Beard Group Corporate Restructuring Review For June 2011

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

____________________________________________________ Welcome to the Beard Group Corporate Restructuring Review for June 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. June 2011 Mega Cases Now, let's review the largest chapter 11 cases in June 2011. Danilo Muoz reports that the number of Chapter 11 cases with assets in excess of $100 million has increase by 33% in June compared to the previous months. The number of Chapter 11 mega cases for June 2011 increased to eight, compared to six in May. For the first half of 2011, a total of 40 companies with assets of at least $100 million filed for Chapter 11 bankruptcy, or an average of seven companies per month. Eight of the companies filed in April, and six each in March, February and January. During the same six-month period last year, there were 57 mega cases filed -- an average of about 10 cases per month. The decline in the number of mega cases for the first six months of 2011 as compared to the same period in 2010 was about 30%. For fiscal year 2010, there were a total of 105 mega cases, or an average of about 9 per month. Of the June 2011 mega cases, no company reported assets in excess of $1 billion. So far this year, only two companies with assets in excess of $1 billion have sought Chapter 11 protection:
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book retailer Borders Group and MSR Resort Golf Course. Both filed in February. During the first six months of 2010, there was no Chapter 11 filing with assets in excess of $1 billion. The largest Chapter 11 filing for June 2011 was filed by Nebraska Book Company Inc. Based in Lincoln, Nebraska, the Company 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 with the Bankruptcy Court for the District of Delaware [Case Nos. 1112002 to 11-12009] on June 27, 2011, before Judge Peter Walsh. NBC Acquisition Corp. and its subsidiaries, including Nebraska Book, reached an agreement that will substantially reduce debt at the parent company level and position itself for future growth. The Company reached an agreement in principle with more than 95% in principal amount of its 8.625% Senior Subordinated Notes due 2012 and the holders of more than 75% in principal amount of NBC Acquisition's 11% Senior Discount Notes due 2013 that would restructure approximately $450 million of outstanding loans and bonds of NBC Acquisition and its subsidiaries, including the elimination of up to $77 million of debt at the NBC Acquisition level. The Los Angeles Dodgers LLC's bankruptcy was the second largest for the month. It operates the Los Angeles Dodgers, a professional Major League Baseball club in the Los Angeles metropolitan area. Frank McCourt, a Boston real-estate developer who unsuccessfully bid for the Boston Red Sox, bought the Dodgers from Rupert Murdoch's Fox Entertainment Group in 2004 for $330 million. Mr. McCourt also bought the Dodgers Stadium from Fox for $100 million.
The club's petition estimates assets of up to $500 million and debts of up to $1 billion. According to Forbes, the team is worth about $800 million, making it the third most valuable baseball team after the New York Yankees and the Boston Red Sox. The LA Dodgers filed for bankruptcy protection with the Bankruptcy Court for the District of Delaware [Lead Case No. 1112010] on June 27, 2011, after MLB Commissioner Bud Selig rejected a television deal with News Corp.'s Fox Sports, leaving Mr. McCourt unable to make payroll for June 30 and July 1. Fox Sports has exclusive cable television rights for Dodgers games until the end of 2013 baseball season. Chapter 11 filings were also made for LA Real Estate LLC, an affiliated entity which owns Dodger Stadium, and three other related holding companies. The third largest Chapter 11 filing was filed by Perkins & Marie Callender's Inc. Based in Memphis, Tennessee, the Company is the owner or franchiser of nearly 600 family-dining restaurants, the Perkins Restaurants and Marie Callender's. Perkins & Marie and several affiliates filed for Chapter 11 bankruptcy on June 13, 2011, with the Bankruptcy Court for the District of Delaware [Lead Case No. 11-11795] before Judge Kevin Gross. Perkins & Marie disclosed $290 million in assets and $441 million in debt as of the Chapter 11 filing. Perkins & Marie, which filed together with its affiliates, blamed the Chapter 11 filing on reduced consumer spending and higher costs for staples such as sugar, eggs, coffee and dairy products. The poor economic climate has been a primary factor in the decline in restaurant sales, particularly in Florida and California where there are large concentrations of Perkins and Marie Callender's restaurants, and where high foreclosure rates
