Madoff Trustee Seeks to Revive Tossed Suits: Bankruptcy

The trustee liquidating Bernard L. Madoff Investment Securities LLC filed a mass appeal asking the U.S. Court of Appeals in Manhattan to revive about $10 billion in lawsuits against 635 customers that have been or will be dismissed by U.S. District Judge Jed Rakoff. Source: Office of Judge Jed Rakoff

The trustee liquidating Bernard L. Madoff Investment Securities LLC filed a mass appeal asking the U.S. Court of Appeals in Manhattan to revive about $10 billion in lawsuits against 635 customers that have been or will be dismissed by U.S. District Judge Jed Rakoff.

The appeal will determine whether Rakoff was correct in dramatically limiting the amount of fictional profits trustee Irving Picard can sue customers to recover. Rakoff ruled that the so-called safe harbor in bankruptcy only allows Picard to sue for fictional profits taken out within two years of bankruptcy. Rakoff stopped Picard from suing for six years of fictional profits that would be fraudulent transfers under state law.

Rakoff also ruled that Picard is barred from suing to recover preferences paid to customers.

For the 1,000 lawsuits Picard initially filed, Rakoff’s rulings meant that the trustee would lose on $11.1 billion in claims against customers. Picard was left with the ability to sue for two-year profits totaling about $8 billion.

If Picard wins on the mass appeal filed yesterday, he can restore about $10 billion in customer lawsuits, representing the original $11.1 billion, less about $1 billion given up in settlement in March with the group including Fred Wilpon and other owners of the New York Mets baseball club.

Picard’s appeal also asks the appeals court to rule that Rakoff was in error when he took the lawsuits out of bankruptcy court in the first place.

The rulings now being taken up on appeal to the Second Circuit Court of Appeals include an opinion in September in the lawsuit against the Wilpon group, where Rakoff prevented Picard from suing for anything other than false profits taken out within two years of bankruptcy.

Rakoff based his ruling on the so-called safe harbor in bankruptcy law. In the same opinion, Rakoff ruled that the safe harbor likewise blocks all lawsuits for so-called preferences.

In decisions in late April and early May, Rakoff applied his Wilpon ruling to 78 lawsuits against other customers. Later, Rakoff made his Wilpon rulings applicable to almost 560 additional lawsuits raising identical legal issues.

Defendants in about 550 of the lawsuits had the right to opt out of the single-appeal procedure.

Rakoff said he was allowing a single, mass appeal to “avoid protracted, expensive and potentially duplicative litigation proceedings and facilitate the prompt resolution of the case.”

If Picard wins on appeal, he can restore claims for about $2.6 billion in fictitious profits, about $7 billion in claims against customers or feeder funds that allegedly had reason to believe there was a fraud, and about $160 million in preferences.

In other Madoff developments, California Attorney General Kamala Harris and individual plaintiffs in four lawsuits filed papers arguing they should be free to sue the estate of Stanley Chais.

The new filings were in response to a request by the bankruptcy judge for the parties’ views on the relevance of three recent appellate cases deciding when a bankruptcy court can stop lawsuits against third parties. For other Bloomberg coverage, click here.

Picard filed his supplemental papers early this month.

Harris argues that she is exercising police and regulatory powers that aren’t halted by bankruptcy. The other plaintiffs contend they can sue because they have claims of fraud and negligence that belong to them alone.

U.S. Bankruptcy Judge Burton Lifland is scheduled to hold a hearing on July 18 to decide whether he will stop the suits. If Picard wins, he will have the only lawsuit against Chais.

The three cases on which Lifland sought comment involved Quigley Co., Nortel Networks Inc. and a Madoff case decided by U.S. District Judge Paul Oetken. To read about the three opinions, click here, here and here for the Bloomberg bankruptcy reports.

