Dodgers, MF Global, Chrysler, Vitro, Lehman, A&P: bankruptcy
Fox Entertainment Group Inc. filed papers in bankruptcy court on Thanksgiving Day saying that Frank McCourt, the owner of the Los Angeles Dodgers baseball club, “is not necessary to this process. He should get out of the way and let everyone return to the business of baseball.”
Fox’s papers were filed in opposition to the Dodgers’ latest motion, to be argued on Nov. 30, seeking permission to auction telecasting rights.
If the Dodgers want the highest price for the team, the sale should include the land under the stadium and the parking lot, Fox said in its papers. The News Corp. unit is urging the bankruptcy court not to consider an auction for broadcasting rights until the still-secret terms of the settlement with Major League Baseball are revealed.
Early this month, the team and the baseball commissioner said they reached a settlement through mediation where the team would be sold at auction under agreed procedures. The commissioner, according to a court filing, won’t oppose having an auction to learn if Fox or someone else will make the best offer for television rights beginning with the 2014 season.
Fox said an auction isn’t necessary to know what future television rights are worth because every buyer will have media advisers. Fox contends that “bidders can and do easily value the future telecast rights.”
Last week, the U.S. Bankruptcy Judge in Delaware halted discovery and sent Fox and the Dodgers into mediation today with retired U.S. District Judge Joseph J. Farnan Jr., the mediator who worked out a settlement with the baseball commissioner.
At least for now, a hearing remains on the bankruptcy court’s calender for Nov. 30, when the Dodgers are scheduled to request court approval for auction procedures designed to determine whether Fox has the best offer for television broadcasting rights beginning with the 2014 season.
Fox has a motion on file to dismiss the Dodgers’ bankruptcy, calling it an “elaborate contrivance” to solve the owner’s financial problems. Fox also has a complaint on file in bankruptcy court against the Dodgers and McCourt, contending that they are interfering with the broadcaster’s right under the existing media contract.
To carry out the settlement with the commissioner negotiated with Farnan’s help, the Dodgers are to file papers setting up procedures for selling the team. The Dodgers say the sale of the club as whole will be completed by April 30.
Faced with missing payroll, the team filed for bankruptcy protection in June when the commissioner refused to approve a sale of television broadcasting rights to Fox.
The case is In re Los Angeles Dodgers LLC, 11-12010, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Updates
Daimler Fends Off Suit by Old Chrysler Creditors
Unsecured creditors of Old Chrysler won’t be receiving anything on account of the claims against the former carmaker unless they can convince the U.S. Circuit Court of Appeals to reverse unfavorable rulings by two lower court judges.
U.S. District Judge Denise Cote on Nov. 22 upheld dismissal of the creditors’ lawsuit against the automaker’s former owner Daimler AG. Cote was upholding a ruling in May when U.S. Bankruptcy Judge Arthur J. Gonzalez dismissed the creditors’ trust’s second attempt at crafting a complaint against the German automaker.
The liquidating Chapter 11 plan for Old Chrysler, now formally named Old Carco LLC, was structured so unsecured creditors would receive nothing out of bankruptcy aside from recovery in the Daimler suit, and then only if the recovery were more than $25 million.
With the suit twice dismissed, creditors’ only hope is with another appeal, this time to the U.S. Court of Appeals in Manhattan.
The suit alleged that Daimler, Old Chrysler’s former owner, stripped out the automaker’s most valuable assets before the company was sold in 2007 to Cerberus Capital Management LP. To read Cote’s decision, click here.
After filing under Chapter 11 on April 30, 2009, Old Chrysler sold the business in June 2009 to the new company 20 percent owned by Italy’s Fiat SpA. Old Chrysler confirmed a liquidating Chapter 11 plan in April 2010. To read about the plan, click here for the April 21, 2010, Bloomberg bankruptcy report.
