Beard Group Corporate Restructuring Review For November 2011

Beard Group Corporate Restructuring Review For November 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 November 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.
November 2011 Mega Cases Now, let's review the largest chapter 11 cases in November 2011. Danilo Muoz reports that the number of hundred-million dollar Chapter 11 bankruptcy cases dropped a couple of notches in November but remains high so far this year. Eight companies filed -- two below the total mega filings in October. However, three of those eight cases involve companies with assets in excess of $1 billion. For the first 11 months of 2011, 82 companies with assets of at least $100 million have filed for Chapter 11. For fiscal year 2010, there were a total of 105 mega cases, or an average of about 9 per month. The four billion-dollar bankruptcies in November are AMR Corp. and its American Airlines unit, Dynegy Holdings LLC, and General Maritime Corp. in that order. AMR and Dynegy are the second and third largest Chapter 11 filing so far this year, respectively, just behind MF Global Holdings Ltd., which filed at the end of October. Another notable case is Jefferson County, Alabama, which sought creditor protection under Chapter 9 of the Bankruptcy Code listing more than $1 billion in assets and debts.
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During the first eleven months of 2011, a total of eight companies with assets in excess of $1 billion sought Chapter 11 protection. Other billion-dollar bankruptcies this year are those of MF Global Holdings Inc., NewPage Corporation, Borders Group and MSR Resort Golf Course. AMR Corporation and its debtor-affiliates filed for joint Chapter 11 protection on Nov. 29, 2011, with the U.S. Bankruptcy Court for the Southern District of New York in Manhattan [lead case number 11-15463] before Judge Sean H. Lane. The Company's balance sheet at Sept. 30, 2011, showed $24.7 billion in total assets, $29.5 billion in total liabilities, and a $4.8 billion stockholders' deficit. AMR's American Airlines unit is the third largest airline in the United States. AMR sought bankruptcy protection after failing to secure cost-cutting labor agreements. AMR, previously the world's largest airline prior to mergers by other airlines, is the last of the so-called U.S. legacy airlines to seek court protection from creditors. American Airlines, American Eagle and the AmericanConnection carrier serve 260 airports in more than 50 countries and territories with, on average, more than 3,300 daily flights. The combined network fleet numbers more than 900 aircraft. November's second largest Chapter 11 case, by Dynegy Holdings LLC and four other affiliates of Dynegy Inc., is also before the Bankruptcy Court for the Southern District of New York [Lead Case No. 11-38111]. Parent Dynegy Inc. is not part of the filing. Dynegy Holdings filed in order to implement an agreement
with a group of investors holding more than $1.4 billion of senior notes issued by Holdings, regarding a framework for the consensual restructuring of more than $4 billion of obligations owed by Holdings. Dynegy Holdings disclosed assets of $13.7 billion and debt of $6.18 billion. The Chapter 11 filing also aims to address the burdensome lease obligations at Holdings' Roseton and Danskammer facilities. On Dec. 7, Dynegy Inc. and Dynegy Holdings LLC delivered to the Bankruptcy Court a Chapter 11 plan of reorganization and an accompanying disclosure statement for Dynegy Holdings. The Plan addresses claims against and interests in Holdings only and does not address claims against and interests in the other Debtors -- Dynegy Northeast Generation, Inc., Hudson Power, L.L.C., Dynegy Danskammer, L.L.C. and Dynegy Roseton, L.L.C. The Holdings Plan provides for the treatment and satisfaction of all claims against Holdings, including its senior and subordinated notes and its guaranties of its Roseton and Danskammer lease obligations. Dynegy said if confirmed by the Court, the proposed Holdings Plan will settle all pending and potential causes of action related to Dynegy's out-of-court restructuring efforts and will materially reduce the debt on its consolidated balance sheet. The third largest Chapter 11 filing was by General Maritime Corporation and its affiliates, also before the Manhattan Bankruptcy Court [Lead Case No. 11-15285] on Nov. 17. General Maritime disclosed $1.72 billion in assets and $1.41 billion in liabilities as of Sept. 30, 2011.
