ResCap, Overseas Shipholding, Hostess, ATP Oil: BankruptcyMichael Bathon
Residential Capital LLC won more time to file an exclusive plan to reorganize while the bankrupt mortgage company remains in mediation with creditors, who say talks have stalled.
U.S. Bankruptcy Judge Martin Glenn in Manhattan yesterday extended the company’s exclusive right to file a reorganization plan to April 30. The order came after ResCap settled a dispute with noteholders by dropping a provision that would have given a committee of unsecured creditors a “veto role” over any plan the company may file by that date.
Glenn approved ResCap’s request to hire a new chief restructuring officer, Lewis Kruger, and said he deserves time to try to put together a plan. The company requested 60 days during which no creditor is allowed to propose a plan.
“It may be at the end of 60 days, all bets are off,” Glenn said yesterday. ResCap “would have a hard time convincing me to extend exclusivity again.”
Glenn extended until May 31 negotiations with creditors and ResCap’s parent, Ally Financial Inc. The talks are designed partly to decide how much Ally must pay to avoid a lawsuit over what it did before ResCap filed bankruptcy.
While it retains the exclusive right to reorganize itself, ResCap doesn’t expect to file a restructuring plan that the creditor committee opposes, company attorney Lorenzo Marinuzzi said in court yesterday.
Ally, based in Detroit, had proposed paying creditors $750 million to settle all claims. The creditor committee opposed that settlement, saying it was too low.
ResCap’s board supported the settlement until last month, when the company agreed to hire Kruger and promised not to file a reorganization plan in the next few months without support from the creditor committee.
ResCap filed for bankruptcy last year, partly to help it resolve lawsuits brought by investors that purchased mortgage bonds backed by $226 billion worth of home loans. The lawsuits claimed the bonds lost value because many of the loans were bad.
The case is In re Residential Capital LLC, 12-bk-12020, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
Overseas Shipholding Exclusivity Extended, Sale Process Granted
Overseas Shipholding Group Inc., the largest U.S. tanker operator, won court approval of its request to be the sole party allowed to offer a reorganization plan, having its exclusivity period extended to Aug. 2.
The New York-based company also obtained permission from U.S. Bankruptcy Judge Peter J. Walsh in Wilmington, Delaware, of procedures that will govern the sale of some of its unit’s assets, according to court documents filed yesterday.
The company’s First Union Tanker Corp., Majestic Tankers Corp. and Maremar Tanker LLC intend to sell three vessels: Overseas Equatorial, Overseas Sovereign and Overseas Maremar, according to court papers. A March 21 deadline has been set for potential buyers to submit a bid. Offers can be for some or all of the assets.
If the companies determine that any offers are qualified bids, it will consult with its advisers and its committee of unsecured creditors to negotiate a marked up agreement, followed by a deposit, according to court documents. They also have the right to withdraw from any of the sales, extend certain deadlines, and make further attempts to solicit better offers or re-market the assets at a later time.
If the units select more than one successful bid, they will notify the court on April 11, according to court filings. An April 25 hearing has been scheduled to seek court approval of the sales.
Overseas filed for bankruptcy last year after global shipping rates fell and the company gave up trying to win a federal loan guarantee. Overseas listed assets of $4.15 billion and debt of $2.67 billion in its Chapter 11 petition in U.S. Bankruptcy Court in Wilmington, Delaware.
Last year, Overseas withdrew an application for a $241.8 million loan guarantee to help pay for two tankers built at U.S. shipyards after Bloomberg News reported that the company’s ships were calling at Iran’s largest oil terminal and U.S. House Majority Leader Eric Cantor asked the Transportation Department to reject the application.
After that, the company was shut out of credit markets, partly because it said in an Oct. 22 regulatory report that investors couldn’t rely on its financial statements for the past three years, according to court filings.
The case is In re Overseas Shipholding Group Inc., 12-20000, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Hostess Sues Kroger for $2.8 Million in Delivered Goods
Hostess Brands Inc., the bankrupt maker of Twinkies and Wonder bread, sued Kroger Co. and affiliates, claiming the supermarket operator owes it about $2.8 million for goods it delivered months ago before it stopped making products.
Hostess, which is liquidating after failing to reach an agreement with striking bakers on concessions, said Cincinnati, Ohio-based Kroger, the largest U.S. grocery-store chain, has invoices that haven’t been paid in more than 60 days after repeated requests. PriceRite, a unit of Wakefern Food Corp., was also named in the lawsuit.
“Since July 2012 and continuing through January 2013, defendants have failed to timely remit payment for deliveries of Hostess products,” the company said in the complaint filed March 1.
