Quebecor, Christ Hospital, Madoff, Patriot: Bankruptcy
The hopes of Quebecor World (USA) Inc. creditors for a major payday were dashed again when a district judge upheld dismissal of a lawsuit to recover $376 million for bonds repurchased within three months of the company’s bankruptcy in January 2008.
The Quebecor official creditors’ committee sued in September 2008 to recover the payment, saying it was a so-called preference occurring with 90 days of bankruptcy. The noteholders responded by contending the suit was barred by the so-called safe harbor in Section 546(e) of the Bankruptcy Code. The section precludes suits to recover payments made in securities transactions.
U.S. Bankruptcy Judge James M. Peck dismissed the suit in July 2011. He said the result was mandated by a ruling the month before when the U.S. Circuit Court of Appeals in New York said the safe harbor must be accorded “extremely broad” interpretation.
The creditors appealed and lost again in when U.S. District Judge Jesse M. Furman handed down a 19-page opinion on Sept. 28.
Furman said the case was “easily decided” because the Court of Appeals “squarely rejected the precise arguments” being made by the Quebecor creditors.
Furman said he was bound by the appeals court’s 2-1 opinion on June 28, 2011, in Enron Creditors’ Recovery Trust v. Alfa SAV de CV. For a discussion of the Enron opinion, click here for the June 30, 2011, Bloomberg bankruptcy report.
Peck said he was forced to dismiss even though the case involved “behavior that the law generally would seek to discourage.” He characterized the actions immunized in his ruling as “ganging up on a vulnerable borrower to obtain clearly preferential treatment in the months leading up to a bankruptcy.”
In July 2009, Quebecor implemented the bankruptcy reorganization plans approved by judges in both the U.S. and Canada. Then the second-largest commercial printer in the U.S., Quebecor changed its name to World Color Press Inc.
The plan gave unsecured creditors notes for 50 percent of their claims so long as claims in the class didn’t exceed $150 million. The revolving credit lenders, owed $735 million, and equipment financing lenders, owed $184 million, received a combination of cash, common stock, and preferred stock, for a recovery estimated to be worth between 85 percent and 88 percent.
Furman’s opinion is Official Committee of Unsecured Creditors of Quebecor World (USA) Inc. v. American United Life Insurance Co. (In re Quebecor World (USA) Inc.), 11-7530, U.S. District Court, Southern District New York (Manhattan). Peck’s opinion is Official Committee of Unsecured Creditors of Quebecor World (USA) Inc. v. American United Life Insurance Co. (In re Quebecor World (USA) Inc.), 08-01417, U.S. Bankruptcy Court, Southern District New York (Manhattan).
The Chapter 11 case in New York is In re Quebecor World (USA) Inc., 08-10152, U.S. Bankruptcy Court, Southern District New York (Manhattan).
The Chapter 15 case is In re Quebecor World Inc., 08-13814, in the same court.
U.S. Trustee Wants Inquiry in Christ Hospital Sale
Christ Hospital, a 367-bed acute-care hospital in Jersey City, New Jersey, may have been the subject of a bankruptcy auction that one of the buyers allegedly tried to “fix,” according to a filing in bankruptcy court by the U.S. Trustee.
The hospital was sold in July to Hudson Hospital Holdco LLC from Philadelphia under a contract calling for $29.5 million in cash, the cost of curing defaults on contracts, plus $3.5 million paid to the Pension Benefit Guaranty Corp.
The U.S. Trustee in New Jersey said in a Sept. 28 bankruptcy court filing that she received a copy of an e-mail written by a Warren Martin, a bankruptcy lawyer for Christ Hospital. As quoted by the U.S. Trustee, Martin’s e-mail says that an unidentified person from Community Healthcare Associates LLC, the unsuccessful bidder at the auction, told Martin he would be sued for $4.5 million because he “didn’t ’fix’ the Christ Hospital auction” in Community Healthcare’s favor.
The statement was “clearly a lie,” David Mazie from Mazie Slater Katz & Freeman LLP said in an interview. Mazie represents Community Healthcare.
“It was an outrageous e-mail that was sent by Mr. Martin, and we are in the process of filing a defamation action against Mr. Martin and his firm,” Mazie said.
