Solutia Asarco L.I.D. Buffets Tousa Bankruptcy (Update1)
Solutia, Asarco, L.I.D., Buffets, Tousa: Bankruptcy (Update1)
By Bill Rochelle
Feb. 11 (Bloomberg) — Citigroup Global Markets Inc. and the
other lenders behind the commitment to provide Solutia Inc. with
$2 billion in financing for an exit from Chapter 11 filed their
answer to Solutia;s complaint. The specialty chemical
manufacturer is asking the U.S. Bankruptcy Court in New York to
force the banks to fund the $2 billion loan by the month;s end.
The lenders, which include Goldman Sachs Credit Partners LP,
Deutsche Bank Trust Co. Americas and Deutsche Bank Securities
Inc., said in their court filing that “few potential buyers have
shown any interest in the syndication;; of the Solutia loan. They
also said it is “proving impossible;; to syndicate half of the
new term loan.
Solutia;s lawsuit wants to force the banks to make the loan
under their commitment, whether they can syndicate parts of the
loan to other lenders or not.
The banks accuse Solutia of omitting to mention an important
feature of their loan commitment given Oct. 25. The document,
they point out, relieves the banks of their commitment if there
has been a material change in the loan syndication market “in
the reasonable judgment;; of the lenders.
The banks are saying the bankruptcy judge at the trial to
begin Feb. 21 can;t make an objective determination. Instead, the
judge must engage in a subjective analysis of whether the
lenders; belief in a changed market is “reasonable.;;
The lenders raised the ante in the answer to Solutia;s
complaint by including a counterclaim. If they win the trial, the
banks say Solutia must repay them for their costs, including
attorney fees, under an indemnification provision in the
commitment agreement.
At a Feb. 8 hearing, the bankruptcy judge, Prudence Carter
Beatty, refused to rule now whether she will force the banks to
fund the loan immediately if they lose the trial beginning later
this month.
Solutia and the lenders agreed on a schedule requiring the
parties to examine witnesses under oath beginning not later than
Feb. 18 and start a trial on Feb. 21. The banks; commitment
expires Feb. 29. A separate commitment to backstop a $250 million
equity-rights offering will expire Feb. 28 if Solutia hasn;t
carried out the reorganization plan and completed the $2 billion
bank financing.
The new financing is to include a $1.2 billion senior
secured term loan, a $400 million senior secured revolving credit
and $400 million in senior unsecured notes. The banks are to
provide a $400 million bridge loan if the notes can;t be sold.
To read other Bloomberg coverage, click here.
Solutia;s plan calls for unsecured creditors to receive
46.6 percent of the new stock for an intended 69.8 percent
recovery. Those who participate in a rights offering would
recover 83.1 percent, in Solutia;s estimation.
Noteholders are to have 48.6 percent of the stock, for an
assumed 75 percent dividend. By purchasing in a rights offering,
noteholders could recover 84.4 percent, in Solutia;s judgment.
Existing stockholders would receive five-year warrants to
buy 7.5 percent of the new stock plus the right to participate in
a rights offering.
Solutia, based in St. Louis, filed its Chapter 11
reorganization petition in December 2003, listing assets of
$2.85 billion against debt totaling $3.22 billion.
The case is In re Solutia Inc., 03-17949, U.S. Bankruptcy
Court, Southern District New York (Manhattan).
New Filings
Used-Car Dealer Manchester Files in Dallas Under Chapter 11
Manchester Inc., a used-car dealer specializing in customers
with bad credit, filed a Chapter 11 petition on Feb. 7 in its
Dallas hometown along with seven affiliates.
The petition listed assets of $131.6 million and debt
totaling $123.9 million.
Saying the company intends to pay all creditors in full so
existing owners can retain their stock, Chief Executive Officer
Rick D. Gaines blamed the filing on “ an ongoing dispute with
its senior secured creditor.;;
To read Bloomberg coverage, click here.
The case is In re Manchester Inc., 08-30703, U.S. Bankruptcy
Court, Northern District of Texas (Dallas).