New York-based General Maritime, through its subsidiaries, provides international transportation services of seaborne crude oil and petroleum products. It is the second- largest U.S. owner of oil tankers. Its fleet is comprised of VLCC, Suezmax, Aframax, Panamax and product carrier vessels. The fleet consists of 30 owned vessels and three chartered vessels. General Maritime is seeking Court approval of bidding procedures in connection with the potential auction and sale of substantially all of the Debtors' assets. Meanwhile, Jefferson County's Chapter 9 bankruptcy represents the largest municipal debt adjustment of all time. Jefferson County, home to Birmingham, Ala., the state's mostpopulous city, filed for Chapter 9 with the Bankruptcy Court for the Northern District of Alabama [Case No. 11-05736] to address long-term debt of $4.23 billion, including about $3.1 billion in defaulted sewer bonds where the debt holders can look only to the sewer system for payment. The county said it would use the bankruptcy court to put a value on the sewer system, in the process fixing the amount bondholders should be paid through Chapter 9. Other large Chapter 11 filings were also filed by Sargent Ranch LLC, PMI Group Inc., Clare at Water Tower, SP Newsprint Holdings LLC, and Trailer Bridge Inc. Sargent Ranch filed for Chapter 11 protection on Nov. 18, 2011, with the Bankruptcy Court for Southern District of California in San Diego [Case No. 11-18853] before Judge Laura S. Taylor. The Company listed estimated assets of $500 million to $1 billion and estimated debts of $50 million to $100 million.
The PMI Group is an insurance holding company. Through its principal regulated subsidiary, PMI Mortgage Insurance Co., and its affiliated companies, the Debtor provides residential mortgage insurance in the United States. The PMI Group filed for Chapter 11 bankruptcy with the Bankruptcy Court for the District of Delaware [Case No. 11-13730] on Nov. 23, listing total assets of $225 million and total debts of $736 million. Another mega-case, The Clare at Water Tower, is an upscale 334-unit high-rise continuing-care retirement community in Chicago, Illinois. The Clare filed for Chapter 11 protection with the Bankruptcy Court for the Northern District of Illinois [Case No. 11-46151] on Nov. 14, after defaulting on $229 million in taxexempt bond financing used to build the project. The Clare estimated $100 million to $500 million in assets and debts. SP Newsprint Holdings and three affiliates filed for Chapter 11 bankruptcy with the Bankruptcy Court for the District of Delaware [Lead Case No. 11-13649] on Nov. 15. In its petition, SP Newsprint Holdings estimated $100 million to $500 million in assets and debts. SP Newsprint is one of the largest producers of newsprint in North America. SP Recycling Corporation, a Georgia corporation and the Debtors' other operating company, was established in 1980 as a means for SP to secure a ready supply of recycled fiber, a key raw material for its newsprint. Trailer Bridge, meanwhile, provides integrated trucking and marine freight service to and from all points in the lower 48 states and Puerto Rico and Dominican Republic. Trailer Bridge filed a voluntary Chapter 11 petition with the Bankruptcy Court for the District of Middle District of Florida [Case No. 11-08348] on Nov.
16, one day after its $82.5 million 9.25% Senior Secured Notes became due. In its petition, the Debtor estimated $100 million to $500 million in assets and debts. There was no prepackaged Chapter 11 mega case for November. In fact, the number of prepackaged bankruptcy filings is on the decline the past few months compared to last year. Only one prepackaged mega Chapter 11 was commenced for the past four months. For the first 11 months of 2011, 11 of the 82 mega cases involved a prepackaged filing or 13%. For fiscal year 2010, a total of 35 prepacks/pre-arranged cases were filed -- about one in every three filings in 2010. Of the mega cases for November, three were engaged in transportation American Airlines, General Maritime and Trailer Bridge. The rest were spread evenly throughout other industries. Of the November mega cases, three were filed with the Southern District of New York, two were filed in Delaware, and the rest were spread throughout other bankruptcy courts. However, the top three bankruptcies for November all filed for Chapter 11 with the Bankruptcy Court for the Southern District of New York. 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. For the first 10 months of 2011, the largest Chapter 11 filing was filed by MF Global Holdings Ltd. and its affiliates. As of Sept. 30, MF Global had $41 billion in total assets and $39.6 billion in total liabilities.
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 identified five companies that may be close to filing for bankruptcy. These are: FiberTower, Aquilex Holdings, Simmons Foods, BankAtlantic Bancorp and Eastman Kodak.
(A) FiberTower FiberTower missed a $1.3 million semi-annual interest payment due Nov. 15, 2011, with respect to its 9% Convertible Senior Secured Notes Due 2012. The indenture governing the 2012 Notes provides that the failure to make such payment constitutes an event of default after a 30-day cure period. The missed interest payment will not trigger any significant cross-default provisions associated with other outstanding FiberTower debt prior to the expiration of the cure period. During the cure period, FiberTower will continue to evaluate different options to manage its debt load. John Kelly, the chairman of the company's board of directors, and fellow director, Phil Kelley, resigned from the board on Nov. 14. Director Randall Hack stepped down the next day. During the third quarter of 2011, FiberTower conducted an assessment of the fair value of its Federal Communications Commission licenses and concluded that the fair value of the licenses was less than the carrying value. The Company estimates the impairment charges for these assets to be in the range of $158 million to $170 million in the third quarter of 2011,
which would reduce the carrying value of the FCC licenses to somewhere in the range of $87 million to $129 million at Sept. 30, 2011. FiberTower is a backhaul and access services provider focused primarily on the wireless carrier market.
