Beard Corporate Restructuring Review for February 2013
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DESCRIPTIONIn this month's Corporate Restructuring Review, we'll discussfive topics: first, last month's largest chapter 11 filings and otherstatistics; second, large chapter 11 filings TCR editors anticipatein the near-term; third, a quick review of the major pending disputes inchapter 11 cases that we monitor day-by-day; fourth, reminders about debtors whose emergence fromchapter 11 has been delayed; and fifth, information you're unlikely to find elsewhere aboutnew publicly traded securities being issued by chapter11 debtors.
<p>Beard Group Corporate Restructuring Review For February 2013Presented by Beard Group, Inc. P.O. Box 4250 Frederick, MD 21705-4250 Voice: (240) 629-3300 Fax: (240) 629-3360 E-mail: email@example.com</p> <p>An audio recording of this presentation is available at http://bankrupt.com/restructuringreview/____________________________________________________ Welcome to the Beard Group Corporate Restructuring Review for February 2013, 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;</p> <p>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. February 2013 Mega Cases</p> <p>Now, let's review the largest chapter 11 cases in February 2013. Danilo Muoz reports that five cases involving companies with more than $100 million in assets were filed in each of the last three months. One of the cases filed in February exceeded the $1 billion mark in terms of assets: Readers Digest Association Inc. No billion dollar cases were filed January. For fiscal year 2012, there were a total of 12 companies that filed for Chapter 11 with excess of $1 billion in assets. Five of those cases began in May. For 2012, there were a total of 64 mega filings with assets in excess of $100 million, compared to 82 mega filings during the same period in 2011 and 106 in 2010. Readers Digest listed total assets of $1.12 billion and total liabilities of $1.18 billion when it filed for Chapter 11 [Bankr. S.D.N.Y. Lead Case No. 13-22233] in Southern District of New_____________________________________________________________________________ Beard Group Corporate Restructuring Review for February 2013 -- page 2</p> <p>York on Feb. 17, 2013, along with 30 affiliates. Reader's Digest is a global media and direct marketing company that educates, entertains and connects consumers around the world with products and services from trusted brands. Reader's Digest filed, together with the petition, an agreement with major stakeholders for a pre-negotiated chapter 11 restructuring. Under the plan, the Debtor will issue the new stock to holders of senior secured notes. The Restructuring Agreement provides for the Debtors' prompt emergence from chapter 11 by July 31. Reader's Digest first sought Chapter 11 protection on Aug. 24, 2009, together with its 47 affiliates. The Company exited bankruptcy Feb. 19, 2010. The second largest Chapter 11 filing was by Ormet Corporation, which listed total assets of $406.82 million and total debts of $416.01 million. Ormet is a fully integrated aluminum manufacturer, providing primary metal, extrusion and thixotropic billet, foil and flat rolled sheet and other products. Ormet and its debtor-affiliates filed for chapter 11 protection in Delaware [Bankr. D. Del. Case No. 13-10334] on Feb. 25, 2013. Ormet has signed a definitive Asset Purchase Agreement with Smelter Acquisition, LLC, a portfolio company owned by private investment funds managed by Wayzata Investment Partners LLC, in connection with a proposed financial restructuring of Ormet. Ormet and its debtor-affiliates previously filed for chapter 11 protection on January 30, 2004, with the Bankruptcy Court for the Southern District of Ohio [Case No. 04-51255]. Its chapter 11 plan was confirmed by the Court in April 2005.</p> <p>_____________________________________________________________________________ Beard Group Corporate Restructuring Review for February 2013 -- page 3</p> <p>In addition, two companies filed for Chapter 11 protection listing estimated assets of between $100 million to $500 million: Liberty Medical Supply Inc. and Conexant Systems Inc. Liberty is a mail order provider of diabetes testing supplies. In addition to diabetes testing supplies, the Debtors also sell insulin pumps and insulin pump supplies, ostomy, catheter and CPAP supplies and operate a large mail order pharmacy. Liberty Medical led by ATLS Acquisition, LLC, sought Chapter 11 protection on Feb. 15, 2013, with the Bankruptcy Court for the District of Delaware [Lead Case No. 13-10262]. The move comes less than three months after a management buy-out and amid a notice by the lender who financed the transaction that it's exercising an option to acquire the business. Newport Beach, California-based Conexant Systems is a fabless semiconductor company. Conexant Systems filed a Chapter 11 petition on Feb. 28, 2013, with the Bankruptcy Court for the District of Delaware [Case No. 13-10367]. Conexant Systems