“We expected this action by Mr. Mazie,” said Karen Kessler, a spokeswoman for Martin’s law firm Porzio Bromberg & Newman PC. “We will address all allegations in due course and in the appropriate forum,” she said in an interview.
The U.S. Trustee, the bankruptcy watchdog for the Justice Department, had the bankruptcy judge in Newark, New Jersey, schedule an Oct. 10 hearing to consider appointing an examiner to conduct an investigation.
She wants the examiner to look into whether the auction was open and fair, whether “any party acted improperly,” and whether any professional “failed to report misconduct in connection with the sale process.”
The eventual buyer, Hudson, is a for-profit hospital operator that owns the Hoboken Medical Center and the Bayonne Medical Center, both in New Jersey.
Christ Hospital filed for Chapter 11 protection in February after an acquisition by Prime Healthcare Services fell through. Debt initially was reported to include $6.8 million on a revolving credit, $10.6 million on a term loan, and $20 million in unsecured debt owed to trade suppliers. The PBGC had placed a $25.9 million lien on hospital assets.
The case is In re Christ Hospital, 12-12906, U.S. Bankruptcy Court, District of New Jersey (Newark).
Madoff Trustee Hopes to Save Suits Alleging Knowledge of Fraud
It is “intellectually corrupt” for those who knew Bernard L. Madoff Investment Securities Inc. was a fraud to hide behind the so-called bankruptcy safe harbor, Madoff trustee Irving Picard said in papers filed last week in U.S. District Court in Manhattan.
In opinions handed down in September 2011 and April 2012, U.S. District Judge Jed Rakoff ruled that Section 546(e) of the Bankruptcy Code, known as the safe harbor, only allows a bankruptcy trustee to sue for recovery of payments going back two years before bankruptcy. Picard wanted his suits to reach back six years.
Rakoff set aside a group of lawsuits involving defendants who allegedly either knew or had reason to believe Madoff was conducting a fraud. Picard filed his brief on Sept. 28 seeking to persuade Rakoff that his suits shouldn’t be cut off at two years.
Picard pointed out two lawsuits where the defendants allegedly received cash payments for years from Madoff that were neither reported to the Internal Revenue Service nor shown on their account statements. Picard said it was “intellectually corrupt” for those defendants to argue they are protected by the safe harbor.
The safe harbor was enacted by Congress “to prevent disruptions of the securities markets,” Picard argued. The trustee contends safe harbor shouldn’t be used to protect those with knowledge or a high level of suspicion that Madoff was conducting a fraud.
The trustee is urging Rakoff not to dismiss the suits without first holding a trial to determine the degree of knowledge by each defendant about Madoff’s Ponzi scheme.
Five Madoff employees were re-indicted on additional criminal charges by the U.S. Attorney in Manhattan. For the Bloomberg story, click here.
The Madoff firm began liquidating in December 2008, with the appointment of a trustee under the Securities Investor Protection Act. Madoff is serving a 150-year prison sentence following a guilty plea.
The safe harbor dispute is part of Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities LLC, 12-mc-00115, U.S. District Court, Southern District of New York (Manhattan). The Madoff liquidation case is Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities Inc., 08-01789, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The criminal case is U.S. v. Madoff, 09- cr-00213, U.S. District Court, Southern District of New York (Manhattan).
Power Producer Dynegy Implements Merger and Reorganization Plan
Power producer Dynegy Holdings LLC (DYN) said it was implementing the bankruptcy reorganization plan yesterday that the U.S. Bankruptcy Court in Poughkeepsie, New York approved with a Sept. 10 confirmation order.
Dynegy Holdings filed under Chapter 11 in November. The direction of the bankruptcy changed in March when examiner Susheel Kirpalani issued a report saying that an out-of-court restructuring last year included fraudulent transfers with actual intent to hinder and delay creditors of subsidiaries of parent Dynegy Inc. (DYNIQ) Changing role to that of mediator, Kirpalani persuaded the contending factions to settle.
The settlement, carried out through the plan, gave creditors of Dynegy Holdings 99 percent of the stock following a merger with parent Dynegy Inc., which filed its own Chapter 11 petition later. The merger was completed on Sept. 30, Dynegy said in a regulatory filing.
The other 1 percent of the stock was for shareholders of parent Dynegy Inc.