(B) Aquilex Holdings Aquilex Holdings LLC reached an agreement for $15 million in incremental debt financing from a group of senior noteholders led by affiliates of Centerbridge Partners, L.P. The company said the investment represents an important first milestone in the Company's financial restructuring process and increases the liquidity to $33.5 million when coupled with its existing cash on hand of $18.5 million, as of Nov. 14, 2011. The additional liquidity, which is being provided pursuant to a second-lien senior secured credit facility, will help ensure that Aquilex's operations continue in the normal course. CEO Bill Varner said Aquilex continues to engage in active and constructive negotiations with lenders and senior noteholders regarding a consensual balance sheet restructuring. In connection with the financing agreement, Aquilex's lenders have agreed to extend a forbearance agreement from Dec. 8, 2011, to Feb. 3, 2012. A majority of the Company's senior noteholders have agreed to forbear from taking any legal action if the Company determines not to pay a $12.5 million interest payment on the Company's senior notes due on Dec. 15, 2011.
The Company anticipates that it will reach an agreement-inprinciple on the terms of the financial restructuring by Dec. 15. Aquilex expects the cornerstones of the restructuring to include a substantial new equity investment by the senior noteholders, which will provide additional liquidity for working capital purposes and a significant paydown of the Company's secured debt. Aquilex expects that, as part of the restructuring, the Company's senior notes would be exchanged for common equity of the Company pursuant to an out-of-court restructuring or a voluntary filing under Chapter 11 of the U.S. Bankruptcy Code, which the Company currently expects would be a "pre-packaged" bankruptcy filing. As part of the closing of the transaction, the Company expects that affiliates of Centerbridge Partners, L.P. would become the controlling shareholder of Aquilex. Rothschild Inc. is acting as financial advisor and investment banker, and Richards, Layton & Finger is acting as legal advisor to Aquilex in connection with the restructuring. Alvarez & Marsal is acting as restructuring advisor to the Company. Standard & Poor's Ratings Services in November lowered its corporate credit rating on Aquilex Holdings to 'CC' from 'CCC-' and placed the ratings on CreditWatch with negative implications. "The rating actions reflect Aquilex's weak liquidity -- the company breached its financial covenants in third-quarter 2011 and we believe it is likely to do so again in the fourth quarter," said Standard & Poor's credit analyst James Siahaan.
"While we recognize that the forbearance agreements provide Aquilex with some additional time to negotiate a longerterm solution with its lenders and noteholders, and that the company's cash balance can support its near-term operational needs, we also believe that it is likely to undergo a financial restructuring and payment default. Based on Aquilex's public filings, we believe there's an increased likelihood that the company will not make its semi-annual interest payment on its 11.125% senior notes on its due date, Dec. 15, 2011." The Company reported a net loss of $298 million on $327 million of revenues for the nine months ended Sept. 30, 2011, compared with a net loss of $27 million on $324 million of revenues for the same period a year ago. The Company's balance sheet at Sept. 30, 2011, showed $400 million in total assets, $505 million in total liabilities, and a $105 million total deficit.
(C) Simmons Foods Standard & Poor's Ratings Services in November lowered its ratings on Siloam, Arkansas-based Simmons Foods Inc., including its corporate credit rating to 'CCC' from 'B-'. The downgrade reflects the Company's poor operating performance and inability to comply with covenants in its credit facility. "Although the company is in technical default of its covenants, this does not constitute a default per our criteria because the company has not defaulted on any interest or principal payments, nor has it filed for bankruptcy protection or proposed a distressed exchange for any of its outstanding debt obligations," said Standard & Poor's credit analyst Christopher Johnson.
