Chrysler, WaMu, Coyotes, Asarco, Delphi: Bankruptcy
The lawyers who previously attempted without success to stop the Chrysler LLC sale process have new clients and are again seeking to block the government-backed rescue that pays some unsecured creditors more than secured noteholders.
The lawyers, from the New York-based firm White & Case LLP, this time are representing public pension funds from the state of Indiana. Their first new foray into bankruptcy court met with defeat yesterday. Previously, they represented the so-called non-TARP lenders, a group of hedge funds that didn’t receive government bailout money.
The Indiana pension funds asked U.S. Bankruptcy Judge Arthur J. Gonzalez on May 19 to halt proceedings in the Chrysler bankruptcy while other papers they filed wind their way through court. Gonzalez denied the motion yesterday, and the bankruptcy moves ahead.
The Indiana pensioners filed separate motions asking for the Chrysler bankruptcy proceedings to be removed from the bankruptcy court and transferred to a federal district court. They also want a trustee appointed or an examiner named to conduct an investigation. Finally, they filed a formal objection to the pending sale in which core assets will be spun off into a new company 20 percent owned at the outset by Italy’s Fiat SpA. (F)
The new motions rest on the previously heard argument that bankruptcy priorities are being turned upside down, with some unsecured creditors owed billions being paid in full while secured noteholders, owed $6.9 billion, are to receive only 29 percent through a sale of the core business.
The Indiana pension funds argue that the U.S. Treasury Department lacks authority “to direct the makeover and bankruptcy strategy of Chrysler under the Troubled Asset Relief Program.” A trustee is needed, they say, because the Treasury Department “has taken constructive possession of Chrysler and is requiring it to adopt a sale plan in bankruptcy that violates the most fundamental principles of creditor rights.”
The bankruptcy must be heard by a federal district judge, the pension funds contend, because the Treasury Department is exceeding its statutory and constitutional authority. Short of a trustee, they want an examiner appointed to investigate the “manner in which the government has exceeded its authority.”
The Indiana effort to remove the case from bankruptcy court comes up for hearing on May 26 in federal district court.
In other developments yesterday, Gonzalez gave final approval for almost $5 billion in subordinate financing provided by the government. To read Bloomberg coverage, click here.
Chrysler filed an emergency motion asking the judge to approve a program in which automobile purchasers and car dealers can receive financing from GMAC LLC. To read Bloomberg coverage, click here.
A hearing is scheduled for May 27, when Gonzalez will decide whether Chrysler can spin off the core business into a new company with Fiat as part owner.
The smallest U.S. automaker filed under Chapter 11 on April 30, listing assets for $39.3 billion and debt totaling $55.2 billion. Revenue in 2008 was $48.5 billion.
WaMu Wants $4 Billion Summary Judgment Against JPMorgan
Because Washington Mutual Inc. believes there are “no genuine issues of material fact,” the bank holding company filed papers this week asking the bankruptcy judge in Delaware to rule summarily that it’s entitled to recover $4 billion it was holding in deposit accounts at the bank subsidiary when the thrift unit was taken over in September by the Federal Deposit Insurance Corp. and immediately transferred to JPMorgan Chase & Co. (JPM)
The so-called summary judgment motion is part of the lawsuit WaMu filed in late April against New York-based JPMorgan.
WaMu argues that JPMorgan has a “contrived claim” that the $4 billion was a capital contribution. WaMu also explains in detail how JPMorgan couldn’t hold back the $4 billion under an alleged right of setoff. To knock the props out from under the setoff argument, WaMu points to the purchase agreement in which JPMorgan was given no claim against the thrift unit’s owner.
There are three separate suits pending involving the holding company WaMu and its efforts to recover property lost with the bank subsidiary’s failure in September when JPMorgan bought the business for $1.9 billion.
The newest was the WaMu suit in April to recover $4 billion in deposit accounts that the holding company maintained at the banks when they were taken over. Before that, WaMu sued the FDIC in U.S. District Court in Washington in March after its claim in the bank receivership was denied. WaMu is seeking $6.5 billion in capital contributions, $4 billion in preferred securities and $3 billion in tax refunds.
JPMorgan filed its own lawsuit in bankruptcy court in March against the FDIC and the WaMu holding company seeking a declaration that its $1.9 billion purchase of WaMu’s bank subsidiaries was valid and binding.
JPMorgan wants WaMu’s separate suit folded into its previously filed action.