The Madoff firm began liquidating in December 2008 with the appointment of the 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 mass appeal is being taken in Picard v. Fishman Revocable Trust, 11-07603, U.S. District Court, Southern District of New York (Manhattan). The mass cases are also being handled in Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities LLC, 12-mc-00115, U.S. District Court, Southern District of New York (Manhattan). The Madoff liquidation case is Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities Inc., 08-01789, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The criminal case is U.S. v. Madoff, 09-cr-00213, U.S. District Court, Southern District of New York (Manhattan).


Dynegy Creditors to Recover 59% to 89%, Footnote Says

The settlements negotiated by Dynegy Inc. with creditors of bankrupt subsidiary Dynegy Holdings LLC had the effect of raising the pool of unsecured claims to $4.2 billion, according to the latest version of the draft disclosure statement filed this week.

In a prior version of disclosure materials, the universe of unsecured claims was a maximum of about $3.9 billion.

With the claims pool larger, the projected recovery by unsecured creditors is 59 percent to 89 percent, the newest version of the disclosure statement states in a footnote.

The new plan has the Dynegy parent filing its own Chapter 11 petition at an undisclosed time. The papers don’t yet say whether the power producer’s existing shareholders will be wiped out entirely or retain 1 percent of the stock. For a discussion of the newest version of the Dynegy plan, click here for the June 20 Bloomberg bankruptcy report.

A hearing is currently scheduled for July 2 where the bankruptcy judge in Poughkeepsie, New York, can approve disclosure materials and allow creditors to vote on the plan.

The latest version of the plan traces its history to the reorganization that Dynegy Holdings worked out before filing under Chapter 11 in November. Creditor objections led to the appointment of an examiner who said that a restructuring last year involved fraudulent transfers with actual intent to hinder and delay creditors. Two settlements followed before there was global agreement on a new plan structure.

For details on the second settlement, click here for the June 1 Bloomberg bankruptcy report. For details on the original settlement, click here for the April 5 Bloomberg bankruptcy report.

The plan gives $200 million in cash and 99 percent of the merged companies’ stock to holders of $4.2 billion of unsecured claims against Dynegy Holdings. The claims include about $3.5 billion on six issues of notes, $110 million for a tax-indemnity claim, $540 million on lease guaranty claims, and $55 million to holders of $222 million in subordinated debt.

The other 1 percent of the merged companies’ stock, plus warrants for 13.5 percent more, will go to a trust for what the papers refer to as “stakeholders” in the Dynegy parent. The five-year warrants will have an exercise price based on a $4 billion net equity value for the reorganized company.

The $1.05 billion in 8.375 percent senior unsecured notes of Dynegy Holdings traded June 20 for 63.05 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

As a result of the examiner’s March 9 report, Dynegy lost almost 60 percent of its value in two days’ trading. The shares closed yesterday at 56 cents, down 1.5 cents in New York Stock Exchange trading.

The companies in Chapter 11 are Dynegy Holdings and four of Dynegy Holding’s units.

The Dynegy parent, not itself in bankruptcy, listed assets of $11.1 billion and total liabilities of $8.6 billion on the Sept. 30 balance sheet. Following the subsidiaries’ bankruptcy, the parent deconsolidated them, resulting in a March 31 balance sheet with assets of $4.11 billion and liabilities of $3.05 billion.

Dynegy reported a net loss of $1.65 billion in 2011 on revenue of $1.56 billion. The net loss included a $1.66 billion “loss on deconsolidation.” For the first quarter of 2012, Dynegy reported a $58 million net loss and a $21 million operating loss on revenue of $177 million.

The Dynegy companies in bankruptcy listed assets of $7.56 billion and debt totaling $6.74 billion.

The Chapter 11 case is In re Dynegy Holdings LLC, 11-38111, U.S. Bankruptcy Court, Southern District of New York (Poughkeepsie).

Triaxx Objects to ResCap’s $8.7 Billion Settlement

Triaxx collateralized-debt obligations objected to the $8.7 billion settlement proposed by Residential Capital LLC to compromise claims for including substandard mortgages into 392 securitization trusts sold between 2004 and 2007.

