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Lehman, Trico, Mesa Air, Chem Rx, Old GM: Bankruptcy

Lehman Brothers Holdings Inc. filed papers last week for approval of one settlement in the litigation over a so-called flip clause in swap agreements.

The amounts going to Lehman and the counterparty weren’t disclosed in court papers so Lehman wouldn’t lose negotiating leverage in similar disputes. The settlement comes to bankruptcy court for approval on Dec. 15.

The settlement came on the heels of a ruling in September by U.S. District Judge Colleen McMahon who allowed BNY Corporate Trustee Services Ltd. to take a so-called interlocutory appeal from a January ruling by the bankruptcy court in favor of Lehman Brothers Holdings Inc.

U.S. Bankruptcy Judge James M. Peck ruled in January that the flip clause violates a provision in bankruptcy law prohibiting the loss of rights simply as the result of filing in bankruptcy. There was a parallel litigation in the U.K. where a ruling in favor of the counterparty was upheld on appeal. The issue was scheduled for an appeal in the U.K. Supreme Court in March.

The case involved swap agreements where collateral ordinarily would go first to a Lehman subsidiary as the swap counterparty. As the result of the bankruptcy filing by the Lehman holding company, the flip clause caused collateral to go first to noteholders and only to a Lehman subsidiary after the noteholders were fully paid.

Lehman may have been influenced to settle by a statement from McMahon in her opinion that Peck’s ruling was controversial because he voided the flip clause when the triggering event was the bankruptcy of an affiliate of the swap party, not the bankruptcy of the swap party itself.

McMahon also chided Lehman for opposing an interlocutory appeal in an attempt “to insulate Judge Peck’s decision from appellate review for as long as possible.” She noted how Lehman had been using Peck’s opinion “as leverage in settlement negotiations concerning billions of dollars worth of similar transactions.”

To read about the January decision regarding flip transactions, click here and see the Advance Sheets item in the Feb. 1 Bloomberg bankruptcy report.

The settlement of the flip clause appeal involved an entity named Saphir Finance PLC. Last week Lehman proposed a separate settlement of a similar dispute over a flip transaction where the counterparty is Madison Avenue Structured Finance CDO I Ltd. The amount Lehman will receive under the Madison Avenue settlement is also confidential. The Madison Avenue settlement is on the calendar for hearing on Dec. 15 also.

In a motion also to be heard Dec. 15, Lehman is proposing a special procedure to mediate disputes over derivatives transactions where the counterparty is a so-called special purpose vehicle.

When the counterparty is technically an SPV, Lehman said in its motion filed last week that the trustees for the SPVs say they don’t have authority to mediate, and the investors with the monetary interests in the derivatives contracts haven’t come forward to participate in settlement talks.

If the motion is approved, the SPVs would be required within 60 days to designate someone with authority to negotiate settlement. The mediation procedures otherwise are similar to those the bankruptcy court approved in September for the negotiation of settlements of derivatives where the counterparty is not an SPV. Lehman says it’s already collected $280 million from settlements on derivatives. Lehman says that derivatives with SPVs involve hundreds of millions of dollars.

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 and having it 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).


Madoff Trustee Sues More Employees and Family Members

The trustee liquidating Bernard L. Madoff Investment Securities Inc. filed 40 more lawsuits on Nov. 26 seeking $69 million, including 18 against relatives of Bernard Madoff and 22 against former employees of the firm or their family members.

The trustee alleges that withdrawals they received from their accounts were fraudulent transfers because they represented money stolen from other customers in the Ponzi scheme.

The trustee in a statement said that recoveries from the suits will be deemed so-called customer property, meaning that recovered money will be redistributed to customers and won’t be used to pay expenses of the liquidation.

Together with lawsuits already filed against Madoff family members, the trustee said he is seeking to recover almost one-third of a billion dollars from the Madoff firm’s employees and family members.

The trustee said he sued because the defendants didn’t settle.

The two-year deadline for filing fraudulent transfer suits under bankruptcy law will run out on Dec. 11. If there are other lawsuits to bring, the trustee presumably will file the complaints before then. For other Bloomberg coverage, click here.

