beard corporate restructuring review for january 2013

Beard Group Corporate Restructuring ReviewFor January 2013

Presented byBeard Group, Inc.

P.O. Box 4250Frederick, MD 21705-4250

Voice: (240) 629-3300Fax: (240) 629-3360

E-mail: [email protected]

An audio recording of this presentation is available at http://bankrupt.com/restructuringreview/

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Welcome to the Beard Group Corporate Restructuring Review for January 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;

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• 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.

January 2013 Mega Cases

Now, let's review the largest chapter 11 cases in January 2013.

Danilo Muñoz reports there were five Chapter 11 bankruptcy filings that involve companies with more than $100 million in assets to open 2013. That's the same number of mega filings in the last month of 2012.

One of those companies -- Penson Worldwide Inc. -- exceeded $1 billion in total assets.

For fiscal year 2012, a total of 12 companies sought Chapter 11 protection with excess of $1 billion in assets. Five of those initiated bankruptcy proceedings 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.

The largest Chapter 11 case for January 2013 was initiated by Plano, Texas-based Penson Worldwide. Together with its affiliates, Penson petitioned for bankruptcy protection on Jan. 11 with the Bankruptcy Court for the District of Delaware [Case No. 13-10061]._____________________________________________________________________________

Beard Group Corporate Restructuring Review for January 2013 -- page 2

Founded in 1995, Penson Worldwide is provider of a range of critical securities and futures processing infrastructure products and services to the global financial services industry. The company’s products and services include securities and futures clearing and execution, financing and cash management technology and other related offerings, and it provides tools and services to support trading in multiple markets, asset classes and currencies.

Penson's last publicly filed financial statements as of June 30 showed assets of $1.17 billion and liabilities totaling $1.23 billion.

The next large case was initiated by School Specialty Inc. which listed assets of $494.5 million and debt of $394.6 million as of the Petition Date.

Based in Greenville, Wisconsin, School Specialty is a supplier of educational products for kindergarten through 12th grade. Revenue in 2012 was $731.9 million through sales to 70 percent of the country's 130,000 schools.

School Specialty and certain of its subsidiaries filed voluntary petitions for reorganization under Chapter 11 on Jan. 28, with the Bankruptcy Court for the District of Delaware [Case No. 13-10125], to facilitate a sale to lenders led by Bayside Financial LLC. The deal is subject to higher and better offers.

The third largest filing in January was by Sioux Falls, South Dakota-based LodgeNet Interactive Corporation. As of Sept. 30, 2012, LodgeNet, on a consolidated basis, reported $292 million in assets and $449 million in liabilities.

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LodgeNet provides interactive media and connectivity services to hospitality and healthcare businesses and the consumers they serve. It serves roughly 1.5 million hotel rooms worldwide in addition to healthcare facilities throughout the United States.

LodgeNet and several affiliates sought Chapter 11 protection on Jan. 27, with the Southern District of New York [case number 13-10238]. LodgeNet filed a prepackaged Chapter 11 plan of reorganization together with the bankruptcy petition.

The plan extends the maturity date and modifies a $332.6 million term loan and $21.5 million revolver. Colony Capital, LLC, is acquiring 100% of the new shares of the reorganized company for $60 million.

Powerwave Technologies Inc., which listed $213.45 million in total assets, $396.05 million in total liabilities and a $182.59 million total shareholders' deficit at Sept. 30, 2012, ranked fourth on the January list. Powerwave filed for Chapter 11 bankruptcy on Jan. 28 with the Bankruptcy Court for the District of Delaware, Case No. 13-10134.

Powerwave Technologies, headquartered in Santa Ana, Calif., is a global supplier of end-to-end wireless solutions for wireless communications networks. The Company has historically sold the majority of its product solutions to the commercial wireless infrastructure industry.

Education Holdings 1 Inc., estimated assets of between $100 million to $500 million. Education Holdings is a holding company that through its Penn Foster division, operates the oldest and one of the largest distance career schools in the world -- generating over 150,000 new enrollments annually for its accredited, career-focused, online degree and vocational _____________________________________________________________________________


programs in the U.S., Canada and more than 150 other countries in the world.

Education Holdings, just three years after acquiring using borrowed funds the Penn Foster distance career schools for $170 million, sought Chapter 11 protection on Jan. 21 with the Bankruptcy Court for the District of Delaware [Case No. 13-10101]. It also filed as bankruptcy-exit plan negotiated with major debt holders.