Chrysler’s petition listed assets of $39.3 billion and debt totaling $55.2 billion. The plan gave 55 percent ownership of new Chrysler to a trust to provide health benefits for Chrysler workers. The U.S. government took 8 percent of the stock while Canadian governmental units received 2 percent.
The appeal is Liquidation Trust v. Daimler AG, 11-5039, U.S. District Court, Southern District of New York (Manhattan). The Chapter 11 case was In re Old Carco LLC, 09-50002, U.S. Bankruptcy Court, Southern District New York (Manhattan).
Former FBI Director Louis Freeh Named Trustee for MF Global
Louis J. Freeh, a former U.S. district judge and director of the Federal Bureau of Investigation from 1993 to 2001, was named by the U.S. Trustee on Nov. 25 to serve as Chapter 11 trustee for MF Global Holdings Ltd., the holding company for commodities broker MF Global Inc.
The broker is already under control of a trustee appointed under the Securities Investor Protection Act.
Freeh’s appointment still must be approved by U.S. Bankruptcy Judge Martin Glenn. Freeh, who had been the examiner for petroleum-product transporter and marketer SemGroup LP, is required to file a $26 million bond. The amount of the bond represents cash the holding company had upon filing under Chapter 11.
The U.S. Trustee said in a court filing that she selected Freeh after consulting with the company, the creditors’ committee, secured lenders, the Securities and Exchange Commission and the U.S. Attorney.
Freeh said in a court filing that he intends to retain Freeh Group International Solutions LLC, a company he founded that he described as providing global risk-management services. Freeh said he intends to hire lawyers, though he didn’t say whether the firm would be Freeh Sporkin & Sullivan LLP, the law firm he founded.
The holding company and the creditors’ committee together decided last week to turn the company over to a trustee. As trustee, Freeh inherits responsibility for deciding if the Chapter 11 case for the holding company should be converted to liquidation in Chapter 7. For Bloomberg coverage of Freeh’s appointment, click here.
MF Global’s administrators in the U.K. said they will return some customer funds by March. For the Bloomberg story, click here. For Bloomberg coverage of distributions to customers of MF Global’s Canadian brokerage subsidiary, click here. Click here for Bloomberg coverage of how the broker’s liquidator in Singapore has taken control of $160 million out of $310 million in customer funds.
Last week, Glenn ruled against having an official committee of customers in the SIPA liquidation of the brokerage subsidiary. The judge said he wouldn’t appoint a committee in the circumstances of the case, even if the statute gave him authority.
The MF Global broker went into liquidation under the Securities Investor Protection Act on Oct. 31, the same day MF Global Holdings filed for reorganization under Chapter 11. The parent’s petition listed assets of $41 billion against debt totaling $39.7 billion. MF Global had been one of 20 primary dealers with the New York Federal Reserve.
Liabilities include $1.17 billion on a revolving credit and $300 million on a secured revolving credit. There is another $1.02 billion owing on four issues of unsecured notes.
The holding company’s Chapter 11 case is In re MF Global Holdings Ltd., 11-15059, U.S. Bankruptcy Court, Southern District of New York. The liquidation of the broker is In re MF Global Inc., 11-02790, in the same court.
Vitro Unit Wins Protection as Judge Cites Possible Fraud
A Vitro SAB subsidiary was given protection from creditors in the U.S. as the result of a three-page opinion on Nov. 23 by U.S. Bankruptcy Judge Harlin Hale in Dallas.
Vitro Packaging de Mexico SA de CV filed under Chapter 15 in June, asking the U.S. court eventually to enforce whatever reorganization a court in Mexico approves. Holders of some of Vitro’s $1.2 billion in defaulted bonds opposed Chapter 15 protection.
Hale noted in his opinion how substantial assets were transferred to Vitro Packaging in 2009. Although a Vitro witness said the transfer was made for tax reasons, Hale said “his story is not supported by a shred of other evidence.”
According to Hale, the creditors said there were “plenty of badges of fraud,” including transfers to affiliates made in secrecy after default on the bonds.