The Madoff firm began liquidating in December 2008 with the appointment of a trustee under the Securities Investor Protection Act. Bernard Madoff individually went into an involuntary Chapter 7 liquidation in April 2009. His bankruptcy case was consolidated with the firm’s liquidation. Madoff is serving a 150-year prison sentence following a guilty plea.

The Madoff liquidation case is Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities Inc., 08-01789, U.S. Bankruptcy Court, Southern District New York (Manhattan). The criminal case is U.S. v. Madoff, 09-cr-00213, U.S. District Court for the Southern District of New York (Manhattan).

Trico Sale Successful; Committee Wants Right to Sue

Trico Marine Services Inc., a provider of support vessels for the offshore oil and gas industry, reported that the price for the sale of two vessels rose $4.5 million at auction last week. The creditors’ committee is seeking authority to file lawsuits based on what it calls the “ultimately disastrous acquisition campaign” in 2007 to 2008 that increased debt by $1.05 billion.

With three other bidders present, Tidewater Inc. raised its stalking horse bid of $26 million to $30.5 million and won the auction for the vessels Trico Moon and Trico Mystic. There is a hearing in bankruptcy court today for approval of the sale.

The creditors’ committee on Nov. 24 filed a motion for authority to file fraudulent transfer suits. The motion is scheduled for hearing on Dec. 14.

The committee explains how acquisitions brought on financial ruin. Rather than seek bankruptcy relief, the company instead had Trico Shipping issue $400 million in high-yield secured notes in October 2009. Trico Supply guaranteed and secured the debt, as did Trico Marine and sister companies in Chapter 11.

The proposed suit would contend that the note offering and related transactions resulted in fraudulent transfers. The committee aims on making recoveries from subsidiaries not in Chapter 11.

The Chapter 11 filing in August was the second by Woodlands, Texas-based Trico. It completed a so-called prepackaged reorganization in early 2005 by exchanging $250 million in debt for equity. Shareholders received warrants.

Other than a Cayman Islands holding company, none of the foreign subsidiaries are in bankruptcy this time. The consolidated balance sheet for June listed assets of $904 million against liabilities totaling $1.027 billion. The bankruptcy petition listed liabilities of $354 million for Trico Marine.

Liabilities include $202.8 million on secured convertible debentures and $150 million owing on unsecured convertible debentures. Non-bankrupt Trico Shipping owes $400 million on the 11.875 percent senior secured notes.

The case is In re Trico Marine Services Inc., 10-12653, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Mesa Air Reports $890,000 October Operating Loss

Regional airline Mesa Air Group Inc. reported an $890,000 operating loss in October. The bankruptcy judge scheduled a Jan. 14 confirmation hearing after giving formal approval last week for the disclosure statement explaining the reorganization plan.

In last week’s operating report, revenue for October was $57.1 million. The $10.4 million net loss in large part was the result of $14.7 million in reorganization items mostly stemming from aircraft lease rejections.

For details on Mesa’s plan and how it treats creditors of each of the Mesa companies, click here for the Sept. 21 Bloomberg bankruptcy report.

Mesa filed under Chapter 11 in January with a fleet of 178 aircraft. At the time, 130 were operating to provide 700 daily departures serving 127 cities in 41 states, Canada, and Mexico. After rejecting aircraft leases, Mesa is now operating 76 aircraft making 460 departures a day.

Phoenix-based Mesa listed assets of $976 million against debt totaling $869 million. Liabilities include $393 million on loans secured by 24 owned aircraft, $26 million on three note issues, and $33.6 million secured by 20 other aircraft. In addition, there was $1.62 billion in potential liability on aircraft leases. Mesa operates regional aircraft under code-sharing agreements with US Airways Group Inc. and UAL Corp.’s United Airlines.

The case is In re Mesa Air Group Inc., 10-10018, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Chem Rx Lost Exclusive Plan-Filing Right to Committee

Chem Rx Corp., which had been the third-largest provider of institutional pharmacy services in the U.S., lost the exclusive right to propose a liquidating Chapter 11 plan.