The WaMu holding company filed under Chapter 11 the day after the bank was taken over. The bank was the sixth-largest depository and credit-card issuer in the U.S. and the largest bank failure in the country’s history.
The holding company filed formal lists of assets and debt showing property with a total value of $4.485 billion against liabilities of $7.832 billion.
The holding company Chapter 11 case is Washington Mutual Inc. (WM), 08-12229, U.S. Bankruptcy Court, District of Delaware (Wilmington). The suit against the FDIC is Washington Mutual Inc. v. Federal Deposit Insurance Corp., 09-533, U.S. District Court, District of Columbia (Washington).
Coyotes’ Arena’s Hometown Fights Moving Hockey Club
Glendale, Arizona, a suburb of Phoenix that’s home to the arena for the Phoenix Coyotes of the National Hockey League, is taking a proactive approach to the team’s effort to move to southern Ontario as part of a bankruptcy reorganization begun May 5.
The city filed a lawsuit on May 19 in U.S. Bankruptcy Court in Phoenix asking the judge to enforce contracts and halt activities aimed at moving the team.
The city’s papers explain how the arena, opened in late 2003, is part of a $1 billion development known as Westgate City Center. The city says it provided $183 million in financing, with $105 million outstanding on taxable bonds that the city will continue paying.
At a hearing this week, the bankruptcy judge told the warring parties to take their disputes into mediation. Should mediation fail to produce a settlement, he scheduled a June 22 hearing to consider the Coyotes’ motion for approval of procedures to sell the team.
While the NHL isn’t opposed to moving the team under all circumstances, the city of Glendale is hoping to prevent the club from moving for the remainder of the 30-year lease on the arena. The league argues that a professional sports team may be moved only to a location approved by other owners.
The Coyotes, which moved to Phoenix in 1995, want the team sold to Jim Balsillie, one of the founders of BlackBerry inventor Research in Motion Ltd. Balsillie would move the team to southern Ontario where it would compete with the Toronto Maple Leafs of the NHL.
The league contends the current owner, Jerry Moyes, gave up control when he stopped funding losses in November, compelling the league to make advances to cover deficits. The mediation is intended to determine who controls the team, which filed under Chapter 11 on May 5.
The case is In re Dewey Ranch Hockey LLC, 09-09488, U.S. Bankruptcy Court, District of Arizona (Phoenix).
Delphi Ordered to Mediate with GM and Treasury Auto Task Force
Auto-parts maker Delphi Corp. was directed by the bankruptcy judge to mediate with former parent General Motors Corp. and other parties in the case with the objective of reaching agreement on financial support from GM allowing Delphi to revise its confirmed reorganization plan and emerge from bankruptcy.
U.S. Bankruptcy Judge Robert Drain signed an order yesterday directing Delphi, GM, the creditors’ committee, lenders and the U.S. Treasury Department’s Auto Task force to attend a mediation with Cecelia G. Morris, a bankruptcy judge in Poughkeepsie, New York.
Mediation will be confidential. Morris will report only whether a settlement was reached. To read other Bloomberg coverage, click here.
Delphi was unable to implement a reorganization plan Drain approved in January 2008 because investors led by Appaloosa Management LP wouldn’t make a $2.55 billion equity investment called for in their commitment. The decline in the auto industry eventually led Delphi to announce that the business may no longer be worth enough to cover outstanding liabilities arising during the reorganization plus the secured debt funding the Chapter 11 case.
To lay the foundation for revising the confirmed reorganization plan, Delphi needs agreement with GM on financial assistance.
Troy, Michigan-based Delphi began the Chapter 11 reorganization in October 2005. The annual report for 2008 has assets for $10.3 billion against total liabilities of $24.6 billion. Revenue in 2008 was $18.1 billion.
The case is In re Delphi Corp., 05-44481, U.S. Bankruptcy Court, Southern District New York (Manhattan).
Asbestos Claimants Call Asarco Tactic ‘Devious’
When individuals with asbestos claims broke ranks with Asarco LLC and decided to support a rival reorganization plan proffered by Asarco’s parent, Grupo Mexico SAB (GMEXICOB), the Arizona copper producer retorted by reviving a long-dormant proceeding to estimate the amount of personal-injury asbestos claims.
A lawyer for some of the claimants filed papers this week calling some of Asarco’s tactics “devious.” Although the bankruptcy judge scheduled a June 22 trial to estimate asbestos personal injury claims, the creditors argue that only a district court has the ability under federal law to rule on the amount of personal injury claims.
