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Innkeepers, Paulson Resorts, Townsends: Bankruptcy

Midland Loan Services Inc., the special servicer for $825 million in fixed-rate mortgages on property of Innkeepers USA Trust, filed papers on Feb. 1 objecting to the request by LNR Securities Holdings LLC and Appaloosa Management LP for the right to oppose the newly proposed Innkeepers reorganization structure.

LNR and Appaloosa both hold some of the certificates issued by the trusts for which Midland is servicer. Midland cites chapter and verse in the governing documents to say certificate holders granted Midland the exclusive right to appear for them in bankruptcy cases.

Midland cites other provisions which it says mean that individual certificate holders can act in a bankruptcy only if together they hold 25 percent of the issue and agree to indemnify Midland. Together, Appaloosa and LNR fall “well short” of the required 25 percent, Midland says.

For a rundown on the preliminary objection by LNR to the new reorganization structure, click here for the Jan. 27 Bloomberg bankruptcy report. A hearing is yet to be set where the bankruptcy judge will decide if LNR and Appaloosa have standing to oppose the Innkeepers reorganization.

If it works out as planned, Lehman Ali Inc. and Five Mile Capital Partners LLC would share ownership after completion of the Innkeepers Chapter 11 reorganization. For details on the new plan structure, click here for the Jan. 18 Bloomberg bankruptcy report. The bankruptcy court will hold a hearing on March 8-9 to consider setting up auction procedures and approving agreements underlying the new proposal.

Palm Beach, Florida-based Innkeepers, a real estate investment trust, has 72 extended-stay and limited-service properties with 10,000 rooms in 20 states. For details on the first Innkeepers plan the bankruptcy judge rejected, click here for the Aug. 31 Bloomberg bankruptcy report.

Apollo Investment Corp. acquired Innkeepers 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).

New Filing

Southwest Georgia Ethanol Producer Files Chapter 11

Southwest Georgia Ethanol LLC, the owner of a 100-million gallon-a-year ethanol plant in Mitchell County, Georgia, filed a Chapter 11 petition on Feb. 1 in Albany, Georgia.

In its petition, the company listed assets of $164.7 million and debt of $134.1 million.

Southwest Georgia Ethanol, or SGE, had revenue of $168.9 million for the fiscal year ended in September. The net loss for the year was $2.2 million. For three months ended in December, the net loss was $2 million, the company said.

The company blamed financial problems on the high price of corn compared with the price for ethanol.

The plant also had operational difficulties, resulting from construction and design problems, the company said in court filings.

SGE is owned by First United Ethanol LLC. The parent didn’t file for bankruptcy.

The Chapter 11 case is to be financed with a $10 million revolving credit provided by a group of existing lenders in which WestLB AG, New York Branch, serves as agent. From the loan, $5 million is to be available on an interim basis. The loan bears interest at 9 percentage points above the London interbank borrowed rate. Libor will have a 4 percent floor.

The bank group is owed $92 million dating from construction of the plant. Production began in October 2008.

Other liabilities include $12.6 million owing on two subordinated notes. The larger, $8.6 million, is owed to the Mitchell Development Authority.

For other Bloomberg coverage, click here.

SGE is asking for the case to be transferred to the branch of the court in Macon, Georgia. A court filing says participants in the case will be flying to Atlanta for hearings. Macon is closer to Atlanta.

The case is In re Southwest Georgia Ethanol LLC, 11-10145, U.S. Bankruptcy Court, Middle District of Georgia (Albany).


Accommodating Markets Shrink Maturing Junk-Rated Debt

Liquidity pressures on lower-tier junk-rated companies are the lowest since mid-2005, according the Moody’s Liquidity-Stress Index released Feb. 1.

Moody’s said the improvement comes from “high-yield markets” which “have welcomed even risky credits.”

One year ago, weaker credits in the class had $79 billion in debt maturing this year. Now, debt maturing in 2011 has been reduced to $26 billion, Moody’s said.

Although near-term debt maturities have been reduced, Moody’s said that “total debt levels were not meaningfully reduced.” Instead, the “companies merely ‘kicked-the-can’” down the road, Moody’s said.

There is $130 billion of Caa1-or-lower rated debt maturing in the next five years, Moody’s said in a separate report. Companies in this category, Moody’s said, “could face difficulties refinancing their debt if the leveraged finance market comes under stress.”

