WaMu, General Growth, Hawkeye, WorldSpace, Ceragenix, Abitibi: Bankruptcy
Washington Mutual Inc., the holding company for the biggest U.S. bank to fail, will have to wait for approval of a disclosure statement until at least June 17.
The delay resulted from shareholders’ opposition to the so- called global settlement grafted onto WaMu’s proposed Chapter 11 plan. The equity committee sought documents from WaMu reflecting the company’s opinion of the strength of the claims being given up in the settlement. WaMu refused to turn over documents, claiming they are protected by the attorney-client privilege or were attorneys’ work products that can’t be given to an outsider.
U.S. Bankruptcy Judge Mary Walrath observed at yesterday’s hearing that standing behind the privileges would delay her ability to send the explanatory disclosure statement to creditors. She said that WaMu ultimately must explain the company’s evaluations of the claims in establishing why she should sanction the settlement.
The judge told the parties to work out a schedule for providing documents and report to her at a June 17 hearing. She also said that WaMu’s reluctance to turn over documents was leading her to rethink her denial of a motion by shareholders for the appointment of an examiner to investigate the merits of the settlement. She invited the shareholders to file another motion for an examiner.
The equity committee’s lawyer said the new motion would be filed. To read Bloomberg coverage of yesterday’s hearing, click here.
Opposition isn’t from shareholders alone. Holders of notes issued by the bank subsidiary filed papers urging the bankruptcy judge to appoint a trustee in either Chapter 7 or Chapter 11. Their motion is on the calendar for June 17. The bank bondholders also oppose the global settlement
WaMu, the Federal Deposit Insurance Corp., and JPMorgan Chase & Co. signed a definitive settlement that can be implemented with confirmation of a Chapter 11 plan. To read about the global settlement, click here for the May 24 Bloomberg bankruptcy report. The settlement and plan confirmation would enable WaMu to distribute more than $7 billion to creditors. Click here to read the May 18 Bloomberg bankruptcy report for a summary of WaMu’s plan.
Shareholders and bank bondholders say WaMu and the FDIC are giving up too cheaply and should continue lawsuits with JPMorgan.
The WaMu holding company filed under Chapter 11 in September 2008, one day after the bank subsidiary was taken over. The bank was the sixth-largest depository and credit-card issuer in the U.S. The holding company filed formal lists of assets and debt showing property with a total value of $4.49 billion against liabilities of $7.83 billion.
The holding company Chapter 11 case is Washington Mutual Inc., 08-12229, U.S. Bankruptcy Court, District of Delaware (Wilmington).
General Growth Reports $12 Million Net Loss in April
The General Growth Properties Inc. companies in Chapter 11 reported a $12 million net loss in April on total revenue of $205.3 million. Operating income in the month was $80.9 million. Interest expense was $98 million.
General Growth ended April with $507.1 million in cash.
Because the first of General Growth’s property-owning units confirmed their Chapter 11 plans at the end of 2009, the six- month period in the plans for objecting to claims is about to run out. Given 10,000 claims that were filed, General Growth asked for an additional three months to work on resolving the final approximately 3,500 claims.
Filed claims totaled more than $250 billion. General Growth says it already has resolved two-thirds of the claims.
In the April operating statement, General Growth said there are 13 under-performing properties it may decide to deed over to lenders when the parent company emerges from Chapter 11 with a confirmed plan. To read Bloomberg coverage with details on those properties, click here.
In May, the bankruptcy judge anointed a group including Brookfield Asset Management Inc. to be the lead bidder at auction to decide who provides the most advantageous equity- purchase and financing commitments underpinning a reorganization plan that will pay all creditors of the holding company in full. The property-owning units have all already confirmed their own plans that pay their creditors fully.
Other erstwhile investors were to submit competing proposals by June 2. General Growth will pick the best proposal by July 2. The hearing for approval of a disclosure statement is scheduled for July 30, with the confirmation hearing for approval of the plan to take place Sept. 30.
General Growth began the largest real-estate reorganization in history by filing under Chapter 11 in April 2009. The books of Chicago-based General Growth had assets of $29.6 billion and total liabilities of $27.3 billion as of Dec. 31, 2008. The company owns or manages more than 200 shopping-mall properties.
