Beard Group Corporate Restructuring Review For July 2011

Beard Group Corporate Restructuring Review For July 2011
Presented by Beard Group, Inc. P.O. Box 4250 Frederick, MD 21705-4250 Voice: (240) 629-3300 Fax: (240) 629-3360 E-mail: chris@beard.com
An audio recording of this presentation is available at http://bankrupt.com/restructuringreview/

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Welcome to the Beard Group Corporate Restructuring Review for July 2011, brought to you by the editors of the Troubled Company Reporter and Troubled Company Prospector. In this month's Corporate Restructuring Review, we'll discuss five topics: first, last month's largest chapter 11 filings and other statistics; second, large chapter 11 filings TCR editors anticipate in the near-term; third, a quick review of the major pending disputes in chapter 11 cases that we monitor day-by-day;
fourth, reminders about debtors whose emergence from chapter 11 has been delayed; and fifth, information you're unlikely to find elsewhere about new publicly traded securities being issued by chapter 11 debtors.
July 2011 Mega Cases Now, let's review the largest chapter 11 cases in July 2011. Danilo Muoz reports that three companies with assets in excess of $100 million commenced Chapter 11 bankruptcy proceedings in July 2011. This raised the total number of Chapter 11 filings involving assets exceeding $100 million for the first seven months of 2011, or so-called mega cases, to 43 companies, an average of six mega cases per month. The July mega case filings, however, were lower compared to prior months. In June alone, eight such cases were filed. During the first seven months of last year, a total of 64 mega cases were filed, a difference of 33% from this year's. In July 2010, seven mega cases were filed. For fiscal year 2010, a total of 105 mega cases were filed, an average of about 9 per month. Of the July 2011 Chapter 11 debtors, no company reported assets in excess of $1 billion in assets. So far this year, only two Chapter 11 bankruptcies involve more than $1 billion in assets -Borders Group and MSR Resort Golf Course. Both filed in February.
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During the first seven months of 2010, there were two companies that filed for Chapter 11 with assets in excess of $1 billion. Both billion dollar filings occurred in July 2010 -Innkeepers USA Trust and Protech Holdings LLC. The largest Chapter 11 filing for July 2011 was by Athens, Greece-based Omega Navigation Enterprises Inc. The Company disclosed assets of US$527.6 million and debt totaling US$359.5 million. Omega and its affiliates own a fleet of eight highspecification product tankers, with each vessel owned by a separate debtor entity. Gregory McGrath, Omega's Chief Financial Officer, said in a court filing that, "The global recession lessened demand for international charter shipping of refined petroleum products, and this negatively impacted Omega's business." Omega said it was promised by its senior lenders a threeyear extension on its senior debt facility if certain conditions were met. Omega believes it has met those conditions, yet the senior lenders did not consent to the agreed upon extension. Under threat of default and acceleration of debt, Omega was forced to file the chapter 11 cases to protect its interests. Omega filed for Chapter 11 protection on July 8 with the U.S. Bankruptcy Court for the Southern District of Texas in Houston [Lead Case No. 11-35926] before Judge Karen K. Brown. The next largest Chapter 11 filing was by ArchBrook Laguna Holdings LLC, which disclosed assets of $246.2 million against debt totaling $176.4 million as of March 31, 2011. ArchBrook and certain of its affiliates filed July 8 with the Bankruptcy Court for the Southern District of New York [Lead Case No. 11-13292].
ArchBrook is a procurement and distribution intermediary between production companies and end retailers. It distributes consumer electronics, computers and appliances to principal customers that include Wal-Mart Stores Inc., Best Buy Co. and Costco Wholesale Corp. ArchBrook is seeking to sell substantially all of its assets. At a bankruptcy auction on August 8, liquidator Gordon Brothers Group, LLC, emerged as the winning bidder. ArchBrook is aiming for a quick sale of the business. The Debtors engaged in a marketing process for the assets starting May, and was in talks with 47 potential bidders, but failed to sign a deal for a stalking horse bidder before the Chapter 11 filing. The third largest Chapter 11 case for July 2011 was filed by Amsterdam-based Seaarland Shipping Management BV and parent Marco Polo Seatrade BV. The Company, along with affiliates, own six tankers and bulk carriers. Seaarland and Marco Polo filed for Chapter 11 protection July 29 with the Bankruptcy Court for the Southern District of New York [Case No. 11-13634]. The petition said assets and debt are both between $100 million and $500 million. Marco Polo explained in court filings that Credit Agricole Corporate & Investment Bank, as agent to the Company's lenders, seized one ship on July 21 and was on the cusp of seizing two more on July 29. The arrest of the vessel was authorized by the U.K. Admiralty Court. Credit Agricole also attached a bank account with almost $1.8 million on July 29. The Chapter 11 filing precluded the seizure of the other two vessels.