Of the Chapter 11 mega filings in January, two of the five cases involved a prepackaged Chapter 11.

For fiscal year 2012, 13 of the 64 mega cases involved a prepackaged Chapter 11 filing, or about 20% of the mega cases. Two of the prepack cases were filed in November and one in October.

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 month of 2013, four of five of the mega filings belonged to the information industry while the remainder is involved in manufacturing.

For the first month of 2013, the Bankruptcy Court for the District of Delaware cornered the lion’s share of mega filings, with four of the five mega filings while the remainder went to the Southern District of New York.

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.

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. remains the biggest corporate bust in history. Lehman, which filed in 2008, had $639 billion in total assets and $613 billion in total debts at that time of its filing.

For 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 month of 2013, Young Conaway Stargatt & Taylor LLP and Paul Weiss Rifkind Wharton & Garrison LLP represented two of the five mega filings either as lead or co-counsel. Both law firms represented the School Specialty and Penson Worldwide in their respective Chapter 11 cases.

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Anticipated Large Chapter 11 Filings

Now, let's turn to the topic of large chapter 11 filings Troubled Company Reporter editors anticipate in the near-term.

Carlo Fernandez identified six companies that may be close to filing for bankruptcy: Geokinetics, Dynasil, Heron Lake, Travelport, Evergreen International, and Otelco.

(A) GeoKinetics

GeoKinetics Inc. intends to seek bankruptcy protection with a pre-negotiated or pre-packaged plan of reorganization.

GeoKinetics on Jan. 15 disclosed that it has entered into a restructuring support agreement with holders of more than 70% in aggregate principal amount of its 9.75% senior secured notes due 2014 and the largest holder of the Company's preferred stock.

Under the terms of the restructuring support agreement:

-- The entire $300 million of the Company's senior secured notes will be converted into common equity and the noteholders will become the majority equity owners of the Company at the consummation of the restructuring

-- Holders of senior secured notes will provide up to $25 million of financing that will be converted to equity at consummation of restructuring

-- Company operations are expected to remain unaffected.

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Certain holders of the senior secured notes have agreed to backstop up to $25 million in a debtor-in-possession financing facility to allow the Company to finance its operations. On the effective date of the chapter 11 plan, the DIP facility will be converted to common stock of the reorganized Company at a discount to chapter 11 plan value.

Headquartered in Houston, Texas, Geokinetics provides seismic data acquisition, processing and integrated reservoir geosciences services, and land, transition zone and shallow water OBC environment geophysical services.

The Company's balance sheet at June 30, 2012, showed $410.85 million in total assets against $580.10 million in total liabilities.

(B) Dynasil

Dynasil Corporation of America reported a net loss of $4.30 million on $47.88 million of net revenue for the fiscal year ended Sept. 30, 2012, compared with net income of $1.35 million on $46.95 million of net revenue during the prior fiscal year.

The auditor, McGladrey LLP, issued a "going concern" qualification on the consolidated financial statements for the year ended Sept. 30, 2012.

The Company is in default of the financial covenants under the terms of its outstanding debt with Sovereign Bank, N.A., and Massachusetts Capital Resource Company.

"If our lenders were to accelerate our debt payments, our assets may not be sufficient to fully repay the debt and we may _____________________________________________________________________________


not be able to obtain capital from other sources at favorable terms or at all. If additional funding is required, this funding may not be available on favorable terms, if at all, or without potentially very substantial dilution to our stockholders. If we do not raise the necessary funds, we may need to curtail or cease our operations, sell certain assets and/or file for bankruptcy, which would have a material adverse effect on our financial condition and results of operations," the Company said in the regulatory filing

Watertown, Massachusetts-based Dynasil develops and manufactures detection and analysis technology, precision instruments and optical components for the homeland security, medical and industrial markets.

Dynasil's balance sheet at Sept. 30, 2012, showed $37.46 million in total assets against $18.62 million in total liabilities.

(C) Heron Lake

Heron Lake BioEnergy, LLC, amended its forbearance agreement with AgStar Financial Services, PCA, that provides for a forbearance period until Feb. 28, 2013, relating to certain covenant defaults and required monthly principal installment payments. The parties entered into the original forbearance agreement on Dec. 21, 2012.

As of Dec. 1, Company owes AgStar $36.3 million under a term note and $4.2 million under a revolving note.