Last week the bankruptcy court in Delaware gave the creditors’ committee and the first-lien lenders the right to file a plan jointly. Except for the committee and the lenders, Chem Rx’s exclusive right to propose a plan was extended to Jan. 31.

The business was sold to PharMerica Corp., the operator of 90 institutional pharmacies in 41 states. It paid $70.6 million plus the assumption of specified liabilities. PharMerica was the so-called stalking horse at auction.

Chem Rx, which changed its name to CRC Parent Corp. following the sale, filed under Chapter 11 in May after first-lien lenders owed $103 million were seizing the Long Beach, New York-based company’s income. The first-lien debt had been in default since early 2009.

Other liabilities include $37 million owing on a second-lien and $8.3 million in subordinated debt owing to affiliates of insiders. CIBC World Markets Corp. is agent for the lenders on the first- and second-lien loans. The petition listed assets of $170 million against debt totaling $178 million.

The case is In re CRC Parent Corp., 10-11567, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Everglades on the Bay Condos Sold for $141 Million

A group of investors including Rockwood Capital LLC completed the acquisition of Cabi Downtown LLC’s 49-story Everglades on the Bay condominium in Miami. They paid $141 million cash, the buyers said in a statement.

The sale was carried out under a Chapter 11 plan that the bankruptcy judge in Miami approved in a confirmation order this month. Other members of the purchasing group are Duncan Hillsley Capital and Fortune Capital Management Services.

Originally, the mortgage lender Bank of America NA was to take title under the plan in exchange for the $207 million it was owed. Confirmation was delayed when the bank came up with a buyer to purchase the debt and take title to the property under the plan.

Originally, the plan would have given unsecured creditors $750,000 for a 25 percent recovery on $3 million in claims. As a result of the sale of the bank’s debt, the pot was sweetened for unsecured creditors and their recovery increased 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 Florida (Miami).

Goldman Sachs Again Asking to Foreclose Sawgrass Marriott

The reorganization of the Sawgrass Marriott Resort in Ponte Vedra Beach, Florida, has been a slugfest from the outset between the owner and the secured lender Goldman Sachs Mortgage Co. The two are scheduled to begin a trial in December over the value of the property.

Goldman added another weapon to its arsenal when it renewed a motion last week for so-called adequate protection or permission to foreclosure. Goldman said that the resort is using an appraisal showing that the value of the property declined $6.6 million during the Chapter 11 case.

Although Goldman in its court papers said it did not believe the value “declined so significantly,” the New York- based investment bank nonetheless contends it’s entitled to a cash payment making up for the loss. Alternatively, Goldman wants a termination of the so-called automatic stay so it can foreclose.

The lender, owed $193 million, previously said it believes the property is worth $135.3 million. The owner previously said the value was $90 million.

The resort filed under Chapter 11 on March 1 in Jacksonville, Florida, saying assets and debt both exceed $100 million.

The case is In re RQB Resort LP, 10-01596, U.S. Bankruptcy Court, Middle District of Florida (Jacksonville).

Toyota Sues Old GM for Ending California Venture

Old General Motors Corp. decided in mid-2009 to drop out of a joint venture with Toyota Motor Corp. to build the Pontiac Vibe at a plant in Fremont, California.

Toyota and the joint venture, called New United Motors Manufacturing Inc., both filed proofs of claim for $500 million. After old GM objected to the claims, the bankruptcy judge told the parties to conduct the disputes like a lawsuit.

Last week, both NUMMI and Toyota filed complaints in bankruptcy court. NUMMI says damages for ending the venture exceed $365 million for wind down costs and GM’s share of capital expenses. Toyota wants $73.8 million for breach of contract plus GM’s share of environmental and employee costs.

Old GM filed a liquidating Chapter 11 plan in August. The bankruptcy court tentatively approved an explanatory disclosure statement in October. A trust for unsecured creditors will distribute the stock and warrants issued by new GM as consideration for the sale of the assets. New GM is formally named General Motors Co. For details on the plan, click here for the Sept. 1 Bloomberg bankruptcy report.