Luggage Maker for Big Box Stores Files Under Chapter 11
A manufacturer of sports bags and luggage named InGear Corp.
filed a Chapter 11 petition on Feb. 7 in Chicago, saying assets
and debt are both more than $10 million and less than
$50 million.
Buffalo Grove, Illinois-based InGear;s customers include
Costco Corp., Wal-Mart Stores Inc., Sears Holdings Corp., Kohl;s
Corp. and J.C. Penney Co.
To read Bloomberg coverage, click here.
The case is In re InGear Corp., 08-02824, U.S. Bankruptcy
Court, Northern District of Illinois (Chicago).
Other Updates
Harbinger and Citigroup Possible Asarco Stalking Horse
Harbinger Capital Partners and Citigroup Global Markets
Inc., who together disclosed in October their ownership of two-
thirds of the unsecured bonds and debentures of Asarco LLC, told
the U.S. Bankruptcy Judge in Corpus Christi, Texas, at a Feb. 8
hearing they intend to be the so-called stalking horse when
Asarco puts the company up for auction as part of its Chapter 11
reorganization plan.
Asarco told the court the company is negotiating with six
prospective buyers and will select one, the stalking horse, to
sign the contract putting a floor on the auction.
The auction will be the centerpiece of Asarco;s emergence
from reorganization. The Harbinger and Citigroup combination said
they would pay creditors in cash.
To read Bloomberg coverage, click here.
Harbinger and Citigroup until October were appealing rulings
by U.S. Bankruptcy Judge Richard Schmidt preventing them from
seeing non-public information without signing a confidentiality
agreement they said was too restrictive. Asarco headed off the
appeal by agreeing to give them access to information making it
more feasible for them to negotiate and propose a plan for the
Arizona copper producer.
At the Feb. 8 hearing Schmidt said he would rule later on a
request by Asarco;s owner, Grupo Mexico SAB, for the appointment
of an examiner. Grupo Mexico argued an examiner is mandatory
simply because Asarco has more than $5 million in debt.
Schmidt also granted Asarco;s request and extended the
company;s exclusive right to file a plan until April 11.
Grupo Mexico has been trying so far unsuccessfully to unwind
an agreement made in December 2005 when Schmidt ousted Grupo
Mexico from control and set up a board of three, giving Grupo
Mexico only one seat.
Asarco filed to reorganize in August 2005 to deal with
asbestos claims.
The Chapter 11 case is In re Asarco LLC, 05-21207, U.S.
Bankruptcy Court, Southern District of Texas (Corpus Christi).
Diamond Wholesaler L.I.D. Settles With Secured Bank Creditors
L.I.D. Ltd., a closely held New York diamond wholesaler,
settled last week with secured creditors who both objected to the
proposed reorganization plan and were asking the bankruptcy judge
to appoint a Chapter 11 trustee, according to an interview with
Scott Levine from Platzer Swergold Karlin Levine Goldberg %26amp;
Jaslow, attorneys for HSBC Bank USA NA.
At the suggestion of Bankruptcy Judge James M. Peck, the
parties put the hearing on hold and negotiated instead.
Discussions resulted in a settlement that could see payment of
70 percent of the bank debt, Levine said.
L.I.D. is to pay the banks $15.135 million in 45 days. If
the payment isn;t made, the banks can foreclose or sell the
assets.
L.I.D. must pay another $13.135 million 45 days later. At
the time of the first payment, L.I.D. must pledge $35 million in
assets to secure the second and final payment.
If the second payment isn;t made, the lenders can take over
the collateral.
If the second payment is made, L.I.D. will be free to modify
the Chapter 11 plan and emerge from reorganization.
The banks were fighting L.I.D.;s plan that might have paid
them 50 percent in cash under one of several options.
The company estimated that unsecured creditors have claims
totaling $16.6 million.
The other banks are ABN Amro Bank NV, Sovereign Bank, and
Bank Leumi USA.
New York-based L.I.D. listed assets of $157.8 million and
debt totaling $143.9 million.