The securitization trusts being offered the settlement represent 1.6 million mortgages with $221 billion in original principal balances, ResCap said when proposing the accord earlier this month.

Triaxx filed papers yesterday objecting to the settlement, saying it owns $637 million in face amount of certificates issued by 20 of the trusts. Triaxx contends the settlement is unfair because it assumes securities in all the trusts were equally risky.

ResCap, the mortgage-servicing subsidiary of non-bankrupt Ally Financial Inc., said it negotiated the settlement with holders of 25 percent of the securities issued by 328 of the trusts.

Triaxx explained how it intentionally invested in trusts with the highest-quality mortgages. They were less risky than others with lower-quality mortgages. Therefore, Triaxx says it’s improper for the settlement to assume that all investors incurred similar damages and took on equal risk.

Triaxx also faults the settlement for not taking into account claims for faulty servicing by ResCap. Triaxx says it has more than 25 percent of the certificates in 23 classes.

Objections to the settlement were supposed to be filed by yesterday, Triaxx says. ResCap violated bankruptcy rules by not giving enough time to file objections, according to Triaxx. In addition, the trustees haven’t yet been able to give notice of the settlement to holders of the certificates. Consequently, Triaxx contends the settlement-approval hearing shouldn’t go forward on July 10.

From analyzing 356 of the trusts, Triaxx calculates that losses already are $27.1 billion and eventually will rise to $48 billion.

ResCap said that the settlement, if approved, would resolve the single-largest group of disputed claims in the Chapter 11 reorganization begun May 14. The trusts being offered the settlement have the ability to accept or reject. Triaxx said it’s unclear how the $8.7 billion in approved claims will be distributed between ResCap and affiliates such as Residential Funding LLC and GMAC Mortgage LLC.

For details on the proposed settlement, click here for the June 13 Bloomberg bankruptcy report.

The bankruptcy judge this week called for appointment of an examiner and approved procedures for selling the business in two auctions, one for the servicing business and the other for the mortgage portfolio.

The $473.4 million of ResCap senior unsecured notes due in April 2013 last traded yesterday for 24 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The $2.1 billion in third-lien 9.625 percent secured notes due in 2015 last traded yesterday for 96 cents on the dollar, Trace reported.

The case is In re Residential Capital LLC, 12-12020, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Vitro Seeks Stay Pending Appeal in District Court

A federal district judge in Dallas will decide on June 28 whether holders of $1.2 billion in defaulted bonds issued by Vitro SAB can begin seizing assets belonging to the Mexican glassmaker and its subsidiaries.

A bankruptcy judge in Dallas ruled on June 13 that Vitro’s Mexican reorganization plan violated U.S. law and public policy by chopping down the subsidiaries’ guarantees on the bonds even though they weren’t in bankruptcy in any country. The bankruptcy judge said his ruling wouldn’t take effect until June 29, saying any injunction halting seizure of assets beyond that date must be granted by an appellate court.

Yesterday, the bankruptcy judge formally recommended that the appeal from the June 13 ruling go directly to the U.S. Court of Appeals in New Orleans, skipping an intermediate appeal to a federal district judge in Dallas.

Because the appeals court in New Orleans hasn’t yet accepted the appeal, Vitro filed papers in district court yesterday and arranged a June 28 hearing to continue the injunction barring the seizure of assets to collect on the bonds.

Vitro characterized the bankruptcy court’s ruling as “unprecedented and erroneous.”

For a discussion of the bankruptcy court’s June 13 opinion, click here for the June 14 Bloomberg bankruptcy report.

After being defeated in courts in Mexico, holders of 60 percent of the bonds notched their victory in the Vitro parent’s Chapter 15 case in Dallas. Chapter 15 isn’t a full-blown reorganization like Chapter 11. It allows a foreign company in bankruptcy abroad to enlist assistance from the U.S. court to enforce rulings from the home country.