and depressed economies have prevailed. Revenues for the year ended Dec. 26, 2010, were approximately $507 million. In the weeks preceding the Petition Date, Perkins & Marie said noteholders entered into a "Restructuring Support Agreement" dated as of June 6, 2011, designed to mutually and consensually develop and agree upon the parameters of a reorganization program for Perkins & Marie that will, among other things, de-lever its capital structure, and thereby establish a prefiling blueprint for an efficient and effective chapter 11 reorganization process. The RSA requires the Debtors to achieve certain "milestones." DSI Holdings Inc. and 54 affiliates, including Deb Shops, Inc., sought bankruptcy protection with the Bankruptcy Court for the District of Delaware [Lead Case No. 11-11941] to sell all its assets. Founded in 1932, Deb Shops has 318 stores in the junior "fast fashion" retail market. DEB stores offer moderately priced coordinated women's sportswear, dresses and shoes for fashion conscious junior and plus size females between the ages of 13 and 25. The stores are located in regional malls and strip shopping centers in 44 states. Deb Shop's first lien lenders have signed a deal to be the stalking horse bidder at an auction for the assets. The first lien lenders, owed $142 million, will submit a credit bid of at least $75 million of its claims. The first lien lenders also have agreed to provide $21.7 million of financing to fund the Chapter 11 case pending the sale. Scottsdale-based Techdyne filed for Chapter 11 bankruptcy with the Bankruptcy Court for the District of Arizona [Case No. 1116739] on June 9, 2011. Judge Charles G. Case, II, presides
over the case. In its Schedules, Techdyne disclosed $100 million in assets and $701,000 in debts, but almost all of the asset value claimed was for issued and pending patents listed at liquidation value. Other large Chapter 11 cases in June include Pegasus Rural Broadband LLC, Hingham Campus LLC and Linden Ponds Inc., and Stellar GT TIC LLC. Pegasus Rural Broadband, LLC, and its affiliates, including Xanadoo Holdings Inc., sought Chapter 11 protection with the Bankruptcy Court for the District of Delaware [Lead Case No. 1111772] on June 10. They are subsidiaries of Xanadoo Company, a 4G wireless Internet provider. They sought Chapter 11 protection after failing to restructure $52 million in 12.5% senior secured promissory notes owing to Beach Point Capital Management LP that matured in May. Hingham Campus and Linden Ponds own and operate a continuing-care retirement community in Hingham, Massachusetts. They filed a pre-negotiated Chapter 11 petition with the Bankruptcy Court for the Northern District of Texas in Dallas on June 15. Senior Living Retirement Communities, formerly known as Erickson Retirement Communities, is the sole member of Hingham Campus. Stellar GT TIC and VFF TIC own the Georgian apartments in Silver Spring, Maryland. Stellar and VFF negotiated a plan of reorganization before filing for Chapter 11. The proposed plan is premised on either a sale of the project pursuant to an auction process or a consensual restructuring of the secured debt. In June 2011, two of the mega cases were prepackaged or pre-negotiated restructurings, raising the year's total to 10 cases.
For fiscal year 2010, a total of 35 prepack or pre-arranged cases were filed -- about one in every three filings in 2010. Of the June mega cases, five went to Delaware, and one each to Arizona, Northern District of Texas, and Maryland. In May, three mega cases went to Delaware, and one each went to Puerto Rico, Central District of California, and Northern District of Illinois. In April, four mega cases went to Delaware, three went to the Southern District of New York and the last went to the Western District of Pennsylvania (Pittsburgh). In March, four mega cases went to Delaware, one went to New Jersey and the last filed in Puerto Rico. In February, three went to the Southern District of New York, one went to Delaware, one went to the Southern District of Texas and one went to the Middle District of Georgia. Of the January mega-cases, five went to Delaware and the remaining mega case went to the Northern District of Texas. For the first four months of 2011, 22 mega-cases went to Delaware and 7 went to 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. This year's largest bankruptcy filing so far -- MSR Resort Golf Course LLC -- pales in comparison. MSR Resort reported $2.2 billion in assets and $1.9 billion in debt as of Nov. 30, 2010. MSR Resort and its affiliates own and operate five iconic luxury resort properties with related real estate properties and amenities, including the Grand Wailea Resort and Spa, Arizona Biltmore Resort and Spa, La Quinta Resort and Club and PGA West, Doral Golf Resort and Spa, and Claremont Resort and Spa. MSR Resort Golf Course LLC and its affiliates filed for Chapter 11
protection with the Bankruptcy Court for the Southern District of New York on Feb. 1, 2011 [Lead Case No. 11-10372]. Anticipated Large Chapter 11 Filings Now, let's turn to the topic of large chapter 11 filings Troubled Company Reporter editors anticipate in the near-term. Carlo Fernandez compiled a list of five companies that may be close to filing for bankruptcy. These are Quiznos Corp., Dynegy, LifeCare Holdings, Quantum Fuel, and Dallas Stars. (A) Quiznos Corp. Quiznos Corp. has reportedly hired Paul Weiss Rifkind Wharton & Garrison LLP and Moelis & Co. as lawyers and investment bankers to assist in negotiating with lenders, according to a Bloomberg News report. The Denver-based company said it hired advisers to help "develop a proper financial structure for the company." In June, Quiznos owners planned to invest about $50 million of equity to help the company refinance debt and avoid a technical default later this year. The company is also working with Deutsche Bank AG to offer new debt in conjunction with the equity. Quiznos faces a debt covenant test this year that it may fail if it doesnt receive new equity. Quiznos operates the number 2 sub-sandwich chain behind Subway, with more than 4,500 franchised quick-service restaurants popular for their made-to-order, oven-toasted sandwiches. It has locations in more than 20 countries.