Credit Agricole is questioning the jurisdiction of the U.S. courts to hear the bankruptcy plea. Credit Agricole also is accusing Marco Polo of filing in bad faith. Mr. Muoz further reports that the number of prepackaged or pre-negotiated mega case restructurings remained at 10 as no large prepack or pre-negotiated case was commended in July. Thus far, the prepacks comprise 23% of the 43 mega cases this year. For fiscal year 2010, a total of 35 prepacks/pre-arranged cases were filed -- or about one in every three filings. Of the July mega cases, two went to the Southern District of New York while one went to the Southern District of Texas. For the first four months of 2011, 22 mega-cases went to Delaware and 9 went to the Southern District of New York. The rest were distributed among various bankruptcy courts throughout the U.S. Lehman Brothers Holding Corp. remains the biggest corporate bust in history. Lehman, which filed in 2008, had $639 billion in total assets and $613 billion in total debts at that time of its filing. This year the largest failure was by MSR Resort Golf Course LLC, which had $2.2 billion in assets and $1.9 billion in debts as of Nov. 30, 2010. MSR and its affiliates own and operate five iconic luxury resort properties with related real estate properties and amenities. The resorts subject to the filings are Grand Wailea Resort and Spa, Arizona Biltmore Resort and Spa, La Quinta Resort and Club and PGA West, Doral Golf Resort and Spa, and Claremont Resort and Spa. MSR and its affiliates filed for Chapter 11 protection with the Bankruptcy Court for the Southern District of New York on Feb. 1 [Lead Case No. 11-10372].
Anticipated Large Chapter 11 Filings

Now, let's turn to the topic of large chapter 11 filings Troubled Company Reporter editors anticipate in the near-term. Carlo Fernandez compiled a list of six companies that may be close to filing for bankruptcy. These are Dynegy, Lee Enterprises, Quantum Fuel, NextWave Wireless, Real Mex and PMI Group.
(A) Dynegy Vice Chancellor Donald Parsons of Delaware's Court of Chancery on July 29 thumbed down the PSEG request for an order to hold up Dynegy's $1.7 billion restructuring, which was launched early in July. The judge said PSEG, which leases plants to Dynegy, failed to show it is likely to succeed on the merits of claims that Dynegy's restructuring would run afoul of contract protections. Judge Parsons also found it unlikely Dynegy's restructuring would later be found to be a fraud on creditors. The corporate-debt restructuring will be managed by investment bank, Credit Suisse. Under the proposal, Dynegy will split its coal and natural-gas generating assets into two separate entities that will be bankruptcy remote from the parent holding company, Dynegy Holdings Inc. The new companies could be sold or pay dividends to shareholders even if the holding company eventually defaults on its $3 billion of bonds. PSEG, which is owed $790 million by Dynegy in lease payments, said the reorganization "fraudulently transfers" assets away from the parent holding company, which guarantees the leases.
LibertyView Capital Management, which owns $30 million of Dynegy bonds, is pursuing a similar action in New York. Texas-based Dynegy produces and sells electric energy, capacity and ancillary services in key U.S. markets. In August last year, Dynegy tried to sell the business to an affiliate of The Blackstone Group at $4.50 a share or roughly $4.7 billion. That offer was raised to $5 a share in November. However, Dynegy shareholders led by Carl Icahn and investment fund Seneca, thumbed down both offers. In December 2010, an affiliate of Icahn commenced a tender offer to purchase all of the outstanding shares of Dynegy common stock for $5.50 per share in cash, or roughly $665 million in the aggregate. In February 2011, Icahn Enterprises L.P. terminated the proposed merger agreement with the Company after it failed to garner the required number of shareholder votes. Dynegy warned shareholders in March this year it might be forced into bankruptcy if it is unable to renegotiate the terms of its existing debt. The Company's balance sheet at March 31, 2011, showed $9.82 billion in total assets, $7.15 billion in total liabilities and $2.67 billion in total stockholders' equity.
(B) Lee Enterprises Lee Enterprises Inc., the owner of the St. Louis PostDispatch and 52 other daily newspapers, is offering lenders stock and higher interest rates as enticement to refinance and avoid bankruptcy, Bloomberg News has reported, citing four people familiar with the matter. If not enough lenders accept the proposal, it would be carried out through a prepackaged Chapter 11 filing, the people said.
Lee is facing the maturity of about $1 billion in term loans and revolving credit in April 2012. A bid to sell high-yield debt in May failed. Lee Enterprises has gained support from two main lenders, namely Goldman Sachs Group Inc. and hedge fund Monarch Alternative Capital, for the debt-exchange offer, The Wall Street Journal reported. One of The Journal's sources said the two main creditors could end up owning about 13% of the newspaper publisher under deal terms being discussed. The Journal's sources said Lee plans to ask lenders in coming weeks to exchange their current debt for new debt that matures later and pays higher interest rates. Based in Davenport, Iowa, Lee Enterprises has 49 daily newspapers and a joint interest in four others, rapidly growing online sites and more than 300 weekly newspapers and specialty publications in 23 states. Lee's newspapers have circulation of 1.5 million daily and 1.8 million Sunday, reaching four million readers daily. The Company's balance sheet at March 27, 2011, showed $1.40 billion in total assets, $1.32 billion in total liabilities, and $77.65 million in total equity.
