Beard Group Corporate Restructuring Review For October 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/

____________________________________________________ Welcome to the Beard Group Corporate Restructuring Review for October 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. October 2011 Mega Cases

Now, let's review the largest chapter 11 cases in October 2011. Danilo Muoz reports that the number of Chapter 11 cases with assets in excess of $100 million has steadily increased the past four months. There were 10 mega cases in October, compared to 7 in September and August, and 4 in July. For the first 10 months of 2011, there were a total of 70 companies with assets of at least $100 million that filed for Chapter 11 bankruptcy, or an average of 7 mega cases per month. In comparison, during the first 10 months of 2010, there were a total of 83 mega cases, or an average of about 8 per month. The decrease in the number of mega cases for the first ten months in 2011 as compared to 2010 was about 13%. For fiscal year 2010, there were a total of 105 mega cases, or an average of about 9 per month. MF Global Holdings Ltd. joined our monthly review at the eleventh hour, by filing the largest Chapter 11 bankruptcy this year. With more than $40 billion in assets, MF Global easily eclipsed paper maker NewPage Corporation, which filed in
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September. MF Global also became the eighth largest U.S. bankruptcy in history. At this time last year, there was no new Chapter 11 filing that involved a billion-dollar company. Other billiondollar filers this year are book retailer Borders Group and hotel and resort operator MSR Resort Golf Course. Both filed in February. Last year's billion-dollar list included one-time movie rental behemoth Blockbuster Inc., which filed in September 2010, Boston Generating LLC, which filed in August 2010, hotel operator Innkeepers USA Trust and Capmark unit, Protech Holdings LLC, both of which filed in July 2010. MF Global Holdings Ltd. and affiliate MF Global Finance USA Inc. filed voluntary Chapter 11 petitions with the U.S. Bankruptcy for the Southern District of New York [Case Nos. 1115059 and 11-5058] on Oct. 31, after a rushed sale to Interactive Brokers Group collapsed. As of Sept. 30, 2011, MF Global had $41 billion in total assets and $39.6 billion in total liabilities. It is the largest Chapter 11 case since CIT Group filed for Chapter 11 in November 2009. New York-based MF Global is one of the world's leading brokers of commodities and listed derivatives. MF Global provides access to more than 70 exchanges around the world.
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The firm is also one of 22 primary dealers authorized to trade U.S. government securities with the Federal Reserve Bank of New York. MF Global's fell in Chapter 11 after making wrong bets on sovereign bonds issued by European countries. Jon S. Corzine -- former New Jersey governor and one-time chairman of Goldman Sachs Group Inc. -- took over as CEO at MF Global in March 2010. He set out to change MF Global from a midsize derivatives broker to full-fledged investment bank that took risks with its own capital. The trades, which ballooned over $6 billion, helped knock MF Global's own debt ratings to junk and drained investors' confidence in the firm. MF Global held about $6.3 billion in bonds issued by Italy, Spain, Belgium, Ireland and Portugal. The second largest Chapter 11 filer, CDC Corporation, doing business as Chinadotcom, filed a Chapter 11 petition with the Bankruptcy Court for the Northern District of Georgia [Case No. 11-79079] on Oct. 4. The Debtor has $377.4 million in total assets and $258.8 million in liabilities as of June 30, 2011. Headquartered in Hong Kong, CDC Corp is a technology firm and a global provider of enterprise software, online games, and Internet and media services. CDC filed for Chapter 11 bankruptcy protection after a hedge fund investor won a $65.4 million judgment against it. The third largest Chapter 11 filing for October was by Real Mex Restaurants. The Company and its affiliates sought Chapter 11 bankruptcy protection on Oct. 4 with the U.S. Bankruptcy Court for the District of Delaware [Case Nos. 11-13122 to 11-13138], before Judge Brendan Linehan Shannon.
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Real Mex Restaurants owns and operates restaurants, primarily through its major subsidiaries El Torito Restaurants, Chevys Restaurants, and Acapulco Restaurants. Real Mex has 178 restaurants, with 149 in California. There are also 30 franchised locations. Assets are $272.2 million while debt totals $250 million, according to the Chapter 11 petition. Real Mex filed for Chapter 11 to sell the assets in three months, after a restructuring agreement couldn't be worked out with second-lien debt holders pre-bankruptcy. The Company said it intends to close 12 stores and shed another 40 unless landlords make concessions. In addition, Open Range Communications Inc. filed a Chapter 11 petition on Oct. 6 with the Bankruptcy Court for the District of Delaware [Case No. 11-13188] to either sell the business or shut down and liquidate. Open Range listed about $114 million in assets and $110 million in debts. Greenwood Village, Colorado-based Open Range provides wireless broadband services to 26,000 rural customers in 12 states. Open Range named totheHome.com as the best bidder, a small broadband provider in Minnesota, for its rural broadband network assets. The sale would be of substantially the entire Open Range business, including the Wimax network equipment the Company's deployed on more than 400 towers in 11 states. An auction is scheduled for Nov. 14, and, if no higher bid emerges, closing the deal with totheHome.com would occur on Nov. 17. Other large Chapter 11 cases include Chef Solutions Inc., Friendly Ice Cream Corp., JER/Jameson Mezz Borrower II LLC,
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Mine Reclamation LLC, Pacific Monarch Resorts Inc., Southern Montana Electric Generation & Transmission Cooperative and Gom Tang E Corp. They listed estimated assets and liabilities in the range of $100 million to $500 million. Chef Solutions and its affiliates filed for Chapter 11 protection on Oct. 4 with the Bankruptcy Court for the District of Delaware [Case No. 11-13139] before Judge Kevin Gross. Chef Solutions, through subsidiary Orval Kent Food, is the second largest manufacturer in North America of fresh prepared foods for retail, foodservice and commercial channels. A joint venture between Mistral Capital Management LLC and Reser's Fine Foods Inc. has signed a contract to buy the business for $36.4 million in cash and $25.3 million in secured debt. The deal is subject to higher and better offers. Friendly Ice Cream Corp. is the owner and franchiser of 490 full-service, familyoriented restaurants and provider of ice cream products in the Eastern United States. Friendly's together with four affiliates, filed for Chapter 11 reorganization on Oct. 5 with the U.S. Bankruptcy Court for the District of Delaware [Lead Case No. 11-13167] before Judge Kevin Gross. Friendly's wants to sell the business mostly in exchange for debt to Sundae Group Holdings II LLC, a unit of Sun Capital Partners Inc. The existing owner and holder of the Debtors' second-lien debt are also affiliates of Sun Capital. Friendly's, based in Wilbraham, Massachusetts, also announced the closing
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of 63 stores, leaving about 424 operating. Franchise operators own about 230 of those locations. Sundae Group Holdings proposes to pay about $120 million for the business. The price includes enough cash to pay first-lien debt and an amount of cash for unsecured creditors to be negotiated with the official creditors' committee. Aside from cash, the Sun Capital unit will make a credit bid from the $267.7 million in second-lien, pay-in-kind notes. The bid from Sun Capital is subject to higher and better offers at an auction. Under the proposed time-line, bids would be due Nov. 24, followed by an auction on Dec. 1. JER/Jameson Mezz Borrower II LLC filed for Chapter 11 bankruptcy on Oct. 18 with the U.S. Bankruptcy Court for the District of Delaware [Case No. 11-13338] before Judge Mary Walrath. Seven days later, JER/Jameson Mezz Borrower I LLC followed suit by filing for bankruptcy also in Delaware. JER/Jameson Mezz Borrower I and II are special-purpose entities that hold the first and second mezzanine loans of Jameson Inns, a chain of 103 small, budget hotels operating under the Jameson brand in the Southeast and Midwest. The JER/Jameson entities seek to prevent foreclosure by affiliates of Colony Capital. Pacific Monarch Resorts Inc. and its debtor-affiliates filed for joint Chapter 11 protection on Oct. 24 with the U.S. Bankruptcy Court for the Central District of California in Santa Ana [lead case number 11-24720] before Judge Erithe A. Smith. Pacific Monarch Resorts is a resort timeshare operator known as Monarch Grand Vacations. When it filed for bankruptcy, it had a contract in hand to sell the operation for $49.3 million to
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Diamond Resorts Corp., the owner of 196 timeshare resorts. The deal is subject to better bids at an auction. Pacific Monarch has nine resorts, with locations including Palm Springs, Lake Tahoe and Las Vegas. Pacific Monarch, based in Laguna Hills, California, said assets and debt both exceed $100 million.
Bankruptcy Mega Cases by Industry (YTD)