Hostess just completed the bidding process for most of its bread business, with Flowers Foods Inc. winning the majority of Hostess’s bread-making business, including its Wonder brand, when no offers surfaced to challenge a $360 million bid.
Grupo Bimbo, the Mexico City-based maker of Sara Lee products, Entenmann’s cakes and Thomas English Muffins, topped Flowers’ $30 million opening offer for the Beefsteak rye-bread brand, with a winning offer of $31.9 million.
The company is scheduled to seek bankruptcy court approval to sell the assets to the auction winners at a March 19 hearing.
The proposed sales have drawn objections from U.S. Attorney Preet Bharara in Manhattan, who claims the prospective buyers would be improperly released from liabilities and obligations to comply with U.S. laws.
Hostess, founded in 1930, will sell more bread and snack-cake brand assets this month, including Twinkies, with initial offers totaling about $466.4 million, according to court documents.
Apollo Global Management LLC and C. Dean Metropoulos & Co. have offered about $410 million for the Hostess snack-cake business, which includes Dolly Madison brands, five bakeries and equipment. Bids for the March 13 snack-cake auction must be submitted by March 11.
McKee Foods Corp., maker of Little Debbie snacks, made a bid of $27.5 million for the Drake’s brand. United States Bakery Inc. offered to buy the Sweetheart, Eddy’s, Standish Farms and Grandma Emilie’s bread brands, four bakeries and 14 depots, plus certain equipment, for about $28.9 million. Both initial offers will be tested at March 15 auctions. Bids are due by March 12 for both auctions.
Previously known as Interstate Bakeries Corp., Hostess left an earlier bankruptcy in 2009 under the control of buyout firm Ripplewood Holdings LLC and lenders. The company, based in Irving, Texas, entered bankruptcy again in January 2012.
The case is In re Hostess Brands Inc., 12-22052, U.S. Bankruptcy Court, Southern District of New York (White Plains). The adversary proceeding is Hostess Brand Inc. v. The Kroger Co., 13-08209, U.S. Bankruptcy Court, Southern District of New York (White Plains).
ATP Oil Delays Sale Process for Deepwater Assets
ATP Oil & Gas Corp., the bankrupt Gulf of Mexico oil producer, said in court papers that it will have to push back the deadline for seeking offers for its deep-water assets.
The bid deadline was tied to the first oil production from ATP’s Clipper Well and would be set 16 days after that was achieved or no later than April 16, according to court documents. ATP said it failed to achieve production on March 3, according to a March 4 filing.
The company had initially obtained court approval for a March 19 bid deadline, with a March 26 auction to be followed by a March 28 sale hearing.
ATP said it will notify the court when first production is realized and the new schedule for bids, the auction and the sale hearing. Offers can be made for all or some of the assets, according to court documents.
The company seeks to sell its leasehold and other working interests in 23 deepwater blocks, nine of which are producing, Houston-based ATP said in a filing. The properties are concentrated in the gulf.
ATP filed for bankruptcy Aug. 17, blaming the 2010 Deepwater Horizon oil rig explosion in the Gulf of Mexico and the drilling moratorium that followed. The Deepwater Horizon was owned and operated by Transocean Ltd.
The case is In re ATP Oil & Gas Corp., 12-36187, U.S. Bankruptcy Court, Southern District of Texas (Houston).
Virginia Retirement Community Files Pre-Pack Bankruptcy
Virginia United Methodist Homes of Williamsburg Inc., a Richmond, Virginia, retirement community, filed a so-called pre-packed bankruptcy with a plan to restructure its debt within about three months.
The continuing-care retirement community, with about 200 units in a campus-style setting, sought court protection listing between $100 million and $500 million in both assets and debt in chapter 11 documents filed March 1 in its hometown.
The company intends a quick trip through bankruptcy after gaining the support of its parent, Virginia United Methodist Homes Inc., and more than 66 percent of its secured creditors for its proposed restructuring.
The reorganization plan is a “consensual restructuring that provides for the protection of all residents rights and payment of all trade debt,” the company said in court filings. The company has requested a May 14 hearing to seek court approval of the plan.
Under the proposal, secured bondholders of the Series 2007 A and B, owed about $48.3 million plus interest, would get new Series 2013A senior bonds of $30 million due 2043 bearing 6 percent interest per year. The bondholders would also get new subordinated bonds equal to 50 percent of the principal and interest they were owed as of March 1, after deducting the new 2013A bond, according to the disclosure statement.