Founder Rick Schaden and his family control the company with backing from investment firms CCMP Capital and Cervantes Capital. (B) Dynegy Holdings Moody's Investors Service has lowered the ratings of Dynegy Holdings, Inc., including its Probability of Default Rating and its senior unsecured rating to 'Ca' from 'Caa3'. The rating outlook for Dynegy Holdings is negative. A.J. Sabatelle, Senior Vice President of Moody's, said the downgrade reflects the increased likelihood of a distressed debt exchange transaction occurring within the next several months following Dynegy's announcement of a corporate reorganization that seeks to modify asset ownership within Holdings through the formation of several wholly owned subsidiaries. Moody's views Dynegy as being a financially distressed company, given its highly levered capital structure relative to its ability to generate sustainable cash flow. The company's cash flow generation is highly exposed to natural gas and power commodity prices, which are expected to remain low over the next several years. The continuing negative rating outlook factors in Moody's expectation that some form of debt restructuring will occur within the next several months. Dynegy produces and sells electric energy, capacity and ancillary services in key U.S. markets. The Company's balance sheet at Dec. 31, 2010, showed $10 billion in total assets, $7.3 billion in total liabilities, and stockholders' equity of $2.7 billion. In August 2010, Dynegy struck a deal to be acquired by an affiliate of The Blackstone Group at $4.50 a share or roughly $4.7
billion. That offer was raised to $5 a share in November. Through Carl Icahn and investment fund Seneca's efforts, shareholders thumbed down both offers. In December 2010, an affiliate of Icahn commenced a tender offer to purchase all of the outstanding shares of Dynegy common stock for $5.50 per share in cash, or roughly $665 million in the aggregate. Icahn failed to garner the required number of shareholder votes. Dynegy warned shareholders in March this year it might be forced into bankruptcy if it is unable to renegotiate the terms of its existing debt. Ernst & Young LLP, in Houston, said Dynegy projects that it likely will not be able to comply with certain debt covenants throughout 2011. "This condition and its impact on Dynegy's liquidity raise substantial doubt about Dynegy's ability to continue as a going concern." (C) LifeCare Holdings. Analysts are saying that LifeCare Holdings Inc. bought itself some time with a loan refinancing earlier this year and a subsequent acquisition that will help improve its cash position in the near term, but challenges remain to ensure the company's high debt level is tackled over the next 18 months, according to a Dow Jones' DBR Small Cap report. Plano, Texas-based LifeCare Holdings, Inc. operates 19 hospitals located in nine states, consisting of eight "hospital within a hospital" facilities (27% of beds) and 11 freestanding facilities (73% of beds). The Company's balance sheet at March 31, 2011, showed $454.17 million in total assets, $469.25 million in total liabilities, and a $15.08 million stockholders' deficit.
In May 2011, Moody's Investors Service changed LifeCare Holdings' outlook to stable from negative, upgraded the speculative grade liquidity (SGL) rating to SGL-3 from SGL-4, and affirmed the Caa1 corporate family rating. (D) Quantum Fuel Quantum Fuel Systems Technologies Worldwide, Inc. reported a net loss of $11.03 million on $20.27 million of revenues for fiscal year ended March 31, 2011, compared with a net loss of $46.29 million on $9.61 million of revenues for fiscal year 2010. Ernst & Young LLP, in Orange County, California, noted that Quantum Fuel's recurring losses and negative cash flows combined with the Company's existing sources of liquidity and other conditions raise substantial doubt about its ability to continue as a going concern. The Company's balance sheet at March 31, 2011, showed $71.9 million in total assets, $33.4 million in total liabilities, and stockholders' equity of $38.6 million. The Company anticipates that it will need to raise a significant amount of debt or equity capital in the near future to repay certain obligations owed to its senior secured lender when they mature. "If we are unable to raise sufficient capital to repay these obligations at maturity and we are otherwise unable to extend the maturity dates or refinance these obligations, we would be in default," the Company said in a regulatory filing. "Upon a default, our senior secured lender would have the right to exercise its rights and remedies to collect, which would include foreclosing on our assets. Accordingly, a default would have a material adverse effect on our business and, if our senior