Hale said the decision to provide creditor protection in the U.S. isn’t affected by whether Vitro Packaging received fraudulently transferred assets because it was not “manifestly contrary to the public policy of the U.S.”
Hale said an “appropriate court” will later decide if there was fraud.
Whether Vitro Packaging is entitled to Chapter 15 protection, according to Hale, turns on the fact that the company had its assets and management in Mexico.
Chapter 15 isn’t a full-blown bankruptcy reorganization like Chapter 11. Hale’s decision that Mexico is home to the “foreign main proceeding” automatically stops creditor actions in the U.S. Chapter 15 protection also gives Hale the ability to enforce whatever decision the Mexican court reaches in the bankruptcy abroad.
The Vitro parent previously was granted protection from creditors in the U.S. under Chapter 15. Holders of some of the defaulted bonds filed involuntary Chapter 11 petitions last year against Vitro subsidiaries. Some put themselves into Chapter 11 this year and later sold their businesses. In April, the bankruptcy judge in Texas denied the involuntary petitions against subsidiaries that hadn’t elected Chapter 11 voluntarily.
The Vitro parent’s reorganization was revived by an appellate court in Mexico after having been dismissed in a lower court.
The new Chapter 15 case is Vitro Packaging de Mexico SA de CV, 11-34224, U.S. Bankruptcy Court, Northern District Texas (Dallas). The Chapter 11 cases for U.S. subsidiaries is In re Vitro Asset Corp., 11-32600, U.S. Bankruptcy Court, Northern District of Texas (Dallas). The Chapter 15 case for the parent is Vitro SAB de CV, 11-33335, in the same court.
Manistique Papers Setting Up Feb. 13 Auction Sale
Manistique Papers Inc., the owner of a 125,000 ton-a-year plant making specialty papers from recycled fiber, filed pleadings on Nov. 21 setting up sale procedures leading to an auction on Feb. 13. No buyer is yet under contract.
If the bankruptcy court in Delaware agrees with procedures at a Dec. 13 hearing, bids would be due initially by Feb. 8. The company will retain the ability to anoint a so-called stalking horse bidder if a buyer steps up before hand willing to sign an acceptable contract.
Manistique, whose plant is in a Michigan town of the same name, at the same hearing will request an extension until April 13 of the exclusive right to propose a Chapter 11 plan.
The lender is now mBank from Manistique. It purchased the secured loan from the prior lender and is providing $5 million in additional financing. The financing is partially backed by the state’s Michigan Strategic Fund, court papers say. The bank would have the right to bid at auction using secured debt rather than cash.
After filing under Chapter 11 in August, the company submitted formal lists showing assets of $19.7 million and liabilities totaling $24.6 million, including $12 million in secured debt. The plant halted production shortly before the Chapter 11 filing when the then-lender cut off funding.
The case is In re Manistique Papers Inc., 11-12562, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Lehman Trustee, Pimco, Morgan Stanley Debating TBA Transactions
The bankruptcy judge overseeing the liquidation of the brokerage subsidiary of Lehman Brothers Holdings Inc. will be deciding whether parties to so-called to-be-announced transactions qualify as having customer claims. Lehman creditors claiming they have the status of customers include Pacific Investment Management Co. and Morgan Stanley Investment Management Inc.
James W. Giddens, the trustee for the Lehman broker under the Securities Investor Protection Act, contends there is no customer status because neither cash nor securities had been given to Lehman on the trades when bankruptcy began.
Giddens described the transactions as agreements to buy or sell obligations of government-sponsored agencies at a time in the future. Typically, Giddens said, the underlying securities weren’t issued when the contracts were made. They aren’t traded on any exchanges, Giddens said.
The creditors contend the transactions are akin to situations in which a broker agreed to effect a trade although settlement of the trade hadn’t occurred at the time of bankruptcy.
Royal Bank of Scotland NV agreed to settle a dispute over a currency swap agreement by paying Giddens $215 million. The trustee for the Lehman broker was seeking $345 million. The settlement is scheduled for approval by the bankruptcy judge on Dec. 1.
