Tribune, Wolverine, Lehman, Downey: Bankruptcy
Three more reorganization plans for publisher Tribune Co. were filed on the Oct. 29 deadline.
The creditor groups behind the competing plans all oppose the plan Tribune filed on Oct. 23 along with the official creditors’ committee, senior lenders Oaktree Capital Management LP and Angelo Gordon & Co., and JPMorgan Chase Bank NA, as agent for the senior lenders.
The proponents of the competing plans object to how the Tribune plan would impose a settlement of claims against lenders related to the second part of the leveraged buyout in December 2007, known as the Step 2. The disclosure statements explaining the three competing plans all say the settlement in Tribune’s plan is inadequate.
A group of so-called Step 1 lenders, who made loans in the first part of the LBO in June 2007, describe their plan as including no settlement for Step 2 lenders. Their plan, like the other creditors’ plans, would allow litigation after Tribune confirms the plan and emerges from Chapter 11. The Step 1 lenders contend the distributions to them under the Tribune plan are “woefully deficient.”
The Step 1 lenders say their plan would give their group the highest return without delaying confirmation of the plan. The lynchpin to the Step 1 lenders’ plan is the ability to litigate after bankruptcy over the so-called loss-sharing agreement between the Step 1 and Step 2 lenders.
Marathon Asset Management LP and King Street Capital LP are in a group of so-called bridge-loan lenders who submitted a plan. The bridge-loan lenders essentially make an offer of settlement with regard to their role in the second part of the 2007 LBO. Their plan would allow all lenders in the LBO to participate in a settlement. Lawsuits would continue after bankruptcy for those who don’t elect to settle.
Aurelius Capital Management LP, which calls itself the largest holder of bonds predating the 2007 LBO, filed the third competing plan, joined by three indenture trustees for all of the pre-LBO debt.
Aurelius says the settlement that would be forced through in the Tribune plan is opposed by all pre-LBO debtholders who participated in mediation. Aurelius explains how its plan would enable Tribute to emerge from Chapter 11 without forcing through any settlements. The Aurelius plan would allow lawsuits to continue after bankruptcy.
Much like Step 1 lenders in their plan, Aurelius says Tribune’s plan is based on a “dubious” interpretation of the loss-sharing agreement.
For details of the Tribune plan filed Oct. 23, click here for the Oct. 25 Bloomberg bankruptcy report.
A group of creditors filed suit in New York state court on Oct. 29 against the so-called lead banks in the LBO and against JPMorgan Chase Bank as agent for the lenders. The creditors believe the Step 2 loan was barred by the credit agreement from May 2007 and was “tainted with fraud.”
The plaintiffs in the suit include Alden Global Distressed Opportunities Fund LP, Arrowgrass Distressed Opportunities Fund Ltd. and Greywolf Capital Partners. In addition to JPMorgan, the defendants include Merrill Lynch Capital Corp. Citicorp NA and Bank of America NA. For Bloomberg coverage of the suit, click here.
Tribune withdrew a reorganization plan in August after the examiner issued a report saying there was some likelihood that the second phase of the leveraged buyout in December 2007 could be attacked successfully as a constructively fraudulent transfer. The examiner found less likelihood that the first phase of the transaction in June 2007 could be attacked successfully.
The second part of the buyout entailed the issuance of $2.1 billion on the senior credit and a $1.6 billion bridge loan. For a summary of some of the examiner’s conclusions, click here for the July 27 Bloomberg bankruptcy report. The $13.7 billion leveraged buyout in 2007 was led by Sam Zell.
Tribune is the second-largest newspaper publisher in the U.S. It listed $13 billion in debt for borrowed money and assets of $7.6 billion in the Chapter 11 reorganization begun in December 2008. It owns the Chicago Tribune, Los Angeles Times, six other newspapers and 23 television stations.
Wolverine Files to Convert Secured Notes to Stock
Wolverine Tube Inc., a producer of copper tubing for manufacturers of heating, ventilation and cooling equipment, began a prepackaged Chapter 11 reorganization today supported by holders of 71 percent of the $131 million in senior secured notes.