secured lender exercises its rights and remedies, we would likely be forced to seek bankruptcy protection," the Company said. Irvine, California-based Quantum Fuel Systems develops and provides advanced clean propulsion systems and renewable energy generation systems and services. (E) Dallas Stars The Dallas Stars hockey club of the National Hockey League is reportedly preparing to file for Chapter 11 protection to push through a sale to Vancouver businessman Tom Gaglardi, a Dallas Morning News report said. Mr. Gaglardi has had his exclusive negotiating window extended beyond 30 days and he could actually be beyond 60 days right now in the negotiating process. Insiders said things are moving forward, but that it is a tough negotiation -- in large part, because the lenders are expert negotiators. Mr. Gaglardi's offer is subject to approval by the lenders and the NHL. * * * 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 two large chapter 11 cases that Troubled Company Reporter editors monitor day-by-day. (A) Lehman Brothers Ivy Magdadaro identified four major disputes pending in the Lehman Brothers case. The disputes involve various claims filed against the estate, litigation between Lehman and Barclays Plc over unpaid bonuses, a lawsuit by Lehman's brokerage unit against Citigroup, and the parent companys own lawsuits against JP Morgan Chase. (1) Lehman Settles More Than $14 Billion in Claims Lehman Brothers said in late June that it has agreements for support of a newly revised reorganization plan signed by 30 creditors and their affiliates holding more than $100 billion in claims. Lehman said the signatories to the new plan support agreement include "substantially all" of the creditors who were proposing two competing plans in the Lehman case. The creditors have agreed to hold their rival plan in abeyance, while the Lehman plan moves forward. Lehman also said it reached an agreement with 13 institutions to settle $9.6 billion in derivative claims and $6.2 billion in associated guarantee claims.
Lehman has filed a third version of their plan of reorganization on June 29. The plan is a compromise between creditors wanting substantive consolidation of the 23 Lehman companies and creditors that were opposed. The recently amended Plan would enable Lehman to pay an estimated $65 billon to creditors, the company counsel said. (2) Lehman-Barclays Dispute Barclays Plc has asked Bankruptcy Judge James Peck in Manhattan to dismiss Lehman's remaining claim for $500 million in alleged unpaid bonuses. This development comes after Barclays defeated an $11 billion lawsuit brought by Lehman. The Lehman-Barclays lawsuit stemmed from Lehman's allegation that Barclays got an $11 billion "windfall" when Barclays bought the Lehman North American brokerage business one week after Lehman filed for bankruptcy protection. In February 2011, Judge Peck held that Barclays' purchase of the Lehman broker unit was fair even as the sale process was less than perfect. In May 2011, Lehman urged Judge Peck to direct Barclays to pay the rest of the $2 billion in bonuses the U.K. Bank agreed to when it bought the Lehman broker unit. The bonuses, Lehman said, were due to Lehman employees. The annual bonuses for the 2008 fiscal year should have been paid in full by March 15, 2009 but the employees received only $1.5 billion, Lehman stated. Barclays argued the $2 billion was an estimate of both bonuses and severance payments. It said in a June 22 court
filing that it had paid everything assented to in the purchase agreement. Barclays explained that its obligation was to pay 100% of "bonus pool amounts accrued" by Lehman employees it took on with the broker unit purchase in 2008. Barclays further pointed out that Lehman said in court last year that the amount accrued and payable was from $700 million to $1.3 billion. In early June, Judge Peck ruled that the Lehman liquidation trustee is entitled to $4 billion in margin assets related to the broker unit sale. The margin assets are deposits Lehman posted to cover outstanding derivatives trade. The bankruptcy judge has ruled in favor of the Lehman trustee on those margin assets. The June 6 bench ruling means Barclays will have to return $2 billion in margin collateral to the Lehman trustee, James Gidden. The other $2 billion in margin assets is held by third parties or the trustee, according to Barclays. Since Barclays is entitled to $1.1 billion in clearance box assets as noted in a previous court ruling, the U.K. bank's net cost for the June 6 "margin asset" ruling will be near $1 billion. The Lehman holding company filed for bankruptcy in New York on Sept. 19, 2008, and sold office buildings and the North American investment-banking business to Barclays one week later. The remnants of the Lehman broker unit went into liquidation on Sept. 19, 2008. The trustee was appointed under the Securities Investor Protection Act. (3) Lehman-JPMorgan Dispute
JP Morgan Chase, sued for $8.6 billion by Lehman, has said it reserves its rights to a review of the complaint in U.S. District Court and a trial by jury. JPMorgan is fighting Lehman's suit before a New York bankruptcy court, saying it was protected by the so-called safe harbor law when it took collateral from the defunct firm in 2008. Congress created the law to protect banks lending to faltering companies, JPMorgan said. "Such issues are not usually decided in bankruptcy court," JPMorgan stated. It has sought dismissal of the suit. The Lehman lawsuit, filed in May 2010, alleged that JPMorgan demanded guarantees that fatally weakened Lehman, and that those transactions weren't eligible for safe-harbor protections. Under the lawsuit, Lehman demanded $8.6 billion in collateral, plus tens of billions of dollars in damages from JPMorgan. JPMorgan filed a countersuit in December 2010, saying Lehman tricked it into making billion dollar loans. JPMorgan was Lehman's main clearing bank in the days leading to its bankruptcy filing. Meanwhile, Judge Peck approved a settlement for JPMorgan to pay $861 million in cash and securities to Lehman customers. The deal settles outstanding claims of the trustee overseeing the liquidation of the remnants of the Lehman broker unit, but does not affect the billion dollar lawsuit between JPMorgan and Lehman. (4) Lehman-Citigroup Dispute