The Company did not make the required monthly installment of principal required by the notes on Dec. 1 and Jan. 1, and said it won't make the required monthly installment of principal required by the Notes on Feb. 1. _____________________________________________________________________________


On Jan. 3, the Company entered into an Asset Purchase Agreement, as the sole member of Lakefield Farmers Elevator, LLC, under which it has proposed to sell substantially all of the real property and personal property of Lakefield Farmers Elevator used in connection with the operation of its grain storage and handling facilities to FCA Co-op.

Minnesota-based Heron Lake owns and operates a dry mill corn-based, natural gas fired ethanol plant near Heron Lake, Minnesota. The Company's balance sheet at July 31, 2012, showed $94.1 million in total assets and $47.1 million in total liabilities.

(D) Travelport

Debtwire said Travelport management is negotiating a plan to right-size its balance sheet with a select group of bondholders who have gone restricted. The parties are reportedly considering scenarios including swapping the company's 2014 unsecured notes -- US$318 million of floating rate notes and a US$429 million 9.875% note -- into longer-dated secured paper. Travelport also would look to pull off a distressed exchange that swaps its subordinated notes into a convertible bond or other unsecured piece at a discount.

Debtwire also reported that Canyon Capital, which leads the charge on unsecured bondholder litigation, is leading a group of 9.875% senior unsecured bondholders for the current round of restructuring negotiations. Apollo Global Management is also a significant holder of the unsecured paper.

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According to the report, Travelport has retained Skadden Arps as restructuring counsel. Jones Day is advising unsecured bondholder trustee The Bank of Nova Scotia.

Headquartered in Atlanta, Georgia, Travelport provides transaction processing services to the travel industry through its global distribution system business, which includes the group's airline information technology solutions business.

Travelport's balance sheet at Sept. 30, 2012, showed $3.35 billion in total assets against $4.38 billion in total liabilities.

(E) Evergreen International

Air-cargo carrier Evergreen International Aviation Inc. failed to make an interest payment due Dec. 31, Standard & Poor's said.

Evergreen had intended to cover the payment from proceeds from asset sales that were delayed. The company had been in violation of loan covenants since the second quarter of the fiscal year.

S&P predicts there should be a 90% to full recovery on the $200 million in first-lien term loan and revolving credit. For the $110 million second-lien term loan, S&P sees the recovery at 10% or less.

The McMinnville, Oregon-based company provides airlift for the U.S. government Air Mobility Command. The drawdown of troops abroad is adversely affecting revenue.

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Evergreen is closely held and doesn't issue public financial statements.

(F) Otelco Inc

Otelco Inc. said it will seek Chapter 11 protection after voting on its prepackaged plan is completed.

Otelco on Feb. 1 announced an agreement with senior lenders for a restructuring that would reduce its overall debt by roughly $135 million. Under the agreement, senior lenders will extend the terms of its current senior financing through April 2016. In addition, the Company's existing senior subordinated debt will be converted into equity. The Company said it has over $32 million in cash and sufficient liquidity to consummate this transaction.

Before any chapter 11 filing, Otelco will seek the support of holders of its senior subordinated notes for the proposed plan through a solicitation process that will occur in February. The voting process is expected to take about 35 days.

Otelco is a wireline telecommunication services provider in Alabama, Maine, Massachusetts, Missouri, New Hampshire, Vermont and West Virginia.

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In addition to the challenged companies mentioned in Mr. Fernandez's report, the Troubled Company Reporter provides on-going 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 large chapter 11 cases that Troubled Company Reporter editors monitor day-by-day.

(A) Boston Generating

Creditors of Boston Generating LLC described to a New York bankruptcy judge at a January hearing how they have plausible claims against the company's former owner, US Power Generating Co., and affiliate Astoria Generating Co.

Boston Gen filed for Chapter 11 protection in August 2010 and sold its five Boston-area power plants in January 2011 to Constellation Energy Group Inc. From the sale and other payments, first-lien secured lenders with $1.14 billion in claims received almost a full recovery. The company received creditor and court approval for a Chapter 11 plan that year where the recovery by unsecured creditors would depend largely on the success of lawsuits prosecuted after emergence from Chapter 11.

Craig R. Jalbert, who was appointed as trustee of the creditors' liquidating trust, sued US Power and Astoria to recoup roughly $60 million in management fees Bos Gen paid. In late 2006, Bos Gen and its affiliates took more than $2 billion in debt as part of a restructuring that Mr. Jalbert said left the company

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"hopelessly insolvent" and unable to meet its debts as they became due.

US Power and Astoria have denied the allegations and sought dismissal of the complaint.

The lawsuit is before U.S. Bankruptcy Judge Shelly C. Chapman.