The reorganization plan, which Wolverine said it would file “shortly,” will convert the secured notes into all of the new common equity plus a new secured note for $30 million.
Wolverine said the filing was caused by declining revenue coupled with high copper prices, pension funding expenses, and interest on the senior notes. The plan is contingent upon a termination of the pension plan and the treatment of the resulting claim of the Pension Benefit Guaranty Corp. on terms acceptable to the noteholders.
The petition listed assets of $115.6 million against debt totaling $237.5 million.
The plan calls for paying general unsecured creditors in full as much as $6.7 million. Existing common and preferred shareholders are to receive nothing. Plainfield Asset Management LLC, a signatory to the plan-support agreement, is both a secured noteholder and a preferred shareholder.
In May 2009, Wolverine completed an exchange offer where $122 million of maturing 10.5 percent unsecured notes were exchanged for 15 percent senior secured notes that would have matured in 2012. The notes traded on Oct. 25 at about 47.5 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
The Huntsville, Alabama-based company said there was a “significant decline” in revenue. For 2010, revenue is estimated to be $281 million.
The case is In re Wolverine Tube Inc., 10-13522, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Star and Enquirer Parent in Prepack Solicitation
American Media Inc., which made a tender offer for the $355.8 million in 14 percent senior subordinated notes, said today that it is soliciting votes from creditors on a so-called prepackaged Chapter 11 reorganization.
The statement didn’t give the terms of the plan.
American Media, which publishes Star and National Enquirer, said it intends to file the Chapter 11 petition in two weeks and emerge from reorganization less than two months later with a debt-for-equity exchange. The company said the plan is supported by 80 percent of bondholders.
American Media offered to exchange the subordinated notes for $103 million cash and 95 percent of the equity, according to Moody’s Investors Service. It also offered to repurchase all of the $23.7 million in pay-in-kind notes due 2013 for 102 percent. The offers were conditioned on receiving a commitment of $600 million in new funds, Moody’s said. The new cash would have been used in part to pay off $432 million in term loans.
American Media missed an interest payment due May 1 on the subordinated notes. Before the exchange was announced, Standard & Poor’s estimated that holders of the subordinated debt could expect a recovery from nothing to no more than 10 percent.
Twice in 2009, the Boca Raton, Florida-based company obtained relief from subordinated noteholders who allowed the payment of interest with more notes.
American Media was acquired by Evercore Partners LLP in 1999 in a $638 million transaction, according to information compiled by Bloomberg.
MGM Say Lenders Support Prepack, Turn Down Icahn
Metro-Goldwyn-Mayer Inc. said lenders “overwhelmingly” supported its proposal for a prepackaged Chapter 11 reorganization over a rival proposal from Carl Icahn.
Under MGM’s plan, secured lenders would swap $4 billion in debt for 95.3 percent of the new stock. Spyglass Entertainment Group is to acquire the remainder of the new equity in exchange for contributing assets including Cypress Entertainment Group Inc. and Garoge Inc.
For Bloomberg coverage, click here.
MGM, based in Los Angeles, was acquired in April 2005 in a $4.8 billion transaction by a group including Credit Suisse Group AG (CSGN), Providence Equity Partners Inc., Sony Corp. (6758) and TPG Capital.
Downey Savings Parent Sues FDIC for Tax Refunds
The bankruptcy trustee for Downey Financial Corp., whose bank subsidiary Downey Saving and Loan Association was taken over by regulators in November 2008, sued the Federal Deposit Insurance Corp. to decided who’s entitled to receive almost $400 million in federal income tax refunds. The FDIC was named receiver for the savings bank when it was taken over.
The Chapter 7 trustee for Downey, which didn’t even try to reorganize in Chapter 11, contends that the parent had the right under a tax-sharing agreement to file tax returns for the bank subsidiary. The trustee likewise contends that any refunds paid by the IRS aren’t held in trust for the bank, even though losses at the bank created the right to refunds.