Disclosure materials told unsecured creditors of Dynegy Holdings with claims totaling about $4.2 billion they could expect a recovery between 59 percent and 89 percent. For details on the Dynegy plan, click here for the June 20 Bloomberg bankruptcy report.
The $1.05 billion in 8.375 percent senior unsecured notes of Dynegy Holdings LLC last traded on Sept. 28 for 57.25 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
In addition to the Dynegy parent, the companies in Chapter 11 are Dynegy Holdings LLC, a direct subsidiary of the Dynegy parent, and four of Dynegy Holding’s units. The subsidiaries of Dynegy Holdings were not reorganized under the plan.
The case is In re Dynegy Holdings LLC, 11-38111, U.S. Bankruptcy Court, Southern District of New York (Poughkeepsie). The case for the parent is In re Dynegy Inc., 12-36728, in the same court.
NewPage Creditors Use Mediation to Settle on Plan
The NewPage Corp. warring creditor factions came to agreement on a reorganization plan with help from a bankruptcy judge serving as mediator.
The plan will give all the stock to holders of first-lien notes. Second-lien noteholders and some unsecured creditors will split up $30 million in cash and the first $50 million collected by a litigation trust.
After the initial $50 million from the trust, additional distributions will be shared by the first- and second-lien noteholders and some unsecured creditors.
Trade suppliers who agree to provide credit in the future will receive 15 percent on their claims over two years, according to a company statement.
The company reported a $2.25 million net loss in August on net sales of $273.7 million. Reorganization expenses in the month were $3.9 million, according to the operating report filed with the bankruptcy court in Delaware.
Newpage filed a Chapter 11 plan in August that dissatisfied both secured and unsecured creditors. NewPage had been saying that unsecured creditors are “hopelessly out of the money” with no theory that would bring them a dividend under a Chapter 11 plan. For details on the August plan, click here for the Aug. 14 Bloomberg bankruptcy report.
Although the NewPage bankruptcy is pending in Delaware, the mediator was Bankruptcy Judge Robert Drain from New York.
Newpage will fund the litigation trust with $40 million cash and specified lawsuit recoveries. NewPage will also loan the trust $5 million to be used for administrative expenses. The official creditors’ committee supports the newly negotiated plan.
The official committee argued that that the lenders financed an acquisition in 2007 and a refinancing two years later that included fraudulent transfers. For details on the creditors’ claims, click here for the May 9 Bloomberg bankruptcy report.
Eighty percent owned by Cerberus Capital Management LP, NewPage listed assets of $3.4 billion and debt totaling $4.2 billion in the Chapter 11 reorganization begun in September 2011. Liabilities included $232 million on a revolving credit plus $1.77 billion on 11.375 percent senior secured first-lien notes.
Second-lien obligations include $802 million in 10 percent secured notes and $225 million in floating-rate notes. In addition to $200 million in 12 percent senior unsecured notes, $498 million is owing on two issues of floating-rate pay-in-kind notes.
NewPage, based in Miamisburg, Ohio, filed bankruptcy with 16 paper-making machines operating in seven plants in the U.S. and Nova Scotia. The Canadian affiliate filed for reorganization in Nova Scotia. The company reported a net loss of $229 million in the first half of 2011 on revenue of $1.79 billion, following a $674 million net loss in 2010 on revenue of $3.6 billion.
The case is In re NewPage Corp., 11-12804, U.S. Bankruptcy Court, District of Delaware (Wilmington).
AMR Argues Appeal on Union Vote, Loose B757 Seats
AMR Corp., the parent of American Airlines Inc., faced tough questioning yesterday in an appeals court when defending a June ruling in its favor hindering a union election by passenger-service agents.
A federal district judge in Dallas ruled on June 22 that the National Mediation Board was improperly holding an election by passenger-service agents because the required 50 percent hadn’t shown a desire for union representation. The NMB and the communications workers’ union appealed, contending that only 35 percent was required.
After the union organizing process began, the law was changed raising the threshold to 50 percent from 35 percent. The issue for the appeals court dealt with which percentage determines whether enough workers favor a union to warrant holding an election.
The three judges on the U.S. Court of Appeals in New Orleans didn’t say how they would rule or when. For Bloomberg coverage of the appellate court hearing, click here.