Looking ahead, Moody’s said the “biggest liquidity risks today are the risk that the economic recovery turns south.”


Paulson Resorts Have Two Financing Offers for Reorganization

Five resorts that Paulson & Co. and Winthrop Realty Trust foreclosed last week have two offers to finance the Chapter 11 reorganization they began Feb. 1 in New York. One is from the government of Singapore, a mezzanine lender.

Paulson is offering the other loan together with Five Mile Capital Partners LLC. When the petition was filed, Paulson said it would provide a $30 million loan subordinate to existing mortgages. The resorts will decide in the next month which offer is the best. For Bloomberg coverage of yesterday’s hearing, click here.

Paulson put the resorts into Chapter 11 facing Feb. 1 maturity of $1 billion in mortgages and $525 million in mezzanine loans. Midland Loan Services Inc. is special servicer for the $1 billion in mortgages.

The Paulson resort case has some of the same cast of characters as pending reorganization of hotels owned by Innkeepers USA Trust. Five Mile is one of the prospective purchasers of Innkeepers, and Midland is special servicer for $825 million in mortgages on a majority of Innkeepers’ properties.

Morgan Stanley’s CNL Hotels & Resorts Inc. owned the resorts before the Jan. 28 foreclosure. Paulson and Winthrop took control by foreclosing mezzanine loans they owned. The resorts are Grand Wailea Resort Hotel and Spa in Hawaii; the La Quinta Resort and Club and the PGA West golf course in La Quinta, California; the Arizona Biltmore Resort and Spa in Phoenix; the Doral Golf Resort and Spa in Miami; and the Claremont Resort & Spa in Berkeley, California. The resorts have 14 golf courses.

The properties listed assets of $2.2 billion and liabilities of $1.9 billion. New York-based Morgan Stanley purchased the five resorts in 2007 for $4 billion. Revenue in 2010 was $465 million.

At the same foreclosure on Jan. 28, three other Morgan Stanley hotels were taken over by Capital Trust Inc. They are separately financed and didn’t file in Chapter 11. Those resorts are the Ritz-Carlton Grande Lakes in Orlando, Florida; the JW Marriott Grande Lakes in Orlando, Florida; and the JW Marriott Desert Ridge Resort in Phoenix.

The case is In re MSR Resort Golf Course LLC, 11-10372, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Green Plains First Bidder on Otter Tail Ethanol Plant

Otter Tail AG Enterprises LLC will put its 55-million gallon-a-year ethanol plant in Fergus Falls, Minnesota, up for auction on Feb. 16. Initial bids are due Feb. 11. A hearing for approval of the sale is scheduled for Feb. 17.

At auction, the $62.54 million opening bid will come from Green Plains Renewable Energy Inc., the owner of eight ethanol plants with a combined capacity of 657 million gallons-a-year. Green Plains is the fourth-largest ethanol producer in North America, according to court filings.

The price consists of $55 million in cash and assumed debt, plus an adjustment for inventories.

Having negotiated a consensual reorganization with most of its larger creditors, Otter Tail intended to reorganize with a Chapter 11 plan. When Otter Tail was unable to raise the $12.5 million in required equity, it decided to sell.

The lenders are owed a cumulative $82.8 million, according to court papers. AgStar Financial Services PCA is owed $34.2 million on a construction loan.

Otter Tail filed for Chapter 11 reorganization in October in its hometown. The plant began operating in March 2008.

The petition listed assets of $66.4 million and debt of $86 million. Almost all of the debt is secured.

The case is In re Otter Tail AG Enterprises LLC, 09-61250, U.S. Bankruptcy Court, District of Minnesota (Fergus Falls).

HSBC Bank USA Seeks Dismissal of Awal Bank Chapter 11 Case

The Chapter 11 case begun in October by the administrator for Awal Bank BSC will be dismissed if the bankruptcy judge in Manhattan agrees with the motion filed yesterday by HSBC Bank USA NA.

Awal began bankruptcy administration proceedings in Bahrain in July 2009. It filed a Chapter 15 petition in New York in September of that year.

Later, the bankruptcy judge recognized Bahrain as home to the so-called foreign main proceeding.

The Awal administrator later filed the Chapter 11 petition, evidently because the ability to bring lawsuits is limited in Chapter 15.

