SIRVA Inc
Ceres, Sirva, Marcal, Interstate, Solutia: Bankruptcy (Update1)
By Bill Rochelle
April 18 (Bloomberg) -- Ceres Capital Partners LLC filed a prepackaged Chapter 11 case yesterday that may become a template showing how a failed structured investment vehicle winds up its business and liquidates under the eye of the bankruptcy court.
Formed to manage commercial paper conduits and structured investment vehicles, New York-based Ceres opened for business in 2002, selling commercial paper and medium-term notes to purchase asset-backed securities of several types.
In 2007, one of the original investors, Stanfield Capital Partners LLC, sold its interest to Ceres and an affiliate of XL Reinsurance America Inc., the owner of a minority interest in Ceres. Ceres funded its portion of the $61 million deal with a $45 million secured loan from Bank of Montreal and affiliates. An affiliate of XL provided $13 million through a subordinated note. XL is a subsidiary of Hamilton, Bermuda-based XL Capital Ltd.
After being shut out of the commercial paper market, Ceres negotiated a Chapter 11 plan that was accepted by the two classes of affected creditors before yesterday's bankruptcy filing.
Ceres says the plan will pay the secured lenders 25 percent of their $41.2 million in claims. The secured lenders will put up $50,000 to pay other unsecured claims that are estimated to total $500,000. XL is to receive nothing on its subordinated notes.
Ceres said all of the secured creditors accepted the plan while more than the required percentages of unsecured creditors voted ``yes.''
To put the Chapter 11 plan into effect, the bankruptcy court must determine that the disclosure statement given to creditors when they voted contained adequate information. If the disclosure statement measures up in the opinion of the bankruptcy judge in Manhattan, Ceres can immediately ask for a confirmation order approving the plan. Hearing dates haven't yet been set.
The case is In re Ceres Capital Partners LLC, 08-11390, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
Filing Possible
Tropicana May File to Restructure Under Forbearance
Tropicana Entertainment LLC signed a forbearance agreement where the indenture trustee agreed not to accelerate the debt on $960 million in 9.625 percent senior subordinated notes due in 2014. The forbearance begins April 15 and runs one month.
The agreement obliges Tropicana to ``explore a consensual restructuring'' that ``may involve implementation through a bankruptcy filing.'' The forbearance agreement calls for Tropicana to pay $5 million to the indenture trustee to cover expenses and fees.
The need for restructuring resulted when the New Jersey gaming regulator denied a request by the state court-appointed conservator to re-transfer the title for an Atlantic City casino to a Tropicana affiliate. A re-transfer would have prevented a technical default from occurring April 20 on the subordinated notes. A Delaware court ruled in February that the takeover by the conservator was an event of default on the notes.
Tropicana obtained a one-year forbearance agreement with senior lenders that began Dec. 12 when New Jersey regulators announced the termination of the company's license for the casino in Atlantic City. The technical default occurred because the transfer of title to the conservator was a violation of a prohibition against transfer.
Tropicana has been saying it intends to sell the Atlantic City property ``as soon as is practicable.'' The company also is selling casinos in Evansville, Indiana, and Vicksburg, Mississippi.
The Crestview Hills, Kentucky-based company also has casino properties in Baton Rouge, Louisiana; Greenville, Mississippi; and Laughlin and Lake Tahoe, Nevada.
Tropicana was part of $2.1 billion acquisition last year by Fort Mitchell, Kentucky-based Columbia Sussex Corp.
Updates
Sirva Plan Modified Yesterday for Today's Confirmation
Sirva Inc. is in bankruptcy court today seeking approval of the prepackaged reorganization plan the relocation-services provider revised yesterday to remove some of the objections to confirmation.
In addition to spelling out terms of the exit financing, the revised plan gives unsecured creditors a $3.5 million unsecured note that carries the same payment terms as the second-lien note given under the plan to the lenders.
Previously, the plan gave nothing at all to unsecured creditors except those who Sirva believes are essential to the ongoing business and thus would be paid in full.
The unsecured creditors' committee was objecting to the plan, saying it impermissibly discriminated among similarly situated creditors.
Sirva says the changes are immaterial because no creditor is harmed. The bankruptcy judge must agree to approve the plan today without another vote of creditors.