Citigroup Inc. has asked Judge Peck to dismiss a lawsuit filed against its banking unit by James Gidden, the trustee of the Lehman Brothers brokerage unit. Citi said the suit is without merit and should be settled in arbitration proceeding not overseen by the bankruptcy court. The trustee is seeking the return of a $1 billion deposit made to Citi the day Lehman Brothers filed for bankruptcy in 2008, plus $300 million in other Lehman funds. In a May 26 filing, Citi's foreign affiliates explained they were under no obligation to settle foreign-exchange trades for Lehman in September 2008, but they did anyway under the condition that Lehman deposit $1 billion in cash with Citibank. Citi said that as it continued to extend "billions of dollars" of credit to Lehman, it ended up losing about $1.26 billion. Lehman cannot turn its back on the bargain and claw back the deposit two years later, after it has received the full benefit of the essential bank services, Citi argued. (B) Washington Mutual Washington Mutual on July 13 began its second attempt to end its bankruptcy. WaMu is seeking anew court approval of a plan to distribute about $7 billion to creditors. And once again, WaMu is facing stiff objections from equity holders. In January, Bankruptcy Judge Mary Walrath rejected an earlier version of the same plan. While Judge Walrath sent back the plan for modifications back in January, she approved a global settlement at the heart of the plan. The global deal apportions WaMu's assets to major
parties in WaMu's Chapter 11 case, and resolves an ownership dispute of about $10 billion of assets, some of which were in JPMorgan's accounts by virtue of JPMorgan's acquisition of the WaMu banking unit in 2008 for $1.88 billion. The WaMu plan before the court in January contemplates full payment of creditors before shareholders, with creditor claims accruing interest. In contrast, under the revised plan, lowest ranking creditors appear unlikely to be paid in full and even preferred shareholders may get nothing. Shareholders appeared to have struck a deal with WaMu last month to take a significant stake in the reorganized company. Shareholders have argued the reorganized company was worth billions more than the $160 million estimated by WaMu. However, that deal collapsed. Unable to attack the global settlement, shareholders may pin their hopes on making accusations of insider trading stick against a group of hedge funds that helped negotiate that deal. They may also try to prove WaMu is giving away valuable tax breaks and legal claims. In a related development, Aurelius Capital Management, a hedge fund which helped craft the global deal under the WaMu Plan, now expressed opposition to the deal. Aurelius said in a June 22 court filing that the deal unfairly enriches JPMorgan. The hedge fund asserted that the deal drained money from creditors and that JPMorgan should contribute more to the settlement. JPMorgan is paying an annual 0.2% interest to WaMu on the $4 billion deposit in a JPMorgan account.
WaMu is the biggest bank failure in U.S. history. The holding company listed $4.49 billion in assets versus $7.83 billion in liabilities when it filed for bankruptcy. (C) Ambac Ambac Financial Group asserts that it doesn't owe hundreds of millions of dollars in back taxes that the Internal Revenue Service is going after, a claim that contributed to Ambac's filing for Chapter 11 bankruptcy in November 2010. Ambac said in June its accounting was proper when it collected more than $700 million in tax refunds related to credit default swap contracts between December 2008 and January 2010. Ambac said that since 2007, it used what's called "impairment" method when accounting for losses on CDS contracts, rather than the "wait and see" method it used before that. The impairment method treats the CDS as contracts in which losses can be calculated before the contract expires, while the "wait and see" method treats them as put options that cannot be calculated until later. In May 2011, the IRS filed claims seeking $807.2 million in taxes paid and interest. Ambac says IRS filed duplicative claims on the subject taxes. A hearing on the matter has been set in a New York bankruptcy court on July 25. Meanwhile, Ambac filed a plan of reorganization to the New York bankruptcy court on July 6. Among other things, the Plan contemplates a cost allocation agreement between Ambac
Financial Group, on the one hand, with Ambac Assurance Corporation and its affiliates, on the other hand. Under the Settlement, Ambac Assurance will share 85% and Ambac Financial will share 15% in the fees and expenses incurred by Ambac Financial relating to disputes with the IRS. Ambac's disputes with the IRS include an adversary complaint Ambac filed versus the IRS relating to over $7 billion in net operating losses, and claims filed by the IRS in Ambac's Chapter 11 case over back taxes totaling more than $1.5 billion. * * *
The Troubled Company Reporter provides detailed reporting about every chapter 11 filing nationwide. Stay tuned to learn more about obtaining a trial subscription to the TCR at no cost or obligation. Delayed Exits From Chapter 11 Julie Anne Lopez reports about four Chapter 11 debtors whose emergence from Chapter 11 has been delayed: Tribune Co., WR Grace & Co., Lehman Brothers, and Washington Mutual. (A) Tribune Tribune and rival Aurelius Capital Management made closing arguments in support of confirmation of their separate Chapter 11 Plans for the bankrupt company before Judge Carey on June 27, 2011.