Other 16% Arts & Recreation 4% Transportation Warehousing 4%

Manufacturing 19%

Accomodation & Finance Food Services Insurance 17% 11% Real Estate Retail Trade 9% Information 10% 10%

Southern Montana Electric Generation & Transmission Cooperative Inc. filed a bare-bones Chapter 11 petition with the U.S. Bankruptcy Court for the District of Montana [Case No. 11-62031] on Oct. 21, saying assets and debt both exceed $100 million.

Based in Billings, Montana, the co-op was formed to serve five other electric cooperatives. The city of Great Falls, Montana, later joined as the sixth member. Including the city, the co-op serves a population of 122,000. In addition to Great Falls, the service area includes suburbs of Billings, Montana. In October, there was no prepackaged or prenegotiated Chapter 11 mega case filed. For the first 10 months of 2011, 11 of the 70 mega cases -- 16% -- were prepackaged or pre-negotiated in nature. For fiscal year 2010, a total of 35 prepacks were filed -about one in every three filings in 2010. Four of the 10 mega cases for October were engaged in accommodation and food services, 2 were engaged in manufacturing and 2 were engaged in finance and insurance.
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The other Chapter 11 mega cases were engaged in utilities and information. For the first 10 months of 2011, companies engaged in manufacturing continue to lead large Chapter 11 filings with 13 bankruptcies during the period. They are closely followed by accommodation and food services with 12, finance and insurance with 8, retail trade and information with 7 each, and real estate with 6. Of the October mega Bankruptcy Mega Cases By State (YTD) cases, five were filed in Delaware, and one each with Other 29% Southern District of New York, Central District of California, Montana, Eastern District of Delaw are 46% Virginia, and Northern District of Georgia. For the first 10 Texas, Northern New York months of 2011, 33 mega6% Southern cases were filed in Delaware 19% and 13 were filed in the Southern District of New York and four were filed in the Southern District of Texas. The rest were evenly 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.