The asbestos claimants contend that the Grupo Mexico plan promises a recovery “far in excess” of the amount offered by Asarco.
To finance its plan, Asarco intends to sell the business to Sterlite Industries (India) Ltd. (STLT) for $1.1 billion in cash and a non-interest-bearing, nine-year note for $600 million.
To retain ownership of Asarco, Grupo Mexico’s competing plan filed May 15 calls for the parent to contribute $1.3 billion cash and a note for $250 million.
Grupo Mexico acquired Asarco for $1.2 billion in stock in 1999 and lost control in December 2005 when the bankruptcy judge set up a board of three, giving Grupo Mexico only one seat. Phoenix-based Asarco entered Chapter 11 in August 2005 to deal with asbestos claims.
Noble Creditors Hoping to Stop European Sale to ArcelorMittal
The creditors’ committee of Noble International Ltd., an auto-parts maker that filed under Chapter 11 on April 15, took the unusual step of attempting to appeal a sale even before approval by the bankruptcy court.
At a hearing this month, the bankruptcy judge in Detroit authorized Noble to hold an auction on May 28 to learn whether anyone will make a better offer for the European business than steelmaker ArcelorMittal SA (MT), the previous owner. The buyer is to pay $2.1 million in cash and assume all debt, including a $108 million bank loan.
The committee filed papers in U.S. District Court this week asking for permission to take an early appeal. The committee is also asking the bankruptcy judge to hold up the sale while it appeals. ArcelorMittal, for its part, is requiring a quick sale.
In unsuccessfully opposing approval of sale procedures, the creditors’ committee argued that Luxembourg-based ArcelorMittal is an insider and the former owner of the European business it sold to Noble for $300 million in 2007.
Noble has a separate agreement to sell U.S. assets for $11 million to private-equity investor Patriarch Partners LLC, unless a higher offer turns up at auction. The secured lender General Electric Capital Corp. is objecting to the sale, saying the $12.5 million it’s owed is more than the sale price.
Noble filed its formal lists of assets and liabilities showing debt totaling $110.7 million, including $10.9 million in secured claims.
Noble originally listed assets of $190.8 million and debt of $38.7 million. It has 23 plants in 12 countries, including eight in the U.S.
The case is In re Noble International Ltd., 09-51720, U.S. Bankruptcy Court, Eastern District of Michigan (Detroit).
Jewelry Retailer Maui Divers Bent on Buying Hilo Hattie
The committee was given authority from the bankruptcy judge to locate a buyer after the creditors filed a motion for the appointment of a Chapter 11 trustee. The committee’s buyer is jewelry retailer Maui Divers of Hawaii Ltd. The buyer in addition to paying $1 million will cover the cost of curing defaults on contracts that are part of the sale. Maui Divers also agrees to invest $2 million equity in the business.
The committee notes that Hilo Hattie lost $7.5 million since filing under Chapter 11.
The sale has a deadline to close by June 22, the date when the bankruptcy judge is scheduled to decide if there should be a trustee or the case converted to a liquidation in Chapter 7. Other bids will be accepted at the sale hearing.
The Chapter 11 petition, filed in early October, listed assets of $21.5 million and debt totaling $23.2 million.
Formally named Pomare Ltd., Hilo Hattie went into Chapter 11 with seven stores in Hawaii and two in California. Court papers said revenue for the fiscal year ended in October 2007 was $56 million, resulting in a $4.6 million loss.
The company was acquired in July 2008 by North Tustin Partners Inc. and G&M Crandall Family LP. North Tustin is an 87 percent owner.
The case is In Re Pomare Ltd., 08-01448, U.S. Bankruptcy Court, District of Hawaii (Honolulu).
Fairbanks Diocese Moving Ahead With Reorganization Plan
The Catholic Diocese of Fairbanks, Alaska, scheduled a June 16 hearing for the bankruptcy judge to consider approving the disclosure statement explaining the revised Chapter 11 plan filed this month.
To compensate victims of sexual-abuse claims, the diocese hopes to raise as much as $8.6 million from contributions, selling property and putting mortgages on real estate. The fund is also to receive proceeds from insurance coverage that could be $27 million.
The explanatory disclosure statement says the process of validating sexual-abuse claims will be “streamlined.” Victims won’t be required to show that their claims aren’t barred by the statute of limitations.
