Jan. 28 (Bloomberg) -- Borders Group Inc., the book seller that had a $143.7 million operating loss in the first three quarters of 2010, obtained a $550 million financing commitment that sets a high bar to avoiding Chapter 11.
General Electric Capital Corp. signed a commitment to provide $550 million in secured financing to replace an existing revolving credit and term loan. The commitment contains several conditions, including the ability to syndicate $175 million of the loan.
Before Stamford, Connecticut-based GECC will close the loan, Borders must convert $125 million of supplier payables into a loan subordinate to GECC’s financing. As reported in yesterday’s statement by Ann Arbor, Michigan-based Borders, the lender also requires “financing arrangements with the company’s vendors, landlords, and other financing parties” on terms satisfactory to GECC.
One of the conditions is a “store closure program.” Because closing stores entails breaching leases, landlords evidently must agree to deal with their claims in a way that Borders won’t be forced into bankruptcy by landlord lawsuits.
Before making the loan, GECC is allowed to complete due diligence and be satisfied about Borders’ financial condition.
At the end of yesterday’s statement, Borders said it also is exploring alternatives, including a bankruptcy court restructuring. Borders isn’t paying its suppliers at the present time.
Borders reported a $143.7 million operating loss and a $185.2 million net loss for the first three quarters of the current fiscal year on revenue of $1.52 billion. In the same period last year, the operating loss was $115.6 million.
For the fiscal year ended Jan. 30, 2010, Borders had a $110.2 million net loss and an $84.9 million operating loss on revenue of $2.79 billion.
For other Bloomberg coverage, click here.
Borders closed yesterday at 80.6 cents a share in New York Stock Exchange composite trading. The shares rose to more than $1 in pre-market trading today.
Icahn Seeks Dismissal of Lyme Regis Blockbuster Suit
Carl Icahn asked a judge to dismiss the lawsuit filed against him in bankruptcy court on Dec. 23 by Lyme Regis Partners LLC, the holder of $570,000 of 9 percent senior subordinated notes issued by Blockbuster Inc., the movie-rental chain.
The suit seeks to subordinate Icahn’s claim or recharacterize the debt as equity. In a motion filed yesterday, Icahn said the complaint must be dismissed because Lyme Regis isn’t authorized to sue based on damage allegedly incurred by all creditors or by Blockbuster itself. Icahn’s motion to dismiss refers to how the bankruptcy judge earlier in December denied a motion by Lyme Regis for authority to sue Icahn on behalf of the company and its creditors.
Icahn also said that the indenture governing the subordinated notes precludes anyone with less than 25 percent of the issue from suing.
Blockbuster filed in Chapter 11 having negotiated the outline of a reorganization with holders of 80 percent of the $630 million in 11.75 percent senior-secured notes. The deadline for filing the plan and disclosure statement has been pushed back several times and is now Feb. 4.
As originally envisioned, the plan would give new stock to senior noteholders, with general unsecured creditors receiving warrants for 3 percent. Lyme Regis and other holders of the $300 million in 9 percent subordinated notes would receive nothing.
Following the bankruptcy filing, Blockbuster rejected about 220 leases. The Dallas-based company said it would close 72 additional stores by the end of 2010 and about 110 more in the first quarter of 2011.
Blockbuster began reorganizing in September with 5,600 stores, including 3,300 in the U.S. Of the U.S. stores, 3,000 were owned and the rest were franchised. About 200 stores closed before bankruptcy.
The petition listed assets of $1.02 billion against debt of $1.47 billion. Blockbuster estimated that it owes $57 million in accounts payable in addition to the secured and subordinated notes.
The case is In re Blockbuster Inc., 10-14997, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
Tribune Reports $43.3 Million Net Income in December
Tribune Co. filed an operating report showing net income of $43.3 million for the period from Nov. 22 through Dec. 26. Total revenue was $219.2 million and reorganization costs were $7.7 million.
Tribune reported that cash increased $36 million in the month, to end at $1.78 billion. The cash balance report isn’t the same as cash shown on the balance sheet, which totals $1.06 billion.
From the inception of the Chapter 11 case in December 2008, Tribune has spent $25.2 million on its primary bankruptcy counsel. Primary lawyers for the creditors’ committee have cost $22.3 million.