Old GM began the largest manufacturing reorganization in history by filing under Chapter 11 on June 1, 2009. The sale to new GM was completed on July 10, 2009. GM listed assets of $82.3 billion against debt totaling $172.8 billion.

The case is In re Motors Liquidation Co., 09-50026, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Workflow Lenders Aim to Head Off Disclosure Hearing

Workflow Management Inc., a provider of promotional marketing services and printed business documents, will face off at a hearing tomorrow against both first- and second-lien lenders.

Credit Suisse AG, Cayman Islands Branch, as agent for the first-lien lenders, joined in a motion by the second-lien agent to end Workflow’s exclusive right to file a Chapter 11 plan. Both contend that Workflow’s plan is fatally defective and time shouldn’t be wasted going through the process leading up to a confirmation hearing.

Workflow has a hearing on the Dec. 15 calendar for approval of the disclosure statement explaining the reorganization plan. Silver Point Finance LLC is an agent for the second-lien lenders.

At tomorrow’s hearing, the first- and second-lien creditors will also oppose continuation of Workflow’s right to use cash representing collateral for the lenders. They believe the business is worth less than secured debt, giving them the right to protection which Workflow isn’t offering.

Workflow believes its plan would pay all creditors in full over time while allowing stockholders to retain the equity. Both lender groups believe Workflow’s plan would leave the company insolvent and saddled with more debt than before. They also believe the new debt they are being offered is worth less than the face amount.

For details on the Workflow plan, click here for the Nov. 12 Bloomberg bankruptcy report.

Dayton, Ohio-based Workflow said initially that it owed $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 was $196.5 million at the outset, papers said.

With 49 offices, 17 distribution centers and 9 plants, Workflow had about $600 million revenue in 2009.

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

Broadstripe Lenders Seek to Block Preference Suits

The creditors’ committee for Broadstripe LLC thought there was a straightforward agreement where the St. Louis-based broadband cable operator would allow the committee to sue for the recovery of preferences. It didn’t turn out that way.

As a result, the bankruptcy court will be required to rule on the controversy at a hearing on Dec. 13.

The committee and Broadstripe signed a stipulation allowing the committee to sue for the recovery of preferential payments received within 90 days of bankruptcy on account of overdue debt. The agreement capped the committee’s fees at $35,000.

If preference suits aren’t filed by Jan. 2, they will be lost because there is a two-year statute of limitations, and Broadstripe has been in Chapter 11 almost two years.

Highland Capital Management LP, the secured lender, notified Broadstripe that it would terminate the use of cash if the company didn’t withdraw its support for allowing preference suits. The committee said in a court filing that Highland doesn’t want certain customers sued for preferences.

Any creditor can file a plan because Broadstripe has been in Chapter 11 more than 18 months. The company has been saying it can’t move ahead with reorganization in the face of an unresolved lawsuit where the unsecured creditors’ committee contends that secured lenders’ claims should be subordinated or recharacterized as equity. In addition, there are two claims by rival cable operators totaling almost $160 million based on Broadstripe’s alleged failures to complete asset purchase agreements.

Broadstripe filed a reorganization plan in January 2009 centered on an agreement reached before the Chapter 11 filing with holders of the first- and second-lien debt. At the outset of Chapter 11, Broadstripe had 93,000 customers in Maryland, Michigan, Washington State, and Oregon. It was created through four acquisitions in 1998 and 1999 and filed for Chapter 11 reorganization in January 2009.

The case is In re Broadstripe LLC, 09-10006, U.S. Bankruptcy Court, District of Delaware (Wilmington).

PFF Committee May Sue KPMG and Chase Preferences

PFF Bancorp Inc., the holding company for a failed bank, was authorized last week to settle the disputed claim of Pension Benefit Guaranty Corp. With PFF’s consent, the bankruptcy judge also allowed the creditors’ committee to file preference suits and start a lawsuit against KPMG LLC, the bank holding company’s former accountants.