Moody's Investors Service also issued a similar downgrade, cutting its Corporate Family Rating and the Probability of Default Rating on Simmons Foods to Caa1 from B2. Moody's rating action comes after Simmons reported weak third quarter operating performance and disclosed that it is in default of two financial covenants under its $225 million senior secured bank facility. The Company currently is being permitted access to its revolving credit agreement by its lenders and is in discussions to obtain forbearance for its financial covenant breach agreement and ultimately a waiver and amendment to its credit facilities. This is the second time in six months Simmons has sought covenant relief from its banks -- the company entered into a forbearance agreement in June and subsequent amendment in July after it failed to meet a financial covenant. Simmons' debt capital includes a $125 million first-lien secured bank revolving credit line ($83 million was drawn at the end of the third quarter); a $100 million first-lien secured bank term loan; and $265 million of 10.5% second lien senior secured notes. A $13.9 million semi-annual interest payment on the notes was made after the end of the third quarter. Simmons has struggled with high financial leverage since its $230 million acquisition of wet pet food maker Menu Foods in November 2010. Simmons Foods, headquartered in Siloam Springs, Arkansas, is one of the leading vertically integrated poultry processors, and a large private label pet food producer in the United States. The company operates in three primary business groups: (i) Poultry; (ii) Pet Food; and (iii) Other, which includes its
rendering operations. The company is principally owned and controlled by members of the Simmons family. Net sales reported for the 12 month period ended July 2, 2011, was roughly $1.2 billion.
(D) BankAtlantic Bancorp BankAtlantic Bancorp Inc., the bank holding company and parent of BankAtlantic, on Nov. 23, 2011, received notices of default from Wilmington Trust Company, the trustee under the bank holding company's junior subordinated debentures relating to trust preferred securities of BBC Capital Trust II, BBX Capital Trust II(A), and BBC Capital Trust XI. The notices advise the Company that Wilmington Trust believes an event of default has occurred under the indentures in connection with the proposed sale of BankAtlantic's stock to BB&T Corporation pursuant to a Nov. 1 Stock Purchase Agreement. On Nov. 28, 2011, putative holders of direct or indirect interests in trust preferred securities issued by four trusts sponsored by BankAtlantic sued the Company and BB&T alleging that the proposed sale violates provisions contained in the indentures. BankAtlantic also has announced that it entered into a Cease and Desist Order with the Office of Thrift Supervision at both the bank and holding company level. The holding company reported a net loss of $11.28 million on $110 million of total interest income for the nine months ended
Sept. 30, 2011, compared with a net loss of $96 million on $135 million of total interest income for the same period a year ago. The Company's balance sheet at Sept. 30, 2011, showed $3.74 billion in total assets and $3.73 billion in total liabilities.
(E) Eastman Kodak The Wall Street Journal, citing people familiar with the matter, reported that Eastman Kodak Co. has hired Sullivan & Cromwell -- replacing Jones Day -- to advise the company on ways to rework its finances. Jones Day was hired earlier this year. A person familiar with the situation told WSJ that FTI Consulting Inc., another of Kodak's restructuring advisers, has been aggressively identifying pieces of Kodak's operations and assets to shed. Kodak is currently shopping around its online photo sharing and printing business, Kodak Gallery. It's hoping to fetch "hundreds of millions of dollars" for it, another person said. Headquartered in Rochester, New York, Eastman Kodak provides imaging technology products and services to the photographic and graphic communications markets. Kodak's balance sheet at Sept. 30, 2011, showed $5.10 billion in total assets, $6.75 billion in total liabilities, and a $1.65 billion total deficit. Kodak had sales of $7.2 billion last year. Sales declined by 24% since 2008. The net loss last year was $687 million. During the first nine month of this year, the net loss was $647 million on sales of $4.27 billion.
In July 2011, the Company announced that it is exploring strategic alternatives, including a potential sale, related to its digital imaging patent portfolios. Kodak denied rumors it was filing for bankruptcy. A group of Kodak's bondholders have formed an informal committee and hired law firm Akin Gump Strauss Hauer & Feld LLP for advise.
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, one with London-based Barclays Plc and the other with New York-based JP Morgan Chase.