Sirva believes creditors with $511 million in secured bank debt are the only ones affected by the plan and the only ones who were entitled to vote. The company estimates their recovery at between 52 percent and 55 percent.
The $150 million in financing for the reorganization converts into a $215 million first-lien credit facility when Sirva emerges from Chapter 11. The lenders on the new first-lien credit are to receive as much as 25 percent of the new stock as an inducement for providing funding for the reorganization.
The remainder of the existing bank debt is to be paid with not less than 75 percent of the new stock, plus a portion of the existing debt that will become a new second-lien loan.
To approve the plan, the bankruptcy judge must decide at tomorrow's confirmation hearing that the disclosure statement used before the bankruptcy filing contained adequate information about the reorganization.
Westmont, Illinois-based Sirva listed assets of $924 million and debt totaling $1.23 billion.
The case is In re DKJ Residential LLC, 08-10375, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
Interstate Bakeries Losses Rise in 16 Weeks
Interstate Bakeries Corp., the wholesale baker that failed in its effort at confirming a reorganization plan last month, reported a $36.4 million operating loss for the 16 weeks ended March 8. The net loss for the period, on $806 million revenue, was $68.8 million.
The operating loss was almost twice the $19.7 million loss of the year-earlier period. For the first 40 weeks of the fiscal year, the net loss is $123 million.
As an inducement to having the banks increase lending by $50 million to $250 million, Interstate is promising to sell the assets inside six months. The company asked potential buyers to submit initial proposals by April 21.
The country's largest wholesale baker when it began the reorganization in September 2004, Interstate has failed to win contract concessions from the Teamsters, the company's largest union. The inability to confirm its reorganization plan last month meant the loss of a commitment for $400 million in financing from Silver Point Capital LLC.
Interstate's brand names include Wonder, Hostess, Merita, Dolly Madison, Drake's, and Butternut. The company has 41 bakeries, 633 distribution centers, and 730 thrift stores.
The case is In re Interstate Bakeries Corp., 04-45814, U.S. Bankruptcy Court, Western District of Missouri (Kansas City).
Marcal Settles Environmental Claims Permitting Sale Completion
Although Marcal Paper Mills Inc. received bankruptcy court approval in January to sell the assets, the sale hasn't been completed because environmental claims from the state and federal governments weren't resolved.
In papers filed April 16, Marcal announced settlements were made with both state and federal environmental authorities. The U.S. Bankruptcy Court in Newark, New Jersey, set up a May 9 hearing to approve the settlements.
Marcal said in its papers that the environmental settlements are among ``the last open issues that must be resolved'' before the sale can be completed.
While the state of New Jersey will withdraw its claims entirely against Marcal, federal officials, in return for their claim of $946 million, will be paid $1.5 million. The federal claims relate in part to alleged pollution of the Passaic River in New Jersey.
As agent for the second-lien secured creditor, NexBank SSB agreed to buy the business for $160 million, including assumed debt and credit given for the buyer's secured claim.
Marcal gave up on reorganizing in October when it was unable to work out financing for a plan intended to pay unsecured creditors as much as 52 percent. The manufacturer of toilet paper, kitchen towels, napkins and facial tissue filed under Chapter 11 in November 2006, listing assets of $178.6 million against $178.9 million in debt.
The case is In re Marcal Paper Mills Inc., 06-21886, U.S. Bankruptcy Court, District of New Jersey (Newark).
Lawrence Salander Gets Trustee in Chapter 7 Bankruptcy
Lawrence Salander, the proprietor of the bankrupt Salander- O'Reilly Galleries LLC, is no longer in reorganization. The bankruptcy court yesterday converted his and his wife's Chapter 11 case to a liquidation in Chapter 7 where he will lose control with the automatic appointment of a bankruptcy trustee.
The successful motion for conversion was brought by the U.S. Trustee, who said the case ``has been an exercise in delay.'' The U.S. Trustee, the federal watchdog over bankruptcy cases, pointed to the $800,000 in new debt Salander incurred since filing in Chapter 11.