Anticipated Large Chapter 11 Filings

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Now, let's turn to the topic of large chapter 11 filings Troubled Company Reporter editors anticipate in the near-term. Carlo Fernandez identified eight large companies that may be close to filing for bankruptcy. (A) William Lyon William Lyon Homes Inc. failed to make its scheduled Oct. 1, 2011, semiannual interest payment of $7.5 million on its outstanding $138.8 million 10.75% unsecured notes due April 1, 2013. As a result, Standard & Poor's Ratings Services lowered its corporate credit rating on William Lyon to 'D' from 'CC'. In November, William Lyon announced an exchange offer that will swap senior notes for equity while generating $85 million in new cash. Holders of 64% of the $284 million in senior unsecured notes support the arrangement where the existing debt will be exchanged for $75 million in new secured notes plus 28.5% of the common equity. The Lyon family will invest $25 million in return for 20% of the common stock and warrants for another 9.1%. Senior secured lenders are to receive a 10.25%, three-year note for $235 million. There will be a rights offering to buy $10 million in common stock and $50 million in convertible preferred stock, representing 51.5% of the new equity. A noteholder has agreed to buy any of the offering that isn't purchased. The company said it expects the offering will be concluded in the first quarter of 2012. Newport Beach, California-based William Lyon Homes are primarily engaged in designing, constructing and selling single family detached and attached homes in California, Arizona and Nevada.
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It had $611.15 million in total assets and $610.25 million in total liabilities as of June 30, 2011. Net Loss was $22.4 million on revenue of $101.9 million for the six months ended June 30, 2011. The operating loss for the half year was $12.5 million. (B) Dune Energy Dune Energy Inc., an independent energy company based in Houston, Texas, announced an exchange offer last week that it will complete as a prepackaged Chapter 11 filing if there aren't enough acceptances to complete the swap outside of bankruptcy court. The exchange is supported by holders of 90 percent of the $300 million in 10.5 percent senior secured notes due 2012 and by a holder with 64 percent of the convertible preferred stock. The offer would swap the secured notes for 97.25 percent of the new common stock and a combination of cash or secured notes for $50 million. The existing preferred stock would exchange for 1.5 percent of the common stock, leaving existing shareholders with 1.25 percent of the equity. The company said it will begin the exchange offer by Nov. 1. The balance sheet was upside down on June 30, with assets of $274.2 million and total liabilities of $369.7 million. For the first half of 2011, the Houston-based company had a net loss of $32.2 million on revenue of $33.3 million. Dune Energy had a net loss of $76 million on $64 million of revenue for the year ended Dec. 31, 2010, compared with a net loss of $59 million on $52 million of revenue during the prior year. The Company's balance sheet at Sept. 30, 2011, showed $270 million in total assets and $377 million in total liabilities.
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(C) Aquilex Holdings Aquilex Holdings LLC is now operating under a forbearance agreement expiring Dec. 8, 2011. Aquilex Holdings, a provider of maintenance, repair and industrial cleaning solutions to the energy industry, had a net loss of $14 million on $227 million of revenues for the six months ended June 30, 2011. The balance sheet at June 30, 2011, showed $670 million in assets and $491 million in liabilities. Standard & Poor's lowed lowered the corporate credit rating Aquilex to 'CCC-' and gave a negative outlook. "While we recognize that the agreement provides Aquilex with some additional time to negotiate a longer-term solution with its lenders, we also recognize the probability that the company may be unable to negotiate adequate covenant relief, and could undergo a financial restructuring or payment default," said Standard & Poor's credit analyst James Siahaan. Aquilex no longer has any availability under its revolving credit facility and its free cash flow has been negative for the past two quarters. (D) PMI Group PMI Group Inc. is going to court in Arizona to seek to unravel insurance regulators' takeover of its mortgage insurance subsidiary PMI Mortgage Insurance Co. The subsidiary already had been barred from writing new policies when regulators took over in October. The holding company reported a net operating loss of $412.1 million for the six months ended June 30.