After more than five hours of argument, Judge Carey ended the hearing without saying which of the plans he will confirm. Neither did he indicate when he intends to rule on either Plan. The Court previously scheduled a June 14, 2011 hearing for closing arguments on the Chapter 11 Plans, but Judge Carey rescheduled the hearing to June 27. Consistent with the Court-approved briefing schedule, the Plan Proponents also filed with the Court proposed findings of fact and conclusions of law on June 3, 2011. On June 16, Epiq Bankruptcy Solutions filed with the Court a supplemental declaration to report the modifications to the voting results on the Second Amended Joint Plan of Reorganization, or DCL Plan, proposed by Tribune. Modifications were made to the voting results on the DCL Plan as a result of the order approving procedures allowing holders of Senior Loan Claims and Senior Guaranty Claims to change their votes on the DCL Plan. Epiq stated that holders of Classes 1C and 50C-111C claims submitted supplemental votes to accept the DCL Plan. As a result, the DCL Plan was overwhelmingly approved by holders of general unsecured claims, senior guaranty claims, and senior claims. Holders of the Senior Noteholder Claims and the PHONES Notes Claims rejected the DCL Plan. At a June 28, 2011 hearing, Judge Carey recognized that "sometimes you need a decision from a judge," and promised to work on producing one as quickly as possible. The bankruptcy judge said that while both sides are far apart, "they sill have good reason to continue their discussions" toward a consensual resolution.
Judge Carey also stated that he would spend his time over in July to come up with a decision on which Chapter 11 Plan for Tribune and its debtor affiliates he will confirm, although he made no promises when he would deliver. Judge Carey convened the June 28 hearing to consider Deutsche Bank's request for clarification of a state law conveyance fraudulent claims order that will allow Deutsche Bank and other indenture trustees to seek consolidation of lawsuits filed in various states. Tribune's Chapter 11 reorganization began in December 2008. (B) Grace In W.R. Grace, Judge Ronald L. Buckwalter of the U.S. District Court for the District of Delaware considered on June 28 and 29, the matters raised in the appeals taken from Bankruptcy Court Judge Judith Fitzgerald's plan confirmation order. The appeals were filed by several parties from Judge Fitzgerald's confirmation of the Joint Plan of Reorganization. The appellants include the Official Committee of Unsecured Creditors, a group of lenders under the Prepetition Bank Credit Facilities, Garlock Sealing Technologies, the state of Montana, Her Majesty the Queen in Right of Canada, and BNSF Railway Company. The Plan Proponents are asking Judge Buckwalter to affirm Judge Fitzgerald's order and enjoin prosecution of asbestosrelated claims against Grace and other released parties and channel future asbestos-related claims to the Trusts established under the Plan.
At the conclusion of the hearings, Judge Buckwalter made it clear that he won't be issuing a decision "in the next week or two." The timing of Grace's emergence from Chapter 11 will depend on affirmation of the Plan by the District Court and the satisfaction or waiver of the other conditions set forth in the Plan, including the resolution of any further appeals. W.R. Grace marked its 10th year in bankruptcy on April 2, 2011. (C) Lehman Lehman Brothers and its affiliated debtors filed a third version of their Chapter 11 plan of reorganization on June 29. The recently amended plan would enable the Debtors to pay an estimated $65 billion to their creditors. Lehman's senior unsecured creditors, with an estimated $83.7 billion in claims, would recover 21.1% of their claims, down from the 21.4% in the plan proposed by the company in January. Meanwhile, general unsecured creditors, with an estimated $11.39 billion in claims, would recover 19.9% of their claims, up from 19.8% in the prior proposal. A portion of the money owed to creditors of Lehman subsidiaries will be reallocated to the company's creditors. Creditors of Lehman subsidiaries consented to a cap on some of their claims. The proposed plan has much broader support from creditors than its previous proposals, which include "substantially all" of the proponents of the two competing plans.
