing and gambling facilities in five markets in Indiana and Colorado.

The companies own Hoosier Park, a casino and horse racetrack, in Anderson, Indiana, along with three offtrack betting parlors in Indiana. Fortune Valley Hotel & Casino in Central City, Colorado, was sold. The companies generated revenue of $277.5 million in 2009.

The newer case is Centaur LLC, 10-10799, and the first case was In re Centaur PA Land LP, 09-13760, U.S. Bankruptcy Court, District of Delaware (Wilmington).

New Filing

Tetragenex Pharmaceuticals Files Prepack in New York

Tetragenex Pharmaceuticals Inc., a developer of peptides to treat depression, filed a prepackaged Chapter 11 petition on Oct. 26 in Central Islip, New York. Creditors already voted in favor of the plan that converts debt to equity.

The petition said assets are $133,000 against debt totaling $3.75 million. The secured creditor, owed $85,000, agreed to swap the debt for stock.

Previously named Innapharma Inc., the Syosset, New York-based company has a patent for Nemefitide that expires in 2014. The looming expiration of the patent doesn’t afford sufficient time to compete testing and marketing of the drug in the U.S., a court filing said.

The case is In re Tetragenex Pharmaceuticals Inc., 10-78439, U.S. Bankruptcy Court, Eastern District New York (Central Islip).

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