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In October, PMI Group hired advisers to help with a possible restructuring. For legal counsel, PMI Group hired Sullivan & Cromwell LLP and Young Conaway Stargatt & Taylor LLP. Evercore Partners Inc. was tapped to serve as financial adviser. Walnut Creek, California-based PMI Group provides residential mortgage insurance in the United States. (E) Trailer Bridge Trailer Bridge, Inc., effective Oct. 24, 2011, entered into two forbearance agreements related to its revolving credit facility and term loan and security agreement by and among Wells Fargo Bank, N.A., as agent for the lenders. The company has not refinanced its senior secured notes, which failure is considered a refinancing under the revolving credit facility. The lenders have agreed to forbear from exercising their rights until Feb. 14. Jacksonville, Florida based Trailer Bridge is a trucking and marine freight carrier that provides freight transportation between the continental U.S., Puerto Rico and the Dominican Republic. Net Loss was $2.3 million on $118 million of revenues for 2010, compared with net income of $2.6 million on $114 million of revenues for 2009. The company's balance sheet at June 30, 2011, showed $105.62 million in total assets, $119.54 million in total liabilities, and a $13.92 million total stockholders' deficit. The company has warned it may be forced to file for protection under federal bankruptcy laws due to its debt and funding woes. Standard & Poor's Ratings Services lowered its long-term corporate credit rating on Trailer Bridge Inc. to 'SD' from 'CCC'. "We lowered our issue rating to reflect imminent refinancing risks and the company's high probability of default, given that the
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senior secured notes mature on Nov. 15, 2011," said Standard & Poor's credit analyst Funmi Afonja. (F) River Rock River Rock Entertainment Authority, the operator of an Indian owned casino in Geyserville, California, didn't pay off $200 million in 9.75% first-lien bonds when they matured on Nov. 1. The authority announced an exchange offer and a forbearance agreement with holders of 60% of the bonds. The exchange offer entails the issuance of $27.6 million in new subordinated notes. The authority expects the offer to start by Nov. 18. The Company has previous said that if it is unable to refinance the debt or extend the maturity date it might pursue a case under the U.S. Bankruptcy Code. (G) Eastman Kodak Eastman Kodak Company, the former film maker attempting to transform itself into a provider of digital imaging products, had a net loss of $647 million on $4.27 billion of total net sales for the nine months ended Sept. 30, 2011, compared with a net loss of $92 million on $5.22 billion of total net sales for the same period during the prior year. The balance sheet at the end of the period was upside down, with assets at $5.10 billion and debts at $6.75 billion. The Company said that its ability to continue its operations, including its ability to fund working capital, capital investments, scheduled interest and debt repayments, restructuring payments, and employee benefit plan payments or required plan contributions, within the next twelve months is dependent upon the ability to monetize its digital imaging patent portfolio through a sale or licensing of the relevant patents or the successful
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execution of the alternative actions, which could include the issuance of additional debt. Kodak has hired Jones as legal adviser and investment bank Lazard Ltd., but denied rumors it is filing for bankruptcy. Kodak is exploring a sale of its patents. Eastman Kodak will run out of cash in the U.S. around the second or third quarters of 2012, Moody's Investors Service said in a report Nov. 7. Moody's expects the $862 million of cash at the end of the third quarter to grow to $1.3 billion by the year's end, Moody's said the "trouble is, Kodak's operations consume significant cash in the first half of every year." In the U.S., Moody's predicts cash of $588 million at the year's end will drop to $97 million by June and turn negative by September. (H) Residential Capital The Wall Street Journal's Dan Fitzpatrick, Mike Spector and Ruth Simon report that people familiar with the situation said Ally Financial Inc., the lender that took $17 billion of U.S. aid in the financial crisis, is considering a bankruptcy-protection filing for its mortgage-lending unit, Residential Capital LLC. Sources told the Journal that Ally, formerly GMAC, is being advised by law firm Kirkland & Ellis and investment bank Evercore Partners Inc. on a possible restructuring of ResCap, which has lost $555 million in the past two quarters. A final decision hasn't been made on how Ally and ResCap might proceed, the people said. Roughly $2.3 billion of ResCap debt is scheduled to come due in 2011, 2012 and 2013. ResCap has $623 million of cash and cash equivalents as of Sept. 30, 2011.
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Ally, in its regulatory filings in August related to its planned IPO, said it has a $772 million equity position in ResCap. Ally said ResCap remains heavily reliant on support from us to meet its liquidity and capital requirements. It also noted that if ResCap filed for bankruptcy, its investment related to ResCaps equity position would likely be reduced to zero. In a financial filing earlier in November, Ally said its equity position in ResCap was $331 million. * * *

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 seven 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, one with London-based Barclays Plc and another with JP Morgan Chase.
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Barclays and the Lehman brokerage unit have resumed their $3 billion asset fight. James Giddens, the Lehman brokerage unit trustee, asserted on appeal that the bankruptcy court erred in awarding $1.1 billion in assets to Barclays after the UK bank bought the Lehman broker unit. The judge mistakenly focused on a description of the assets, held in boxes to clear trades -- instead of concentrating on which party they were owed to -- the Lehman trustee said in an Oct. 28 filing. Barclays is contesting the bankruptcy judge's $2 billion award of margin assets to the Lehman brokerage. Also on Oct. 28, Barclays said the ruling is "commercially absurd" because the bank would never have taken on trading assets without the margin backing them. U.S. Bankruptcy Judge James Peck in Manhattan told Barclays to return $2 billion to Mr. Giddens and ordered the trustee to give to Barclays at least $1.1 billion and possibly another $769 million. Lehman Brothers filed the biggest bankruptcy in U.S. history in 2008. Barclays is the second biggest UK bank, who bought the Lehman broker unit in 2008. Barclays defeated the Lehman parent company and its broker unit in a lawsuit, where Mr. Gidden demanded $7 billion from Barclays while the Lehman parent sought an $11 billion "windfall" it alleged Barclays made on the 2008 purchase of the Lehman broker business. Ruling in February this year, Judge Peck told Lehman he found no "willful misconduct" as Barclays bought defunct Lehman's brokerage in the credit crisis. In effect, the Lehman
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parent got nothing from the lawsuit and on Sept. 22, said it is dropping its appeal of Judge Peck's ruling on the windfall claim so that it can move ahead with its liquidation plan. Lehman creditors also dropped their appeal of Judge Peck's ruling on the Barclays suit in September, said James Teece, a lawyer for the creditors committee. Meanwhile, Bank of America has taken an appeal from Judge Peck's ruling that it return to Lehman $500 million in allegedly seized deposits and pay interest. Lehman has an $8.6 billion lawsuit against New-York based JPMorgan, alleging that the bank helped to cause its downfall. Lehman said JPMorgan as its main clearing bank used access to its financial distress to extract collateral and thus, hastened its demise. JPMorgan countersued in December, saying Lehman stuck it with more than $25 billion in toxic loans that might never be repaid. In court papers filed on Sept. 26, JPMorgan said the $8 billion lawsuit filed in Manhattan bankruptcy court in May 2010 should be moved to federal court in light of the U.S. Supreme Court's contentious ruling in June in former Playboy model Anna Nicole Smith's inheritance battle. The Supreme Court ruled in the case, Stern v. Marshall, that bankruptcy courts lack authority to decide on claims brought by a debtor against a creditor unless the claims are fully rooted in bankruptcy law. Lehman defended the bankruptcy court's jurisdiction, saying that the lawsuit's allegations carry a bankruptcy context because they challenge JPMorgan's original proofs of claim against Lehman. Lehman's case against JPMorgan is slated for trial in 2012.
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Separately, Lehman is fighting JPMorgan in the bankruptcy court over a $6 billion payment demand filed by the New York bank related to certain securities. JPMorgan demanded roughly $6 billion to help cover $25 billion in losses it incurred through its role on the Lehman Brothers repurchase deals, saying the securities alone did not generate enough cash to make it whole. Lehman said in August that the claims are overstated. On Oct. 24, JPMorgan sought to seal certain data related to the $6 billion in claims it filed against Lehman. JPMorgan said secrecy is needed to protect entities from harm. The selected information includes names and account numbers of JPMorgan's trading partners, phone numbers, and certain email addresses. Once the world's fourth biggest investment bank, Lehman spent about $1.4 billion on lawyers and managers since its 2008 bankruptcy filing. (B) Extended Stay Ms. Magdadaro also reports that creditors of the Extended Stay hotel chain are suing Blackstone Group LP for $8.4 billion, alleging that it purposely sold the chain in 2007 to the Lightstone Group for $8 billion -- a figure they claim was overpriced to increase the fees Blackstone would receive from the sale. The resulting additional leverage eventually forced the hotel chain into bankruptcy two years later. The creditors also seek punitive damages, which are rare, for Blackstone breaching its fiduciary duties to both the company and its creditors. Five lawsuits related to the 2007 hotel sale were filed in state court by Hobart Truesdell, the administrator of the litigation trust
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created for Extended Stay creditors, in June this year on behalf of the creditors. The lawsuit was moved to the bankruptcy court in July [under Case No. 11-02398] upon request from the Blackstone defendants. The defendants argued that the bankruptcy court has jurisdiction over the lawsuit because it stemmed from Extended Stay's bankruptcy case. Mr. Truesdell has taken an appeal from the Bankruptcy Court's Sept. 19 decision denying remand to the U.S. District Court for the Southern District of New York. In another development, Mr. Truesdell announced the voluntary dismissal of a complaint charge on securities violations against Blackstone Group and its co-defendants [in the lawsuit filed under Case No. 11-02255]. Meanwhile, defendants had until November 1 to file motions to dismiss the remaining lawsuits. The Extended Stay litigation trustee has until December 23 to file opposition briefs to any motion to dismiss. Extended Stay operated more than 680 long-term lodging properties in 44 states. An investor group, which included Blackstone, bought the business through a Chapter 11 plan for $3.93 billion in cash. The plan was implemented in October 2010. Extended Stays Chapter 11 petition in June 2009 listed assets of $7.1 billion against debt totaling $7.6 billion. (C) Washington Mutual In Washington Mutual Inc., the Federal Deposit Insurance Corp. has balked at extending the termination date for a three_____________________________________________________________________________ Beard Group Corporate Restructuring Review for October 2011 -- page 20