Appeals challenging Judge James M. Peck's orders in the $3 billion asset fight between Lehman Brothers and Barclays remain pending. The appeals and cross-appeals both deal with the contract for the sale of Lehman's brokerage business to Barclays in September 2008. In February, Judge Peck awarded the trustee overseeing the remaining assets of the Lehman broker business $2.05 billion from Barclays on account of the so-called "margin assets." The judge also ordered the Lehman trustee to pay Barclays more than $1.1 billion on account of so-called "clearance assets." Barclays and the Lehman trustee both contend that the other was entitled to nothing while the amount each was awarded should have been more. The parties filed their first briefs in the appeal in late October. Another set of briefs are due Dec. 23, and the last batch of briefs are due Feb. 10 next year. The appeals are expected to be decided by Judge Richard J. Howell of the U.S. District Court for the Southern District of New York no earlier than February. But even as Lehman earlier said it is dropping its fight on allegations of an $11 billion "windfall" that Barclays made in the deal, the failed investment bank continues its $8.6 billion fight with JPMorgan. Lehman sued JPMorgan in May 2010 for allegedly using information accessed in its role as Lehman's clearing bank to extract collateral from the failed bank. JPMorgan countersued that it was defrauded by Lehman to extend billions in loans around the time of the failed bank's bankruptcy filing. JPMorgan has been trying to move the lawsuit by Lehman from the bankruptcy court to the district court, saying that a
bankruptcy judge can't rule on the matter at hand. JPMorgan cited the Supreme Court's ruling in the Stern vs Marshall case, which involved Anna Nicole Smith's inheritance battle. Lehman has opposed the venue transfer. On Nov. 16, JPMorgan defended before the bankruptcy court the $6 billion in claims it filed against Lehman as well as its own conduct in an $18 billion sale of Lehman collateral. JPMorgan said Lehman's strategy against it has become "a tale of two lawsuits" in an effort to win one way or another. JPMorgan said in a court filing, "There is the lawsuit that [Lehman] filed in the bankruptcy court, in which Lehman blames JPMorgan for its bankruptcy filing. And then there is the imaginary lawsuit that [Lehman] chose not to file, where the goal is 'disallowance' of JPMorgan's demand for payment of money owed." Lehman's case against JPMorgan is slated for trial in 2012.
(B) Extended Stay Meanwhile, Blackstone Group LP and other named defendants filed court papers on Nov. 1 to seek dismissal of three billion-dollar lawsuits filed against them by the litigation trust established under Extended Stay Inc.'s confirmed plan of reorganization. Hobert Truesdell, who administers the litigation trust created for Extended Stay creditors, sued Blackstone for allegedly siphoning more than $2 billion from the pre-bankruptcy sale of Extended Stay without regard as to how the hotel chain would operate after the deal. Blackstone sold the hotel chain in 2007 to an investment consortium led by David Lichtenstein, chairman of
Lightstone Group LLC, through a $7.4 billion loan from Bear Stearns Commercial Mortgage Inc. and two US banks. Blackstone's lawyer, Daniel Donovan, Esq., of Kirkland & Ellis, said the litigation trustee's claims against the Blackstone defendants "should be dismissed as a matter of law." The lawyer argued that Section 546(e) of the Bankruptcy Code precludes the litigation trustee's so-called "avoidance claims" relating to the 2007 sale. He added that neither the Extended Stay bankruptcyexit plan nor the litigation trust agreement authorizes Mr. Truesdell to bring a securities claim; and only the U.S. government can bring a fraudulent conveyance claim under the Federal Debt Collection Procedures Act. Furthermore, the lawyer asserted, the trustee failed to allege a fiduciary duty owed by the Blackstone defendants. Bank of America and 30 other defendants also filed motions to dismiss claims brought against them in the lawsuits, arguing that the allegations are vague and conclusory. Judge James Peck will hold a hearing on Feb. 29, 2012, to consider the motions to dismiss the lawsuits. Objections are due no later than Dec. 23. In a related development, Line Trust Corporation Limited, Deuce Properties Limited, Square Mile Capital Management LLC, and Starwood Capital Group Global LP sought dismissal of two other lawsuits that were also filed by the litigation trustee in connection with the 2007 sale. Line Trust, et al., argued that the litigation trustee failed to provide any legal theory to support a determination of their liability. Moreover, the U.S. District Court for the Southern District of New York denied the litigation trustee's motions to withdraw reference of his lawsuits from the bankruptcy court to the district
court. In a 41-page decision dated Nov. 10, Judge Shira Scheindlin said the bankruptcy court has been administering Extended Stay's bankruptcy for more than two years, pointing out that judicial economy would be promoted by allowing the bankruptcy court -- which is already familiar with the extensive record in the case -- to initially adjudicate the lawsuits. 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., a three-way settlement deal at the heart of the WaMu bankruptcy plan aimed at resolving billiondollar lawsuits among WaMu, the Federal Deposit Insurance Corp. and JPMorgan Chase continues to hang in the balance, as Judge Mary Walrath refused to approve the WaMu plan twice. However, a WaMu attorney has said that a settlement of the disputes that have held up confirmation of the $7 billion Chapter 11 plan could be reached as early as Dec. 12. The involved parties are currently in mediation sessions with Judge Raymond Lyons. Brian Rosen, Esq. of Weil Gotshal & Manges, said there is no deal yet, but the company is working toward a settlement that would allow WaMu to put its Chapter 11 plan into effect by the end of February next year. WaMu is aiming for a mid-February third try at confirmation.