AMR is checking eight Boeing 757 aircraft to determine whether seats were properly reattached to the floor when the cabin configuration was changed recently. For the Bloomberg story, click here.
AMR, based at the airport midway between Dallas and Fort Worth, Texas, listed assets of $24.7 billion and debt totaling $29.6 billion in the Chapter 11 reorganization begun in November.
The appeal is American Airlines Inc. v. National Mediation Board, 12-10680, U.S. Court of Appeals for the Fifth Circuit (New Orleans). The bankruptcy case is In re AMR Corp., 11-15463, U.S. Bankruptcy Court, Southern District New York (Manhattan).
LightSquared’s New Regulatory Strategy Satisfies Creditors
The new LightSquared Inc. strategy to win regulatory approval for the wireless communications system persuaded secured lenders to drop opposition to enlargement of the company’s exclusive right to propose a reorganization plan.
Last week, LightSquared modified its proposal with the U.S. Federal Communications Commission to use weather satellite and weather balloon frequencies rather than portions of the spectrum near those used by global positioning satellites. LightSquared’s proposed system uses earth and satellite-based wireless technology.
The FCC had blocked LightSquared from building out the system on concern it would interfere with reception by GPS devices. The new proposal allowed the bankruptcy judge at a hearing yesterday to give the company the exclusive right until Jan. 31 to propose a Chapter 11 reorganization plan. For Bloomberg coverage of the hearing, click here.
The so-called LP lenders opposed granting longer exclusivity so long as the company was bent on persuading the FCC to reverse its prior decision. They argued that the strategy was too likely to fail. The new FCC proposal prompted the lenders to drop their opposition to longer exclusivity.
The LP lenders are an ad hoc group owning $1.08 billion of the $1.7 billion secured borrowing in October 2010 by LightSquared LP.
The LP lenders have a hearing scheduled for Oct. 30 when they will ask the bankruptcy judge for permission to sue LightSquared’s owner, Harbinger Capital Partners LLC, over alleged defects in loans and security interests. For details, click here for the Sept. 17 Bloomberg bankruptcy report.
LightSquared filed for bankruptcy protection in May, listing assets of $4.48 billion and liabilities totaling $2.29 billion. The company says it spent $4 billion developing its satellite system. Philip Falcone’s Harbinger acquired LightSquared in March 2010 for $1.05 billion in cash and controls 96 percent of the stock.
The case is In re LightSquared Inc., 12-12080, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
Patriot Seeking Extension for Selenium Cleanup at Mines
Patriot Coal Corp. is facing a May deadline from a federal district court in West Virginia for installing equipment to remove selenium contamination from water discharges at some of its mines. The company was unable to negotiate an extension of the deadline with the private parties who brought the environmental lawsuit.
Patriot had intended to file papers in the West Virginia court requesting an extension of the deadlines, which require spending $29 million. The plaintiffs took the position that the so-called automatic stay emanating from Patriot’s Chapter 11 reorganization blocks the West Virginia suit from going forward.
The company filed papers at the end of last week asking the bankruptcy judge to modify the automatic stay so Patriot can proceed in district court seeking an extension of the deadline. The hearing is set for Oct. 11. For Bloomberg coverage, click here.
Whether the Oct. 11 hearing is held in U.S. Bankruptcy Court in New York remains to be seen. Last month, the New York judge held a hearing on a request by the U.S. Trustee and a union to move the bankruptcy to West Virginia, where most of the mines are located, or to St. Louis, home to Patriot’s head office. The judge didn’t say how or when she will rule.
Patriot’s $200 million in 3.25 percent senior convertible notes due in 2013 last traded yesterday for 14 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The $250 million in 8.25 percent senior unsecured notes due in 2018 last traded yesterday for about 49 cents on the dollar.
Patriot is one of the largest coal producers in the U.S. In the July Chapter 11 filing, Patriot listed assets of $3.57 billion and debt of $3.07 billion as of May 31.
The Chapter 11 case is In re Patriot Coal Corp. (PCXCQ), 12-12900, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
FiberTower Signs Bordercomm to Buy for $22.5 Million
FiberTower Corp., a wireless communications provider, filed for bankruptcy reorganization in July and has a contract to sell the business for $22.5 million to Bordercomm Partners LP unless a better offer turns up at auction.