The conversion to liquidation was presaged in February when the U.S. Bankruptcy Judge in Poughkeepsie, New York denied Salander's request to be employed to assist the gallery in its liquidating Chapter 11 case. Telling Slander's lawyer the motion was ``fatally flawed,'' the judge added ``there are repercussions for such conduct.''
To read Bloomberg coverage, click here.
Creditors filed an involuntary Chapter 7 petition on Nov. 1 against the gallery. Salander and his wife filed under Chapter 11 on Nov. 2. The gallery switched the case to a Chapter 11 reorganization on Nov. 6.
The gallery is being investigated by the Manhattan district attorney and sued for alleged improper dealings with millions of dollars in artworks.
The individuals' case is In re Lawrence B. Salander and Julie D. Salander, 07-36735, and the gallery's case is In re Salander-O'Reilly Galleries LLC, 07-30005, both in the U.S. Bankruptcy Court, Southern District of New York (Poughkeepsie).
HomeBanc Moves to Take Back Deferred Compensation Fund
HomeBanc Corp., a mortgage lender that filed for reorganization in August, is taking action in U.S. Bankruptcy Court in Delaware to take back money held in a trust fund intended to pay deferred compensation to ``management or highly compensated employees,'' the company said in an April 15 filing.
HomeBanc says the deferred compensation plan was intended to be ``an unfunded arrangement'' that really wasn't a trust. The papers recite how the governing agreement says the money must be returned to the company for payment to general creditors if HomeBanc becomes insolvent.
The company demanded in September that the fund trustee turn over the money in the fund. The trustee said it would do so only if directed by the bankruptcy court.
A hearing will be held May 6. The papers don't say how much money is in the fund.
HomeBanc sold the loan-servicing business for $61 million to a unit of Bear Stearns Cos. The loan-origination business was sold in August to Countrywide Financial Corp. under an agreement announced two days before the Chapter 11 filing.
Atlanta-based HomeBanc listed assets of $5.1 billion and debt of $4.9 billion.
The case is In re HomeBanc Corp., 07-11079, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Briefly Noted
The professionals who helped reorganize specialty-chemical manufacturer Solutia Inc. emerged unscathed from yesterday's hearing when the bankruptcy judge approved most of the $197 million in fees they requested for more than three years' work. To read Bloomberg coverage of the fee hearing, click here. The plan was put into effect in late February after being approved by the bankruptcy court in a November confirmation order. Solutia's Chapter 11 plan gave unsecured creditors 46.6 percent of the new stock for a projected 69.8 percent recovery. Those participating in a rights offering were to recover 83.1 percent, if the stock is worth what Solutia projected. Noteholders receive 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 take five-year warrants to buy 7.5 percent of the new stock, plus the right to participate in a rights offering. Based in St. Louis, Solutia filed under Chapter 11 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).
Hoop Retail Stores LLC, the operator of 322 Disney Stores that filed under Chapter 11 on March 26, was give final approval yesterday to borrow $35 million to sustain operations pending a sale of the business. To read Bloomberg coverage, click here. A subsidiary of Children's Place Retail Stores Inc., Hoop intends to sell 180 or more stores to affiliates of Walt Disney Co. for a price between $55 million and $65 million, depending on inventory levels. The hearing on the Disney sale is set for April 22. Objection to the sale are due today. Hoop believes there is no buyer other than Disney. While Hoops hasn't provided a definitive list of assets and debt, a court paper says $24.9 million is owed on a secured loan and another $55 million is owed to third parties other than Disney. The case is In re Hoop Holdings LLC, 08-10544, U.S. Bankruptcy Court, District of Delaware (Wilmington).
American Home Mortgage Investment Corp. yesterday turned back an attempt by Bank of America Corp., as agent for a group of secured lenders, to gain permission to foreclose collateral consisting of 3,400 home mortgages with a face value of $570 million. The lenders say they are owed $505 million. The bank said it could have recovered 85 percent were it allowed to foreclose last year. Now, the mortgages are only worth 62 percent, the bank argued to the judge. American Home contended the collateral shouldn't be sold into a depressed market. To read Bloomberg coverage, click here. Melville, New York-based American Home shut down and abruptly filed in Chapter 11 in August. It made 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., No. 07-11047, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Without objection, Quebecor World Inc. was given an extension of the exclusive right to propose a reorganization until Sept. 30. To read Bloomberg coverage, click here. The Montreal-based commercial printer has been undergoing reorganized since January in both the U.S. and Canada. The second-largest commercial printer in the U.S. has 19,500 employees scattered among 79 facilities in 29 states. Court filings reveal Quebecor as owing $735 million on a revolving credit, $1.45 billion in unsecured notes, and $184 million for secured equipment financing. Quebecor World's parent is Quebecor Inc. The case in New York is In re Quebecor World (USA) Inc., No. 08-10152, U.S. Bankruptcy Court, Southern District New York (Manhattan).