Vitro’s motion in district court for a stay pending appeal will be decided in In re Vitro SAB de CV, 11-3554, U.S. District Court, Northern District of Texas (Dallas). The suit in bankruptcy court where the judge decided not to enforce the Mexican reorganization in the U.S. is Vitro SAB de CV v. ACP Master Ltd. (In re Vitro SAB de CV), 12-03027, U.S. Bankruptcy Court, Northern District of Texas (Dallas). The bondholders’ previous appeal in the circuit court is Ad Hoc Group of Vitro Noteholders v. Vitro SAB de CV (In re Vitro SAB de CV), 11-11239, U.S. Court of Appeals for the Fifth Circuit (New Orleans). The bondholders’ appeal of Chapter 15 recognition in district court is Ad Hoc Group of Vitro Noteholders v. Vitro SAB de CV (In re Vitro SAB de CV), 11-02888, U.S. District Court, Northern District of Texas (Dallas). The Chapter 11 cases for U.S. subsidiaries is In re Vitro Asset Corp., 11-32600, U.S. Bankruptcy Court, Northern District of Texas (Dallas). The Chapter 15 case for the parent is Vitro SAB de CV, 11-33335, in the same court.

LightSquared Lands $30 Million Secured Loan Facility

LightSquared Inc. scheduled a June 28 hearing for interim approval of a $30 million credit to help finance the Chapter 11 effort begun May 14.

The new facility is being provided by the so-called Inc. lenders owed $322.3 million. Interest on the new loan at 11 percent will be paid with more debt. Similarly, the 3 percent fee on initial funding for the loan is payable with more debt.

The bulk of the loan, about $28 million, may be used only to continue work on subsidiary One Dot Six. Along with interim approval, LightSquared can borrow $10 million.

LightSquared eventually won an agreement to use incoming cash representing collateral for the Inc. lenders and for the so-called LP lenders, who are owed $1.7 billion from a secured borrowing in October 2010 by LightSquared LP. The cash agreement allows the lenders to return to court to ask for more protection from diminution of their collateral.

LightSquared is developing a wireless communications systems using earth-based and satellite technology. It filed in Chapter 11 on May 14 after the Federal Communications Commission denied permission to build out the system on concern it would interfere with reception by global positioning devices.

Assets were listed for $4.48 billion, with liabilities totaling $2.29 billion. The company says it spent $4 billion developing the satellite system. Philip Falcone’s Harbinger Capital Partners LLC acquired LightSquared in March 2010 for $1.05 billion in cash.

The case is In re LightSquared Inc., 12-12080, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Kodak Retirees’ Committee Seeks Unlimited Budget

The official committee representing Eastman Kodak Co. retirees asked the bankruptcy judge to allow its three professional firms to charge more than $50,000 a month.

Without an increase, the committee says it’s impossible for retirees to receive “adequate representation.”

The retirees filed papers yesterday seeking modification of limitations the bankruptcy judge put on the committee’s professionals when he authorized its appointment on April 16. The judge said at the time he would consider increasing the fee cap on request.

The retiree committee says it must have the “unfettered ability to represent and protect its constituency, not merely ‘monitor’” the case. The committee wants the fee cap removed entirely.

Absent a change, the committee would be limited to spending $175,000 a month after Kodak formally starts court proceedings to reduce or eliminate retiree benefits. The retiree committee hired two law firms and financial advisers.

The controversy with retirees began in February when Kodak filed papers claiming the right to terminate health benefits for some retired workers. Although Kodak claimed the right to end those benefits without court approval, the bankruptcy judge declined to do so until there was an official retirees’ committee. Kodak responded by having the judge appoint a committee with limitations on the committee’s expenses.

Kodak says that retiree medical benefits represent a $1.2 billion balance sheet liability for 39,000 retired workers.