The case is In re L.I.D. Ltd., 07-10725, U.S. District
Court, Southern District of New York (Manhattan).
Nutritional Sourcing to Sell Last Supermarket for $26.5 Million
Puerto Rican supermarket operator Nutritional Sourcing Corp.
has a buyer willing to pay $26.5 million for its last remaining
supermarket, known as the De Diego Store. The property for sale
includes adjoining undeveloped land.
Empresas A.Cordero Badillo Inc. will buy the store unless
outbid at an April 30 auction.
Nutritional Sourcing has arranged for a Feb. 18 hearing to
set up sale procedures. In advance of the auction, the company
wants bids filed by April 23. The sale approval hearing would be
May 1 under the proposed schedule.
The company is also asking for an extension of the exclusive
right to file a reorganization plan until May 2. The creditors;
committee already has been given a draft of the plan.
Nutritional Sourcing hopes the plan will have been filed
before the Feb. 18 hearing for an extension of so-called
exclusivity.
Nutritional Sourcing previously sold the other 23
supermarkets. The price rose 50 percent at auction to
$130.8 million.
Besides the supermarkets, the company began reorganization
with 41 video-rental stores in Puerto Rico and the Virgin
Islands. The companies in bankruptcy listed $130.8 million in
assets and debt totaling $266.5 million.
The case is In re Nutritional Sourcing Corp., 07-11038, U.S.
Bankruptcy Court, District of Delaware (Wilmington).
Sea Containers: Creditors Not on Board for Pension Settlement
With two major obstacles to completion of the reorganization
largely accomplished, Sea Containers Ltd. is asking the U.S.
Bankruptcy Court in Delaware to extend its exclusive right to
propose a Chapter 11 plan until April 15.
Last week the company announced an agreement in principle to
settle claims for an estimated $200 million under-funding of its
U.K. pension plans. Sea Containers says it expect to file papers
“in the near term;; asking for bankruptcy court approval of the
settlement.
Although the official creditors; committee “has not
endorsed the settlement,;; the company says it hopes to avoid a
“contested proceeding;; through further discussions with the
committee.
The second roadblock to a plan was surmounted in November
when Sea Containers won an arbitration against a unit of General
Electric Capital Corp. regarding whether a change of control
occurred in GE SeaCo SRL, the joint venture that runs the
container operation. Sea Containers is still discussing “open
issues;; with GECC.
With more than 100 subsidiaries not in bankruptcy, Sea
Containers operated ferries in Europe in addition to cargo
container businesses. The reorganization begun in October 2006
was one of the three largest Chapter 11 filings in 2006, given a
listed $1.7 billion in assets and debt totaling $1.6 billion.
Operations are mostly in the U.K. and executive offices are
in London.
The case is In re Sea Containers Ltd., 06-11156, U.S.
Bankruptcy Court, District of Delaware (Wilmington).
First NLC Hit With Employee Class Action for Mass Firing
Two employees filed a class-action suit charging that First
NLC Financial Services LLC, the mortgage-originating subsidiary
of Arlington, Virginia-based investment bank Friedman, Billings,
Ramsey Group Inc., fired more than 200 employees before the
bankruptcy filing without the 60-day notice required by federal
law.
The plaintiffs are looking for most or all of the lost wages
to have status requiring payment in full despite the bankruptcy.
First NLC filed a petition on Jan. 18 to liquidate under
Chapter 11 in U.S. Bankruptcy Court in West Palm Beach, Florida.
When it stopped operating on Jan. 11, First NLC fired 201 of its
240 employees.
Although lists of assets and debt are yet to be filed, Chief
Restructuring Officer Thomas Allison said in a court filing there
are $67 million in secured claims. First NLC had been the
country;s 22nd-largest subprime lender and had $11 million in
mortgage loans in inventory on filing bankruptcy.
The case is In re First NLC Financial Services LLC,
08-10632, U.S. Bankruptcy Court, Southern District Florida (West
Palm Beach).