Three reorganization plans will vie for approval at a confirmation hearing to begin March 7. For a summary of the plans filed by creditors, including one that was withdrawn, click here for the Nov. 1 Bloomberg bankruptcy report. For details on Tribune’s own plan, click here for the Oct. 25 Bloomberg bankruptcy report.
The plans differ in how they either settle or propose to litigate disputes arising from fraudulent transfer claims resulting from the $13.7 billion leveraged buyout led by Sam Zell in 2007. For a summary of some of the examiner’s conclusions about possible defects and fraudulent transfers in the LBO, click here for the July 27 Bloomberg bankruptcy report.
Tribune, the second-largest newspaper publisher in the U.S., listed $13 billion in debt for borrowed money and assets of $7.6 billion in the Chapter 11 reorganization begun in December 2008. It owns the Chicago Tribune, Los Angeles Times, six other newspapers and 23 television stations.
The case is In re Tribune Co., 08-13141, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Bowater Canada Finance Chapter 11 Case to Be Dismissed
Reorganized newsprint maker AbitibiBowater Inc. filed a motion to dismiss the Chapter 11 case of subsidiary Bowater Canada Finance Corp.
Although affiliates implemented their U.S. and Canadian reorganizations in December, the BCFC affiliate was dropped out because creditors of the subsidiary voted down the plan.
It was agreed at the time with BCFC noteholders that the subsidiary’s U.S. Chapter 11 case would be dismissed, as would the arrangement proceeding in Canada. Since then, BCFC has been assigned into a proceeding under Canada’s Bankruptcy Insolvency Act, in which the creditors’ representative will continue pursuing claims against affiliates.
The BCFC noteholders turned down the Abitibi plan, believing they would have a larger recovery pursing claims through litigation.
BCFC is a so-called unlimited limited liability company under Canadian law. Unlike ordinary corporations, where owners have no liability for company debt, the shareholders of an unlimited limited liability company are liable for all the company debt. In addition to their claims on the notes, the noteholders could a make a separate claim based on BCFC’s status as an unlimited limited liability company.
A bankruptcy judge last month unsealed a September report from BCFC’s special adviser looking into whether BCFC should pursue claims against affiliates and their officers and directors. The adviser concluded that claims shouldn’t be pursued against officers and directors. The adviser also recommended against suit for misuse of proceeds of the BCFC notes.
In a similar case involving a Canadian finance subsidiary of Smurfit-Stone Container Corp., a bankruptcy judge in Delaware ruled this month against the noteholders. That opinion was based on a specific provision in the indenture waiving a possible double recovery. The question of whether noteholders are entitled to a double recovery on account of Canadian law was left undecided in the Smurfit decision. For a discussion of the Smurfit case, click here for the Jan. 11 Bloomberg bankruptcy report.
Abitibi’s plan reduced debt by 88 percent, from $6.8 billion to $850 million. For a summary of the plan, which treated creditors differently at each of the 40 affiliated companies, click here for the Nov. 23 Bloomberg bankruptcy report.
The company was formed in October 2007 by a merger between Montreal-based Abitibi-Consolidated Inc. and Greenville, South Carolina-based Bowater Inc. Abitibi makes newsprint, uncoated mechanical paper and lumber. Bowater also makes newsprint, along with papers, bleached kraft pulp and lumber.
The Montreal-based company began reorganizing with 24 pulp and paper mills plus 30 wood-product plants. Revenue in 2008 was $6.8 billion. In Chapter 11 petitions filed in April 2009, the combined AbitibiBowater companies listed assets of $9.9 billion and debt totaling $8.8 billion as of September 2008.
The case is AbitibiBowater Inc., 09-11296, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Constar Projects $16.3 Million Operating Cash Flow
Constar International Inc., a manufacturer of blow-molded plastic beverage containers, filed projections with the bankruptcy court predicting cash receipts of $342.5 million in calendar 2011.
The projection, required by bankruptcy court rules, shows $16.3 million of net operating cash flow this year. Capital expenditures of $13.9 million and $9.9 million in professional fees are predicted to result in a $7.4 million negative net cash flow. The negative cash flow would be offset by a net of $18.3 million in drawings on a credit agreement.