Kodak’s $400 million in 7 percent convertible notes due 2017 traded yesterday for 14.6 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Kodak, based in Rochester, New York, filed for Chapter 11 reorganization in January, listing $5.1 billion in assets and $6.75 billion in debt. Liabilities for borrowed money, totaling $1.6 billion, included $100 million on a first-lien revolving credit and $96 million in outstanding letters of credit.

Other liabilities include $750 million in second-lien notes, $406.1 million in convertible notes and $252.4 million in senior unsecured notes. Trade debt was $425 million.

The Chapter 11 case is In re Eastman Kodak Co., 12-10202, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Dewey Law Firm Terminating 24 Worldwide Office Leases

Dewey & LeBoeuf LLP filed papers this week to terminate 14 office leases in the U.S. and 10 abroad. The liquidating law firm intends to walk away from furnishings and equipment in the offices, except for artwork in some locations.

There will be a hearing on July 9 in U.S. Bankruptcy Court in New York for authority to reject the leases, the technical term for terminating the leases. If the judge goes along, rejection will be effective as of May 28, when the firm filed in Chapter 11.

The firm is now only using some space in the former New York office that was subleased, according to court papers.

The official creditors’ committee selected Brown Rudnick LLP to serve as legal counsel. For the Bloomberg story, click here.

Dewey once had 1,300 lawyers. There are two official committees, one representing creditors and the other for former partners. There is secured debt of about $225 million and accounts receivable the firm recently said was $217.4 million. The petition listed assets of $193 million and liabilities of $245.4 million as of April 30.

The case is In re Dewey & LeBoeuf LLP, 12-12321, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Houghton Mifflin Confirms Prepacked Plan in One Month

Houghton Mifflin Harcourt Publishing Co. confirmed a bankruptcy reorganization one month to the day after entering Chapter 11.

The Boston-based educational publisher filed under Chapter 11 in New York on May 21 and saw the bankruptcy judge sign a confirmation order yesterday approving the so-called prepackaged reorganization where creditors voted in advance.

When the company first walked into bankruptcy court, the plan was supported by holders of 90.3 percent of the secured debt and 76 percent of the stock. They are the only classes affected by the plan. Unsecured creditors are to be paid in full.

The plan gives ownership of the company to senior secured creditors in exchange for debt. Stockholders are receiving seven-year warrants for 5 percent of the stock exercisable at a price equivalent to a $3.1 billion equity value for the reorganized company. For details on the plan and the company’s financial condition, click here for the May 22 Bloomberg bankruptcy report.

Revenue in 2011 was about $1.29 billion. The petition listed assets of $2.68 billion and debt totaling $3.54 billion.

The case is In re Houghton Mifflin Harcourt Publishing Co., 12-12171, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Indianapolis Downs Prepares for August Confirmation

Indianapolis Downs LLC, the operator of a horserace track and casino 25 miles (40 kilometers) from Indianapolis, could be out of Chapter 11 around the end of August, under procedures approved yesterday by the U.S. Bankruptcy Court in Delaware.

The track’s owner filed a reorganization plan in April that was negotiated with second-lien creditors and Fortress Investment Group LLC. The plan calls for selling the facility if the price is acceptable to the second-lien creditors. Otherwise, the plan will give ownership mostly to second-lien lenders.

Yesterday, the bankruptcy judge approved the disclosure statement explaining the plan. The judge also gave his stamp of approval for auction procedures. The disclosure statement provides pertinent information about the plan.

Bids must be submitted by July 20. There will be an auction on July 31 if there are acceptable bids. If the track is to be sold, the judge is requiring the filing of additional papers to approve the sale. Although prospective buyer have been negotiating and submitting offers, none so far is acceptable to the second-lien lenders, according to the disclosure statement.

Creditors can vote on the plan until July 31. The confirmation hearing for approval of the plan is set for Aug. 22.