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 Barclays Plc one week later. The remnants of the Lehman brokerage operations went into liquidation on Sept. 19, 2008, in the same court, with 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 Investor Protection Corp. v. Lehman Brothers Inc., 08-01420, both in U.S. Bankruptcy Court, Southern District of New York (Manhattan).
A&P Negotiates Concessions From All 13 Union Locals
Supermarket operator Great Atlantic & Pacific Tea Co. reached an accord with its 13 union locals on 34 new collective bargaining agreements, surmounting the last major obstacle to emerging from bankruptcy reorganization, the company said in a court filing last week.
The U.S. Bankruptcy Court in White Plains, New York, will hold a hearing on Dec. 5 for approval of contracts with locals affiliated with the United Food & Commercial Workers International Union. Terms of the revised agreements will be disclosed tomorrow after union members have been briefed by their leader on what the contracts mean for them, a court filing said.
A&P filed a proposed Chapter 11 plan founded upon a $490 million debt and equity financing announced this month. The proposed financing, tentatively approved by the bankruptcy judge, allows A&P to accept a better offer if one appears. New investors sponsoring the plan include Yucaipa Cos., Goldman Sachs Group Inc. and Mount Kellett Capital Management LP. For details on the financing, click here for the Nov. 4 Bloomberg bankruptcy report.
Holders of convertible notes, 9.125 percent senior notes, general unsecured creditors, and landlords are to split up $40 million. Landlords who vote for the plan will receive an additional distribution with the amount still to be decided.
Holders of second-lien notes will be paid in full.
The plan requires substantive consolidation, where all claims and assets are thrown into one pot, in the process ignoring how some assets and liabilities belong to specific A&P companies.
Montvale, New Jersey-based A&P filed for reorganization in December with 395 supermarkets. There are now 330 locations, the company said in a court filing. The stores are mostly in New York, New Jersey, and Pennsylvania. A&P listed assets of $2.531 billion and debt totaling $3.211 billion. Along with A&P, store brands include Pathmark, Food Emporium, and Waldbaum’s.
The case is In re The Great Atlantic & Pacific Tea Company Inc., 10-24549, U.S. Bankruptcy Court, Southern District New York (White Plains).
NewPage Proposes $3 Million Bonus Pool for Executives
Papermaker NewPage Corp. scheduled a Dec. 13 hearing in U.S. Bankruptcy Court in Delaware for approval of a bonus program benefitting 15 executives.
If the judge approves, executives together will share $1.5 million if cash flow targets are met for the last half of 2011. The company is proposing another $1.5 million bonus pool for the first half of 2012, although the cash flow target hasn’t yet been fixed.
The company said that unsecured creditors are “hopelessly out of the money” and any prospect for recovery is “beyond remote.”
Miamisburg, Ohio-based NewPage was acquired in 2005 by Cerberus Capital Management LP. It listed assets of $3.4 billion and debt totaling $4.2 billion. 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, there is $498 million owing on two issues of floating-rate pay-in-kind notes.
NewPage has 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 $229 million net loss 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).
Open Range Obtains Authority to Sell Assets Quickly
Open Range Communications Inc., a provider of wireless broadband services to 26,000 rural customers in 12 states, was authorized last week to sell the assets after failing to find a buyer for the system as a going concern.
Open Range can sell assets so long as the principal parties in the case don’t object after three days’ notice. Those to receive notice of proposed sales include the creditors’ committee, the U.S. government, the U.S. Trustee, and secured creditors.
On filing for Chapter 11 protection on Oct. 6 in Delaware, Open Range said it would shut down and liquidate the network if a buyer couldn’t be found.
The petition listed assets of $114 million and liabilities of $110 million, including $74 million in secured debt owing to the U.S. Agriculture Department’s Rural Utilities Services. Unsecured claims are $36 million, a court filing says.