has an agreement for a balance sheet restructuring with equity sponsors and sole secured lender, QP SFM Capital Holdings Limited, an entity managed by Soros Fund Management LLC. As part of the restructuring, the secured lender will exchange approximately $195 million of secured debt into equity in the reorganized Company. In addition, the Secured Lender will receive $76 million of unsecured notes issued by a holding company, which can elect to either pay interest in cash or accrue interest in kind. The new unsecured notes will be nonrecourse to the reorganized Conexant operating company. Arrow Aluminum Industries, Inc., filed a Chapter 11 petition on Feb. 11, 2013, with the Bankruptcy Court for the Western District of Tennessee [Case No. 13-21470]._____________________________________________________________________________ Beard Group Corporate Restructuring Review for February 2013 -- page 4</p> <p>Martin, Tennessee-based Arrow Aluminum scheduled $125.4 million in total assets and $3.13 million in liabilities. The assets were bloated by a contingent claim of $125 million on account of a lawsuit against First Citizens National Bank. Minus the contingent claim, the assets are just about $1.25 million, which include 126acre house and farm properties in Martin, Tennessee, worth $485,000. Of the Chapter 11 mega filings in February, two of the five cases involved a prepackaged Chapter 11 filing, the same as that in January. For fiscal year 2012, 13 of the 64 mega cases involved a prepackaged Chapter 11 filing, or about 20% of the mega cases. For 2011, 13 of the 83 mega cases involved a prepackaged Chapter 11 plan as of the Petition Date -- or about 16% of the large Chapter 11 filings. For fiscal year 2010, a total of 35 prepacks/pre-arranged cases were filed out of the 106 bankruptcy mega cases -- or about one in every three filings in 2010. For the first two months of 2013, five of the mega filings belonged to the information industry while three are involved in manufacturing. For the first two months of 2013, the Bankruptcy Court for the District of Delaware cornered the lions share of mega filings, with five mega filings while the Southern District of New York had two of the mega filings, including Reader's Digest's billion dollar case. In 2012, the Bankruptcy Court for the Southern District of New York was the most favored venue for mega filers with 21, wresting away the lead from the Bankruptcy Court for the District of Delaware with 19 mega filings._____________________________________________________________________________ Beard Group Corporate Restructuring Review for February 2013 -- page 5</p> <p>In 2011, the Delaware Bankruptcy Court was the most favored of bankruptcy mega cases with 38 filings, or 46% of the mega cases, followed by the Southern District of New York with 16 filings, or 19% of the mega cases, and by the Northern District of Texas with 4 filings, or 5% of the mega cases. The rest of the bankruptcy mega cases are spread evenly throughout the various bankruptcy courts. Lehman Brothers Holding Corp. is the biggest corporate bust in history. Lehman, which filed in 2008, had $639 billion in total assets and $613 billion in total debts at that time of its filing. For 2011, the largest Chapter 11 filing was filed by MF Global Holdings Ltd. and its affiliates. As of Sept. 30, 2011, MF Global had $41.05 billion in total assets and $39.68 billion in total liabilities. For 2012, the largest Chapter 11 filing was by Residential Capital LLC, which disclosed $15.68 billion in assets and $15.28 billion in liabilities as of March 31, 2012. For the first two months of 2013, Young Conaway Stargatt & Taylor LLP and Paul Weiss Rifkind Wharton & Garrison LLP represented two of the ten mega filings either as lead or cocounsel. Both law firms represented the School Specialty and Penson Worldwide in their respective Chapter 11 cases. 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._____________________________________________________________________________ Beard Group Corporate Restructuring Review for February 2013 -- page 6</p> <p>Carlo Fernandez identified five companies that may be close to filing for bankruptcy: Revel Casino, Energy Future Holdings, GMX Resources, Central European Distribution, and Gasco Energy. (A) Revel Casino Revel AC Inc., owner of the Revel casino in Atlantic City, New Jersey, is expected to file for bankruptcy sometime in the last two weeks of March, Bloomberg News reports, citing unnamed sources. Revel Casino, which opened just less than a year, is pursuing a prepackaged bankruptcy restructuring where term loan lenders owed $900 million will take almost 100% ownership of the company, existing shareholders would be wiped out, and unsecured creditors would recover 100 cents on the dollar. Revel announced Feb. 19 it has reached an agreement with a majority of its lenders to reduce its debt burden by more than $1 billion through a debt-for-equity conversion. The agreement requires Revel to seek bankruptcy protection. As part