The plan provides that if there isn’t a third-party buyer, the loan of about $100 million financing the Chapter 11 case will be paid off. Second-lien lenders will receive a new second-lien term loan, 95 percent of Class A warrants, and 95 percent of a new unsecured term loan paying interest with more debt. If there is an acceptable sale price to a third party, second-lien creditors will receive the proceeds, less an agreed amount earmarked for third-lien creditors.

If there is a sale, third-lien creditors are to receive the agreed amount from second-lien creditors plus the surplus if the second-lien is fully paid. Absent a sale, third-lien creditors will receive 5 percent of the new unsecured term loan, 5 percent of the Class A warrants, and all of the Class B warrants.

Unsecured creditors, with claims that may total from $9 million to $24 million, are not to receive anything.

The track missed an interest payment in November 2010 on $375 million in second-lien notes. The reorganization begun in April 2011 is being financed with a $103.1 million loan from the existing first-lien lenders, with Wells Fargo Bank NA as agent. Secured liabilities of the so-called racino include $98.1 million owing on the first-lien financing, $375 million outstanding on the second-lien notes and $72.7 million on third-lien subordinated notes.

The Indiana Downs track opened in 2002. The casino began operations in 2008. The permanent facility opened in March 2009 with 2,000 slot machines and electronic table games. Revenue in 2010 was $270 million.

The petition says assets are more than $500 million while debt is less than $500 million.

The case is In re Indianapolis Downs LLC, 11-11046, U.S. Bankruptcy Court, District of Delaware (Wilmington).

RG Steel Auction to be July 31 or August 21

RG Steel LLC resolved objections from the creditors’ committee to a quick sale of the assets by stretching out the schedule if a buyer signs a contract before July 30.

Under sale procedures approved by the bankruptcy court yesterday, bids are due July 25. Assuming a prospective buyer signs a contract to be a so-called stalking horse and submit the first bid at auction, the auction will take place Aug. 21, with a hearing to approve the sale on Aug. 23.

If no buyer signs a contract, the auction will take place July 31, with a sale-approval hearing on Aug. 8.

The creditors’ committee accused RG, which filed under Chapter 11 on May 31, of attempting to conduct a “fire sale.” The auction will dispose of the three main plants in Sparrows Point, Maryland; Warren, Ohio, and Wheeling, West Virginia. No buyer is yet under contract.

At yesterday’s hearing, RG also was given final approval for $50 million in financing.

RG is majority owned by Renco Group Inc., which has the court’s permission to bid secured debt rather than cash at auction.

At yesterday’s hearing, the judge also authorized RG to sell a non-operating plant in Steubenville, Ohio, for $15 million. The buyers are Herman Strauss Inc. and River Rail Development LLC.

For Bloomberg coverage of yesterday’s hearing, click here.

RG has capacity for producing 8.2 million tons a year. It is the fourth-largest flat-rolled steel producer in the U.S. Renco acquired the business from U.S. subsidiaries of OAO Severstal in March 2011.

The petition said assets and debt both exceed $1 billion. Liabilities include $440 million on a senior revolving credit with Wells Fargo Capital Finance LLC as agent. There is $218.7 million outstanding on a second-lien revolving credit with Cerberus Finance LLC as agent. A Cerberus affiliate is a minority shareholder. Parent Renco is owed $130.5 million on subordinated notes.

Severstal is owed $100 million on a note dating from the acquisition. RG claims Severstal owes $82 million for a working capital shortfall when the business was sold.

The case is In re WP Steel Venture LLC, 12-11661, U.S. Bankruptcy Court, District of Delaware (Wilmington).

AMR and Pilots Allowed Another Week to Negotiate New Contract

American Airlines Inc. and the pilots’ union jointly requested that the bankruptcy judge not issue a ruling today on whether the company can modify existing union contract with the pilots, flight attendants and mechanics.

The judge granted the request, according to the airline, and said he won’t rule until June 29. Absent consent by the company, the judge would have been forced to rule today.