The WaMu Plan is based on the proposed settlement of lawsuits that pitted WaMu Inc., the FDIC, and JPMorgan 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. Common shareholders have consistently opposed the WaMu Plan. Preferred shareholders, whose claims are worth as much as $7 billion, have taken the position that no deal with common shareholders can go through unless they are also included. Another key issue in the case are the allegations that major hedge funds engaged in insider trading during the WaMu bankruptcy case, capitalizing on their knowledge of the state of negotiations with JPMorgan and federal regulators. 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. Dec. 8 marked the third anniversary of Tribune Co.'s bankruptcy filing. The case remains highly contentious and has taken longer than usual to resolve. There have been protracted negotiations and mediation efforts and numerous proposed plans of reorganization filed by Tribune and competing creditors groups. Many of the disputes among creditors center on the 2007 leveraged buyout fraudulent conveyance claims, the resolution of which is a key issue on the bankruptcy case. Specifically, Tribune creditors filed formal lawsuits in late 2010 to hold Tribune executives and lenders at the
time of the $13 billion buyout under Sam Zell's leadership accountable for any fraudulent transfers in the LBO. The suits have been stayed pending Tribune's efforts to confirm a bankruptcy plan. Judge Kevin J. Carey has rejected two earlier versions of the bankruptcy plans for Tribune. The company gave it another shot and filed a third amended version of its bankruptcy plan Nov. 18. Tribune says the Third Amended Plan contains an "allocation dispute protocol" that would allow the court to resolve potential intercreditor disputes on amounts that will be paid to various groups of creditors without interfering with the company's efforts to secure prompt confirmation of the Plan. Tribune is pushing for a March 12 courtroom showdown over its Chapter 11 exit plan. Creditors have said the company can't walk away from continued fights over hundreds of millions of dollars. 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.
Delayed Exits From Chapter 11 Julie Anne Lopez reports about four Chapter 11 debtors whose emergence from Chapter 11 has been delayed: Lehman Brothers, Washington Mutual, Tribune Co. and Nebraska Book.
(A) Lehman Brothers Judge James Peck of the U.S. Bankruptcy Court for the Southern District of New York confirmed on Dec. 6 the proposed Chapter 11 plan of Lehman Brothers Holdings Inc., which would enable Lehman to pay an estimated $65 billion to creditors. Plan approval sets the stage for creditors to start getting their money back early next year. At the hearing, Judge Peck said that while the company's bankruptcy speed up the financial crisis, it represented the most "overwhelming outpouring of creditor consensus in the history of insolvency law. What a difference three years makes." The packed courtroom applauded after his remarks. Judge Peck said the overwhelming support from Lehman's creditor constituencies is a "huge achievement." The case was the "most impossibly challenging" bankruptcy ever, he said. The plan, which is supported by creditors holding about $450 billion in claims, was confirmed after the objection of one final creditor was overcome. In an e-mailed statement, Bryan Marsal, Lehman's chief executive officer, said: "This case has required compromise and common sense, diligence and determination, and the reconciliation of complex positions that at times seemed irreconcilable." "Confirmation of this plan is a testament to the enormous efforts of the many stakeholders who recognized the value of an economic compromise plan and did yeoman's work to achieve it," Mr. Marsal said.
Harvey Miller, a partner at Weil, Gotshal & Manges LLP, and Lehman's lead bankruptcy counsel, said during the confirmation hearing that the company overcame "almost insurmountable" problems in resolving competing liquidation plans. Lehman hopes for its plan to be effective by the end of January. The company will continue to exist, however, as it still has pending litigation plus billions of dollars in assets, mostly in real estate. Mr. Marsal said he aims to raise $65 billion from Lehman assets in the next few years and will distribute some of the $23 billion to creditors in the first quarter. He estimated that the final claims will total $370 billion, giving the average creditor less than 18 cents on the dollar.
(B) Washington Mutual Washington Mutual Inc. hopes to resolve its three-year bankruptcy in February and may file an agreement stemming from ongoing mediation as soon as Dec. 12, the company's attorney said. After rejecting in September -- WaMu's second attempt to end its bankruptcy -- Judge Mary Walrath overseeing the case ordered the parties into mediation to resolve objections. WaMu attorney Brian Rosen said mediation continued "nonstop". Mr. Rosen asked Judge Walrath to set aside January 11 for a disclosure statement hearing, which reviews documents that creditors will use to guide their vote to approve or reject a plan of reorganization. He said it might be possible to hold a
February hearing to confirm the plan, which sets out how the company will repay about $7 billion to creditors. WaMu has languished in Chapter 11 bankruptcy since regulators seized its savings and loan in September 2008 in the biggest bank failure in U.S. history. WaMu's banking business was sold to JPMorgan Chase & Co immediately after being seized. In September, Judge Walrath rejected the company's second attempt to end its bankruptcy. She also found that shareholders might have a claim that four hedge funds that negotiated WaMu's plan used information from the plan talks to profit on trades of the company's securities. However, Judge Walrath did not allow shareholders to pursue those insider trading claims pending mediation. WaMu's bankruptcy plan is unlikely to provide anything for the company's shareholders.