American Home Mortgage Investment Corp. modified its request
for authority to destroy loan files by offering to turn hard
copies of 490,000 loan files over to whomever owns the underlying
loans so long as they pay the cost. The documents covered by the
proposal are duplicates of files with digital images. The
deadline for making requests to take over the documents would be
March 14 if Bankruptcy Judge Christopher Sontchi gives approval
at a Feb. 14 hearing. Last month Sontchi allowed American Home to
destroy duplicate loan application files for loan never made.
Bank of New York Mellon Corp., Wells Fargo %26amp; Co., and the Federal
Home Loan Mortgage Corp. objected to destroying loan files,
contending loss of the documents could interfere with the ability
of owners of the loans to foreclose on defaulting borrowers.
American Home is reserving the right to propose destroying more
than 1 million other loan files for which there are no digital
copies. Melville, New York-based American Home filed under
Chapter 11 in August after shutting down the business of making
so-called Alt-A loans to individuals who could not qualify as
prime borrowers but still weren;t subprime. The case is In re
American Home Mortgage Holdings Inc., 07-11047, U.S. Bankruptcy
Court, District of Delaware (Wilmington).
With no competing bids submitted, New Jersey-based air
conditioner manufacturer Fedders Corp. was authorized on Feb. 7
to sell its Fedders Addison Co. subsidiary for $14.4 million in
cash to Roberts-Gordon LLC. Fedders bought the business in 2004
for $7.8 million. Addison makes custom heating, air conditioning,
and ventilation system for commercial use. In the Chapter 11 case
begun in August, Fedders listed assets of $194.5 million and debt
totaling $407.5 million, including $67 million in secured debt.
Fedders has six plants in the U.S. plus manufacturing in China,
India, and the Philippines. The case is In re Fedders North
America Inc., 07-11176, U.S. Bankruptcy Court, District of
Delaware (Wilmington).
Sweet Traditions LLC and affiliate Sweet Traditions of
Illinois LLC, a Krispy Kreme doughnut franchisee with 23
locations in Illinois, Missouri and Indiana, was authorized on
Feb. 7 to sell the assets to creditor Allied Capital Corp, the
holder of a $42.6 million secured claim. Allied Capital also
supplied $700,000 in secured financing pending the sale. The
companies filed under Chapter 11 in September in St. Louis,
listing $43.3 million in secured debt. They generated $44 million
in sales during 2005, the last year with audited financial
statements. The case is In re Sweet Traditions LLC, 07-45787,
U.S. Bankruptcy Court, Eastern District Missouri (St. Louis).
Auto-parts maker Johnson Rubber Co. overcame objection from
the existing secured lender when the bankruptcy judge in
Cleveland issued an opinion on Feb. 7 allowing the company to use
$10 million in secured financing provided by JPMorgan Chase Bank
NA and guaranteed by auto customers. Founded in 1895, the
Middlefield, Ohio-based company generated $60 million in sales
annually from two plants in Ohio making engineered polymer
products for the auto, road, casket and recreational boat
industries. The Chapter 11 petition filed in December listed
assets of $15.3 million against debt totaling $19.9 million,
including $13.7 million owing to secured creditors. The company
discovered in August that the collateral was less than shown to
the bank on a borrowing certificate. The chief financial officer
subsequently was fired. The case is In re Johnson Rubber Company,
Inc., 07-19391, U.S. Bankruptcy Court, Northern District Ohio
(Cleveland).
Without opposition, ING Re (UK) Ltd., a reinsurer previously
known as ReliaStar Reinsurance, gained recognition of its
insolvency proceedings in the High Court of Justice of England
and Wales as a “foreign main proceeding;; under Chapter 15 of
the U.S. bankruptcy laws. In January, ING also won approval from
the English court of its “solvent scheme of arrangement.;;
According to ING;s Chapter 15 petition filed in early January,
the company “went into run-off;; in 2002 although solvent. ING
is using the courts in both countries to finish the liquidation
sooner than otherwise would be possible. A court filing said the
company has assets of 91 million pounds ($179.4 million) and
liabilities of 68 million pounds. Chapter 15 is the part of
bankruptcy law where the U.S. court assists a foreign court when
a primary bankruptcy is pending abroad. The U.S. court stops
lawsuits in the U.S. and helps in collecting assets. The assets
are distributed to creditors by the foreign court, and disputed
claims likewise are resolved abroad. The case is In re ING Re
(UK) Ltd., 08-10018, U.S. Bankruptcy Court, Southern District New
York (Manhattan).