(C) Quantum Fuel Quantum Fuel Systems Technologies Worldwide Inc., facing imminent maturities, said in July it needs to raise capital,
refinance its debt or secure another maturity extension in coming weeks to avoid a default. The Company reported a net loss of $11 million on $20 million of revenue for fiscal year ended April 30, 2011, compared with a net loss of $46 million on $9.7 million of revenue for fiscal year 2010. Ernst & Young LLP, in Orange County, California, the auditor, noted that Quantum Fuel's recurring losses and negative cash flows combined with the Company's existing sources of liquidity and other conditions raise substantial doubt about its ability to continue as a going concern. The Company's balance sheet at March 31, 2011, showed $71.97 million in total assets, $33.39 million in total liabilities, and stockholders' equity of $38.58 million. Based in Irvine, California, Quantum Fuel develops and produces advanced clean propulsion systems and renewable energy generation systems and services. In it annual report, the Company said it anticipates it will need to raise a significant amount of debt or equity capital in the near future to repay certain obligations owed to the Company's senior secured lender when they mature. As of June 15, 2011, the total amount owing to the Company's senior secured lender was approximately $15.5 million, which includes approximately $12.5 million of principal and interest due under three convertible promissory notes that are scheduled to mature on Aug. 31, 2011, and a $3.0 million term note that is potentially payable in cash upon demand beginning on Aug. 1, 2011, if the Company's stock is below $10 at the time demand for payment is made.
(D) NextWave Wireless NextWave Wireless Inc. failed to pay off $129 million in senior secured first-lien notes when they matured on July 17. NextWave Wireless has entered into an agreement with the holders of its secured notes pursuant to which the holders forbear from exercising their rights and remedies. The forbearance agreement will provide the Company until Sept. 30, 2011, to complete a refinancing transaction. NextWave has $179 million in senior-subordinated second lien notes that mature in November. In addition, there are $640 million in senior-subordinated third-lien notes that mature in December. The company said in regulatory filings that it has been delayed in selling wireless-spectrum licenses. For the first quarter, there was no income, leading to a $5.1 million loss from operations and a $61 million net loss, taking into consideration $58.5 million of interest expense. As of April 2, there was $31.5 million in cash among assets on the books for $484.5 million. San Diego, California-based NextWave Wireless is a wireless technology company that manages and maintains worldwide wireless spectrum licenses. The Company's balance sheet at April 2, 2011, showed $484.5 million in total assets, $941.1 million in total liabilities, and a stockholders' deficit of $456.6 million.
(E) Real Mex

Real Mex Restaurants, Inc. reached an agreement with lenders to waive and amend certain covenants as it works to revise its corporate capital structure. As part of the agreement, the company made a $9.1 million interest payment due July 1 on the $130 million second lien senior secured notes. An affiliate of Sun Capital Partners provided additional liquidity as part of the ongoing restructuring process. Real Mex said all financial stakeholders are working together on a revised capital structure that recognizes "economic realities and addresses future needs." Based in Cypress, California, Real Mex Restaurants operates 180 restaurants under the trade names El Torito Restaurant(R), Chevys Fresh Mex(R) and Acapulco Mexican Restaurant Y Cantina(R). Total revenues for 12 months ended March 2011 were $474 million.
(F) PMI Group The PMI Group Inc. disclosed in a regulatory filing that as of June 30, 2011, the policyholders' position at its wholly owned subsidiary, PMI Mortgage Insurance Co. was below the minimum required by Arizona law and its risk-to-capital ratio exceeded the regulatory maximum 25:1 set by various other states. In 16 states, if a mortgage insurer does not meet a required minimum policyholders' position -- calculated in accordance with statutory formulae -- or exceeds a maximum permitted risk-tocapital ratio of 25 to 1, it may be prohibited from writing new business. In two of those states, mortgage insurers are required to cease writing new business immediately if and so long as they fail to meet capital requirements. In the remaining 14 states
(including Arizona), regulators exercise discretion as to whether the mortgage insurer may continue writing new business. PMI Mortgage is currently operating under regulatory waivers or discretion in the majority of the 14 states. Four of PMI Mortgage's waivers expire Dec. 31, 2011 or earlier. Each of the waivers issued to PMI Mortgage may be withdrawn at any time by the applicable insurance department. PMI posted a consolidated net loss of $134.8 million and $261.6 million for the second quarter and first six months of 2011, respectively, compared to net losses of $150.6 million and $307.5 million for the corresponding periods in 2010. According to PMI, in light of the second quarter results, it expects that the number of states in which PMI Mortgage is precluded from writing new business will significantly increase. PMI said it is not clear what actions, if any, the insurance regulators in states that do not have capital adequacy requirements may take as a result of PMI Mortgage failing to meet capital adequacy requirements established by one or more states. Based in Walnut Creek, California, The PMI Group offers residential mortgage insurance and credit enhancement products.