(B) Idearc

US District Judge A. Foe Fish said in a Jan. 22 decision that Idearc Inc., had a value of at least $12 billion at the time it was spun off from Verizon in 2006. Judge Fish also said the only "credible evidence" shows the business was solvent when it was spun off.

Judge Fish ordered US Bancorp., which sued Verizon on behalf of Idearc creditors, to explain why its claims are viable following the ruling on valuation. The judge said it "appears" creditors will be unable to prove their case "so that all of the plaintiff's remaining legal claims will fail."

Creditors contended the spinoff, designed to generate $9.5 billion for Verizon, left Idearc with so much debt it was insolvent and destined to collapse. The lawsuit against New York-based Verizon went to trial on October 15 to 26 last year.

Idearc sought Chapter 11 bankruptcy protection 28 months after the spinoff. It completed the restructuring and was renamed SuperMedia Inc. A trust was created pursuant to Idearc's reorganization plan to bring lawsuits on behalf of creditors with claims of about $6 billion. The company is the second largest U.S. yellow pages publisher._____________________________________________________________________________


Delayed Exits From Chapter 11

Julie Anne Lopez-Toledo reports about four Chapter 11 debtors whose emergence from Chapter 11 has been delayed: Flintkote, Pittsburgh Corning, Quigley and W.R. Grace.

(A) Flintkote

The U.S. Bankruptcy Court for the District of Delaware entered an order on December 21, 2012, confirming the Amended Joint Plan of Reorganization filed by The Flintkote Company and Flintkote Mines Limited.

Headquartered in San Francisco, California, The Flintkote Company is engaged in the business of manufacturing, processing and distributing building materials. Subsidiary Flintkote Mines Limited is engaged in mining. The Flintkote Company filed for Chapter 11 protection on April 30, 2004.

In June 2007, the Debtors filed their joint plan of reorganization. The Plan documents were amended several times.

A Modified Amended Plan dated July 17, 2009, provided for a Trust to be set up to liquidate and, as appropriate, pay all eligible asbestos personal injury claims against the Debtors. Persons or entities with personal injury, wrongful death or property damage claims relating to exposure to asbestos or asbestos-containing products manufactured, distributed or sold by any of the Debtors, were entitled to vote to accept or reject the Modified Amended Plan on September 21, 2009.

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On January 7, 2011, an Order Reopening the Record on Confirmation was entered by the Court. The hearing to confirm the Amended Joint Plan of Reorganization in Respect of The Flintkote Company and Flintkote Mines Limited was held on September 12-13, 2011 and September 19, 2011. The Confirmation Hearing was subsequently deemed concluded by the Bankruptcy Court.

(B) Pittsburgh Corning

In the Chapter 11 case of Pittsburgh Corning Corporation, a telephonic-only omnibus hearing that was scheduled for January 18, 2013, was cancelled and all matters previously scheduled for that date were continued to the next omnibus hearing scheduled for February 15, 2013 at 1:00 p.m.

No deadline for filing Asbestos Claims has been established at this time.

Pittsburgh Corning has been in bankruptcy since April 2000. Between 1962 and 1972, Pittsburgh Corning manufactured pipe insulation that contained asbestos. At least 140,000 lawsuits have been filed related to the product, and the litigation pushed the company into Chapter 11 bankruptcy.

On January 29, 2009, a Modified Third Amended Plan of Reorganization was jointly proposed by Pittsburgh Corning Corporation, the Official Committee of Asbestos Creditors and the Future Claimant's Representative and supported by Pittsburgh Corning Corporation shareholders, PPG Industries, Inc. and Corning Incorporated. The Court reviewed the Plan and on June 16, 2011 issued a Memorandum Opinion stating that PCC's Modified Third Amended Plan of Reorganization was

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unconfirmable but provided the plan proponents with another opportunity to amend the Plan.

(C) Quigley

In Quigley, the U.S. Supreme Court has asked the U.S. government for its views on Pfizer Inc.'s appeal that seeks to block a series of asbestos lawsuits related to products manufactured by Quigley.

Pfizer argues that the lawsuits, filed in Pennsylvania on behalf of individuals allegedly harmed by asbestos- containing Quigley insulation products, should be barred by a bankruptcy-court injunction related to Quigley's chapter 11 proceedings. That injunction stopped plaintiffs from bringing Quigley-related asbestos claims against Pfizer while Quigley's bankruptcy case was ongoing.