Revenue of $1.7 million in 2010 resulted in an operating loss of $50.4 million. The business was partially financed with $41 million in equity contributions from One Equity Partners LLC.
The case is In re Open Range Communications Inc., 11-13188, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Pure Beauty Wins Approval to Auction Business in January
Pure Beauty Salons & Boutiques Inc. was acquired in a Chapter 11 sale last year, filed for bankruptcy reorganization again on Oct. 4, and was authorized last week by the bankruptcy judge in Delaware to hold an auction for the business on Jan. 13.
Before the new bankruptcy, an agreement was negotiated for former owner Regis Corp. and an affiliate of a Luborsky family trust to purchase the business in exchange for $32.5 million in debt held by Regis and the assumption of about $13 million in liabilities. The two prospective buyers were involved in the prior Chapter 11 sale.
Competing bids are due Jan. 10. A hearing for approval of the sale will be held Jan. 19.
Pure Beauty has 436 mall-based locations operating beauty salons and retailing hair-care products. Trade suppliers are owed about $15 million, a court paper says. The petition said assets and debt were both less than $50 million.
The prior case was dismissed after the sale was completed.
The new case is In re Pure Beauty Salons & Boutiques Inc., 11-13159, U.S. Bankruptcy Court, District of Delaware (Wilmington). The previous case was In re Trade Secret Inc., 10-12153, in the same court.
New Filings
Franciscan Retirement Community Files in Cleveland
Franciscan Communities St. Mary of the Woods Inc., a retirement community and nursing home in Avon, Illinois, filed a Chapter 11 petition on Nov. 21 in Cleveland after being unable to negotiate an out-of-court workout with holders of tax-free bonds.
The not-for-profit community is owned and managed by the Franciscan Sisters of Chicago Service Corp. It listed assets of $36 million and debt totaling $48 million.
The facility has 81 independent living units, 47 assisted- living units, and 30 skilled nursing beds.
The community blamed financial problems on the recession.
An upscale 334-unit high-rise continuing-care retirement community in Chicago named The Clare at Water Tower filed for Chapter 11 protection on Nov. 14 in Chicago.
The case is In re Franciscan Communities St. Mary of the Woods Inc., 11-19685, U.S. Bankruptcy Court, Northern District Ohio (Cleveland).
Indian Tobacco Seller Files Facing Government Suit
Native Wholesale Supply Co., a reseller of tobacco imported from Canada, filed a Chapter 11 petition on Nov. 21 in Buffalo, New York, to deal with two lawsuits where the U.S. government seeks to assess $43 million.
The company is chartered by the Sac and Fox Tribe of Oklahoma and operates on the Seneca Cattaragus Indian Territory in Gowanda, New York.
Revenue in 2010 was $229.2 million, court papers say. Secured creditor and supplier Grand River Enterprises Six Nations Ltd. is owed $8 million, plus another $10 million if a disputed state tax liability is found valid.
Native Supply says it will use Chapter 11 to deal with whatever is found owing to the government.
The petition says assets and debt are both more than $50 million.
The case is In re Native Wholesale Supply Co., 11-14009, U.S. Bankruptcy Court, Western District New York (Buffalo).
Downgrade
Commercial Metals Demoted to Junk by Moody’s, S&P
Commercial Metals Co., a steel producer based in Dallas, lost investment grade status from both Standard & Poor’s and Moody’s Investors Service. S&P downgraded on Nov. 23, following Moody’s action on Nov. 17. The corporate ratings are now BB+ from S&P and Ba1 from Moody’s. Both are the highest junk ratings.
S&P was reacting to what it characterized as the “severity and duration of the current cyclical downturn” in the steel industry, resulting in “sharply lower profitability.”
Moody’s said that Carl Icahn’s ownership of 10 percent of the stock “may” alter the company’s “currently conservative financial policies” and result in “more shareholder-friendly policies such as debt-financed dividends.”