Its parent, owed about $13.3 million for letter of credit reimbursement, would get new Series 2013B senior bonds of $6.5 million due 2042 bearing 6 percent interest per year, according to court documents. Its parent has also agreed to waive manager claims of $22.4 million under the plan.
Unsecured creditors, owed about $200,000, would be paid in full in cash.
Virginia United Methodist Homes of Williamsburg said that it was hurt by the housing collapse and recession as it began operations in 2008, according to court papers.
The company said that many prospective residents usually sell their homes and use the proceeds to pay to enter the retirement community. As many potential residents lost value or were unable to sell their homes and their retirement savings accounts suffered losses the company was unable to maintain a steady occupancy base and determined it wouldn’t be able to pay its obligations on the 2007 letter of credit agreement that was due in December.
The company had entered into a bond financing agreement with the Economic Development Authority of James City County, Virginia to borrow the proceeds of $114.3 million in residential care revenue bonds, issued in three series, according to court documents. UMB Bank NA served as the trustee for the bonds.
As restructuring negotiations developed the banks issued a mandatory tender of the series 2007C, which resulted in a draw under the letter of credit and a full payoff of the 2007C bonds. Afterward, the retirement community’s parent acquired the banks claim against them at a “significant discount,” according to court papers. Its parent then agreed to a substantial reduction in claims and will provide as much as $3 million to help fund operation while in bankruptcy.
Virginia United Methodist Homes of Williamsburg has 181 independent living units with an 80 percent occupancy rate, 14 assisted living apartments with 65 percent occupied and 12 skilled nursing beds with 75 percent filled, according to court papers.
The case is In re Virginia United Methodist Homes of Williamsburg Inc., 13-31098, U.S. Bankruptcy Court, Eastern District of Virginia (Richmond).
Underground Energy Inc. Files Bankruptcy to Protect Lease
Underground Energy Inc., the operating unit of California oil explorer and developer Underground Energy Corp., filed for bankruptcy in order to protect its right in its main drilling property.
The Los Olivios, California-based company listed about $2.5 million in assets and about $4.1 million in debt in Chapter 11 court documents filed March 4 in Santa Barbara.
The oil developer said it needed to seek court protection after creditors placed liens on its wells and its lessor then claimed a breach of lease due to the uncured liens, arguing it has grounds to terminate the lease.
“Negotiations and discussions with the lessor have yet to resolve the issue,” the company said in a statement on its website. “As a defensive measure and in order to help protect the operating company’s interest” in the 7,750 gross acres of its Zaca property, the company “decided to seek Chapter 11 protection in order to forestall cancellation of the Zaca lease and to forestall litigation related to the liens.”
While the company can’t make any assurances that it will successfully exit the reorganization, Underground Energy said in the statement that it looks forward to developing and obtaining court approval of “a plan which will allow the company to emerge from Chapter 11 and to develop its core assets at Zaca, Burrel and Asphaltea.”
Parent Underground Energy Corp., which didn’t seek court protection, had a net loss of $14.2 million for the year ended Sept. 30, on revenue of $870,000, according to data compiled by Bloomberg.
The case is In re Underground Energy Inc., 13-10563, U.S. Bankruptcy Court, Central District of California (Santa Barbara).
Communicom Corp. of America LLC Files for Chapter 11
Communicom Corp. of America LLC, the owner and operator of 4 radio stations, sought bankruptcy protection from creditors without citing a reason.
The company, based in Denver, listed debt of more than $10 million and assets of less than $10 million in Chapter 11 documents filed Feb. 27 in U.S. Bankruptcy Court in its hometown. Five affiliates also sought court protection.
The companies collectively own and operate AM radio stations in Detroit, New Orleans and Phoenix.
The station assets secure about $10.8 million in debt owed to First Citizens Bank & Trust Co., the company’s largest creditor.
The case is: In re Communicom Corp. of America LLC, 13-12694, U.S. Bankruptcy Court, District of Colorado (Denver).
Law Firm News
Venable Opening Delaware Office Led by Bankruptcy Partner
The law firm Venable LLP is opening an office in Wilmington, Delaware, that will be led by new bankruptcy partner Jamie L. Edmonson.
The firm is “planting a flag in one of the country’s most important jurisdictions for corporate litigation and bankruptcy matters,” it said in a March 4 statement on its website.
“This is a terrific development for our firm and obviously for the bankruptcy practice, given how often our work leads to Delaware,” group chairman Gregory Cross said. “We’re getting a top-flight partner to lead our new office -- Jamie Edmonson has been intimately involved in a wide range of Chapter 11 cases coming out of Delaware.”