Unless the budget is enlarged, the committee can spend only $250,000 in lawyers’ fees in chasing preferences or suing KPMG.

PBGC filed three claims against each of the five PFF companies in Chapter 11. Ten of the claims for funding contributions and premiums didn’t seek a specified amount. The last five claims each were for $4.2 million, claiming entitlement to priority requiring payment in full.

The settlement calls for PBGC to have one priority claim in the amount of $31,000 and a general unsecured claim for $4 million. For details on PFF’s objections to the PBGC claim, click here for the June 29 Bloomberg bankruptcy report.

The committee can’t sue current directors and officers. The committee also cannot bring suits that belong to the Federal Deposit Insurance Corp. as receiver for the failed bank subsidiary.

PFF’s bank subsidiary, PFF Bank & Trust, was taken over by regulators in November 2008. The holding company’s Chapter 11 case began in December 2009. The bank’s deposits were transferred to U.S. Bank NA. The petition listed assets of $7.8 million against debt totaling $131.7 million.

The case is In re PFF Bancorp Inc., 08-13127, U.S. Bankruptcy Court, District of Delaware (Wilmington).


Bruce McCullough, Judge in Pittsburgh, Dies at 66

M. Bruce McCullough, a U.S. bankruptcy judge in Pittsburgh, died on Nov. 23. He was 66.

McCullough was appointed to the bankruptcy bench in 1995. He was reappointed for a second 14-year term in 1999.

Before ascending to the bench, McCullough was a partner with Buchanan Ingersoll & Rooney PC.

John TeSelle, Former Oklahoma Judge, Dies at 88

John TeSelle, who retired as a bankruptcy judge in 2002, died on Nov. 21.

TeSelle, 88, lived in Norman, Oklahoma. He was a professor at Tulsa Law School and the University of Oklahoma before ascending to the bankruptcy bench.

Briefly Noted

Judge Approves Boston Generating Sale to Constellation

Power producer Boston Generating LLC received approval from the bankruptcy judge on Nov. 24 for the $1.1 billion sale of the business to Constellation Energy Group Inc. The sale must also be approved by the Federal Energy Regulatory Commission.

Boston Generating owns five electric generating plants in the Boston area. For other Bloomberg coverage, click here.

The bankruptcy case is In re Boston Generating LLC, 10-14419, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Orleans Homebuilders Wants Exclusivity ‘Just in Case’

Homebuilder Orleans Homebuilders Inc., which is currently scheduled for approval of a reorganization plan at a confirmation hearing tomorrow, as an insurance policy filed a motion last week to extend the exclusive right to propose a plan for an additional two months to Jan. 25. The so-called exclusivity motion will be considered by the judge at a Jan. 6 hearing unless the plan is approved in the meantime.

For a summary of the Orleans plan, click here for the Nov. 8 Bloomberg bankruptcy report.

Bensalem, Pennsylvania-based Orleans builds homes and condominiums in seven states. The Chapter 11 filing in March followed maturity of the revolving credit the prior month. 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).

Watch List

Mohegan Sun Casino Restructure ‘Increasingly Likely’

Mohegan Tribal Gaming Authority, the owner and operator of the Mohegan Sun casino in Connecticut, is “increasingly likely” to have a “debt restructuring,” Standard & Poor’s said last week.

S&P noted that adjusted earnings before interest, taxes, depreciation and amortization were down 6.5 percent in the fiscal year. With a $675 million bank credit and $250 million of senior subordinated notes maturing in 2012, S&P lowered the rating by three notches to CCC.

Mohegan Sun competes with the expanded Foxwoods casino, also in Connecticut, and the Twin Rivers property in Providence, Rhode Island.

The Mohegan tribal authority also operates a slot machine and harness racing facility called Mohegan Sun at Pocono Downs in Pennsylvania.


Genstar’s Harlan Labs Demoted to B Corporate by S&P

Harlan Laboratories Inc., a provider of research animals and preclinical research services, was downgraded one notch last week by Standard & Poor’s to a B corporate rating.

Although Harlan has “significant” cash, S&P noted how the cushion on covenants in the secured bank credit is “very tight.”