The trustee believes that there is nothing more than a debtor-creditor relationship between the parent and the FDIC as receiver for the failed bank subsidiary. Consequently, the trustee believes the FDIC is only an unsecured creditor of the bankrupt parent.
The IRS has already paid $17.5 million which is being held in an escrow account under an interim agreement between the trustee and the FDIC. The agreement contemplates that a court will decide who’s entitled to the refund.
The trustee for the parent has filed refund claims for another additional $373.8 million.
As soon as the bank was taken over, the assets of the thrift subsidiary were purchased by U.S. Bank NA (USB) in a transaction assisted by the FDIC. The Downey bank failure cost the FDIC insurance fund $1.4 billion, the agency said at the time.
The case is In re Downey Financial Corp. (DSL), 08-13041, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Lehman Explains Valuation of Structure Note Claims
Lehman Brothers Holdings Inc. explained in an Oct. 29 regulatory filing how it will value structured notes issued under European, German, Swiss and Italian note issuance programs.
As explained in the filing with the Securities and Exchange Commission, the notes issued by Lehman Brothers Treasury Co. under the program had a so-called notional amount of $33.7 billion when Lehman tumbled into bankruptcy in September 2008. At the time, Lehman was carrying the notes on the books at $26.2 billion.
The SEC filing explains how Lehman will value the notes in the bankruptcy case. After additions and subtractions, the maximum allowable amount of the note claims is $27.05 billion, according to the filing.
The notes sold by Lehman offered a return at maturity linked to the performance of underlying assets or groups of assets, such as single stocks, market indices, currencies or interest rates.
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 (BARC) 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 and its non-brokerage subsidiaries filed a revised Chapter 11 plan and disclosure statement in April. For details, click here and here for the April 15 and 16 Bloomberg bankruptcy reports. Lehman said it intends to amend the plan in the last quarter of the year and have the plan approved in a confirmation order by March.
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 Investor Protection Corp. v. Lehman Brothers Inc., 08-01420, both in U.S. Bankruptcy Court, Southern District of New York (Manhattan).
Banks Win South Bay Expressway Mechanics’ Lien Dispute
Secured lenders to South Bay Expressway LP came out on top in a lawsuit with mechanics’ lien holders about who is entitled to be paid first.
Contractor Otay River Constructors contended that holders of mechanics’ lien should come ahead of the secured lenders’ claims under California law. South Bay, the owner of a nine-mile toll road near San Diego, said it couldn’t propose a reorganization plan until the lawsuit was decided.
The case was tried last week before U.S. Bankruptcy Judge Louise DeCarl Adler in San Diego. In two rulings last week, she said “that the lenders who lent money have a senior priority interest over the mechanics’ lien holders,” attorney Robert Pilmer said in an interview. Pilmer, with the Los Angeles office of Kirkland & Ellis LLP, represents the expressway.
Adler rejected an argument that the contractors hadn’t filed their liens on time. She said the filings were timely, thus making the mechanics’ liens valid. Although valid, the banks are entitled to payment first, she ruled.
The mechanics’ lien holders have the right to appeal.
Wells Fargo Bank NA is agent for the secured lenders, which include Banco Bilbao Vizcaya Argentaria SA. (BBVA)
The expressway opened in November 2007. It owes $340 million on a first-lien construction and term loan plus another $170 million first-lien obligation on a loan provided by the U.S. Department of Transportation. Ownership of the toll road is controlled by affiliates of Sydney-based Macquarie Group Ltd. (MQG)
The case is In re South Bay Expressway LP, 10-04516, U.S. Bankruptcy Court, Southern District of California (San Diego).
Trico Marine to Give Supply Group to Lenders for Debt
Trico Marine Services Inc., a provider of support vessels for the offshore oil and gas industry, said on Oct. 29 that it has an agreement in principle to give all the equity of Trico Supply AS to holders of the 11.875 percent senior secured notes. The agreement was made with holders of 83 percent of the notes.
Bending to objection from the creditor’s committee, Trico will auction two vessels. It is also in effect selling three others.