Edmonson, previously with the Wilmington-based Bayard law firm, has more than 16 year of experience working on commercial bankruptcies, restructurings, insolvencies and liquidations.
“Venable has a renowned national bankruptcy platform and I was thrilled to hear that the firm was launching a Delaware office,” she said. “Delaware is such an important hub for corporate bankruptcies and restructurings and the firm is well-positioned to become a bigger factor in creditor committee work and other representations. It will be exciting to harness my experience here with Venable’s practice.”
Downgrades/Other Ratings Actions
Sitel Downgraded by Moody’s to Caa1
Sitel LLC, a call-center operator, had its corporate family rating downgraded by Moody’s Investors Service Inc. to Caa1 from B3. Its probability of default rating was also lowered one level to Caa1.
While the agency said the outlook for ratings is stable it said the downgrade “reflects Sitel’s weaker-than-expected operating cash flow generation.”
Moody’s said negative free cash flow will persist in 2013 and could lead to further erosion of liquidity, though it should have adequate liquidity levels over the next 12 months to 18 months.
Sitel, based in Nashville, Tennessee, is a customer care and business process outsourcing vendor that had revenue of about $1.4 billion in 2012. The company is majority owned by private equity firm Onex Corp.
Genco’s Bank Lenders Poised to Torpedo Bonds
Notes of Genco Shipping & Trading Ltd. are indicating bank lenders will force the most indebted U.S.-listed carrier of maritime freight to restructure its finances at the expense of the bondholders.
Convertible bonds of the operator of 53 dry-bulk cargo ships, whose customers include agricultural trader Cargill Inc. and mining company BHP Billiton Ltd., have dropped more than half their value over the past year and trade at 38 cents on the dollar, while the loans are quoted at 77.8 cents.
Genco, which lost $158 million last year, is forecast to be unprofitable past the December 2013 expiration of covenant waivers on $1.4 billion of debt from bank lenders with the industry mired in a supply glut that has driven Overseas Shipholding Group Inc. and General Maritime Corp. to bankruptcy.
The difference in price between the bonds and loans indicates investors expect banks to refuse to extend the loosened borrowing terms past the August 2015 maturity of the 5 percent convertibles. With Genco’s cash already at less than the $125 million face value of the bonds, and the firm’s fleet, which serves as collateral, valued at less than the loans, few assets will be left for unsecured creditors in a restructuring.
“In a case like this, when the value of the collateral does not cover the loans, the bondholders’ recovery will be minimal,” Roger King, an analyst at CreditSights Inc., said in a phone interview. “Lenders would have to put more good money behind the bad to extend the loans.”
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Consortium of Investors Led by A1 Offer to Back CEDC Pre-Pack
A consortium of investors led by A1 Investment Co. and Dr. Mark Kaufman offered to back a pre-negotiated restructuring plan under chapter 11 of the U.S. bankruptcy code for Central European Distribution Corp., Poland’s second-largest vodka producer.
A1, a unit of the Alfa Group, and Kaufman, offered to invest as much as $225 million in exchange for at least 85 percent of the reorganized company’s equity, according to a term sheet and letter sent to CEDC’s board of directors that was filed yesterday with Securities and Exchange Commission.
The Alfa Group is one of Russia’s largest privately-owned financial and industrial conglomerates with about $60 billion in assets. Kaufman has over 20 years’ experience in the wine and spirits industry and sold his Russian importer and distributor, the Whitehall Group, to CEDC.
“The Consortium believes that its proposal substantially improves on the term sheet dated February 28, 2013, between Roust Trading Ltd. and certain holders of the 2016 Notes represented by the Steering Committee,” the investors said in the letter to the board.
Under the terms of the proposed restructuring CEDC’s 2016 noteholders would have a “cash out” option from a $175 million investment. Noteholders that choose not to cash out would get a share of $660 million, consisting of $50 million cash, $410 million in new senior secured notes and $200 million in new convertible junior secured notes. Unsecured creditors and shareholders would get no more than 15 percent of reorganized CEDC’s equity.
The consortium said “time is of the essence,” and its “immediate and primary goal is to discuss the plan with CEDC and its advisors.”
CEDC said in a March 4 statement that it received and is working on restructuring proposal from Roust Trading Ltd., that is also supported by certain owners of the $380 million 9.125 percent senior secured notes and 430 million euro 8.875 percent senior secured notes.
In February the maker of maker of the Zubrowka and Parliament vodka brands proposed swapping bonds for equity to cut its debt by more than $750 million. The offer expires March 22.