Indianapolis-based Harlan is controlled by private-equity investor Genstar Capital LLC, according to Bloomberg data.

Ilitch’s MotorCity Casino Downgraded to Caa1 Secured

CCM Merger Inc., the indirect owner of the MotorCity Casino in Detroit, has a $70 million revolving credit expiring in July 2011 and a $547 million term loan that matures in July 2012.

Last week Moody’s Investors Service lowered the ratings on the two secured credits by one notch each to Caa1.

The corporate grade went down one step also, to Caa2.

Moody’s said that the casino’s ultimate owner Marian Ilitch has given support in the past in the form of additional equity. Ilitch is not required to do so by contract, Moody’s said.

Ilitch is owner of the Detroit Red Wings of the National Hockey League and a co-founder of Little Caesar’s Pizza.

Annual revenue at the casino is $460 million, according to Moody’s.

A competing casino in Detroit, Greektown Holdings LLC, underwent reorganization in Chapter 11.

Caris, Pathology Service Provider, Lowered to B Corporate

Caris Diagnostics Inc., a provider of pathology services, had its corporate grade lowered one notch last week to B from Standard & Poor’s. The senior secured credit received the same downgrade.

S&P noted that loan covenants for the Irving, Texas-based company tightened in September and will tighten again in December and March.

Advance Sheets

Judge Confronted With Difficult Decision on Cross-Border Issue

U.S. Bankruptcy Judge Stuart M. Bernstein found an elegant solution to a difficult problem confronting him in a multinational bankruptcy. The case involved The International Banking Corp., a commercial lender from Bahrain.

The bank was put into administration in July 2009 in a court in Bahrain under procedures where reorganization was possible. The administrator for the bank filed a Chapter 15 petition in New York in December 2009. The next month, Bernstein granted permanent relief under Chapter 15 when he ruled that proceedings in Bahrain were the “foreign main proceeding.”

Ordinarily, recognizing the foreign court as having the main proceeding means that the U.S. court will send assets in the U.S. to the foreign court for distribution to creditors under the law of the other country.

The principal reason for the Chapter 15 filing in the U.S. was to bring almost $27 million to Bahrain that Deutsche Bank AG had attached through proceedings in New York state court. In his 25-page opinion on Nov. 25, Bernstein ruled that the money would stay in the U.S., at least for now.

In the course of his opinion, Bernstein found that Frankfurt-based Deutsche Bank had a valid security interest in the $27 million because the New York sheriff took possession of the funds after the New York state court issued an order of attachment. The administrator for IBC took the position that although valid in the U.S., the security interest may be voidable or not recognized by the court in Bahrain.

Deutsche Bank succeeded in persuading Bernstein to keep the money in the U.S. by pointing to a 2001 decision from the U.S. Court of Appeals in Manhattan called In re Trico, which says, according to Bernstein, that the bankruptcy court is “required to protect a secured creditor in the U.S. from being reduced to an unsecured status in a foreign proceeding.”

Bernstein told Deutsche Bank and the administrator for IBC that they must now ask the court in Bahrain for a ruling on whether the attachment order in the New York state court was valid under Bahrain’s law. With a decision in hand from the court in Bahrain, the parties may return to the U.S. and ask Bernstein to decide whether he will grant so-called comity to the foreign ruling. If Bernstein grants comity by deciding that the foreign ruling must be enforced in the U.S., he will presumably send the money at that time to Bahrain.

Bernstein didn’t want to create a situation where sending the money to Bahrain at this stage would by itself destroy Deutsche Bank’s security interest because the money no longer would be under control of the New York sheriff. Bernstein said his ruling at this early stage would have been different had Deutsche Bank obtained the attachment after administration proceedings were commenced and in violation of Bahrain’s law.

Bernstein may face a more difficult decision in the future if the court in Bahrain concludes the attachment is ineffective although valid under New York law.

In the course of his opinion, Bernstein said that IBC likely will be liquidated rather than rehabilitated.

The Chapter 15 case is In re The International Banking Corp., 09-17318, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

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