Trico said it intends to complete documentation of the debt-for-equity swap of Trico Supply and “request necessary court approvals” in November. The exchange will give the noteholders all of the equity of Trico Supply, which will have a $100 million secured credit facility. The new loan will be used for working capital and to pay off $22 million on a priority credit facility.
Trico said it expects to have a forbearance agreement with the noteholders relating to the Nov. 1 interest payment.
In October, Trico filed a motion for permission to sell four vessels to Tidewater Inc. (TDW) for a total of $76 million. Trico wanted the sale completed without an auction.
The official creditors’ committee filed papers in opposition, saying it was aware of higher offers for the vessels Trico Moon and Trico Mystic, which would have been sold for $13 million each. Trico bent to the objection by asking the bankruptcy court to set up procedures where other bids would be due by Nov. 24, followed by an auction on Nov. 28 and a hearing to approve the sale on Nov. 30.
The hearing for approval of sale procedures will take place Nov. 4.
Trico arranged a Nov. 22 hearing for authority to assign charter agreements for three vessels to Comar Marine Corp. They are French Broad River, Holston River and Tennessee River. Trico charters the vessels from General Electric Capital Corp.
Comar will pay Trico $500,000, and GECC will cancel a $1.8 million letter of credit and return a $1.7 million cash deposit, less $325,000. Comar will purchase the French Broad River from GECC for $2.2 million.
Trico says it doesn’t need the vessels because it is exiting the towing and supply business.
Two funds affiliated with Arrowgrass Capital Partners are alleging that Trico made a “substantial amount” of fraudulent transfers to subsidiaries in the Trico Supply Group, which operates mostly in Norway. Those subsidiaries aren’t in Chapter 11.
Arrowgrass, which says it owns 3 percent senior convertible debentures, previously said it didn’t want the parent to “restructure the Trico Supply Group outside the purview” of the U.S. Bankruptcy court.
The Chapter 11 filing in August was the second by The Woodlands, Texas-based Trico. It completed a so-called prepackaged reorganization in early 2005 by exchanging $250 million in debt for equity. Shareholders received warrants.
Other than a Cayman Islands holding company, none of the foreign subsidiaries are in bankruptcy this time. The consolidated balance sheet for June listed assets of $904 million against liabilities totaling $1.03 billion. The bankruptcy petition listed liabilities of $354 million for Trico Marine.
Liabilities include $202.8 million on secured convertible debentures and $150 million owing on unsecured convertible debentures. Non-bankrupt Trico Shipping owes $400 million on the 11.875 percent senior secured notes.
The case is In re Trico Marine Services Inc., 10-12653, U.S. Bankruptcy Court, District of Delaware (Wilmington).
FairPoint Creditors Investigating Verizon Spinoff
Although FairPoint Communications Inc., a local exchange carrier, is progressing toward a confirmed reorganization plan, the official creditors’ committee is investigating the 2007 transaction where Verizon Communications Inc. (VZ) spun off the FairPoint business in Vermont, Maine and New Hampshire with 1.7 million access lines.
Lenders are to own FairPoint when it emerges from Chapter 11. For details on FairPoint’s reorganization plan, click here for the March 12 Bloomberg bankruptcy report.
FairPoint’s Chapter 11 petition listed assets of $3.24 billion against debt totaling $3.234 billion. Funded debt, totaling $2.7 billion, included $2 billion under a secured credit facility, $575 million in senior unsecured notes and $88 million on interest-rate swap agreements.
The case is In re FairPoint Communications Inc., 09-16335, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
Lender Black Diamond Wins Auction for GSC Group
Black Diamond Capital Finance LLC, whose funds hold a majority of the $206.6 million owing to secured lenders, won the auction to buy GSC Group Inc. with a bid of $235 million, according to an e-mail from Michael Solow, a lawyer for GSC.
GSC, an alternative-investment manager, filed under Chapter 11 at the end of August intending to sell the assets. The bankruptcy judge allowed Black Diamond to bid the secured claim rather than cash. Black Diamond is also agent for the lenders.