After seeking bankruptcy protection in March 2008, the diocese sued CNA Financial Corp. (CNA) and Travelers Cos. (TRV) in bankruptcy court in April 2008 to determine whether the insurance companies are obligated to cover the 150 sexual abuse claims that brought the diocese into bankruptcy court.
To read Bloomberg coverage, click here.
The petition listed assets of $13.3 million against $1.8 million in debt, without putting a dollar amount on the abuse claims.
Including the Alaskan diocese, six Roman Catholic dioceses filed Chapter 11 petitions to settle sexual-abuse claims.
The case is In re Catholic Bishop of Northern Alaska, 08- 00110, U.S. Bankruptcy Court, District of Alaska (Fairbanks).
W.A. Botting, Washington Mechanical Contractor, for Sale
A court paper says six potential purchasers already signed confidentiality agreements.
The bank lender is owed $5.5 million. The petition says debt is more than $10 million while assets are less than $10 million.
The company has been in business for almost 100 years. Annual revenue is $27 million, court papers say.
The case is In re W.A. Botting Co., 09-14842, U.S. Bankruptcy Court, Western District of Washington (Seattle).
R.H. Donnelley Holding Talks With Its Banks, Bondholders
Yellow page publisher R.H. Donnelley Corp. announced yesterday that it’s holding separate conference calls with bank lenders and an ad hoc committee of bondholders to try to reach consensus on a “debt restructuring” before forbearance agreements expire May 28.
A press release said the calls would discuss “details” related to the restructuring. No details were provided in the statement.
Donnelley obtained a forbearance agreement when the 30-day grace period expired on the $55 million interest payment it didn’t make on April 15 on one issue of unsecured notes. The company likewise missed a $78 million interest payment due May 15 on four other note issues.
Donnelley has $1.2 billion of debt maturing in 2010.
Moody’s Investors Service previously said that a “complete debt restructuring represents the best alternative of addressing its currently challenged capital structure.”
Cary, North Carolina-based R.H. Donnelley should not be confused with Chicago-based R.R. Donnelley & Sons Co. (RRD), which made an unsolicited offer this month for Quebecor World Inc., the reorganizing commercial printer.
R.H. Donnelley reported revenue of $602 million in the first quarter, producing $164 million of operating income and a $401 million net loss. Interest expense in the quarter was $199 million.
The March 31 balance sheet had assets of $12.1 billion against debt totaling $13 billion.
Lehman Brothers Holdings Inc. and affiliates finished March with $8.38 billion cash, according to a monthly operating report filed with the bankruptcy court. To read Bloomberg coverage, click here. The Lehman holding company filed under Chapter 11 in New York on Sept. 15. The brokerage business went into liquidation on Sept. 19 in the same court under the Securities Investor Protection Act. The brokerage is under the supervision of a trustee selected by the Securities Investor Protection Corp. 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 operations is Securities Investors Protection Corp. v. Lehman Brothers Inc., 08-01420, U.S. Bankruptcy Court, Southern District New York (Manhattan).
Crucible Materials Corp., a steelmaker for the auto and aerospace industries, has an official unsecured creditors’ committee with five members. One is Bank of New York Mellon as an indenture trustee for holders of industrial revenue bonds; a second is the Steelworkers union, and three are suppliers. Crucible has a May 28 hearing for approval of $69.4 million in financing from the pre-bankruptcy lenders that will begin decreasing in amount the next day. Syracuse, New York-based Crucible entered Chapter 11 on May 6 in Delaware. The petition said assets and debt both exceed $100 million, with $64.5 million owed to the secured lenders. Crucible is owned by its 1,000 employees. It has two plants and 12 regional service centers. The case is In re Crucible Materials Corp., 09-11582, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Illinois Governor Pat Quinn is urging Wells Fargo & Co. to avoid liquidating Hartmarx Corp. (HTMXQ), the Chicago-based men’s suit maker that filed under Chapter 11 in January. To read Bloomberg coverage, click here. The Hartmarx petition listed assets of $483 million and debt totaling $261 million as of Oct. 9. Debt at filing included $114 million on a revolving credit, $15.5 million in industrial revenue bonds, $12 million in mortgages, and $70 million owing to trade suppliers. Manufacturing is performed in the company’s own facilities and by contractors. The brand names include Hart Schaffner Marx and Hickey Freeman. The case is In re Hartmarx Corp., 09-02046, U.S. District Court, Northern District Illinois (Chicago).