The Chapter 11 case is being financed with a promised $55 million loan. The hearing for final approval of financing will occur on Feb. 1.
The prepackaged reorganization begun Jan. 11 was Constar’s second in two years. For details on the new reorganization and the predecessor, click here for the Jan. 12 Bloomberg bankruptcy report.
Constar’s Sept. 30 balance sheet listed assets of $325 million and total liabilities of $321 million. The new petition said assets are $418 million with debt of $414 million.
For nine months ending in September, the Philadelphia-based company reported a $56.8 million operating loss and a $73.7 million net loss on net sales of $439 million.
The new case is In re Constar International Inc., 11-10109, U.S. Bankruptcy Court, District of Delaware (Wilmington). The prior reorganization was In re Constar International Inc., 08-13432, in the same court.
Charlie Brown’s Liquor License in New Jersey Draws $280,000 Bid
The owner of Charlie Brown’s Steakhouse has a purchaser willing to pay $280,000 for one New Jersey liquor license. The company wants the bankruptcy judge to approve the sale at a March 9 hearing in view of extensive marketing efforts already undertaken.
New Jersey has a limited number of liquor licenses. Scarcity makes the price high.
The company closed 47 locations before filing in Chapter 11. Liquor licenses that weren’t transferrable were canceled. Those that have value are being sold. The company’s seven The Office restaurants were authorized last week to be sold for $4.675 million to Villa Enterprises Inc.
The company said it will submit a motion in “short order” to set up sale procedures for the remaining 32 locations.
At the outset of the Chapter 11 case, the lenders were owed $70.2 million.
Along with Charlie Brown’s and The Office, the company, controlled by Trimaran Capital Partners, operates under the name Bugaboo Creek.
In addition to $70.2 million of secured debt at the outset of the case, there is $14 million owing on second-lien senior subordinated notes and $30 million on a mezzanine loan.
The senior secured lenders are Ableco Finance LLC, Wells Fargo Capital Finance Inc. and Ally Commercial Finance LLC.
The case is CB Holding Corp., 10-13683, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Frozen Seafood Processor Contessa Files in Los Angeles
Contessa Premium Foods Inc., a processor of farm-raised shrimp, convenience meals, and stir-fry vegetables, filed for Chapter 11 reorganization on Jan. 26 in Los Angeles to reduce debt on a new plant in Commerce, California.
The company built the plant to be the “world’s first environmentally friendly frozen food processing center,” a court filing says. The recession resulted in declining revenue, making the San Pedro, California-based company unable to exploit the capacity of the new plant.
Sales fell from a peak of $221 million in 2007 to $154 million in 2010, according to court papers. Consumers are buying less-expensive alternatives to closely held Contessa’s products, the filing says.
Assets and debt are both between $50 million and $100 million, according to the petition.
The case is In re Contessa Premium Foods Inc., 11-13454, U.S. Bankruptcy Court, Central District California (Los Angeles).
Professional Services Most Profitable in 2010
Professional service companies of various types occupied all of the 10 top spots in the list of nonpublic companies with the highest net profit margins in 2010, according to a study by Sageworks Inc.
Health-care providers occupied four of the top 10 spots.
With the exception of printers, the 10 least profitable categories, as measured by net profit margin, were all in industries related to construction, said Sageworks, a provider of financial information about nonpublic businesses.
All categories of professional service companies had increased revenue in 2010. All except two of the least profitable categories of companies had revenue declines in 2010.
William Hill Retiring From North Dakota Bankruptcy Court
U.S. Bankruptcy Judge William A. Hill in Fargo, North Dakota, is retiring after 36 years in federal service.
Hill, 64, is the only U.S. bankruptcy judge in North Dakota. He handles cases in four different courthouses in the state.
While bankruptcies have been rising to near records elsewhere, Hill said in an interview that favorable commodity and oil prices have minimized filings in his state.
When asked if he intends to work after retirement, Hill said, “I don’t want to be pinned down to anything.”
Hill’s retirement will be effective Aug. 21, according to bankruptcy court clerk Dianne Schmitz. Announcing his retirement in advance provides time for designating a successor, she said.
Hill received his undergraduate and law degrees from the University of North Dakota. He became a U.S. magistrate judge in 1975 before his appointment to the bankruptcy bench in 1983. Before serving as a magistrate, Hill was deputy secretary of state in North Dakota.