Bowditch %26amp; Dewey LLP, the Worcester, Massachusetts-based law
firm that formerly served as corporate counsel for Gitto/Global
Corp., agreed to pay $2.1 million in settlement of legal
malpractice claims threatened by Gitto;s Chapter 7 trustee.
Although the trustee said he found no evidence the firm knowingly
participated in fraudulent activity, the trustee believed the
firm had a conflict of interest in simultaneously representing
both Gitto and its executives. The firm denied the claims and
raised multiple defenses. The settlement, approved by the U.S.
Bankruptcy Court in Worcester, Massachusetts, on Feb. 8, was made
in mediation before a lawsuit was filed. The secured lender
alleged that the company operated a so-called check-kiting scheme
and maintained a duplicate set of books. Gitto filed Chapter 11
in September 2004 after operations were terminated and the
executives resigned. The assets of the manufacturer of specialty
plastic compounds were sold for $8.9 million, and the case was
switched from Chapter 11 to a liquidation in Chapter 7 in March
2005. The case is In re Gitto/Global Corp., 04-45386, U.S.
Bankruptcy Court, District of Massachusetts (Worcester).
Briefly Noted
Buffets Holdings Inc. intends to sell three stores for
$3.8 million under contracts signed before the Chapter 11 filing.
The second-largest family restaurant operator in the U.S. will
ask the bankruptcy judge in Delaware at a Feb. 27 hearing to
approve the sales without auctions. Eagan, Minnesota-based
Buffets filed in Chapter 11 on Jan. 22, operating under the names
Old Country Buffet, HomeTown Buffet, Ryan;s and Fire Mountain.
Twelve-month revenue was $1.55 billion. The filing listed
$964 million in assets against debt of $1.16 billion. The case is
In re Buffets Holdings Inc., 08-10141, U.S. Bankruptcy Court,
District of Delaware (Wilmington).
The confirmation hearing for approval of the First Magnus
Financial Corp. liquidating Chapter 11 plan wasn;t completed on
Feb. 7 and resumes today, according to a report in the Arizona
Daily Star. An unresolved objection to the plan involves workers
who were fired before bankruptcy without 60 days; notice and
contend they are entitled to $7 million that should be paid in
full under one of several provisions in bankruptcy law. The
remnants of the second-largest privately owned mortgage
originator in the U.S. won;t formally predict what percent
creditors might recover under the liquidating trust being set up
under the plan. First Magnus fired most of the employees shortly
before the Chapter 11 filing in August and listed assets of
$942 million and debt totaling $813 million. The case is In re
First Magnus Financial Corp. 07-01578, U.S. Bankruptcy Court,
District of Arizona (Tucson).
Andre Young, better known by his professional name Dr. Dre,
filed papers contending bankrupt rap music producer Marion
“Suge;; Knight and his record label Death Row Records are using
his recordings in ways not permitted under the copyrights he gave
them. He also says he hasn;t been paid. Before filing a claim for
damages and to limit how they exploit the recordings, Dr. Dre is
asking the U.S. Bankruptcy Court in Los Angeles for permission to
take discovery from Death Row and Koch Entertainment
Distribution, the distributor of the recordings. In addition to
Dr. Dre, Death Row;s catalogue includes works by Tupac Shakur and
Snoop Dogg. The cases are In re Death Row Records Inc., 06-11205,
and In re Marion Knight Jr., 06-11187, both in U.S. Bankruptcy
Court, Central District California (Los Angeles).