According to a company statement dated July 1, 30 institutions and certain of their affiliates have executed plan support agreements. Those signing PSAs include substantially all of the proponents of the two alternative plans that were proposed earlier this year. The proponents of the alternative plans have agreed to hold those plans in abeyance while Lehman moves forward toward approval of its Amended Disclosure Statement and confirmation of its Amended Plan. Bryan Marsal, Lehman's Chief Executive Officer, said the Amended Plan is based on intensive discussions, analysis and input from many parties. It provides for a global settlement with creditor groups and will avoid the costly, uncertain and protracted litigation that would undoubtedly follow in the absence of this compromise solution. The Plan provides a fair and reasonable outcome and will accelerate distributions to creditors. A group of creditors including hedge fund Paulson & Co. and the California Public Employees' Retirement System previously filed a rival plan, which proposed a 24.5% recovery for senior creditors. It also called for substantive consolidation in which all assets are thrown into one pot, and creditors receive a similar distribution regardless of the Lehman unit that owed the debt. Unlike the Paulson group's proposal, the bankruptcy plan proposed by the other group of creditors led by Goldman Sachs Bank USA does not provide for the consolidation of Lehman's operating subsidiaries into the same asset pool with the company. The Paulson group, the Goldman Sachs group and the Official Committee of Unsecured Creditors signed their consent to Lehman's proposed plan on June 29, said Bloomberg News, citing a creditor as its source who declined to be identified because the proceedings are confidential.
Prior to the filing of Lehmans third amended Plan, DZ Bank AG Deutsche Zentral-Genossenschaftsbank, Mizuho Corporate Bank Ltd., Mizuho Capital Markets Corporation and a group of creditors led by JPMorgan Chase Bank N.A. said they are no longer participating in the discovery process related to the confirmation of Lehman's plan. Lehman had previously disclosed that it is aiming for a confirmation hearing in November to approve one of the three competing plans filed in its Chapter 11 case. Lehman has been in bankruptcy since Sept. 15, 2008. (D) Washington Mutual Washington Mutual rescheduled a June 6 hearing on its reorganization plan to gain time to negotiate a settlement with shareholders. In the last 30 days, former WaMu Chief Executive Kerry Killinger and two other former executives have broken off settlement talks with the Federal Deposit Insurance Corp, according to a lawyer for the defendants. The two sides exchanged terms last month to settle an FDIC lawsuit aimed at recovering $900 million for their role in the biggest bank failure in U.S. history. However, talks failed to produce a settlement and the defendants filed motions with a federal court in Seattle to dismiss the FDIC case. Barry Ostrager, who represents former chief operating officer Stephen Rotella and former home lending chief David Schneider, said there are no settlement negotiations at the moment.
The motions were filed the same day as Washington Mutual investors reached a $208.5 million settlement with officers, directors, underwriters and an auditor, resolving a class action securities fraud lawsuit. That class-action federal lawsuit was brought by investors that charged that WaMu bank had engaged in reckless business practices while intentionally misstating its financial health. The settlement of the lawsuit -- which consolidated more than 20 cases -- will result in $105 million in payments to individual defendants, $85 million to underwriters and $18.5 million to Deloitte & Touche LLP. The Ontario Teachers' Pension Plan Board, the lead plaintiff in the case, filed a preliminary approval of the settlement in federal court in Seattle. WaMu's banking unit was seized by its regulator, the Office of Thrift Supervision, at the height of the financial panic in September 2008 and immediately sold by the FDIC to JPMorgan Chase & Co for $1.88 billion. The FDIC had accused Messrs. Killinger, Rotella and Schneider of gross negligence and reckless disregard for the long-term safety of the bank. The defendants denied wrongdoing. WaMu filed for bankruptcy on Sept. 26, 2008, the day after the bank unit was seized. New Publicly Traded Securities Psyche Maricon Castillon reports about four companies that issued or will issue shares of new common stock upon emergence pursuant to the plans of reorganization they filed in their Chapter 11 cases in July 2011.