way settlement deal at the heart of the WaMu bankruptcy plan, WaMu lawyers said on Nov. 7. The WaMu Plan is based on the proposed settlement of lawsuits that pitted WaMu Inc., the FDIC, and JPMorgan Chase against one another after the FDIC seized WaMu's Seattle-based flagship bank in 2008 and sold the WaMu bank assets to JPMorgan for $1.9 billion. Under the proposed settlement, the lawsuits would be dismissed and billions in disputed assets would be distributed among WaMu, JPMorgan and the FDIC. The lawsuits settlement has not been terminated and won't terminate automatically, but the FDIC's refusal to consent to an extension means the $7 billion agreement could be terminated at any time by any party, according to WaMu lawyers. On Sept. 13, Judge Mary Walrath for the second time declined to approve WaMu's bankruptcy-exit plan. The judge found that WaMu equity security holders made credible claims that hedge funds supporting the Plan engaged in insider trading of WaMu securities based on information they obtained during the bankruptcy. The four hedge funds that helped negotiate the plan -Aurelius Capital Management, Centerbridge Partners LP, Appaloosa Management LP and Owl Creek Asset Management LP -- have filed appeals in late September of Judge Walrath's second rejection of the WaMu plan. Judge Walrath has ordered mediation for the parties to resolve insider trading allegations. U.S. Bankruptcy Judge Raymond T. Lyons has been appointed to lead the mediation sessions, who reported that discussions have been "fruitful" and "positive." Nevertheless, as of Nov. 7, the mediation was
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extended for another two weeks. Judge Walrath expects to have a report back on Nov. 22. The matters under mediation don't directly involve the lawsuit settlements and there are no signs that WaMu or JPMorgan are inclined to pull out of the deal, according to reports. The billion-dollar lawsuits settlement has survived attacked from shareholders twice, but the WaMu bankruptcy plan has also been rejected twice due to unrelated defects. WaMu is the biggest bank failure in U.S. history, with the holding company listing $4.49 billion versus $7.83 billion in liabilities. (D) Tribune Co. In Tribune, the major dispute arises out of a $13 billion leveraged buy-out of the company engineered by Sam Zell in 2007, which is alleged to have eventually led the company into bankruptcy the following year. Formal lawsuits were filed by Tribune's creditors committee in late 2010 to hold Tribune executives and lenders at the time of the LBO accountable for any fraudulent transfers in the LBO. The suits have been stayed pending Tribune's progress in getting court approval of a bankruptcy plan. Tribune is the second largest newspaper publisher in the U.S. It listed $13 billion in debt and $7.6 billion in assets when it filed for bankruptcy protection in December 2008. It owns the Chicago Tribune, Los Angeles times, six other newspapers and 23 television stations.