* * * In addition to the challenged companies mentioned in Mr. Fernandez's report, the Troubled Company Reporter provides ongoing reporting about more than 3,000 companies experiencing financial distress or restructuring their balance sheets in a judicial proceeding. Stay tuned to learn more about obtaining a trial subscription to the TCR at no cost or obligation.
Major Pending Disputes In Chapter 11 Cases Next we'll quickly review major pending disputes in four large chapter 11 cases that Troubled Company Reporter editors monitor day-by-day.
(A) Lehman Brothers Ivy Magdadaro identified two major disputes pending in the Lehman Brothers case. The disputes involve Lehman's lawsuits against Barclay Plc for unpaid bonuses to former Lehman employees, and against JP Morgan Chase over common law claims. (1) Dispute With Barclays In an Aug. 5 filing with the U.S. Bankruptcy Court in Manhattan, Barclay asked Judge James Peck to dismiss Lehman's lawsuit seeking million of dollars in unpaid bonuses from Barclays that allegedly should have been paid to former Lehman Brother employees. The U.K. bank made a similar request in June shortly after Barclays defeated an $11 billion lawsuit brought by the Lehman holding company. In its recent court filing, Barclays reiterated that it has already paid $2 billion to Lehman employees who transferred to Barclays as part of the U.K. bank's September 2008 purchase of Lehman's North America broker unit.
Lehman has argued that the $2 billion figure agreed in 2008 applies only to bonuses, and because only $1.5 billion of the $2 billion were in actual bonuses, Barclays still owes an additional $500 million to what's left of Lehman. Lehman has also said in court papers that Barclays breached the contract. Barclays countered that the "$2 billion" number was a good faith estimate and that it referred to all kinds of compensation, not just bonuses. The U.K. Bank complained that what should have been an estimate is touted by Lehman to have become a contractual obligation. The dispute on the unpaid bonuses is a residual matter stemming from Lehman's lawsuit last year against Barclays. Lehman accused the U.K. bank, under the lawsuit, of negotiating a discount not adequately disclosed to the court when it bought Lehman's broker unit in 2008. Judge Peck in February held that Barclays' 2008 acquisition of the Lehman broker unit was done in good faith, despite the notso-perfect conditions surrounding such sale. More recently, the judge signed final orders on July 15, denying Lehman's bid to recoup money from Barclays over the $11 billion "windfall" allegedly received by Barclays on its broker unit purchase. Judge Peck also entered a further order on June 6 in favor of the trustee overseeing the liquidation of the remaining assets of the Lehman broker unit. The decision called for Barclays to pay trustee James Gidden all $2 billion in a disputed margin collateral account and pay a 5% interest. On July 15, Barclays took an appeal from the decision. In a July 29 court filing, Barclays said it also has taken an appeal from Judge Peck's ruling that the U.K. Bank is not
unconditionally entitled to about $769 million in Lehman's customer accounts. For his part, the Lehman trustee took an appeal from Judge Peck's July 22 ruling that awarded $1.1 billion to Barclays. The trustee was told to return $1 billion in so-called clearance boxes to the U.K. bank and additional assets of $769 million, if they weren't needed for customers. The trustee said in the appeal that he wanted 9% interest on the margin assets, not 5%. In other news, on July 28, the Lehman holding company appealed Judge Peck's July 15 final order that it can't recover the alleged billions of dollars in windfall made by Barclays when it bought the Lehman broker unit.
(2) Dispute With JPMorgan JP Morgan Chase, sued for $8.6 billion by Lehman Brothers Holdings, said the defunct firm's common law claims against it must be decided by a U.S. district court judge rather than a bankruptcy judge. The second biggest U.S. bank has been fighting Lehman's May 2010 suit before the bankruptcy court, fending off demands for the return of $8.6 billion in collateral, plus "tens of billion" in damages for allegedly accelerating the former investment bank's demise. JPMorgan served as Lehman's main clearing bank during the 2008 financial crisis. In an Aug. 6 court filing, JPMorgan said the June 2011 U.S. Supreme Court ruling in the Anna Nicole Smith case, or Stern v. Marshall, limited the power of bankruptcy judges to rule on such "common law" claims. Under the Stern ruling, a district judge must determine damage claims brought under New York state
law. JPMorgan said the Lehman claims are legally indistinguishable from the counterclaims in the Stern case. Lehman disagreed on the impact of the Anna Nicole Smith case. Lehman contended that nothing in the case imposes a "blanket prohibition" against bankruptcy courts deciding common law claims on a final basis. The Lehman lawsuit claimed that JPMorgan demanded loan guarantees that fatally weakened the firm. JPMorgan filed a countersuit, alleging that Lehman defrauded it into making a $70 billion loan around the time of the firm's Sept. 2008 bankruptcy. A revised scheduling order on the case was entered July 27. Trial is set to begin Aug. 13, 2012. Fact discovery is to be completed by December 2011, while expert discovery is to be completed by March 2012.