The case is In re General Growth Properties Inc., 09-11977, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
Settlement Allows Hawkeye to Confirm Prepackaged Plan
Hawkeye Renewables LLC, the owner of two ethanol plants, has an approved Chapter 11 plan, thanks to a settlement between first- and second-lien creditors. The bankruptcy judge in Delaware signed a confirmation order on June 2 after ruling that the settlement didn’t require a new vote of creditors.
Confirmation wrapped up a so-called prepackaged reorganization begun Dec. 21. Originally, first-lien lenders owed $593 million were to have all of the equity and a new $25 million secured term loan. The second-lien creditors, who opposed the plan at three days of confirmation hearings in March and April, were offered a profit participation equaling 7.5 percent of distributions over $435 million.
With second-lien creditors attempting to block confirmation, the first-lien holders decided to settle by giving the junior constituency 1 percent of the equity and 10 percent above distributions of $435 million. The first-lien’s distribution declined to 99 percent from 100 percent of the new equity.
The plan gives nothing to unsecured creditors whose claims total less than $1 million. Existing equity holders likewise keep nothing.
Hawkeye, based in Ames, Iowa, owes $593 million on the first-lien credit and $168 million on the second-lien facility. Hawkeye had $720 million in debt at the end of 2008 and generated $584 million in revenue that year. The plants are capable of producing 225 million gallons a year. Hawkeye is controlled by affiliates of Thomas H. Lee Partners LP.
The case is In re Hawkeye Renewables LLC, 09-14461, U.S. Bankruptcy Court, District of Delaware (Wilmington).
U.S. Concrete Plan Headed for Vote, Equity Says No
Anticipating that U.S. Concrete Inc. will face staunch opposition from shareholders to approval of the reorganization plan, the bankruptcy judge in Delaware scheduled a three-day confirmation hearing to begin July 23 and continue on July 28 and 29.
At yesterday’s hearing, the judge approved the disclosure statement explaining the plan. The order formally approving the disclosure statement will be signed when changes are made. Creditors can begin voting when the disclosure statement is approved.
U.S. Concrete, one of the 10 largest producers of ready- mixed concrete in the U.S., negotiated the plan with creditors before the Chapter 11 filing on April 21. The plan reduces debt by $285 million through conversion of 8.325 percent subordinated notes into the new equity.
Shareholders oppose the plan because they contend the offer of warrants for 15 percent of the stock is inadequate. For details of the plan, click here for the April 30 Bloomberg bankruptcy report. For coverage of yesterday’s hearing, click here.
The bankruptcy judge scheduled an expedited hearing for June 18 to consider a motion for the appointment of an official committee to represent shareholders. Having an official committee would mean the company, not individual shareholders, would pay the cost of fighting plan confirmation.
The Chapter 11 petition listed assets of $389 million and debt of $399 million. Liabilities include $40 million on a pre- bankruptcy secured credit facility where JPMorgan Chase Bank NA serves as agent. There is another $17.9 million on undrawn letters of credit.
U.S. Concrete’s balance sheet on Dec. 31 listed assets of $392.4 million and liabilities totaling $402.5 million. It has 125 fixed and 11 portable plants serving markets in California, New Jersey, Texas and Michigan.
The case is In re U.S. Concrete Inc., 10-11407, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Fulton Homes Propose Full Payment by Dec. 31, 2015
Fulton Homes Corp., an Arizona homebuilder, scheduled a July 6 hearing for approval of a disclosure statement explaining the third amended Chapter 11 plan.
The plan proposes to pay all creditors in full by the end of 2015, with interest. Charlotte, North Carolina-based Bank of America NA, as agent for unsecured lenders owed almost $164 million, opposes the plan. Over the bank’s opposition, the bankruptcy judge this week extended Fulton’s exclusive right to propose a plan until the end of August.
Fulton proposed a plan last year that was accepted by all creditor classes except the banks’. The judge ruled this year in favor of Bank of America by deciding that the plan couldn’t be confirmed.
Fulton responded by filing the newest plan in May that proposes distributing $35 million in cash to creditors when the plan is confirmed. Creditors would receive $15 million a year, with the remainder paid by Dec. 31, 2015. Interest would be paid throughout.
Fulton has no substantial secured debt. Compared with the bank debt, other unsecured claims aren’t substantial, the lenders say.
Fulton has accumulated $65 million cash since its stay in Chapter 11 began in January 2009. The company says it has generated a cumulative profit of $8.5 million while in reorganization.
The case is In re Fulton Home Corp., 09-01298, U.S. Bankruptcy Court, District of Arizona (Phoenix).