Peninsula Gaming Downgraded on Debt for New Project
Casino operator Peninsula Gaming LLC was downgraded one notch yesterday by Moody’s Investors Service in view of debt it will incur for a new project.
The new corporate rating is B2, while the $305 million in senior unsecured notes became Caa1.
Moody’s said Dubuque, Iowa-based Peninsula is issuing $172 million in new debt to finance the first phase of a $295 million casino project in Mulvane, Kansas, slated to open in January 2012.
Peninsula operates four casinos in Iowa and Louisiana. Revenue for the first nine months of 2010 was $242 million. Net income for the three quarters was $6 million.
The Sept. 30 balance sheet showed assets of $527.6 million and total liabilities of $556.3 million.
Lehman, Summit, OTB, Townsends, Credit Bids: Bankruptcy Audio
The revised reorganization plan for Lehman Brothers Holdings Inc., the prepackaged filing by Summit Business Media Holding Co., the filing by the DeWitt nursing home on the East Side of Manhattan, dismissal of the Chapter 9 municipal reorganization for New York’s Off-Track Betting Corp., the upcoming auction for chicken producer Townsends Inc., and how the reorganization of the InterContinental Chicago O’Hare hotel could lead to a conflict of circuits on the issue of so-called credit bidding are analyzed in the bankruptcy podcast with Bloomberg Law’s Lee Pacchia and Bloomberg News bankruptcy columnist and editor-at-large Bill Rochelle. To listen, click here.
5th Circuit Remains Strict on Gerrymandering Classes
The U.S. Court of Appeals in New Orleans used a small case to make big law on classifying similarly situated creditors into separate classes under a Chapter 11 plan. The opinion on Jan. 26 could make life difficult for some companies reorganizing in the three states covered by the 5th U.S. Circuit Court of Appeals: Louisiana, Mississippi and Texas.
The issue arises when a bankrupt company has one creditor whose claim is large enough to block approval of the plan. To overcome opposition, a bankrupt company will often put the objecting creditor into a separate class, knowing that the remaining creditors, as a different class, will vote “yes.”
With one class voting for the plan, it’s possible for the bankruptcy judge to use the so-called cramdown process and confirm the plan, even when the other class votes “no.”
Writing for the appeals court, U.S. Circuit Judge Jerry E. Smith cited a 1991 5th Circuit case, called Greystone, as holding that “debtors cannot place claims into separate classes to gerrymander the vote -- that is, to create an impaired class that will approve the plan.” Smith said that all unsecured creditors should have been in one class absent a “legitimate reason,” given that they were all to share the same recovery.
Smith said the bankrupt company failed to convince the bankruptcy judge that the opposing creditor had a sufficient “non-creditor interest” to justify separate classification. He said that a desire to avoid litigation in the future is a non-creditor interest when the potential lawsuit in the future is not related to the creditor’s claim.
Smith also said the bankrupt company failed to convince the bankruptcy judge that there was sufficient animosity to justify separate classification.
The case involved Save Our Springs Alliance Inc., an Austin, Texas-based environmental group. The bankruptcy court dismissed the Chapter 11 case at the behest of Sweetwater Austin Properties LLC, an Austin housing developer. Save Our Springs lost a lawsuit to stop a Sweetwater development. Upholding a Sweetwater counterclaim to recover attorneys’ fees in defending the suit, the state court gave judgment in favor of Sweetwater that was filed as a $295,000 claim when Save Our Springs later sought Chapter 11 protection to stop collection of the judgment.
For discussions of rulings in the bankruptcy court, click here and here for the Bloomberg bankruptcy report.
The case is Save Our Springs Alliance Inc. v. WSI (II) Cos. LLC (In re Save Our Springs Alliance Inc.), 09-50990, U.S. 5th Circuit Court of Appeals (New Orleans). The Chapter 11 case was In re Save Our Spring Alliance Inc., No. 07-10642, U.S. Bankruptcy Court, Western District Texas (Austin).
To contact the reporter on this story: Bill Rochelle in New York at email@example.com.
To contact the editor responsible for this story: David E. Rovella at firstname.lastname@example.org.