In papers filed Sept. 28 in U.S. Bankruptcy Court in Fort Worth, Texas, FiberTower wants the bankruptcy judge to approve sale procedures so an auction can occur not later than Nov. 20.
San Francisco-based FiberTower describes its business as providing “backhaul services” mostly for wireless carriers. It moves video and data traffic from a cell carrier’s cell site to a switching center. It also leases spectrum services to third parties.
The company’s biggest markets are Dallas-Fort Worth and Washington-Baltimore.
There will be a hearing in bankruptcy court tomorrow to discuss scheduling the auction and sale.
Yesterday, the bankruptcy judge signed a preliminary injunction blocking the Federal Communications Commission from terminating licenses. The judge said he will file an opinion within two weeks giving reasons in detail for the injunction.
The company filed formal lists showing assets for $331 million and debt totaling $175 million, including $132 million in secured debt.
The case is FiberTower Corp. (FTWRQ), 12-44027, U.S. Bankruptcy Court, Northern District of Texas (Fort Worth).
Solar Millennium Files Liquidating Plan, Seeks Exclusivity
Solar Millennium Inc. (S2M) sold two of its solar power projects under contracts the company said eventually could generate $110 million in value. The company filed a proposed liquidating Chapter 11 plan in August and lodged a request last week for a second extension of the exclusive right to propose a plan.
The plan calls for paying creditors in the order of priority called for in bankruptcy law, taking settlements into consideration. The draft disclosure statement accompanying the plan has blanks where unsecured creditors will be told the percentage distribution to expect. The plan creates a liquidating trust to sell the remaining assets not part of the two prior sales.
There will be a hearing on Oct. 12 in U.S. Bankruptcy Court in Delaware for approval of disclosure materials allowing creditors to vote on the plan. Oct. 17 is the hearing date when Solar Millennium will request an extension until Dec. 16 of the exclusive right to propose a reorganization plan.
NextEra Energy Inc. (NEE) bought the 1,000 megawatt facility in Blythe, California, in July. When completed, it will be the world’s largest solar power plant. In August Solar Millennium sold the 500 megawatt project under development in Desert Center, California to BrightSource Energy Inc. (BRSE) for a price that could be as much as about $30 million, if all contingent payments are made.
For the larger project, Solar Millennium initially said NextEra would pay $10 million cash plus contingent payment of as much as an additional $40 million when the project is completed.
There is no buyer as yet for the 500-megawatt project still in the planning stage in Amargosa Valley, Nevada. Global Finance Corp. started a lawsuit in bankruptcy court in June contending that Solar Millennium lost its ownership interest in the project by not moving forward with development.
Solar Millennium is a U.S. subsidiary of Germany’s Solar Millennium AG. The Oakland, California-based company filed under Chapter 11 in April when rent was coming due the 7,000-acre Blythe project.
The company’s solar-power projects were all in the development stage and generated no income. There was only $200,000 in secured debt at the outset. Financing had been provided by the German parent and Ferrostaal AG, the owner of a 30 percent interest in the joint venture developing the U.S. projects. Ferrostaal provided no financing in two years, and the German parent suspended financing in late 2011 after initiating its own insolvency proceedings in Germany.
The petition listed assets of less than $100 million and liabilities exceeding $100 million.
The case is In re Solar Trust of America LLC, 12-11136, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Southern Air, Metro Fuel, Carey Limousine: Bankruptcy Audio
After a dearth of interesting new cases, Bloomberg Law’s Lee Pacchia and Bloomberg News bankruptcy columnist Bill Rochelle talk on their podcast about three new Chapter 11s filed last week. The largest was cargo airline Southern Air Holdings Inc., which suffered from the drawdown of U.S. troops stationed abroad. A New York fuel oil distributor named Metro Fuel Oil Corp. filed for reorganization in New York after overstating accounts receivable and having the bank loans cut off. Regarding the last new case, Carey Limousine L.A. Inc., Rochelle wonders whether the company will suffer the same fate as the Cordillera golf club in Colorado and have the reorganization tossed out of Delaware and sent home. To listen to the podcast, click here.
To contact the reporter on this story: Bill Rochelle in New York at firstname.lastname@example.org
To contact the editor responsible for this story: John Pickering at email@example.com