For other Bloomberg coverage, click here.
GSC was originally named Greenwich Street Capital Partners Inc. when it was a subsidiary of Travelers Group Inc. It became independent in 1998 and at one time had $28 billion of assets under management. Market reverses, termination of some funds, and withdrawal of customer’s investments reduced funds under management at the time of bankruptcy to $8.4 billion.
The case is In re GSC Group Inc., 10-14653, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
Landry’s Wins Auction to Buy Claim Jumper Restaurants
Landry’s Restaurants Inc. won the auction to buy Claim Jumper Restaurants LLC, the operator of a chain of 45 western-themed restaurants in states, according to two people with knowledge of the sale.
The initial bid of $27 million came from a company formed by Black Canyon Capital LLC and Bruckmann Rosser Sherrill & Co. Inc. Black Canyon is an affiliate of the unsecured mezzanine lender, according to court papers.
When Claim Jumper was asking for approval of auction procedures, Houston-based Landry’s appeared at the hearing and attempted to knock out the Black Canyon group as the so-called stalking-horse bidder. Although Landry’s failed to be anointed stalking horse, it did force the Black Canyon group to raise the initial bid even before the auction and forgo part of the breakup fees.
The hearing for approval of the sale is scheduled to take place tomorrow.
Landry’s is experienced with bankruptcy sales. It purchased Oceanaire Inc., a chain of bankrupt seafood restaurants, following an auction in April.
For Bloomberg coverage, click here.
In addition to $69.5 million in secured debt, Claim Jumper owes $112.5 million on subordinated notes. The petition says assets are worth more than $50 million while debt exceeds $100 million.
The case is In re Claim Jumper Restaurants LLC, 10-12819, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Washington Times Wins Quick Dismissal of Involuntary
Washington Times LLC won a motion on Oct. 27 dismissing the involuntary bankruptcy petition filed against it on Oct. 21 by a lawyer named Richard A. Steinbronn, who said his claim against the newspaper publisher was $390.
The bankruptcy may be over for Washington Times, although it isn’t for Steinbronn. The bankruptcy judge in Washington said the newspaper could file a motion by Nov. 8 seeking sanctions against Steinbronn for filing the defective involuntary petition. The bankruptcy court will hold a hearing on Jan. 5 to decide whether sanctions should be imposed.
Steinbronn says in the involuntary petition that he was “wrongfully removed” from his position in early 2009 as a director, officer, and legal counsel for Times Aerospace International LLC and two subsidiaries with similar names -- Washington Times Aviation LLC and Washington Times Aviation USA LLC.
To satisfy the requirement that there be three petitioning creditors, Steinbronn signed the bankruptcy petition on behalf of Washington Times Aviation LLC and Washington Times Aviation USA LLC, saying he has “derivative or special standing.” Steinbronn contended two companies for which he signed the petition together were owed $2 million on loans.
Bankruptcy law contains penalties for improperly filing an involuntary petition. If the involuntary petition is dismissed, the unsuccessful petitioner can be required to pay the allegedly bankrupt company’s attorneys’ fees. In addition, the bankruptcy judge can assess ordinary damages and punitive damages if the involuntary petition was found to be filed in bad faith.
Click here for a Bloomberg story reporting there is an impending sale of Washington Times that will generate $3.1 million to pay creditors’ claims. Bloomberg reported in April that the family of Reverend Sun Myung Moon cut off funding for the newspaper and was looking for a buyer.
The case is In re Washington Times LLC, 10-01041, U.S. Bankruptcy Court for the District of Columbia.
TriDimension’s Production Up for Auction on Nov. 16
TriDimension Energy LP, an independent oil and natural gas exploration and production company, will hold an auction on Nov. 16 to determine if there’s an offer for the assets higher than $28 million. The bankruptcy judge in Dallas approved sale procedures on Oct. 28.
Competing bids are due Nov. 11. The hearing for approval of the sale will take place in Dallas on Nov. 17.