Asbestos lawyer Peter Angelos, who filed the lawsuits, argued that despite the injunction, certain asbestos claims against Pfizer could proceed because they were based on legal theories not covered by the injunction. The lawsuits argued that Pfizer itself was the product manufacturer because its logo appeared on Quigley documents, advertising and products.

In April 2012, the U.S. Court of Appeals for the Second Circuit ruled that Mr. Angelos could bring the lawsuits against Pfizer. The Supreme Court, in a short written order, asked the U.S. solicitor general to file a legal brief expressing the Obama administration's views on whether the justices should hear the case.

Quigley, which Pfizer bought in 1968, at one time faced suits by more than 160,000 plaintiffs. It filed for bankruptcy in 2004._____________________________________________________________________________


Quigley filed the sixth version of its plan on June 29, 2012, and obtained Judge Stuart M. Bernstein's permission to have creditors vote on the draft plan on August 15, 2012. Under the draft plan, Pfizer would contribute assets to a trust to cover claims that Quigley’s past products caused asbestos-related injuries.

(D) W.R. Grace

Judge Judith Fitzgerald of the U.S. Bankruptcy Court for the District of Delaware approved W.R. Grace & Co. and its debtor affiliates' motion for an order authorizing a third amendment to their postpetition letter of credit facility agreement.

The agreement provides for a $100 million credit facility, which W.R. Grace used on an as-needed basis during the ordinary course of its business operations.

Under the amendment, the termination date of their letter of credit facility will be extended from March 1, 2013, to the earlier of June 30, 2014, or W.R. Grace's emergence from bankruptcy protection.

The amended agreement also requires W.R. Grace to pay an amendment fee of $200,000, which is $50,000 less than the amendment fees for the first and second amendments.

In addition to requiring payment of the facility fee, the termination date will only be extended if the cash collateral security arrangements continue to secure obligations under the total facility.

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Grace has been in Chapter 11 protection for more than 11 years since it delivered its petition to the U.S. Bankruptcy Court for the District of Delaware on April 2, 2001.

Grace projects that it could complete its reorganization by the end of this year.

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The Troubled Company Reporter provides detailed reporting about every chapter 11 filing nationwide. Stay tuned to learn more about obtaining a trial subscription to the TCR at no cost or obligation.

New Publicly Traded Securities

Psyche Maricon Castillon reports of seven companies who issued or will issue shares of new common stock upon emergence pursuant to the plans of reorganization they filed or intend to file in their Chapter 11 cases in January 2013. These are: Pinnacle Airlines, FirstFed Financial, K-V Pharmaceutical, Ampal-American Israel, Education Holdings 1, Velo Holdings, and Star Buffet.

(A) Pinnacle Airlines

Pinnacle Airlines, the Memphis, Tennessee-based regional carrier, said it will be filing a plan of reorganization where Delta will convert secured financing into the new stock, in the process making Pinnacle a wholly owned subsidiary of Delta. The plan

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calls for Pinnacle eventually to operate 81 regional jets for the larger airline. The reorganization plan must be filed by Feb. 15.

(B) FirstFed Financial

The plan of reorganization of FirstFed Financial Corp became effective on Jan 2, 2013, and the Company consummated its reorganization under the Bankruptcy Code.

Pursuant to the Plan, all equity interests in the Company that were outstanding prior to the Effective Date were automatically cancelled as of the Effective Date and the obligations of the Company with respect to those equity interests were discharged as of the Effective Date.

The Bankruptcy Court approved the Chapter 11 Plan on November 13. Holders of $157.8 million in debentures were to receive a recovery of 16.7% to 24% through distribution of new stock.

Concurrent with the effectiveness of the Plan, the Company merged with and into FirstFed Capital, Inc., a Maryland corporation.

(C) K-V Pharmaceutical

K-V Pharmaceutical Co. filed a Chapter 11 reorganization plan where first-lien lenders will receive 82% of the stock along with a $50 million second-lien term loan. A group of the lenders making a $85 million loan to finance the plan will receive 15% of the new stock.

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The report notes that the percentage recovery for the creditors is left blank in the draft disclosure materials filed along with the plan. The plan is supported by holders of 78% of the $225 million in senior secured notes, according to the disclosure statement.

According to the report, holders of $200 million in convertible notes are to have 3% of the new stock along with the ability to purchase more stock in a $20 million rights offering at a price related to full payment of the senior notes. General unsecured creditors are being offered $1 million cash to divide among themselves.

Senior and subordinated bonds have soared in price since October.