Samara’s Yazmi Buys WorldSpace Satellites for $5.5 Million
The two satellites belonging to WorldSpace Inc. won’t be sent crashing to earth after all, while Chief Executive Officer Noah Samara will end up buying the business for a fraction of the price he originally was under contract to pay.
WorldSpace, a Maryland-based provider of satellite-radio and data-broadcasting services, negotiated two sales of the assets. Both fell through. The first sale, for $28 million, was to have been to Yenura Pte, a company Samara controlled. WorldSpace terminated the contract, contending Yenura was in breach for failure to pay the agreed price.
In the new sale to Samara’s Yazmi USA LLC, the price is $5.5 million, plus payment of specified expenses. Absent the sale, WorldSpace was authorized in March to bring the satellites out of orbit.
Destroying the satellites appeared necessary after Liberty Satellite Radio LLC terminated negotiations that had led to an agreement in principle after six months of talks. In February, the bankruptcy judge approved an additional $1 million loan from Liberty, on top of $4.3 million already lent by the would-be buyer. Liberty’s secured debt attaches to the sale proceeds to Yazmi.
The Chapter 11 petition filed in October 2008 listed assets of $307 million and debt totaling $309 million. Debt includes $36.1 million on senior secured notes and $53.1 million on convertible debt. WorldSpace has two geostationary satellites serving 170,000 paying customers in 10 countries outside of the U.S.
The case is In re WorldSpace Inc., 08-12412, U.S. Bankruptcy Court, District of Delaware (Wilmington).
May Bankruptcy Filings Increase 10.4% From Year Earlier
The 133,500 bankruptcy filings in May were 10.4 percent more than a year ago, although unchanged from April.
May filings by individuals and business were at the second- highest monthly level since Congress tightened bankruptcy laws in late 2005, according to data compiled from court records by Automated Access to Court Electronic Records.
For the almost 7,400 business that sought to liquidate or reorganize in May, filings fell 3.4 percent from the same month in 2009. The 1,108 Chapter 11 filings last month represented a decline of 17 percent from April, according to the report from AACER, a service of Oklahoma City-based Jupiter ESources LLC.
If the pace of filings during the first five months continues for the remainder of 2010, total bankruptcies this year will fall just short of 1.6 million, compared with 1.44 million in 2009. Last year’s filings represented a 32 percent increase from 2008.
Bankruptcy filings remain below the record 2.1 million in 2005, when 630,000 Americans sought protection from creditors in the two weeks before revisions to federal bankruptcy laws that October made it harder for individuals to erase debts.
Ceragenix Files to Stop BYU from Terminating License
Ceragenix Pharmaceuticals Inc. filed a Chapter 11 petition on June 2 in its Denver hometown to prevent Brigham Young University from terminating the exclusive license agreement for the Ceragenin technology the company is using to develop therapies that mimic the body’s immune system.
The company said the university would have terminated the license without a $434,000 payment on June 2. A court filing lists BYU, which has its main campus in Provo, Utah, as being owed $761,000.
The balance sheet for Dec. 31 had assets on the books for $1.5 million against debt totaling $21.1 million. The company intends to use Chapter 11 to restructure convertible debt, according to a statement.
The Ceragenin technology, in pre-clinical development, is intended for use against bacteria, some viruses, fungi and cancers. Osmotics Corp. owns 60 percent of Ceragenix stock, according to date complied by Bloomberg.
The case is In re Ceragenix Pharmaceuticals Inc., 10-23821, U.S. Bankruptcy Court, District of Colorado (Denver).
Alico Commons Shopping Center Files in Fort Myers, Florida
The owner of the Alico Commons shopping center in Bonita Springs, Florida, filed a Chapter 11 petition in the face of the July 1 maturity of a $15.6 million mortgage owing to JPMorgan Chase Bank NA.
The company said it intends to use Chapter 11 to restructure the mortgage. Lease rates have declined from $22 to $25 a square foot to the range of $12 to $16 a foot, the owner said.
“All small shop leasing prospects virtually disappeared,” the company said in a court filing.
Three anchor tenants signed leases. One negotiated the price of the lease down to $12 a square foot from $16, according to the filing. Another anchor tenant defaulted on its obligations, the owner contends.
The petition says assets are $3.34 million, although no value was given for the real estate. Liabilities total $19.4 million, including $3.8 million owing to unsecured creditors.