Dallas-based TriDimension filed under Chapter 11 in May. It owes $37.5 million to secured lenders which are providing financing for the reorganization. The lenders are owed another $5.6 million on terminated hedges. Amegy Bank NA is agent for the lenders.
The company has leases on 165,218 gross acres of oil and gas properties in Louisiana and Mississippi with proven reserves of approximately 5.1 million barrels.
TriDimension owes $6 million to general unsecured creditors, not including the deficiency claim of the secured lenders, Chief Financial Officer Kenneth A. Gregg said in a court filing.
The case is In re TriDimension Energy LP, 10-33565, U.S. Bankruptcy Court, Northern District of Texas (Dallas).
Point Blank Hopes to Unwind Class-Action Settlement
Point Blank Solutions Inc., a manufacturer of soft body armor for the military and law enforcement, has support from the creditors’ committee in its effort at upsetting a shareholders’ class action suit settled more than four years ago.
At a Nov. 23 hearing, Point Blank will ask the bankruptcy judge in Delaware to rule that the settlement of the class action is an executory contract that can be rejected. Point Bank believes that rejection will enable it to recover $35.2 million that is being in escrow by the class plaintiffs’ lawyers.
The committee naturally supports Point Blank, hoping the $35.2 million will be available to pay $40 million in unsecured creditors’ claims. The funds also could be used to pay off $20 million of reorganization financing that matures on Dec. 31.
The lead plaintiffs in the class suit began their argument by contending that the settlement stipulation is not an executory contract. They believe no performance remains on either side. Only the finality of approval orders is required for the money to be distributed to members of the shareholder-plaintiff class.
The plaintiffs say that the money in escrow wouldn’t in any event come back to Point Blank because the funds weren’t paid by the company and never was its property.
The class action was filed for investors who bought stock between 2003 and 2006. 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 against debt totaling $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. (PBSOQ), 10-11255, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Exchange Fails, Loehmann’s Hints at Prepack Instead
Although Loehmann’s Inc. received tenders to exchange 92.4 percent of the $110 million in senior secured notes maturing next year, the discount retailer, with more than 60 stores in 16 states, came up short of the 97 percent required to implement the offer.
Loehmann Capital Corp. said on Oct. 29 that it won’t carry out the exchange and won’t make the October 1 interest payment within the 30-day grace period.
Instead, Loehmann’s said it will continue talks with “certain significant holders” about a forbearance agreement and “alternatives,” including a “possible pre-negotiated reorganization.”
Assuming holders who tendered would be willing to go along with a similar Chapter 11 reorganization, Loehmann’s could negotiate a so-called prepackaged plan where acceptances may be solicited before the bankruptcy filing. The 92.4 percent that were willing to tender is comfortably in excess of the 67 percent acceptance need for creditor approval of a Chapter 11 plan.
Under the expired exchange offer, the existing notes, maturing in 2011, could have been exchanged for new notes in the same amount, maturing in 2014. In the event there were payment default, Standard & Poor’s said at the time of the exchange offer that holders of the old notes weren’t likely to recover more than 10 percent.
The Bronx, New York-based company is owned indirectly by Istithmar PJSC, an investment firm owned by the government of Dubai.
Loehmann’s emerged from a 14-month a Chapter 11 reorganization with a confirmed plan in September 2000. At the time, it was operating 44 stores in 17 states.
Accentia Says Judge Confirms Chapter 11 Plan
Accentia Biopharmaceuticals Inc. (ABPI), majority owner of Biovest International Inc., had its Chapter 11 plan approved at an Oct. 27 confirmation hearing, the company said in a statement. By the end of the day on Oct. 31, the formal confirmation order wasn’t on the court’s docket.
The plan allowed stockholders to retain stock, although diluted by shares issued to secured and unsecured creditors. The plan reputedly provides full payment for all creditors, with part of the payment coming from the conversion of debt to stock. Accentia filed under Chapter 11 in November 2008. Biovest is working on the commercialization of BiovaxID, a personalized cancer vaccine for some types of non-Hodgkin’s lymphoma.