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(E) Ambac Financial According to Ms. Magdadaro, Ambac Financial Group's dispute with the Internal Revenue Service relate to the more than $7 billion in net operating losses, and claims filed by the IRS in Ambac's Chapter 11 case over back taxes totaling more than $1.5 billion. IRS has questioned how Ambac used $7.3 billion in net operating losses, or NOLs, to account for its losses from credit default swaps. IRS seeks an $807.2 million claim, which Ambac said should be valued at zero. A lawsuit over the dispute is still in mediation. On Oct.12, Ambac asked the bankruptcy court to hold a hearing to estimate the value of the $807.2 million tax claim, saying the company may run out of cash by 2012 if a dispute with IRS isnt resolved. Ambac says it needs to exit bankruptcy by December. The alternative, a full trial on the issue, would delay the bankruptcy case to such a degree that reorganization would otherwise be rendered impossible, Ambac said in court papers. Ambac seeks to use $4.7 billion of the $7 billion in net operating losses for future tax years. Ambac Assurance Corp. was the second largest bond insurer before the 2008 financial crisis. Ambac Financial, the holding company for Ambac Assurance and who relied on dividends from Ambac Assurance, filed for bankruptcy in November 2010 after Ambac Assurance stopped selling new policies in 2008.

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On Oct. 5, Judge Shelly Chapman in Manhattan approved the disclosure statement explaining Ambac's plan to restructure more than $1.24 billion in senior notes, paving the way for creditors to vote on a final Chapter 11 plan. Objections from shareholders were overruled. Shareholders have lamented that the plan will improperly give them nothing for their investments. (F) Innkeepers USA Innkeepers USA Trust agreed to sell 64 of its hotels to Cerberus Capital Management LP and Chatham Lodging Trust for $1.02 billion, ending a two-month dispute after the buyers called off an earlier deal at a higher price. Innkeepers sued Cerberus and Chatham back in August over their decision to back out of a May 16 agreement to pay $1.12 billion for the hotels, including $700 million of debt. The prior deal fell apart when Cerberus and Chatham invoked a so-called material adverse effect clause, which they contended, allowed them to back out if an event occurred that could adversely affect Innkeepers' business. A weakened economy in the hotel industry contributed to the decision, Cerberus said. Innkeepers, in bankruptcy since July 2010, operates 71 hotels, including Residence Inns, Marriott hotels and Hampton Inns. (G) Fairpoint Communications Finally, Ms. Magdadaro relates that a litigation trust created for creditors of FairPoint Communications Inc. filed a $2 billion
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fraudulent transfer lawsuit against Verizon Communications in late October, blaming Verizon for Fairpoint's bankruptcy. The trust alleges Verizon lured FairPoint in 2008 to buy "inferior assets that had no future" -- Verizon's landline and Internet operations in Maine, New Hampshire and Vermont. The suit alleges that what FairPoint acquired were "antiquated landlines and DSL technology that was already disfavored by customers and expensive to maintain." FairPoint sought bankruptcy protection 18 months after the acquisition. Verizon called the lawsuit meritless. The suit was filed in Mecklenburg County Court in North Carolina. Charlotte, North Carolina-based FairPoint provides telephone and Internet services in 18 states, mostly in rural areas.