Merrill Lynch Mortgage Capital Inc. yesterday formally withdrew its motion asking the bankruptcy judge for authority to auction the Fred Leighton LLC antique fine-jewelry collection. The day before, the U.S. Bankruptcy Judge in Manhattan denied Merrill's request to modify the so-called automatic stay so the auction could go forward. Leighton and affiliates filed in Chapter 11 when a New York state judge denied a request to halt the auction where the unit of New York-based Merrill Lynch & Co. was attempting to make a recovery on $181 million of loans in default since September. The Leighton companies have assets of $271 million and debt totaling $188 million, according to a bankruptcy court filing. The cases include In re Calypso Mines LLC, 08-11362, and In re Fred Leighton Holdings Inc., 08-11363, both in U.S. Bankruptcy Court, Southern District of New York (Manhattan).
Hancock Fabrics Inc., the 400-store fabric retailer that filed under Chapter 11 in March 2007, received approval yesterday to lock in a commitment for a five-year, $100 million secured financing from General Electric Capital Corp. to provide the underpinning for a reorganization plan. The commitment requires Hancock to obtain $20 million either in the form of equity or subordinated debt. The commitment lapses if Hancock hasn't confirmed a Chapter 11 plan and emerged from reorganization by Aug. 29. Hancock listed assets of $242 million and $161 million in debt. The case is In re Hancock Fabrics, Inc., 07-10353, U.S. Bankruptcy Court, District of Delaware (Wilmington).
RichFX Inc., a Manhattan-based developer of software to make online catalogues, was given final approval yesterday to borrow $360,000 to support the reorganization pending the sale of the assets. Merchandising Advisor Corp. is under contract to buy digital-imaging assets and has an option to buy others. For the first group of assets, the buyer would pay RichFX $150,000 at closing, while $430,000 would go to the parent company either at closing or within 60 days. Depending on how much business results from the assets, the buyer could pay as much as $2.15 million more. The buyer is to have an option to buy other assets for $650,000. The case is In re RichFX Inc., 08-10942, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
Tone Grant was convicted in federal court yesterday for crimes committed while serving as president of liquidated futures broker Refco Inc. He could face a prison term amounting to a life sentence. The jury convicted Grant on charges of conspiracy, securities fraud, wire fraud, bank fraud and money laundering. To read Bloomberg coverage, click here. Phillip R. Bennett, Refco's former chief executive officer, pleaded guilty, as did Robert C. Trosten, the former chief financial officer. Still facing trial is Joseph Collins, a lawyer with the Chicago firm Mayer Brown who was indicted in December for helping to conceal Refco debts before the public offering and Chapter 11 filing. Refco and affiliates completed their liquidating Chapter 11 plan in December 2006. They filed in October 2005, one week after disclosure that $430 million was owed to Refco by purported customers secretly controlled by Bennett. The case is In re Refco Inc., 05-60006, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
Radnor Holdings Corp. will face opposition from secured creditors with $28 million in claims at the April 22 hearing for approval of the company's disclosure statement. The disclosure statement describes the plan although it doesn't tell secured creditors how much they will receive. The explanation of the plan does tell unsecured creditors with $189 million in claims that they are likely to recover nothing. Radnor filed under Chapter 11 in August 2006, intending for a quick sale to Los Angeles-based Tennenbaum Capital Partners LLC. The sale produced little cash because most of the purchase price represented secured claims held by Tennenbaum or other assumed secured debt. Radnor, a manufacturer of disposable foam cups, containers and expandable polystyrene, listed assets of $361 million and debt totaling $325 million. Radnor's trade names included WinCup and StyroChem. The case is In re Radnor Holdings Corp., 06-10894, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Delta Financial Corp., a subprime lender that filed under Chapter 11 in November, has protection from competing Chapter 11 plan at least until June 16. While the bankruptcy court acceded to the request for a longer period of so-called exclusivity, Delta was unable to persuade the judge to hold an expedited hearing on the request for paying $165,000 in bonuses to the remaining five workers. Delta wanted the bonus request heard at an April 25 hearing. Listing assets of $7.2 million and debt totaling $7.1 million in the petition, Delta had been the ninth- largest subprime lender in the U.S., having completed 53 securitizations since 1991 representing $20.7 billion in mortgages. The case is In re Delta Financial Corp., 07-11880, U.S. Bankruptcy Court, District of Delaware (Wilmington).