Exchange Offer News
Dune Energy Has 74% Acceptance of Exchange Offer
Dune Energy Inc., an independent oil and gas exploration and production company, announced on Nov. 23 that the exchange offer has been accepted by holders of 74 percent of the convertible preferred stock and holders of 96 percent of the $300 million in 10.5 percent second-lien notes due 2012.
Before the offer was announced, Dune had support from holders of 90 percent of the secured notes and a holder with 64 percent of the convertible preferred stock. Dune said it hopes the offer will be completed by the year’s end.
The offer would give 97.25 percent of the new common stock and a combination of cash or secured notes for $50 million to holder of the existing secured notes. The existing secured notes traded on Nov. 15 for 58.87 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
The existing preferred stockholders are to receive 1.5 percent of the common stock, leaving existing shareholders with 1.25 percent of the equity.
The balance sheet was upside down on Sept. 30 with assets of $271.2 million and total liabilities of $376.9 million.
For the first three quarters of 2011, the Houston-based company had a net loss of $47.7 million on revenue of $48.4 million. The operating loss in the period was $2.3 million.
Daily Podcast
Vegas Monorail, MF, Frontline, Clearwire: Bankruptcy Audio
U.S. Bankruptcy Judge Bruce A. Markell disappointed both Las Vegas Monorail Co. and its creditors when he refused to approve the widely supported Chapter 11 plan, as Bloomberg Law’s Lee Pacchia and Bloomberg News bankruptcy columnist Bill Rochelle explain in their new podcast. Looking at the bankruptcy of MF Global Holdings Ltd., the parent of a commodities broker, Rochelle conjectures that the lack of cash to pay attorneys’ fees may have been a contributing factor in the company’s decision to seek appointment of a Chapter 11 trustee ousting management and the board. The podcast examines shipper Frontline Ltd. together with wireless provider Clearwire Corp. and analyzes when or whether either may end up in Chapter 11. The podcast ends by assaying the challenges confronting AMR Corp. and Sears Holdings Corp. To listen, click here.
Advance Sheets
Notice Required Before Appointing Trustee Sua Sponte
It was improper for the bankruptcy judge to appoint a Chapter 11 trustee “with virtually no notice to the debtors,” U.S. District Judge Nathaniel M. Gorton from Boston ruled on Nov. 17.
The bankruptcy judge had summoned the parties to court for a status conference. When the company’s lawyer wasn’t sure about the need for court authorization to use cash collateral, the judge appointed a trustee after being told by the U.S. Trustee that some filings in the case were late.
Gorton said it was permissible for a bankruptcy judge on his own to initiate a hearing for appointment of a Chapter 11 trustee. Still, there must be “notice and a hearing,” as the rule requires.
Gorton said that notice was “insufficient in the circumstances.” If the bankruptcy judge decides to appoint a trustee after conducting another hearing, Gorton directed the judge to “state the reasons for such appointment in detail.”
The case is Allen v. King, 11-30219, U.S. Bankruptcy Court, District of Massachusetts (Boston).
Properly Drafted Trust Assets Exempt in Bankruptcy
When a husband and wife jointly contributed $360,000 to a spendthrift trust originally created by the wife, the husband’s creditors couldn’t reach the funds when the husband filed bankruptcy, U.S. District Judge Paul A. Magnuson from Orlando, Florida, ruled on Nov. 15 in reversing the bankruptcy court.
The wife, as settlor of the trust, retained sole authority to terminate the trust or withdraw assets. Because the husband didn’t have those rights, the trust couldn’t be considered a self-settled trust even though the husband could have been a beneficiary of the trust.
Since the husband was not a settlor of the trust, Magnuson ruled that the assets in the trust, including the $360,000 the husband contributed in part, were exempt assets in the husband’s bankruptcy.
Magnuson cited comments to the uniform law on trusts saying that a family member donating assets to a trust revocable by another family member shouldn’t be considered as one of the trust’s settlors.
The case is Quaid v. Baybrook Home of Polk County LLC (In re Quaid), 11-0280, U.S. District Court, Middle District Florida (Orlando).