The first-lien notes last traded on Jan. 7 for 91 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The secured notes are up 138% since Oct. 9.

(D) Ampal-American

Ampal-American Israel Corporation has two competing plans of reorganization: one filed by the debtors and one filed by the official committee of unsecured creditors.

Under the Creditors Committee's Plan, distributions to holders of Allowed General Unsecured Claims will be the Pro Rata share of either (i) 100% of the Preferred Stock of the Reorganized Debtor or (ii) the Cash Payment if the Equity Buyout Option is exercised pursuant to the Plan. The Plan does not provide for any distribution to Intercompany Claims, however, the Reorganized Debtor will have the right to adjust, reinstate, cancel, _____________________________________________________________________________


extinguish, or pay such claims. Holders of Equity Interests will retain their shares of Class A Stock, now in the Reorganized Debtor; moreover, those holders will have the right to exercise the Equity Buyout Option by making a cash investment in the Debtor in the amount equal to 75% of the sum of (i) the Net Allowed General Unsecured Claims Amount and (ii) the total amount of all scheduled and filed Claims against the Debtor that have not been Allowed, in which case the holders of General Unsecured Claims, instead of receiving Preferred Stock, will instead receive their Pro Rata share of the Cash Payment.

Under the Debtor-proposed Plan, unsecured creditors would be paid by giving them all of the new preferred stock with an aggregate stated value equal to all unsecured claims. The stock would pay 5% dividends. Shareholders would retain existing common stock. Within 90 days of emergence from bankruptcy, creditors would have the option of requiring the company to purchase the preferred stock for 75% of face value. If the so-called put is elected up until the first anniversary of plan approval, the repurchase price is 65% of stated value. The company will have the right to buy the preferred stock at the same prices.

(E) Education Holdings 1

Education Holdings 1 Inc., a holding company that through one of its division, operates the oldest and one of the largest distance career schools in the world, sought bankruptcy protection and filed a prepackaged plan of reorganization. Under the plan,

-- Holders of Senior Secured Claims, Priority Claims and Second Lien Facility Claims will receive cash equal to the amount of their claims. Their recovery percentage is 100%.

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-- Holders of Senior Notes Claims are impaired. Noteholders will receive 100% of the new senior subordinated notes, new preferred stock with face value of $40 million, and 30% of the new common stock. The noteholders' recovery is 75.4%.

-- Holders of Junior Notes Claims are impaired. They will receive 70% of the new common stock. Their recovery is less than 1%.

-- Holders of General Unsecured Claims are unimpaired. They will be paid in full in cash. Their recovery is 100%.

Shareholders won't receive anything, and the existing equity interests will be cancelled.

(F) Velo Holdings

Private equity-held direct marketer Vertrue LLC and its holding company Velo Holdings LLC got the go-ahead to make their way out of bankruptcy less than a year after filing for Chapter 11 protection, with a New York bankruptcy judge approving their reorganization plan.

Though the plan will provide less than 1 percent recovery for unsecured creditors, it was supported overwhelmingly by holders of first-lien and general unsecured claims. The plan also secured the approval of the chief restructuring officer and other key executives.

The disclosure statement accompanying the plan projected a 57% to 60% recovery by first-lien lenders initially owed $386 million. Second-lien creditors owed $210 million receive nothing. Unsecured creditors owed $36 million carve up $375,000, for a _____________________________________________________________________________


1% recovery. First-lien lenders receive the new stock with an expected value ranging between $30 million and $40 million. In addition, senior creditors take home a new $80 million term loan payable in 5 years with interest at 15%.

The lenders' recovery is supplemented by $20 million that was transformed into a post-bankruptcy secured loan and $75.5 million in payments made on secured debt during bankruptcy.

(G) Star Buffet

Star Buffet Inc. and subsidiary Summit Family Restaurants Inc. implemented the reorganization plan and exited Chapter 11 on Jan. 17 under a plan approved by a bankruptcy judge in Phoenix with a Dec. 17 confirmation order.

The plan is designed to pay all claims in full over periods ranging from four to seven years and retains the company's common stock. Payments in the near term were made possible from a $300,000 secured loan from the company's chief executive who owns 45% of the stock.

The Star stock closed Jan. 22 at $2.78, up three cents a share in over-the-counter trading.

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That ends the Beard Group Corporate Restructuring Review for January 2013, 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-com-slash-free-trial.

Tune in to our next monthly Restructuring Review on March 16th. Thank you for listening.

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beard corporate restructuring review for january 2013

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