(C) Tribune Co. The so-called DCL Plan Proponents composed of Tribune Company and its debtor affiliates; the Official Committee of Unsecured Creditors; Oaktree Capital Management, L.P.; Angelo, Gordon & Co., L.P.; and JPMorgan Chase Bank, N.A. submitted to Judge Kevin J. Carey of the U.S. Bankruptcy Court for the District of Delaware a Third Amended Joint Plan of Reorganization and accompanying supplemental disclosure document dated November 18, 2011. The Third Amended Plan includes modifications that comply with the results and findings made by the Court in a decision last month rejecting competing Chapter 11 plans.
Tribune said the Third Amended Plan contains an allocation dispute protocol that would allow the Court to resolve potential inter-creditor disputes regarding amounts that will be paid to various groups of creditors without interfering with the company's efforts to secure prompt confirmation of the Plan and the Company's subsequent emergence from bankruptcy. Tribune Chief Restructuring Officer Donald J. Liebentritt said the Third Amended Plan provides that as a default, Holders of Claims will receive the same distributions as provided under the Debtors Second Amended Plan. However, in light of, among other things, the motions to reconsider the Confirmation Opinion filed by Aurelius Capital Management, LP and other noteholders, the Third Amended Plan provides that the Court may: (a) reallocate distributions among the Holders of Senior Noteholder Claims, Other Parent Claims, so-called EGI-TRB LLC Claims, and PHONES Notes Claims; or (b) adjust the priority of distributions from the Litigation Trust or Creditors' Trust, if it concludes it is necessary to do so to ensure that the Third Amended Plan satisfies the requirements of the Bankruptcy Code based on the resolution of certain disputes or if the relevant parties otherwise consensually resolve the Allocation Disputes. The Third Amended Plan incorporates the terms of a Retiree Claimant Settlement that was included in the Second Amended Plan, subject, however, to any adjustments necessary in connection with the Allocation Dispute Protocol. Judge Carey scheduled a November 22 status hearing to find an expeditious and economic resolution to the Debtors' Chapter 11 cases. Tribune marked its third year anniversary in bankruptcy on December 8, 2011.
James F. Conlan, Esq., at Sidley Austin LLP, in Chicago, Illinois, told Judge Carey that the Debtors have been in bankruptcy too long, and as the Court admonished, they "must promptly find an exit door to this Chapter 11 proceeding." Mr. Conlan noted that in the Confirmation Opinion, the Court found that the DCL Plan, with certain modifications could be that exit door. "The DCL Plan Proponents have therefore taken the Court's admonition to heart and have amended the DCL Plan to eliminate the remaining obstacles to confirmation," Mr. Conlan said.
(D) Nebraska Book The hearing to consider approval of Nebraska Book Co.'s reorganization plan, previously postponed until Dec. 19, has been pushed back three more months, to March 22. The voting deadline has been extended to March 13. Nebraska Book prepared a pre-packaged Chapter 11 plan that would swap some of the existing debt for new debt, cash and the new stock. The plan would have paid off first- and second-lien debt in full, while giving most of the new equity to subordinated noteholders of the operating company and holders of notes issued by the holding company. Plan confirmation, however, has been delayed due to the company's inability to secure $250 million in outside financing. The company's exclusive period for proposing a plan is set to expire on Jan. 23.
Lincoln, Nebraska-based Nebraska Book Company, Inc., is one of the leading providers of new and used textbooks for college students in the United States. Nebraska Book and seven affiliates filed separate Chapter 11 petitions on June 27, 2011, in Wilmington, Delaware bankruptcy court. The Hon. Peter J. Walsh presides over the case. Lawyers at Kirkland & Ellis LLP and Pachulski Stang Ziehl & Jones LLP, serve as the Debtors' bankruptcy counsel. The Debtors' restructuring advisors are AlixPartners LLC; the investment bankers are Rothschild, Inc.; the auditors are Deloitte & Touche LLP; and the claims agent is Kurtzman Carson Consultants LLC. When it filed for bankruptcy, Nebraska Book listed consolidated assets of $657 million and debts of $563 million. JPMorgan Chase Bank N.A., as administrative agent for the DIP lenders, is represented by lawyers at Richards, Layton & Finger, P.A., and Simpson Thacher & Bartlett LLP. J.P. Morgan Investment Management Inc., the DIP arranger, is represented by lawyers at Bayard, P.A., and Willkie Farr & Gallagher LLP. An ad hoc committee of holders of more than 50% of the Debtors' Second Lien Notes is represented by lawyers at Brown Rudnick. An ad hoc committee of holders of the Debtors' 8.625% unsecured notes are represented by Milbank, Tweed, Hadley & McCloy LLP. The Official Committee of Unsecured Creditors selected Lowenstein Sandler LLP and Stevens & Lee, P.C., as lawyers and Mesirow Financial Inc. as financial advisers.