In bankruptcy, it's a good idea to know where the money is, to insure it doesn't slip away. The bankruptcy judge in Newark, New Jersey, told Summit Global Logistics Inc. at the completion of the sale of the assets to set aside in an escrow fund the $228,000 owed to the examiner and his lawyers. Another $50,000 is to be held in escrow as a war-chest to pay expenses in bringing lawsuits to generate money for creditors. The supply-chain manager and global logistics provider was given approval in March to sell the business to a group of insiders assuming debt owing to the pre-bankruptcy secured lenders. The examiner, Perry M. Mandarino, concluded that the marketing of the business was performed in a ``fair and open manner intended to maximize the value for the debtors' assets.'' Summit filed under Chapter 11 on Jan. 30. East Rutherford, New Jersey-based Summit operated in the U.S., China, Hong Kong, Southeast Asia, the Eastern Mediterranean, the Middle East, India and Russia. A filing with the Securities and Exchange Commission listed assets of $209 million and $192 million in debt on Sept. 30. The case is In re Summit Global Logistics Inc., 08-11566, U.S. Bankruptcy Court, District of New Jersey (Newark)
Watch List
Talbots Loses Letter of Credit, Stock Drops
Talbots Inc., a women's-wear retailer with 1,422 stores in 47 states, lost $265 million in letter of credit facilities provided by two banks to purchase merchandise abroad.
Talbot said in an April 16 statement it worked out 45-day credit terms with most of the suppliers and is negotiating a $50 million letter of credit facility to cover the rest. Talbots also said the $165 million currently available in a working capital credit facility will cover this year's needs, ``assuming it achieves the 2008 operating plan.''
The Hingham, Massachusetts-based company said 75 percent of its goods comes from offshore.
To read Bloomberg coverage, click here.
On April 15, the day before the announcement about the letters of credit, Talbot's stock closed at $12.85. In April 16 trading the stock lost nearly 29 percent of its value. Yesterday, Talbot fell $1.33, or 15 percent, to $7.83 in New York Stock Exchange trading.
Advance Sheets
Circuits Split on Preference Issue
The 11th U.S. Circuit Court of Appeals joined ranks with the 8th and 9th Circuits in ruling that the ``substantially contemporaneous exchange'' defense to a preference is a flexible time period depending on circumstances.
The 11th Circuit's April 15 opinion broke a tie in the split of circuits where the Court of Appeals for the 1st and 6th Circuits held that ``substantially contemporaneous'' means 10 days, a time period prescribed by Congress in other parts of preference law.
In the same April 15 opinion, the 11th Circuit decided a companion appeal, where it ruled that Georgia's doctrine of equitable subordination is applicable as a defense to a preference in a bankruptcy case.
In both cases, the appeals court ruled that banks that made loans to pay off existing mortgages didn't receive preferences, even though the new mortgages weren't recorded within the time prescribed in bankruptcy preference law.
William Rothschild, an Atlanta lawyer who represents the bankruptcy trustee that took the appeal, said in an interview the trustee intends to request a rehearing in the circuit court.
The case is Gordon v. Novastar Mortgage Inc. (In re Hedrick) and Gordon v. ABN Amro Mortgage Group Inc. (In re Sharma), 07- 11179, 11th U.S. Circuit Court of Appeals.
To contact the reporter on this story: Bill Rochelle in New York at wrochelle@bloomberg.net.
Last Updated: April 18, 2008 09:22 EDT
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