The case is In re Alico Crossing LLC, 10-13371, U.S. Bankruptcy Court, Middle District of Florida (Fort Myers).
Icahn Withdraws Stay Motion on Trump Confirmation
Carl Icahn, the loser in the fight to take over casino owner Trump Entertainment Resorts Inc., withdrew his motion for a stay pending appeal from the May 7 confirmation order approving the casinos’ reorganization plan. The stay motion had been scheduled for hearing yesterday. The company and holders of 8.5 percent senior notes proposed the winning plan. For details on the judge’s ruling turning down Icahn’s plan, click here for the April 13 Bloomberg bankruptcy report.
Trump Entertainment, the owner of three casinos in Atlantic City, filed for Chapter 11 reorganization a second time in February 2009. The new petition listed consolidated assets of $2.06 billion against debt totaling $1.74 billion. Listed liabilities included $1.25 billion in second-lien notes, $489 million in first-lien bank debt, $33.2 million in trade debt and $6 million in liabilities on leases, according to a court filing. The companies own the Trump Taj Mahal Casino Resort, the Trump Plaza Hotel & Casino, and the Trump Marina Hotel Casino. The new filing came less than four years after the casinos emerged from a prior bankruptcy reorganization.
The case is In re TCI 2 Holdings LLC, 09-13654, U.S. Bankruptcy Court, District of New Jersey (Camden).
East West Resort Confirms Plan after February Filing
East West Resort Development V LP confirmed the Chapter 11 plan on June 2 that was largely negotiated before the bankruptcy filing in mid-February. The plan approved by the bankruptcy judge allows affiliates of existing owners to invest as much as $32.5 million for continued construction and operation of four residential communities at the Northstar-at-Tahoe Resort. Secured creditors are to be paid in full by having their debts reinstated or restructured or their collateral given back. An affiliate of Crescent Real Estate Equities Co. is to invest 95 percent of the new $32.5 million investment and will have 76 percent of the limited partnership interests in the reorganized company. East West described Crescent as the “investment partner” that put up more than $1 billion since the partnership began 15 years ago. Crescent was acquired by an affiliate of Morgan Stanley in 2007.
Assets at the end of 2009 were on the books for $256 million against debt totaling $61 million, not including $189.4 million in contingent obligations and surety bonds. East West had a $31.8 million loss in 2009 on revenue of $38.7 million.
The case is In re East West Resort Development V LP, 10- 10452, U.S. Bankruptcy Court, District of Delaware (Wilmington).
AbitibiBowater Reports $450,000 Net Income in April
AbitibiBowater Inc., the largest newsprint maker in North America, reported net income of $450,000 in April on sales of $349 million. Operating income in the month was $4.9 million.
Abitibi filed a revised reorganization plan and accompanying disclosure statement in May telling creditors of each of the more than 30 affiliated companies how much they stand to recover. For details of the plan, click here for the May 25 Bloomberg bankruptcy report. AbitibiBowater was formed in October 2007 through a merger between Montreal-based Abitibi- Consolidated Inc. and Greenville, South Carolina-based Bowater Inc. Abitibi is a producer of 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).
Chem Rx Has Final Cash Use Authorization from Judge
Chem Rx Corp., the third-largest provider of institutional pharmacy services in the U.S., received final authority from the bankruptcy judge yesterday to use cash representing collateral for secured lenders. The agreement for use of cash requires the employment of a chief restructuring officer acceptable to the lenders.
Chem Rx filed under Chapter 11 on May 11 after first-lien lenders owed $103 million sued to seize the Long Beach, New York-based company’s income. That debt was in default since early 2009. Other liabilities include $37 million owing on a second lien and $8.3 million in subordinated debt owing to affiliates of insiders. CIBC World Markets Corp. is agent for the lenders on the first- and second-lien loans. The petition listed assets of $170 million against debt totaling $178 million.
The case is In re Chem Rx Corp., 10-11567, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Citadel Implements Reorganization Plan Confirmed on May 19
Citadel Broadcasting Corp., a Las Vegas-based owner of 224 radio stations, implemented the Chapter 11 reorganization plan yesterday that the bankruptcy judge approved in a May 19 confirmation order. To read about the outcome of the contested confirmation hearing, click here for the May 20 Bloomberg bankruptcy report. Shareholders unsuccessfully objected to the plan and as a result received nothing. The predicted recovery for secured creditors is 82 percent, while it’s 36 percent for unsecured creditors. For details of the plan, click here for the May 18 Bloomberg bankruptcy report.