of the restructuring, certain of Revel's lenders will provide $250 million in DIP financing, $45 million of which constitutes new money commitments and approximately $205 million of which constitutes prepetition debt. No taxpayer funds will be used to finance the restructuring. Revel's legal advisor in connection with the restructuring is Kirkland & Ellis LLP. Alvarez & Marsal serves as its restructuring advisor and Moelis & Company serves as its investment banker for the restructuring. Other professionals tapped by Revel include Brown Rudnick LLP, as special counsel to the Company; Ernst &_____________________________________________________________________________ Beard Group Corporate Restructuring Review for February 2013 -- page 7</p> <p>Young, as independent auditors and tax advisors to the Company; and Cooper Levinson, as gaming counsel to the Company. JPMorgan, the administrative agent for the term loan lenders, is represented by Cadwalader, Wickersham & Taft LLP. The ad hoc group of existing lenders is represented by Paul, Weiss, Rifkind, Wharton & Garrison LLP. (B) Energy Future Holdings Energy Future Holdings Corp. hired restructuring advisers from law firm Kirkland & Ellis and financial advisers Evercore Partners and the Blackstone Group to help the power producer deal with looming financial problems. Creditor groups meanwhile are being wooed by Cadwalader Wickersham & Taft, Brown Rudnick, Otterbourg Steindler Houston & Rosen, and White & Case. Energy Future Holdings was taken private in 2007 in a $43.2 billion leveraged buyout by KKR & Co. LP and TPG Inc. It lost money seven quarters in a row, and $173 million in bonds begin requiring cash interest payments in May. The Company's balance sheet at Sept. 30, 2012, showed $42.7 billion in total assets against $51.9 billion in total liabilities. (C) GMX Resources GMX Resources Inc. failed to pay an interest payment due on its senior secured second-priority notes due 2018.</p> <p>_____________________________________________________________________________ Beard Group Corporate Restructuring Review for February 2013 -- page 8</p> <p>The Company has engaged Jefferies & Company, Inc., as financial advisor to assist the Board and senior management in its ongoing exploration of financing alternatives, including a potential restructuring of the Company's balance sheet in light of its current liquidity and cash needs. If the Company is not able to successfully implement a consensual alternative for restructuring its balance sheet, or in order for the Company to implement a financial alternative, the Company may voluntarily seek protection under the U.S. Bankruptcy Code. GMX Resources is an independent natural gas production company headquartered in Oklahoma City, Oklahoma. The Company's balances sheet at Sept. 30, 2012, showed $343.1 million in total assets and $467.6 million in total liabilities. (D) Central European Distribution Mark Kaufman and the A1 Investment Company have decided to join forces to sponsor a chapter 11 plan of reorganization for the restructuring of Central European Distribution Corporation. In a letter to members of the Board of CEDC, A1 and Dr. Kaufman proposed to invest up to $225 million in the restructuring of CEDC in exchange for 85% of the equity of the reorganized CEDC. The Plan would be implemented through pre-arranged cases under Chapter 11 of the U.S. Bankruptcy Code. Before commencement of the Chapter 11 cases, the Company, the Consortium and a sufficient majority of holders of the 2016 Notes would execute a plan support agreement to provide a stable and swift path towards confirmation of the Plan._____________________________________________________________________________ Beard Group Corporate Restructuring Review for February 2013 -- page 9</p> <p>Under the Plan, the Plan sponsors would receive not less than 85% of the equity of the reorganized company. Unsecured debt holders and current shareholders will receive no more than 15% of the reorganized equity. A1 is an investment company of the Alfa Group, which is one of the largest privately-owned financial and industrial conglomerates in Russia with approximately US$60 billion of assets. Dr. Kaufman is an entrepreneur and executive with more than 20 years of international experience in the wines and spirits sector. (E) Gasco Energy Gasco Energy, Inc., said that due to the significant extended decline in the natural gas market and sustained low natural gas prices caused by excess production and stagnant demand for natural gas, the Company has not been able to recover its exploration and development costs as anticipated. As such, there is substantial doubt regarding the Company's ability to generate sufficient cash flows from operations to fund its ongoing operations, and it currently anticipates that cash on hand and forecasted cash flows from operations will only be sufficient to fund cash requirements for working capital, including debt payment obligatio...</p>
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