Within days of the commencement of the Chapter 11 case, the bankruptcy judge rejected a structuring of the reorganization in which there would be no creditors’ committee and no lists of assets and debt, with distributions made to creditors by the court in Bahrain and payment to professionals without bankruptcy court approval.

Since then, according to HSBC, there has been no significant activity in the case. The bank said dismissal is proper.

Awal’s Chapter 11 petition said assets were less than $100 million while debt exceeds $1 billion.

Although domestic banks are precluded from filing any form of bankruptcy in the U.S., foreign banks like Awal may file for bankruptcy or reorganization.

The Chapter 11 case is In re Awal Bank BSC, 10-15518, U.S. Bankruptcy Court, Southern District New York (Manhattan). The Chapter 15 case is In re Awal Bank BSC, 09-15923, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Townsends Loss $2.8 Million in First 12 Days of Chapter 11

Townsends Inc., a vertically integrated chicken producer, filed an operating report showing the cost of goods sold was almost $2 million more than the $15.24 million revenue in the first 12 days of the Chapter 11 case begun Dec. 19.

The net loss in the period was $2.8 million.

Townsends plans to conduct an auction for the business on Feb. 15. The order approving financing requires a sale this month and conversion of the case to liquidation in Chapter 7 if there is no cash remaining after the sale to pay expenses.

Based in Georgetown, Delaware, family-owned Townsends is capable of producing 700 million pounds of poultry a year and 1.3 million eggs a week. It has four production facilities in Arkansas and North Carolina.

Townsends listed assets of $131 million and liabilities of $127 million. Liabilities include $20.7 million owing to secured lenders on a term loan and $40 million on a revolving credit. Twelve-month revenue was $504 million. Townsends contracts with over 300 growers who operate 1,200 chicken houses.

The case is In re Townsends Inc., 10-14092, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Oriental Trading Has $4.7 Million December EBITDA

Oriental Trading Co., the direct marketer of home décor products, toys, and novelties whose Chapter 11 plan was confirmed in December, reported a $5 million net loss in December on $39.7 million in net sales.

Gross profit in the month was $24.9 million. Earnings before interest, taxes, depreciation and amortization for the month was $4.7 million. Reorganization items totaled $3.1 million.

OTC confirmed a plan given a settlement with first- and second-lien lenders. The plan gives the new stock plus cash or a new $200 million second-lien note to senior lenders owed $403 million. For details on the plan and settlement, click here for the Nov. 26 Bloomberg bankruptcy report. The plan was mostly negotiated with the first-lien lenders before the Aug. 25 bankruptcy filing.

The Carlyle Group purchased 68 percent of OTC in July 2006 from private-equity investor Brentwood Associates. Brentwood continued owning some 24 percent of the equity.

Assets of the Omaha, Nebraska-based company were on the books for $463 million in April. Liabilities totaled $756.6 million. Net sales for the fiscal year were $485.4 million.

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

Point Blank Reports $3.1 Million December Net Loss

Point Blank Solutions Inc., whose reorganization plan is scheduled for approval at a Feb. 14 confirmation hearing, reported a $3.8 million net loss in December on net sales of $7.3 million.

The operating loss for the month was $1.4 million. Reorganization expenses in the period totaled $5.2 million.

Point Blank’s plan is sponsored by Lonestar Partners LP, Privet Fund Management LLC, and Prescott Group Capital Management. They will supply $25 million in replacement financing and are backstopping a $15 million to $25 million equity rights offering. The offering will be available to specified unsecured creditors and stockholders. For details on the plan, click here for the Dec. 14 Bloomberg bankruptcy report.

Point Blank, based in Pompano Beach, Florida, is a manufacturer of soft body armor. Revenue in 2009 exceeded $153 million. The former chief executive and chief operating officer were convicted in September of orchestrating a $185 million fraud.

The Chapter 11 petition in April listed assets of $64 million and debt of $68.5 million. Debt included a $10.5 million secured loan paid off by financing for the Chapter 11 case. Point Blank said it also owes $28.2 million to trade suppliers.

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

Tasman Industries Approved to Buy Irving Tanning

Irving Tanning Co., a producer and seller of leather for shoes and handbags from Hartland, Maine, was authorized by the bankruptcy court this week to sell the business to Tasman Industries Inc.

Tasman will forgive a $1 million debt owing by Irving. In addition, Tasman will pay $3.3 million in cash and notes to The Fund of Jupiter LLC, a secured lender.