With operations in more than 50 markets, Citadel filed a prepackaged Chapter 11 petition in January. The creditors’ committee supported the plan after a settlement improving treatment of unsecured creditors. Citadel and subsidiaries listed assets of $1.4 billion against debt totaling $2.46 billion. It is the third-largest radio station owner in the U.S., with 166 FM and 58 AM stations.
The case is Citadel Broadcasting Corp., 09-17442, U.S. Bankruptcy Court, Southern District New York (Manhattan).
Sotheby’s to Sell Lehman Art Collection in Fall
The Lehman holding company filed under Chapter 11 in New York on Sept. 15, 2008, and sold office buildings and the North American investment-banking business to London-based Barclays Plc one week later. The Lehman brokerage operations went into liquidation on Sept. 19, 2008, in the same court. The brokerage is in the control of a trustee appointed under the Securities Investor Protection Act.
The Lehman holding company Chapter 11 case is In re Lehman Brothers Holdings Inc., 08-13555, while the liquidation proceeding under the Securities Investor Protection Act for the brokerage operation is Securities Investors Protection Corp. v. Lehman Brothers Inc., 08-01420, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
Third Circuit Abandons Frenville after 26 Years
The long-derided Frenville opinion from the U.S. Court of Appeals in Philadelphia was overruled on June 2 when all 12 active judges on the 3rd Circuit rejected their own precedent and lined up with all of the other seven courts of appeal to decide when a claim arises in bankruptcy.
Frenville, decided by three 3rd Circuit judges in 1984, ruled that a claim wasn’t discharged in bankruptcy if it hadn’t arisen under state law before bankruptcy. Virtually every other court to consider the issue took a differing view, saying that the Philadelphia appeals court’s ruling was contrary to the broad definition given to the word “claim” in the federal Bankruptcy Code.
In other words, other courts didn’t believe it was proper to follow a state law definition of a claim. Instead, they look to the Bankruptcy Code’s definition of a claim.
Reversing itself in a case involving the Chapter 11 reorganization of Grossman’s Inc., the 3rd Circuit now holds that an asbestos claim arises when the individual is exposed, even though the injury isn’t manifest until years later. In the case before the court, the plaintiff was exposed to asbestos before the Chapter 11 filing and the disease didn’t arise until years later.
The 3rd Circuit stopped short of telling the plaintiff that the claim was barred by bankruptcy. The circuit court said that the test for when a claim arises “cannot be divorced from the fundamental principles of due process.”
Because the constitutional issue hadn’t been considered in the lower courts, the Court of Appeals remanded the case to decide if discharging the debt “would comport with due process.”
The 3rd Circuit admitted that its Frenville decision was rejected by every circuit court to consider the issue. The opinion cited a bankruptcy judge who characterized Frenville as “one of the most criticized and least followed precedents decided under the current Bankruptcy Code.”
The case is Jeld-Wen Inc. v. Van Brunt (In re Grossman’s Inc.), 09-1563, 3rd U.S. Court of Appeals (Philadelphia).
Compromise of a Lawsuit is a Sale, 5th Circuit Says
The U.S. Court of Appeals in New Orleans, deciding an issue where appeals courts are split, ruled on June 2 that the settlement of a lawsuit in a bankruptcy case is the equivalent of a sale where the bankruptcy judge should entertain higher offers to buy the lawsuit rather than compromise it.
The 5th Circuit adopted the position taken in Collier on Bankruptcy, the leading bankruptcy treatise. The New Orleans court also decided a second issue where courts are divided: May a bankruptcy trustee sell a lawsuit arising from the trustee’s so-called avoiding powers?
The court narrowed the question to deal only with the type of claim that a creditor may assert before bankruptcy and that the trustee inherits on behalf of the entire bankruptcy estate. Such a claim may be sold, the 5th Circuit said. In the case decided this week, the creditor who sought to buy the claim was actually prosecuting the claim before bankruptcy. The claim was taken over by the bankruptcy trustee.
The Circuit Court reversed the two lower courts and sent the case back to the bankruptcy judge to consider whether intangible elements made selling the lawsuit more beneficial to the bankruptcy estate than settling.
The case is Cadle Co. v. Mims (In re Moore), 09-10604, 5th U.S. Circuit Court of Appeals (New Orleans).