Frontier Airlines Inc. for a third time was given an extension of the exclusive right to propose a Chapter 11 plan. The new deadline is Oct. 9. In asking for the extension, Frontier said it intends to emerge from bankruptcy reorganization this year. Doing so requires an exit-financing package, the exclusivity motion said. With 62 aircraft serving 70 destinations when it began reorganizing in April 2008, Frontier now has 51 mainline aircraft and 10 regional jets serving 50 destinations. It reduced capacity by 20 percent in the last year. Frontier is the second-largest carrier operating from Denver, where it competes with United Airlines Inc. The petition listed assets of $1.1 billion against liabilities totaling $546 million. Debt includes $454 million in secured claims and $89 million in unsecured claims. Among seven passenger airlines seeking bankruptcy protection since late 2007, Frontier and Sun Country Airlines Inc. are the only ones still operating. The case is In Frontier Airline Holdings Inc., 08-11298, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
Del Frisco’s Steakhouses Rating Lowered to B- by S&P
Steakhouse operator Del Frisco’s Restaurant Group Inc. received a one-notch downgrade yesterday, taking the corporate rating to B- on the Standard & Poor’s scale.
Although margins improved on falling food costs, S&P downgraded as a consequence of lower sales and the “possibility” of violating a loan covenant this year.
S&P noted that comparable-store sales for the Wichita, Kansas-based company are down by double-digit percentages.
Del Frisco’s withdrew a registration statement in December that was filed initially in October 2007.
LNR Downgraded to B- on Declining Commercial Real Estate
LNR Property Holdings Ltd. and LNR Property Corp., a manager of real estate for itself and others, was downgraded yesterday by two levels to a B- corporate rating from Standard & Poor’s in view of the decline in the commercial real estate market.
LNR, based in Miami Beach, Florida, was acquired in 2005 by affiliates of Cerberus Capital Management LP.
Book Printer Sheridan Lowered to B Corporate by S&P
Sheridan Group Inc., a printer of books, magazines, and journals, received a one-notch downgrade yesterday from Standard & Poor’s taking the corporate peg to B based on lower revenue.
S&P noted that the bank lenders for the Hunt Valley, Maryland-based printer gave a one-month extension on the credit facility that matured on May 15. S&P expected the credit already would have been renewed on a long-term basis.
Sheridan had a $5.9 million net loss in 2008 on revenue of $348 million. For the first quarter of 2009, the net loss was $743,000 on revenue of $77 million.
Sheridan was acquired for $142 million in 2003.
American Reprographics Downgraded on Lower Construction
American Reprographics Co. (ARC), a provider of reproduction and document-management services for the construction, architectural and engineering industries, saw its corporate rating of BB lowered one peg yesterday to BB- by Standard & Poor’s.
S&P expects revenue for the Walnut Creek, California-based company could decline this year by 25 percent.
The stock fell 3 cents yesterday to $8.18 in New York Stock Exchange trading. The two-year high was $31.91 on June 27, 2007.
Mortgage Paydown Within Three Years Isn’t Exempt, Judge Rules
Fours years ago, Congress closed a loophole in bankruptcy law to prevent a financially strapped individual from moving to Texas or Florida, where homestead exemptions are generous, and buying a multimillion-dollar house that creditors couldn’t reach in bankruptcy.
If a principal residence has been owned for less than 1,215 days, the owner may treat only $125,000 of equity in the home as exempt from claims of creditors, even if state law would make the entire house exempt.
U.S. District Judge Eric F. Melgren in Wichita, Kansas, resolved an ambiguity in the new law in favor of creditors.
The case involved a home purchased more than 1,215 days before bankruptcy. Within the period of approximately three years and three months, the individual paid down the mortgage, using assets that wouldn’t have been exempt from creditors when he later filed bankruptcy.
Reversing the bankruptcy judge, Melgren ruled that the bankrupt individual could exempt only $125,000. The language of the statute, in his opinion, wouldn’t permit exempting equity created by paying down the mortgage within the 1,215-day period.
The bankrupt individual didn’t lose entirely. Melgren upheld the bankruptcy judge who ruled that paying down the mortgage with non-exempt assets was not a fraudulent transfer with actual intent to hinder, delay or defraud creditors. Had Melgren ruled otherwise, the individual could have lost his discharge in bankruptcy.
The case is Parks v. Anderson, 08-1111, U.S. District Court District of Kansas (Wichita).
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