The Accentia and Biovest companies are developing drugs to treat blood cancers and autoimmune diseases such as multiple sclerosis.
Accentia listed assets of $134.9 million against debt totaling $77.6 million.
The case is In re Accentia Biopharmaceuticals Inc., 08-17795, U.S. Bankruptcy Court, Middle District of Florida (Tampa).
Madoff Trustee Files Report for Six Months
The trustee liquidating Bernard L. Madoff Investment Securities Inc. filed a report for the six months ended Sept. 30 showing expenses of $26.9 million and recoveries of $849,000. Securities Investor Protection Corp., which funds the liquidation, has said that the expenses of the trustee and his counsel don’t diminish recoveries by customers.
To read Bloomberg coverage, click here.
The Madoff firm began liquidating in December 2008 with the appointment of a 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 Madoff liquidation case is Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities Inc., 08-01789, U.S. Bankruptcy Court, Southern District New York (Manhattan). The criminal case is U.S. v. Madoff, 09-cr-00213, U.S. District Court, Southern District of New York (Manhattan).
Payday Lender Ace Cash Express Downgraded by S&P
Ace Cash Express Inc., an Irving, Texas-based operator of check-cashing stores and a maker of short-term loans to people with poor credit histories, received one-notch downgrades on Oct. 29 from Standard & Poor’s.
The senior secured credit went to B while the unsecured notes are now CCC+.
Ace, which makes so-called payday loans, has been hampered by the weak economy and regulatory tightening on consumer lenders, S&P said.
In the event of payment default, S&P estimates that holders of the unsecured notes won’t recover more than 10 percent.
Workflow’s Lawyers, 2nd and 3rd Confirmations, A&P: Audio
A bankruptcy halt on foreclosure with deficient documentation, Workflow Management Inc. denied counsel of choice, Movie Gallery Inc. confirms second Chapter 11 plan, Penn Traffic Co. confirms third Chapter 11 plan, and challenges Great Atlantic & Pacific Tea Co. must surmount to avoid Chapter 11 are covered in the new bankruptcy podcast on the Bloomberg terminal and Bloomberglaw.com. To listen, click here.
Threatening Suit Can’t Be Sanctionable Contempt
A threat to file a lawsuit is not basis for finding a lawyer and client in contempt and assessing sanctions, according to an Oct. 28 opinion by U.S. District Judge Justin L. Quackenbush from Spokane, Washington.
The dispute arose in the wake of the Chapter 11 reorganization of the Roman Catholic Diocese of Spokane. The diocese confirmed a reorganization plan in April 2007.
In late 2009, the diocese was in a dispute with the trustee for a trust created to decide claims and make distributions to victims of sexual abuse. The lawyer for the diocese wrote an e-mail to the trustee saying that distributions weren’t proper.
The bankruptcy judge held the lawyer, his firm and the diocese in contempt and assessed $52,000 in damages. The bankruptcy judge interpreted the e-mail as threatening to sue the trustee individually. The bankruptcy judge said that repeating the threats “at some point” became “intimidation.” The bankruptcy judge said there was “no legitimate purpose to be gained from making the statement.”
Quackenbush reversed, finding no contempt. He pointed to law in the 9th Circuit saying contempt must be based on violation of a “specific and definite” court order. It was admitted that the e-mail violated no court order.
Quackenbush said that upholding the contempt finding “would have a chilling effect on the exchange of communications concerning legal positions that occur between counsel on an ongoing basis.” He also said the e-mail wasn’t a threat and included nothing malicious. The finding by the bankruptcy judge that the e-mail was willful and made in bad faith weren’t the basis for a contempt finding, Quackenbush ruled.
The diocese’s plan created a $48 million fund to settle 150 sexual abuse claims. The diocese filed under Chapter 11 in December 2004.
The opinion is The Catholic Bishop of Spokane, 10-083, U.S. District Court, Eastern District of Washington (Spokane). The Chapter 11 case was In re The Catholic Bishop of Spokane, 04-08822, U.S. Bankruptcy Court, Eastern District of Washington (Spokane).
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