(B) Bernard Madoff (1) Settlement With Tremont Irving H. Picard, the trustee appointed under the Securities Investor Protection Act to oversee the liquidation of Bernard L. Madoff Investment Securities Inc., on July 28 brought home a $1.03 billion settlement from the second largest group of feeder funds that funneled money into the Madoff Ponzi scheme. The Madoff trustee sued investment firms Tremont Group Holdings Inc.; Oppenheimer Acquisition Corp., which owns the Tremont hedge fund; Massachusetts Mutual Life Insurance Co.; and affiliates in December, seeking to recover about $2.1 billion that the investment funds received directly from the Madoff firm. The lawsuit was unsealed in March.
Pursuant to the settlement, in return for $1.03 billion payment into escrow, the investment funds will receive about $3 billion in approved customer claims. The settlement is structured so that distributions on the funds claims will be paid directly to the funds customers. Combined with the $2.6 billion the Madoff trustee has on hand and the $5 billion he will receive on final approval of the settlement with the late Jeffrey M. Picower, the trustee will have $8.6 billion, or enough to pay almost half the $17.3 billion in principal that customers lost with Madoff. The money on hand doesnt include an additional $2.2 billion through the governments portion of the Picower settlement. Under arrangements with the government, the trustee will distribute the $2.2 billion. The hearing to approve the Tremont settlement will take place Sept. 13. Bernard L. Madoff Investment Securities LLC and Bernard L. Madoff orchestrated the largest Ponzi scheme in history, with losses topping $50 billion.
(2) Lawsuit Against HSBC On July 28, the federal district court in Manhattan dismissed the larger part of the Madoff trustee's lawsuit against HSBC Holdings Plc. The trustee had sued HSBC, alleging that the London-based bank enabled Madoff's Ponzi scheme and engaged in financial fraud and misconduct being "willfully bind to the fraud." The complaint sought $9 billion, including $2.3 billion for receipt of fraudulent transfers.
In a 26-page opinion, U.S. District Judge Jed Rakoff dismissed what he said were $6.6 billion of common law claims for unjust enrichment, aiding and abetting fraud, and aiding and abetting breach of fiduciary duty. Judge Rakoff sent the remnants of the lawsuit back to bankruptcy court for further proceedings so the Madoff trustee can pursue $2.2 billion in fraudulent transfer claims. Judge Rakoff opened his opinion by stating the familiar rule that bankruptcy trustees dont have the right to assert claims against third parties on behalf of the estates creditors. The trustee previously argued that the Securities Investor Protection Act allows him to take over customers claims that he paid.
(C) Extended Stay Hobart Truesdell, the trustee for the creditors trust established under Extended Stay Inc.'s confirmed Chapter 11 plan, is asking the bankruptcy court to send four lawsuits that he filed to U.S. District Court and one to state court. The trustee is concerned that the bankruptcy court cant properly hear the case in the wake of the U.S. Supreme Court's June opinion in Stern v. Marshall, the controversial case involving the estates of Anna Nicole Smith. The trustee filed five lawsuits in June, seeking $6.3 billion from Blackstone Group LP, which owned the hotel operator before a leveraged buyout in June 2007. Blackstone later was in the group buying back the business under the Chapter 11 plan. In some of the suits, the trustee is also suing David Lichtenstein and
Lightstone Group LLC, the company he controlled that was the buyer in the LBO. Although the trustee sued in bankruptcy court, he now says that the Stern decision at a minimum creates ambiguity over whether the bankruptcy court can hear the case. The Extended Stay trustee is represented by the law firm Baker & Hostetler LLP, the same firm representing the trustee liquidating Bernard L. Madoff Investment Securities Inc. The Madoff trustee has been opposing removal of lawsuits from bankruptcy court. Extended Stay operated more than 680 long-term lodging properties in 44 states. Blackstone, Centerbridge Partners LP and Paulson & Co. were in the group that bought the business through the Chapter 11 plan for $3.93 billion in cash. The plan was implemented in October. Extended Stays Chapter 11 petition in June 2009 listed assets of $7.1 billion against debt totaling $7.6 billion.
(D) Washington Mutual The dispute over insider-trading allegations remains the final issue in the plan process hearing in the case of Washington Mutual Inc. WaMu shareholders say the holding company at the heart of the largest banking collapse in U.S. history ran a "profoundly flawed" bankruptcy case, one that means a $7 billion payday for "powerful creditors" at the expense of others.