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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.
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: Local Insight Media Holdings Inc., Great Atlantic & Pacific Tea & Co., and Sbarro Inc.
(A) Local Insight Media Local Insight Media Holdings Inc. received an order from the U.S. Bankruptcy Court for the District of Delaware confirming the company's Plan of Reorganization. The Plan was declared effective and the company emerged from bankruptcy on November 18. Local Insight's Plan is predicated on the notion that the Company and creditors would win a lawsuit to void the lien on what's known as the Berry assets. The plan calls for giving new stock to the holders of the $339 million secured claim. The disclosure statement says the lenders' recovery will range between 20% and 28%. The holders of up to $7 million in what are known as Regatta unsecured claims will take home 13% in cash. There is a long list of creditors that will receive nothing. The classes being wiped out and their claims include LIM Finance II term loans ($119.8 million); LIM Finance subordinated notes
($80.7 million); and LIM Finance term loans ($138.1 million). Emergence from Chapter 11 was financed by a new $35 million loan. Existing first-lien lenders were given the right to participate in the loan. Under the Plan, Local Insight would emerge with a new credit facility and total debt reduced by more than 90%. The Company's senior secured debt would be exchanged for equity in the reorganized company. The Plan was supported by the steering committee of the Company's prepetition senior secured lenders. A separate bankruptcy plan for Local Insight's affiliate, Caribe Media, calls for secured lenders owed $127 million to take ownership and receive a $55 million loan, for a projected recovery of 77% to 93%. Subordinated noteholders owed about $58.6 million are to receive noting under the plan.
(B) Great Atlantic & Pacific Supermarket operator Great Atlantic & Pacific Tea Co. proposed a restructuring plan based on $490 million financing from an investor group that includes Ron Burkles Yucaipa Cos. A&P will use the investment to pay creditors and exit bankruptcy, according to the plan filed with the U.S. Bankruptcy Court in White Plains, New York. The financing will be in the form of (i) $210 million face amount of privately placed New Second Lien Notes, (ii) $210 million face amount of privately placed New Convertible Third Lien Notes, and (iii) an $80 million New Equity Investment. The investment provides the best chances of reorganizing successfully, the supermarket company said in court papers.
Under the agreement, the investors will purchase new notes and shares, and will receive all the equity in the reorganized company. The financing will pay secured creditors in full and provide a $40 million cash pool for distribution to general unsecured creditors, according to the court filing. In the disclosure statement accompanying the Plan, the company provided percentage recoveries only for some classes of creditors. Recoveries for others were left blank. A&P hopes to emerge from bankruptcy early next year.
(C) Sbarro The Plan of Reorganization for Sbarro, Inc., and its domestic subsidiaries, become effective and the Company has successfully emerged from Chapter 11 with significantly reduced debt and a new $35 million capital infusion. The reorganization plan eliminates more than 70% of company debt, and provides access to $35 million in fresh capital from the company's new ownership group. Key terms of the Plan include: Converting up to $35 million of loans outstanding under Sbarro's DIP Facility into new first-out rollover term loans, which together with the new money term loans of up to $35 million will comprise the "FirstOut Exit Term Loan Facilities" of the reorganized company.
Converting a portion of the Prepetition First Lien Credit Facility into a $75 million "last-out" exit term facility; Converting the remaining approximately $100 million in secured indebtedness outstanding under the Prepetition First Lien Credit Facility into substantially all of the common equity of Reorganized Sbarro; and Eliminating all other outstanding debt. The exit financing package provided by the first lien lenders allows the Company to exit bankruptcy in the fourth quarter with significant cash interest coverage. As the Company enters the fourth quarter -- historically its busiest period -- it expects to be able to generate positive cash flow before year-end, resulting in net leverage below $100 million and expected liquidity of approximately $40 million by the end of 2011.
That ends the Beard Group Corporate Restructuring Review for November 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 January 16th. Thank you for listening.

Beard Group Corporate Restructuring Review For November 2011

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