The additional time will allow the pilots’ union leaders to give further consideration to the company’s offer made last week. Union leadership had decided not to send the proposal to the pilots for a vote. For the Bloomberg story, click here.

At a hearing yesterday in U.S. District Court in Dallas, the airline requested that the court block the National Mediation Board from conducting an election where passenger service agents could decide whether to join a union. The district judge had enjoined the election temporarily, saying it was likely the airline would win the suit contending the NMB wasn’t authorized to hold the election. For the Bloomberg story, click here.

AMR, based at the airport midway between Dallas and Fort Worth, Texas, listed assets of $24.7 billion and debt totaling $29.6 billion in the Chapter 11 reorganization begun in November. American Airlines entered bankruptcy with 600 aircraft in the mainline fleet and another 300 with American Eagle, the feeder airline.

The case is In re AMR Corp., 11-15463, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Arcapita Managers’ Bonuses Opposed by U.S. Trustee

Arcapita Bank BSC, a Bahrainian investment bank reorganizing in New York, will face opposition from the U.S. Trustee at a June 26 hearing for approval of a bonus program benefiting 20 managers.

The U.S. Trustee is also against making a secret of the amounts of the bonuses.

The U.S. Trustee, the Justice Department’s bankruptcy watchdog, faults the bonus motion for failing to set out the standards of performance that must be met to dole out $3 million or more in bonuses. The bonuses will equal three months to a year’s wages, the company said in court papers.

Arcapita filed for Chapter 11 protection in March, after being unable to complete an out-of-court workout of $1.1 billion in unsecured debt. It has interests in 39 companies, each with other investors and their own credit facilities. On a consolidated basis, Arcapita said assets are $3.06 billion, with debt totaling $2.55 billion.

There are $7 billion in assets under management. There is only one secured debt, of $96.7 million owing to Standard Chartered Bank.

Arcapita, also known as First Islamic Investment Bank BSC, says its lines of business are private equity, real estate, venture capital and infrastructure. Based in Bahrain, Arcapita has offices in Atlanta, London and Singapore.

The case is In re Arcapita Bank BSC, 12-11076, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

TCIM Setting up Procedures for Auction on July 24

TCIM Services Inc., an operator of six call centers for the banking and telecommunications industries, sought Chapter 11 protection on June 3 in Delaware and filed papers on June 20 to set up procedures for an auction on July 24.

There is a letter of intent for Ipacesetters LLC to purchase the business, according to this week’s court filing. The price isn’t stated. There are discussions with two other potential purchasers, according to TCIM.

If Ipacesetters signs a contract by July 3, TCIM is willing to give the buyer a breakup fee should someone else emerge the winner at auction.

There will be a hearing in bankruptcy court on July 9 for approval of auction and sale procedures. TCIM intends to have a hearing by July 31 to approve the sale.

Based in Wilmington, Delaware, TCIM filed under Chapter 11 after revenue declined more than 45 percent since January 2011.

The petition stated that assets are less than $10 million while debt exceeds $10 million. Liabilities include $7.8 million owing to Manufacturers & Traders Trust Co. on a revolving credit facility.

The case is In re TCIM Services Inc., 12-11711, U.S. Bankruptcy Court, District of Delaware (Wilmington).

DRI Sale to Levine Leichtman to Be Approved by Judge

DRI Inc., a provider of digital signs for transportation systems, received a commitment from the bankruptcy judge at a June 20 hearing to approve a sale of the business for $25.3 million to an affiliate of Levine Leichtman Capital Partners Inc. The price rose almost 15 percent at auction.

DRI previously said the price should be sufficient to pay secured creditors in full and cover expenses of the bankruptcy, with a surplus for unsecured creditors.

Intending to sell the business from the outset, Dallas-based DRI filed for Chapter 11 protection in Wilson, North Carolina, on March 25. Assets were listed for $42.8 million, with liabilities totaling $31.4 million.