Shareholders contended that the holding company bent over backward to assist major hedge fund investors, while brushing aside competing claims, in the development of the plan. The four named hedge funds are Appaloosa Management LP, Centerbridge Partners LP, Owl Creek Asset Management LP and Aurelius Capital Management. Together they hold $2 billion in claims. The insider-trading allegations first gained attention back in December. The four hedge funds insist that they did not profit unfairly and assert that they played by the rules. The official creditors committee supports the hedge funds' assertions. The creditors committee said it found nothing amiss in the hedge fund trading during WaMu's bankruptcy case. The Bankruptcy Court denied confirmation of an earlier version of WaMu's plan in January. WaMu was back before the Delaware bankruptcy court July 13. Shareholders will see no recovery under the current plan, which was negotiated with JP Morgan Chase, the hedge funds and the Federal Deposit Insurance Corp. The plan, among other things, is based on the settlement of billion dollar lawsuits pitting WaMu, JPMorgan, and the FDIC against each other. Shareholders have asked Judge Walrath to reject the plan on allegations of insider trading. Testimony in the WaMu bankruptcy plan hearing wrapped up on July 21. Final written arguments and closing oral arguments are expected in August. WaMu is the biggest bank failure in U.S. history, with the holding company listing $4.49 billion in assets versus $7.83 billion
in liabilities. JPMorgan acquired WaMu's banking unit in 2008 for $1.88 billion.
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The Troubled Company Reporter provides detailed reporting about every chapter 11 filing nationwide. Stay tuned to learn more about obtaining a trial subscription to the TCR at no cost or obligation.
Delayed Exits From Chapter 11 Julie Anne Lopez reports about five Chapter 11 debtors whose emergence from Chapter 11 has been delayed: Tribune Co., WR Grace & Co., Lehman Brothers, Washington Mutual, and Quigley. (A) Tribune Delaware Bankruptcy Judge Kevin Carey, at a June 28 hearing, urged Tribune Co. and its rival Aurelius to continue their discussions toward a consensual resolution. Judge Carey also stated that he would spend time in July to come up with a decision on which Chapter 11 Plan for Tribune and its debtor affiliates he will confirm, although he made no promises when he would deliver. So far, no ruling has been issued by Judge Carey, although the Creditors' Committee has submitted a proposed order regarding admissibility of trial exhibits with respect to the confirmation of the completing Plans.
The latest development in the case involves a reshuffling that will help the Company's publishing business reduce the size of its finance and administrative departments. Tribune Co. spokesman Gary Weitman said some jobs are being eliminated but declined to provide specifics. The changes will give Chicago Tribune publisher Tony Hunter responsibility for all Tribune Co. newspapers except the Los Angeles Times. The other newspapers reporting to Mr. Hunter are the South Florida Sun-Sentinel, Orlando (Fla.) Sentinel, The Sun of Baltimore, The Hartford (Conn.) Courant, The Morning Call of Allentown, Pa., and Daily Press of Newport News, Va. With Mr. Hunter taking on more duties, Tribune promoted Vince Casanova to president and chief operating officer of Chicago Tribune Media Group. In that role, Mr. Casanova will oversee the day-to-day operations of the Chicago Tribune and other holdings in that division. The Los Angeles Times, the largest of Tribune's newspapers, still reports to its publisher, Eddy Hartenstein, who was named Tribune Co.'s CEO in May. Tribune's Chapter 11 reorganization began in December 2008.
(B) W.R. Grace Judge Ronald Buckwalter of the Delaware District Court has not yet issued a decision affirming Judge Judith Fitzgerald's order confirming W.R. Grace's Joint Plan of Reorganization issued last January 31.
However, Grace CEO Fred Festa said during the July 26 investor conference call that the chemical company remains highly confident that the District Court will rule in favor of its plan of reorganization on all matters. Mr. Festa said the oral arguments for the appeals held on June 28 and 29 went exactly as the company expected. He added that the company was not surprised by any of the arguments or issues raised by the appellants. According to Mr. Festa, the company has received some questions as to whether it can emerge, with certain appeals outstanding. He said that if the District Court affirms Grace's plan, and rules in favor on the appeals, the appellants would have the choice to appeal further to the Third Circuit Court of Appeals. He said it is possible that the company could emerge with certain type of appeals outstanding, and cited, as an example, that the company may seek to emerge with the default interest issue on appeal, or with other issues on appeal that do not affect the resolution of the company's asbestos liability. "That decision would have to be made with consultation with our co-proponents," Mr. Festa said. Mr. Festa ended his speech at the conference call by saying, "The bankruptcy has been an incredibly long process, and we are all eager to see it conclude as soon as possible. Our only real course at this point is to wait for the District Court ruling on affirmation and the appeals." W.R. Grace marked its 10th year in bankruptcy on April 2, 2011.