(A) EMAK Worldwide The U.S. Bankruptcy Court for the Central District of California confirmed EMAK Worldwide Inc.s plan of reorganization on June 10 allowing the company to emerge from Chapter 11. Los Angeles-based EMAK, a holding company for marketing companies Equity Marketing and Logistix, filed for Chapter 11 protection on Aug. 6, 2010, due to a protracted shareholder and related litigation at the corporate level, the company said at the time. Its units Equity Marketing, Logistix, Neighbor and Upshot agencies and operations in Asia were not included in the bankruptcy plan. Under its restructuring plan, EMAK will reorganize around its existing operating businesses, which, it said, continue to show positive performance. The company will pay creditors in full with interest, and it has secured a line of credit through Crown EMAK Partners. EMAKs common shareholders holding less than 150,000 shares that agreed to provide a release will receive 10 cents a share. Holders of more than 150,000 shares were given the chance to roll into a new ownership arrangement in exchange for providing a release. With the reorganization, Crown EMAK Partners will hold a majority of the stock in the company. (B) Nebraska Book
Textbook publishing company Nebraska Book Company, Inc., filed a draft plan of reorganization at the end of June providing for the issuance of shares of new common stock upon reorganization. Specifically, the draft Plan provides for the cancellation of the Debtors' existing equity interests. Claims under the so-called Opco Notes will be allowed in an aggregate amount equal to $175 million. In satisfaction of each claim, each holder will receive its pro rata share of: (a) a $30.6 million cash payment from the proceeds of new second lien secured notes to be issued by Nebraska Book; (b) the new unsecured notes with a face value of $120 million; and (c) 78% of the New Common Equity. The OpCo Notes refer to $175 million of senior subordinated notes that require semi-annual interest payments at a fixed rate of 8.625% and mature on March 15, 2012. As of the Petition Date, the outstanding principal balance of the OpCo Notes was $175 million. BNY Midwest Trust Company serves as trustee under the OpCo Indenture. (C) Harry & David Holdings Food retailer Harry & David Holdings, Inc., amended its plan of reorganization in June providing for the cancellation of its old equity and the issuance of new equity upon its emergence from bankruptcy. The Plan contemplates the reorganization of Harry & David through (a) the elimination of the claims filed by the Pension Benefit Guaranty Corp. and Harry & David's Senior Notes in exchange for the issuance of new stock and (b) a rights offering that will provide the PBGC and the Noteholders with opportunity to purchase stock of reorganized Harry & David in connection with their emergence from Chapter 11.
Harry & David will utilize the proceeds of a rights offering to repay outstanding amounts under its second lien DIP term loan and to fund business operations going forward. The Rights Offering permits qualified Noteholders to purchase approximately 74.9% of the stock of the reorganized Debtors for $55 million. Because the Plan does not require qualified Noteholders to participate in the Rights Offering, Harry & David also entered into an agreement with a specific group of their Noteholders to 'backstop' the Rights Offering. The Noteholders that are party to that agreement will purchase any remaining stock that was not purchased by other Noteholders or the PBGC as part of the Rights Offering. In consideration for the performance of their obligations under the Backstop Agreement, the Noteholders that are party to the Backstop Agreement will receive 50,000 shares in Reorganized Holdings. The Backstop Agreement ensures that the Debtors will obtain $55 million in new equity financing upon their emergence from these cases. After the Petition Date, Harry & David obtained Bankruptcy Court approval to enter into a $100 million exit facility that would become effective on the effective date of the Plan. This facility, provided by the same lenders who provided the Debtors with a similar facility prior to the Petition Date and the $100 million first lien debtor-in-possession revolving credit facility, permits the Debtors to maintain their historical working capital financing upon emergence from chapter 11 on terms substantially similar to those that existed prior to the Petition Date. The hearing to consider confirmation of the Plan is set for Aug. 11. The disclosure statement explaining Harry & David's plan was approved on June 24.
(D) Wolverine Tube Wolverine Tube, Inc., manufacturer and distributor of copper and copper alloy tube, fabricated products, and metal joining products, emerged from Chapter 11 bankruptcy protection on June 28. Under the confirmed plan, $139 million of senior secured notes and accrued interest at the petition date has been converted to equity plus a $30 million note. The Company's defined pension plan was terminated and assumed by the PBGC in exchange for 5% equity in the Company and a stream of payments over 11 years with a present value of roughly $13 million. The Company exits Chapter 11 as a privately held company with its former senior secured noteholders holding a substantial majority of the stock. All old Wolverine common and preferred shares are cancelled. * * *
That ends the Beard Group Corporate Restructuring Review for June 2011, brought to you by the editors of the Troubled Company Reporter and Troubled Company Prospector. If you'd like to receive the Troubled Company Reporter for 30-days at no cost -- and with no strings attached -- call Nina Novak at (240) 629-3300 or visit bankrupt-dot-com-slash-free-trial and we'll add you to the distribution list. That telephone number, again, is (240) 629-3300 and that Web site address, again, is bankrupt-dot-comslash-free-trial. Tune in to our next Restructuring Review on August 16th. Thank you for listening.

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first, last month's largest chapter 11 filings and other statistics;

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