Irving filed under Chapter 11 in November in Bangor, Maine, saying assets were less than $10 million while debt exceeded $10 million.

At the outset of the reorganization, Porter Capital Corp. was owed almost $2 million on a factoring agreement while the Jupiter fund had a secured claim of $4.2 million. Maine development authorities were owed more than $1.2 million. Accounts payable amounted to $2.6 million, court papers say.

Revenue for a year ending in June was more than $28 million.

The case is In re Irving Tanning Co., 10-11757, U.S. Bankruptcy Court, District of Maine (Bangor).

One Charlie Brown’s Steakhouse Liquor License Worth $250,000

The owner of Charlie Brown’s Steakhouse is selling another liquor license. Shack Foods of Dedham LLC is offering $250,000 for a license in Dedman, Massachusetts.

The company wants the sale approved at a March 9 hearing without holding an auction.

Forty-Seven locations were closed before the Chapter 11 filing in November. Charlie Brown’s already sold the seven The Office restaurants. There is to be another motion for the sale of the remaining 32 locations. In addition to Charlie Brown’s and The Office, the company operates under the name Bugaboo Creek. The company is controlled by Trimaran Capital Partners.

At the outset of the Chapter 11 case, the lenders were owed $70.2 million.

In addition to that secured debt at the beginning of the case, there is $14 million owed 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).

Bear Island Paper Has $70,000 December Net Loss

Bear Island Paper Co. LLC, a unit of Canada’s White Birch Paper Co., had a $70,000 net loss in December, according to the operating report filed with the bankruptcy court.

Net sales in the month were $12.86 million. The gross profit was $1.34 million.

Bear Island was authorized by the bankruptcy judge in early November to sell the business to a group consisting of Black Diamond Capital Management LLC, Credit Suisse Group AG, and Caspian Capital Advisors LLC. They offered $172.5 million, comprised of $94.5 million cash and $78 million as a credit against secured debt. The Black Diamond group estimated that their offer would generate from $90 million to $94.5 million cash for assets not representing their collateral. The group holds 65 percent of the $438 million in first-lien debt.

Based in Nova Scotia, White Birch and U.S. subsidiaries filed for reorganization simultaneously in the U.S. and Canada last February. White Birch is the second-largest newsprint maker in North America.

When the Chapter 11 case began, secured liabilities included $438 million on a first-lien term loan, $104 million on a second-lien term loan, $50 million on an asset-backed revolving credit, and $51.5 million on swap agreements. Trade suppliers were owed $9.5 million.

The companies had $667 million in sales during 2009, with $125 million attributable to Bear Island. White Birch had three pulp and paper mills in the province of Quebec. The Bear Island plant was in Ashland, Virginia. White Birch is controlled by Brant Paper Inc.

The case is In re Bear Island Paper Co. LLC, 10-31202, U.S. Bankruptcy Court, Eastern District of Virginia (Richmond).


Coach America ‘May’ Need Restructuring, Moody’s Says

Coach America Holdings, Inc. was downgraded yesterday when Moody’s Investors Service said the largest charter bus operator in the U.S. “may” need a restructuring in the “very near term.”

Moody’s lowered the corporate rating by one notch to Caa1. Among other ratings adjusted lower, the $55 million second-lien term loan due 2014 became Caa3.

Revenue in 2010 was $417 million, Moody’s said.

Moody’s said the company has an “onerous debt burden taken on in 2007” when Fenway Partners bought the business from Kohlberg & Co. Dallas-based Coach is the country’s second-largest bus operator.

Daily Podcast

W.R. Grace, Tribune, GM, AmTrust, Evans Oil: Bankruptcy Audio

In today’s bankruptcy podcast, we describe how W.R. Grace & Co. is nearing the end of a 10-year reorganization. We mention how only two plans remain in competition for the reorganization of publisher Tribune Co. and use AmTrust Financial Corp. as an example of loopholes in Congress’ attempt to prevent bank holding companies from using bankruptcy to evade capital requirements. We close by looking at how old General Motors Corp. avoided liability for aiding and abetting apartheid and describe the opportunity to acquire petroleum distributor Evans Oil Co. LLC. To listen to the bankruptcy podcast with Bloomberg Law’s Lee Pacchia and Bloomberg News bankruptcy columnist and editor-at-large Bill Rochelle, click here.

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