(C) Lehman Brothers

Lehman Brothers obtained a court order to suspend the prosecution of the rival Chapter 11 plans of reorganization proposed by its creditors. In an order dated July 21, Judge James Peck approved an agreement between the company and certain of its creditors to hold in abeyance the prosecution of the competing plans. The agreement was hammered out after Lehman filed late last month a third version of its plan, which reportedly has broader support from its creditors including a group led by Goldman Sachs Bank USA and the ad hoc group of Lehman Brothers creditors. The plan, if confirmed, would enable the company and its affiliated debtors to pay an estimated $65 billion to their creditors. The July 21 order also imposed a stay on any ongoing proceeding authorized by Judge Peck's prior ruling dated April 14, in connection with the confirmation of Lehman's plan. It also contains a provision protecting the rights of any party to seek discovery. The provision was proposed lately by Lehman after creditors including American National Insurance Company, Lehman Brothers Finance AG's liquidator and Centerbridge Credit Advisors LLC stressed the need to conduct a plan-related discovery to ensure that all claimants are treated fairly. Centerbridge complained that the Lehman plan weighs in favor of creditors that have executed so-called plan support agreements. It argued that the plan disregards a prior court order mandating the allowance and treatment of claims previously owned by Lehman Brothers Bankhaus AG, which are now beneficially owned by Centerbridge and other companies.
Meanwhile, the Official Committee of Unsecured Creditors and the ad hoc group expressed their support for the approval of the agreement to suspend the prosecution of the competing plans. The Creditors' Committee said the agreement is a precondition to the plan support agreements, which are essential to the plan process. Lehman said it won't be serving any additional notice of the August 30 hearing on the approval of the disclosure statement. Lehman has been in bankruptcy since Sept. 15, 2008.
(D) Washington Mutual Delaware Bankruptcy Judge Mary F. Walrath convened a three-day hearing in July to consider Washington Mutual's revised reorganization plan, which centers on the settlement of lawsuits pitting WaMu, the Federal Deposit Insurance Corp. and JPMorgan against one another. The lawsuits were filed after the FDIC seized WaMu's flagship bank in 2008 and sold its assets to JPMorgan in the largest bank failure in U.S. history. The judge ruled in January that the proposed settlement was reasonable but refused to confirm WaMu's plan until changes were made. WaMu shareholders oppose the new plan, saying it favors hedge funds who dominated negotiations with JPMorgan for their own gain and used inside information from the bankruptcy to trade in Washington Mutual securities. WaMu awaits the Court's ruling on the plan.
WaMu filed for bankruptcy on Sept. 26, 2008, the day after its banking unit was taken over by regulators and sold to JPMorgan for $1.9 billion.
(E) Quigley Quigley Co. is asking U.S. Bankruptcy Judge Stuart Bernstein for permission to borrow as much as $65 million from parent Pfizer Inc. The cash would extend Quigleys $20 million loan agreement from 2004, when the unit entered bankruptcy, and finance the case until February 2012, Quigley said. The additional money and time will free Quigley to work with Pfizer, and a committee of creditors toward confirmation and consummation of a reorganization plan, Quigley said. Lawyers for the U.S. Trustee, an arm of the Justice Department, asked the Court in December to end Quigleys bankruptcy. Creditors alleging asbestos-related health issues have been unable to sue New York-based Pfizer during the case, and many of them have died, the U.S. Trustee said. Christopher Loder, a Pfizer spokesman, said the company looks forward to working through a bankruptcy plan with Quigley and its creditors, which the extension of the credit agreement will allow. Mr. Loder said, In 30 years of asbestos litigation, Pfizer has never been found to be derivatively liable for Quigleys liabilities. Quigleys products were made for decades before Pfizer acquired it, he said. A hearing on a request to dismiss Quigleys bankruptcy or approve proposed terms of its reorganization, set for Aug. 4, was adjourned without being rescheduled, according to court papers.
Quigley, founded in 1916, made three products for the steel industry from the 1940s to the 1970s that contained asbestos. Pfizer bought Quigley in 1968, and the company stopped most operations in 1992. Pfizer said it never made or sold any Quigley products, and some claimants hadnt released Pfizer from alleged derivative liability. Judge Bernstein refused to allow Quigley to exit Chapter 11 court protection in September, saying Pfizer had manipulated the process to benefit itself. Pfizer and a committee of asbestos claimants won his approval of an agreement that will support the new Chapter 11 plan. The Plan still requires court approval. An ad hoc committee of tort victims, which represent 40,000 asbestos claimants, asked the Court in October 2010 to have Quigleys bankruptcy dismissed so it could bring tort claims, which are otherwise blocked by bankruptcy law. The group called Quigley an asset-less dummy entity that was resurrected, handed Pfizers money-losing claims handling unit, and then propped up by Pfizer pursuant to a non-arms-length contract of limited duration -- all in order to provide Quigleys extremely wellheeled non-debtor parent Pfizer with a channeling injunction against present and future asbestos claims. The group said Quigley has depleted insurance assets to sustain $54 million in operating losses and $34 million in professional fees. In April, the Bankruptcy Court approved a plan-support agreement with Pfizer and the ad hoc asbestos claimants committee. The plan-support-agreement was designed to aid in implementation of the final settlement negotiated among Quigley, Pfizer and the committee.