Delayed Exits From Chapter 11 Julie Anne Lopez reports about four Chapter 11 debtors whose emergence from Chapter 11 has been delayed: Tribune Co., WR Grace & Co., Lehman Brothers, Washington Mutual. (A) Tribune Co. U.S. Bankruptcy Judge Kevin Carey rejected on October 31, 2011, the separate requests of Tribune Company and rival Aurelius Capital Management, LP, for the court to confirm their competing Chapter 11 plans of reorganization for the publisher,
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leaving the Chapter 11 proceeding unresolved after nearly three years in court. In a 126-page opinion, Judge Carey said neither plan was confirmable under the Bankruptcy Code and threatened to appoint a bankruptcy trustee to resolve the case if the company and its warring creditors can't come up with a viable solution soon. Tribune's plan proposed narrowly limiting the scope of future litigation and promising dissident creditors as much as $714 million if they drop most of their claims; but the Aurelius camp wanted to pursue full litigation against parties involved in the 2007 leveraged buyout of the company. Judge Carey said the plan proposed by Tribune and a group of senior creditors had a better chance of confirmation if it was altered to meet his objections. He added that the competing plan proposed by Aurelius and a group of junior bondholders was not as feasible as the senior creditors' proposal because it depended on a "highly speculative" litigation trust to resolve the many legal issues swirling around the case. The judge also said holders of a deeply subordinated class of notes known as "PHONES" were being treated unfairly. Nevertheless, it is reported that the judge is favoring the Tribune proposal. Judge Carey noted that voters overwhelmingly favored the plan proposed by the senior creditors. Both Aurelius and Tribune said they needed more time to study the decision before commenting.
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Although he failed to provide a specific roadmap, Judge Carey made clear his resolve to wrap up the case soon. He stated that the Debtors must promptly find an exit door to this Chapter 11 proceeding. "The Court is equally resolute that if a viable exit strategy does not present itself with alacrity, and despite any disruption to management, as well as the added cost and delay this might inevitably occasion, the Court intends to consider, on its own motion, whether a chapter 11 trustee should be appointed," Judge Carey concluded. Judge Carey said he will convene a status hearing on November 22, 2011, "to further the expeditious and economic resolution of the Chapter 11 case." Tribune is approaching 1,100 days in Bankruptcy Court, putting it in the upper 10% of longest-running bankruptcies for large public companies. Tribune's Chapter 11 reorganization began in December 2008. (B) Tribune Co Alfred E. Festa, chairman, president and chief executive officer of W.R. Grace & Co., said during a October 25, 2011 investor conference call that the Debtors are still waiting on the U.S. District Court for the District of Delaware to rule an affirmation of their Plan of Reorganization and on the appeals to that Plan's confirmation order. "We are due to hear from the court literally, it could be any day. At this point however, it is unlikely that we'll emerge this
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year," Mr. Festa said. "We continue to remain highly confident that the court will rule in our favor on all matters, we just don't know when the ruling will come," he added. The Plan, co-proposed by the Official Committee of Asbestos Personal Injury Claimants, the Official Committee of Equity Security Holders, and the Asbestos Future Claimants Representative appointed in Grace's bankruptcy case, is before the District Court pending appeals from various parties, including a group of prepetition bank lenders and the Official Committee of Unsecured Creditors. Mr. Festa noted that the bankruptcy process has been an incredibly long process and the Debtors are all eager to see it conclude as soon as possible. He added that the only real course at this point is to wait for the District Court ruling on affirmation. "It is important to remember that the bankruptcy does not impact the way we run our business or the operating results we are achieving," Mr. Festa said. "We have grown revenues and earnings, made acquisitions, significant capital investments, and built substantial value for our shareholders all while in bankruptcy," he pointed out. Grace filed for Chapter 11 reorganization in 2001 to protect itself from more than 100,000 personal injury claims. (C) Lehman Brothers Deutsche Bank AG and several other creditors of Lehman Brothers Holdings Inc. have signed plan support agreements indicating they will vote in favor of the confirmation of the defunct investment bank's proposed Chapter 11 plan.
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The creditors, which also include Bank of America N.A., Royal Bank of Scotland plc, Societe Generale, BNP Paribas, OchZiff Capital Management Group LLC, UBS AG, Varde Partners L.P. and King Street Capital Management L.P., are the latest additions to the increasing list of Lehman creditors supporting the $65 billion payout plan. Deutsche Bank previously called for the reclassification of its claims, each in the sum of more than $1 billion, against LBHI and its commercial paper unit under the plan. Deutsche Bank's lawyer Joshua Dorchak, Esq., at Bingham McCutchen LLP, in New York, clarified that the bank's move to support the plan is "without prejudice to its rights and remedies" with regards to the proposed reclassification of its claims. The plan, if confirmed, would enable LBHI and affiliated debtors to pay an estimated $65 billion to their creditors. Under the plan, LBHI's senior unsecured creditors which have an estimated $83.724 billion in claims would recover 21.1% of their claims. Meanwhile, general unsecured creditors, which have an estimated $11.39 billion in claims, would recover 19.9% of their claims. The proposed plan drew flak from the U.S. Trustee, a Justice Department agency overseeing bankruptcy cases, and more than 20 Lehman creditors. In court papers, the U.S. Trustee criticized the plan's provision to pay the fees and expenses of professionals employed by members of the Official Committee of Unsecured Creditors and by the indenture trustees for debt holders.
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The proposed plan provides for the payment of fees and expenses as "administrative expense claims" without bankruptcy court order. The U.S. Trustee said the payment of fees of members of the Creditors Committee is not allowed under U.S. bankruptcy law. It further said that the indenture trustees should be required to file an application and show that they have made "substantial contribution" to the bankruptcy case before any payment is made. Aside from the proposed payment, the U.S. Trustee also criticized another provision in the plan, which releases companies and individuals from any liabilities to third parties. This provision also drew flak from government lawyer, Robert William Yalen, Esq., who argued that the proposed releases extend beyond the bankruptcy court's jurisdiction and are not authorized by the Bankruptcy Code. Lehman also failed to win support from the liquidators of its Australian arm, Lehman Brothers Australia Ltd. Other Lehman creditors opposing the confirmation of the plan include China Development Industrial Bank, Dotson Investments Ltd., Bank of Montreal, U.S. Bank N.A., Giants Stadium LLC, BNY Mellon Corporate Trustee Services Ltd., Fontainebleau Las Vegas, LLC, the Texas Comptroller of Public Accounts, Asbury Atlantic, Inc. and the liquidators of Lehman Brothers Finance AG. The opposing creditors complained that the plan authorizes disparate treatment of creditors of the same class, enjoins them from prosecuting their claims in other proceedings, forces some creditors to give up a portion of the value of their claims in favor of other creditors, among other reasons. Some of them also do not agree with the assumption of their contracts with Lehman.
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The hearing to consider confirmation of the plan is scheduled for December 6, 2011, before Judge James Peck. LBHI has filed with the Court a supplement to the proposed Chapter 11 plan, incorporating nine major settlement agreements. The court filing included six agreements with 67 Lehman noncontrolled affiliates and three agreements with large creditors. Lehman filed for bankruptcy protection on September 15, 2008. (D) Washington Mutual Washington Mutual Inc.s bankruptcy judge ordered creditors and shareholders to remain in mediation for the next two weeks to try to resolve disputes that have kept the former bank holding company from exiting bankruptcy. U.S. Bankruptcy Judge Mary Walrath in Wilmington, Delaware, told the parties to keep working to resolve a dispute about insider trading allegations that shareholders made against hedge funds that hold WaMu debt. Judge Walrath asked the company to report back Nov. 22. The talks have been fruitful, Brian Rosen, an attorney for WaMu, said in court on Nov. 8 in Wilmington. The discussions have been positive. Judge Walrath has twice rejected WaMus reorganization proposal, which is built on a settlement splitting billions of dollars in cash and tax refunds among the companys creditors, JPMorgan Chase & Co. and the Federal Deposit Insurance Corp.
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Judge Walrath approved the settlement and rejected the reorganization plan. The parties in the mediation include four hedge funds that helped negotiate the plan and shareholders who oppose it. The shareholders accuse the hedge funds of using nonpublic information that they gained while helping to negotiate the plan to trade WaMu securities. U.S. Bankruptcy Judge Raymond T. Lyons has been leading sessions among creditors and shareholders, who have been fighting over the $7 billion payment plan. The hedge funds deny the insider-trading allegations. Judge Walrath gave shareholders permission to sue the funds. WaMu filed for bankruptcy on Sept. 26, 2008, the day after its banking unit was taken over by regulators and sold to JPMorgan Chase & Co. (JPM) for $1.9 billion. * * *