Debt includes $9.6 million owing to BHC Interim Funding III LP, a secured lender with liens on all assets. BHC is providing $5 million in financing for the bankruptcy.

The principal assets are in North Carolina, according to the Chapter 11 petition.

The case is In re DRI Inc., 12-02298, U.S. Bankruptcy Court, Eastern District of North Carolina (Wilson).

Watch List

Vocational School Operator ATI Given S&P ‘D’ Rating

ATI Acquisition Co., the operator of 23 vocational schools for students beyond high school age, was demoted to a D rating by Standard & Poor’s on June 20.

The action was taken based on “confidential information” about the company “regarding its debt obligations,” S&P said. The rating company didn’t describe the nature of the default warranting a D rating.

S&P is projecting that senior secured lenders won’t recover more than 10 percent following payment default.

ATI generates 90 percent of revenue from federal financial aid and grants for students, S&P said.

ATI is based in North Richmond Hills, Texas. Most of the campuses are in Texas and Florida.

BCBG Max Azria Demoted to CCC by Standard & Poor’s

BCBG Max Azria Group Inc., a designer, marketer and retailer of women’s wear, was demoted to a CCC rating yesterday by Standard & Poor’s, matching the action taken in February by Moody’s Investors Service. The downgrade was the second in five months from S&P.

S&P said its action was based on a belief the company violated loan covenants for the fourth quarter of 2011.

Now that the company has completed an exit from the mass-market business, S&P said it’s “more likely” there will be a covenant amendment than a bankruptcy in the next six months.

The company quit making Miley & Max products that were sold through Wal-Mart Stores Inc., leading to a significant decline in revenue and resulting in a possible covenant violation, S&P said.

S&P also lowered the rating on the $230 million term loan to CCC.

The Vernon, California-based company had 467 stores in February, according to Moody’s Investors Service.

New Filing

First Regional Files More Than Two Years after Bank Failure

First Regional Bancorp, whose bank subsidiary was taken over by regulators in January 2010, filed a petition this week in Los Angeles for reorganization in Chapter 11.

The petition was a so-called bare-bones filing because little was filed aside from the three-page standard form and a list of creditors with the largest claims.

Assets total $1.3 million and $97.5 million is owing on debt securities, according to the petition.

The last financial statement for the holding company before the bank was taken over listed assets of $2.18 billion and liabilities of $2.15 billion.

The case is In re First Regional Bancorp, 12-31372, U.S. Bankruptcy Court, Central District of California (Los Angeles).


Production Resource Group Lowered to B- on Cash Flow

Production Resource Group LLC, a provider of production services for the entertainment industry, was dealt a downgrade yesterday in view of what Standard & Poor’s characterized as “high negative discretionary cash flow” that isn’t expected to reverse in 2012.

S&P lowered the corporate rating by one grade to B-. The senior unsecured notes went to CCC+, coupled with a prediction the holders won’t recover more than 30 percent following payment default.

PRG, based in New York, supplies audio, video, scenery and automation systems for theaters and live events.

Daily Podcast

Paulson Resorts, Dynegy, Quick RG Steel Sale: Bankruptcy Audio

The four bankrupt resorts still owned by Paulson & Co. and Winthrop Realty Trust may be forced to modify their reorganization strategy should they lose a trial beginning June 27 with Hilton Worldwide Inc., as Bloomberg News bankruptcy columnist Bill Rochelle and Bloomberg Law’s Lee Pacchia discuss on their podcast. Dynegy Inc. has details to work out before the power producer initiates what could be a record short-lived bankruptcy reorganization. The creditors’ committee for steel producer RG Steel LLC is trying to slow down the sale, as Rochelle discusses on the podcast’s last item. To listen, click here.

(This report contains items about companies both in bankruptcy and not in bankruptcy. Corrects time period in headline of First Regional item.)
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