Quigleys sixth amended plan filed in April would have resolved disputes over how much Pfizer should contribute by having it turn over a 281,581-square-foot building leased to a brewery to help pay asbestos claims. The terms of that reorganization also required Pfizer to forgive an $86 million secured claim, a $12.6 million bankruptcy loan and unsecured claims of $33 million. Pfizer also would contribute $81 million in insurance proceeds, according to court papers. Asbestos claims against Quigley may total $4.45 billion during the next 42 years, according to testimony cited by Judge Bernstein in September. In November, Pfizer reported a $701 million third-quarter charge for asbestos litigation related to Quigley.
New Publicly Traded Securities Psyche Maricon Castillon reports about three companies that issued or will issue shares of new common stock upon emergence pursuant to the plans of reorganization they filed in their Chapter 11 cases in July 2011. These are: New Jersey Motorsports Park, Perkins & Marie Callenders, and Nebraska Book.
(A) New Jersey Motorsports Park After four months in Chapter 11 proceedings, the bankruptcy judge approved New Jersey Motorsports Parks restructuring plan, allowing the park to emerge from bankruptcy. The decision allows NEI Motorsports LLC to purchase a majority stake in the park for approximately $22.5 million.
The group had previously provided New Jersey Motorsports with a $2 million infusion of money for legal fees, food services at the park, operating costs, priority tax claims and to pay unsecured debt. As part of the bankruptcy emergence plan, secured lender Merrill Lynch Mortgage Inc., will cut $10 million from its $30 million in loans to the park. NEI, an investor group that includes some of the park's owners, will also pay out $2 million to help the raceway meet outstanding financial obligations. The plan gives Merrill Lynch, owed $30.4 million, $20 million in new secured notes plus 19.9% of the equity. General unsecured creditors with claims up to $2.4 million have a recovery of 21% to 33%.
(B) Perkins & Marie Callenders Perkins & Marie Callenders Inc. filed a plan of reorganization to implement a debt agreement the restaurant operator negotiated with creditors before it sought Chapter 11 court protection. Holders of senior unsecured notes owed $204 million and general unsecured creditors owed as much as $25 million would get new stock under the plan. The proposed disclosure statement, filed along with the plan, doesnt tell creditors how much they stand to receive as a percentage recovery. General unsecured creditors have the option of taking 10% cash rather than stock, so long as the total cash payout doesnt exceed $1.5 million.
About $103 million owing on secured notes would be rolled over into new secured notes of the same amount, plus interest, under the plan. Holders of existing stock and subordinated claims would get nothing. Noteholders and general unsecured creditors will be allowed to vote on the plan. Funds managed by Wayzata Investment Partners LLC would get control of the reorganized company after the plan is confirmed. The Court scheduled an August 22, 2011 hearing to consider the Disclosure Statement.
(C) Nebraska Book Finally, Nebraska Book Co., the operator of a chain of college bookstores, asked the bankruptcy court to let creditors vote on a reorganization plan that would turn the company over to two groups of noteholders. The company intends to exit bankruptcy by November 3. The plan is based on a consensual deal with the debtors key stakeholders and contemplates a significant de-leveraging of the debtors balance sheets, the company said in a disclosure statement describing the proposal. The company has an agreement supported by holders of more than 95% of its 8.625% senior subordinated notes and more than 75% of its 11% discount notes. The bookseller said it will restructure about $450 million in loans and bonds of its parent, NBC Acquisition Corp., and affiliates. Under the plan, $175 million of the senior subordinated notes would be converted into $30.6 million in secured notes,
$120 million in unsecured notes and 78% of the new equity. Holders of the $77 million in 11% discount notes would get the remaining 22% of the stock. Secured lenders, owed about $26.3 million, and secured noteholders, owed about $200 million, would be paid in full with cash.
That ends the Beard Group Corporate Restructuring Review for June 2011, brought to you by the editors of the Troubled Company Reporter and Troubled Company Prospector. If you'd like to receive the Troubled Company Reporter for 30-days at no cost -- and with no strings attached -- call Nina Novak at (240) 629-3300 or visit bankrupt-dot-com-slash-free-trial and we'll add you to the distribution list. That telephone number, again, is (240) 629-3300 and that Web site address, again, is bankrupt-dot-comslash-free-trial. Tune in to our next Restructuring Review on September 16th. Thank you for listening.

Beard Group Corporate Restructuring Review For July 2011

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Beard Group Corporate Restructuring Review For July 2011

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