Global Motorsport Group Inc., the second-largest independent
supplier of aftermarket parts for Harley-Davidson motorcycles,
has a creditors; committee with five members appointed Feb. 8 by
the U.S. Trustee in Delaware. The committee members include Hog
Farm Inc. from Hamersville, Ohio, and Perot Systems Corp. The
Morgan Hill, California-based company listed assets of
$41 million and debt totaling $190 million. The company intends
to hold an auction Feb. 29 if anyone is willing to beat the
existing $16 million offer for the business from Dae-II USA Inc.
A hearing on sale procedures is scheduled for today. Global
Motorsport filed for Chapter 11 reorganization on Jan. 31. The
case is In re Global Motorsport Group Inc., 08-10192, U.S.
Bankruptcy Court, District of Delaware (Wilmington).
All manner of electronic devices are prohibited in
bankruptcy courts in Florida, including BlackBerrys, laptops and
cell phones. Not having a laptop crimps the style of news
reporters like those from Bloomberg News. To promote the flow of
news from courtroom to Wall Street, U.S. Bankruptcy Judge John K.
Olson in Fort Lauderdale, Florida, signed an order permitting
Bloomberg reporters to use laptops in the courtroom during
hearings in the reorganization of Tousa Inc., the homebuilder
that filed to reorganize on Jan. 29. Tousa listed debt of
$2.25 billion against assets totaling $2.29 billion. Along with
the original petition, Tousa outlined a plan calling for paying
in full or reinstating all secured claims. The proposal
contemplates swapping existing senior notes and other unsecured
claims for the new stock and a sharing of recoveries from a
litigation trust. The case is In re Tousa Inc., 08-10928, U.S.
Bankruptcy Court, Southern District Florida (Fort Lauderdale).
Advance Sheets
Undisclosed Property Traced to Life Insurance Proceeds
If property not disclosed in a bankruptcy filing is used to
pay the first premium on a term life insurance policy, some part
of the death benefit may come into the bankrupt estate, the U.S.
Court of Appeals for the 5th Circuit held in reversing both the
bankruptcy court and the district court.
The underlying facts are more interesting than the legal
principle.
The bankrupt was alleged not to have declared $2,500 cash in
his bankruptcy filing. Four days later the bankrupt bought a
$1.2 million life insurance policy on the life of his father
while naming himself as beneficiary. The initial premium was
$1,800.
Just over a year later, the father was shot to death. The
bankrupt was a suspect, according to the 5th Circuit opinion.
The bankrupt and his siblings had a lawsuit over who should
receive the death benefit. Although the subsequent settlement was
secret, the suit surfaced the possibility that the bankrupt
failed to disclose the case he used to pay the first premium.
After the bankruptcy case was reopened, the bankruptcy judge
ruled that the insurance proceeds didn;t become part of the
bankrupt estate even if the initial premium was paid with money
that wasn;t disclosed. The district court reached the same
result, although on a different theory.
The 5th Circuit reversed both courts, saying there was
enough evidence to find that money used to pay the premium was
undisclosed property.
The circuit court sent the case back to the bankruptcy court
to decide how much of the insurance proceeds should be in the
bankrupt estate.
The case is Newhouse v. Fuentes (In re McLain), 06-10847,
U.S. Court of Appeals for the 5th Circuit.
Secured Credit May Be Surcharged After Credit Bidding
Chief District Judge Michael P. Mills in Oxford,
Mississippi, held on Jan. 30 that a secured creditor wasn;t
“exempt;; from paying expenses of selling its collateral just
because it purchased the property with a credit bid rather than
by paying cash.
In bankruptcy sales, secured creditors are often allowed to
purchase their own collateral by exchanging secured debt for
title to the assets rather than by paying cash. Purchasing with
debt is called credit bidding.
The case is Borrego Springs Bank NA v. Skuna River Lumber
LLC, 07-094, U.S. District Court, Northern District Mississippi
(Oxford).
To contact the reporter on this story:
Bill Rochelle in New York at