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. 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. These are: U.S. Dry Cleaning Services, Ambac Financial and Sbarro.
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(A) U.S. Dry Cleaning Services The U.S. Bankruptcy Court confirmed the First Amended Joint and Consolidated Chapter 11 Plan of Reorganization, dated September 14, 2011, of U.S. Dry Cleaning Services. USDC also entered into a securities purchase agreement in connection with the private placement of 10% Senior Secured Original Issue Discount Convertible Debentures Due September 23, 2011 and common stock purchase warrants to certain existing and new investors. Gross cash proceeds from the fist closing of this private placement were roughly $4.5 million. All debentures were issued with an original issue discount of 10%. Interest on the debentures is 10% per year, which will accrue from the original issue date until September 30, 2012, after which time interest will be payable in cash, quarterly in arrears. The debentures are convertible by the holders into shares of USDC's common stock at a conversion price equal to 50% of the price per share of common stock sold in USDC's next public offering of securities provided, however, that if USDC does not effectuate the public offering within nine months of September 23, 2011, the conversion price shall be $2 per share. Principal and interest are due at maturity on September 23, 2013. USDC, a retail laundry and dry cleaning provider, filed for Chapter 11 protection on March 4, 2010. (B) Ambac Financial

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Ambac Financial Group filed with the U.S. Bankruptcy Court a Second Amended Chapter 11 Plan and related Disclosure Statement. Pursuant to the Plan, (i) each Holder of a Senior Notes Claim will receive its pro rata share of New Common Stock, (ii) each Holder of a General Unsecured Claim will receive its pro rata share of New Common Stock, and -- provided that the Class of Senior Notes Claims votes to accept the Plan -- Warrants, in the amounts outlined in and subject to certain conditions as set forth in the Plan, and (iii) provided that the Class of Senior Notes Claims votes to accept the Plan, each Holder of a Subordinated Notes Claim will receive Warrants and, provided that the Class of Subordinated Notes Claims also votes to accept the Plan, New Common Stock, all in the amounts outlined in and subject to certain conditions as set forth in the Plan. (C) Sbarro The U.S. Bankruptcy Court for the Southern District of New York has approved the disclosure statement explaining Sbarro Inc.'s First Amended Joint Chapter 11 Plan of Reorganization. The Disclosure Statement provides that the Reorganized Debtors will secure new capital to continue their turnaround efforts and will reduce total funded debt to no more than $130 million (or by about 65%), and expect to have net debt of roughly $110 million on emergence. Certain of the Debtors' Prepetition First Lien Lenders have agreed to provide the Debtors with a $35 million new money firstout term loan facility, up to $20 million of which is expected to be funded on the Effective Date
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A significant portion of the First-Out New Money Term Facility will remain undrawn at closing and, as part of the roughly $30 million of liquidity on the Effective Date, will provide the Reorganized Debtors with access to funds to be used going forward for general corporate and working capital needs (as well as to cash collateralize certain letters of credit). Up to $35 million of loans expected to be outstanding under the DIP Facility will be converted on a dollar-for-dollar basis into first-out exit term loans and issued to the DIP Lenders on the Effective Date. $75 million of the outstanding obligations under the Prepetition First Lien Credit Facility will be converted into a $75 million last-out exit term loan facility to be issued Pro Rata to the Prepetition First Lien Lenders on the Effective Date (subject to a Letter of Credit Claims Reserve). The remaining roughly $100 million in secured debt outstanding under the Prepetition First Lien Credit Facility (excluding amounts related to existing letters of credit, which will be addressed with the Letter of Credit Claims Reserve) plus any First Lien Adequate Protection Claims that are not otherwise restructured under the Last-Out Exit Term Facility will be converted into 100% of the common equity of Reorganized Sbarro and distributed Pro Rata to the Prepetition First Lien Lenders on account of the obligations owed to them under the Prepetition First Lien Credit Facility and the First Lien Adequate Protection Claims. The Debtors' obligations under the Prepetition Second Lien Credit Agreement will be canceled and discharged.

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General Unsecured Claims against the Debtors, including $150 million in outstanding unsecured Senior Notes plus accrued interest, will be canceled and discharged. The general unsecured Claims held by certain trade creditors with whom the Debtors intend to conduct business postemergence will receive their Pro Rata share of $500,000 in Cash. All Equity Interests in Sbarro Holdings LLC will be extinguished. The Court scheduled a November 17, 2011 confirmation hearing. * * *

That ends the Beard Group Corporate Restructuring Review for October 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 monthly Restructuring Review on December 16th. Thank you for listening.

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