corporate restructuring review for february 2011

8/7/2019 Corporate Restructuring Review for February 2011

http://slidepdf.com/reader/full/corporate-restructuring-review-for-february-2011 1/31

Beard Group Corporate Restructuring Review

For February 2011

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 availableat http://bankrupt.com/restructuringreview/

____________________________________________________

Welcome to the Beard Group Corporate Restructuring Review forFebruary 2011, brought to you by the editors of the TroubledCompany Reporter and Troubled Company Prospector.

In this month's Corporate Restructuring Review, we'll discuss fivetopics:

• first, last month's largest chapter 11 filings;

• second, large chapter 11 filings Troubled Company

Reporter editors anticipate in 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 from

chapter 11 has been delayed; and

• fifth, information you're unlikely to find elsewhere aboutnew publicly traded securities being issued by chapter 11debtors.

February 2011 Mega Cases

Now, let's review the largest February 2011 chapter 11filings.

Danilo Muñoz reports that the number of companies thatfiled for Chapter 11 bankruptcy with assets of at least $100 millioncontinued to decline in the first two months of 2011.

Six companies with assets of at least $100 million filed forChapter 11 in February, slightly up compared to five in January.Yet, the figures show a continuing downward trend that saw eightmega cases commenced in December last year, and 13 in

November.

In February a year ago, seven mega cases werecommenced, and the largest was by Penton Business MediaHoldings', which had estimated assets and debts of between $500million and $1 billion. But total mega-case filings reached 105 bythe end of 2010 – an average of about nine cases per month.

Of the six mega filers last month, two companies disclosedassets in excess of $1 billion. In contrast, there was no billion-dollar filer in January.



The largest Chapter 11 case was by MSR Resort Golf

Course LLC, formerly CNL Hotels & Resorts, which filed in theU.S. Bankruptcy Court for the Southern District of New York in

Manhattan on February 1 [Lead Case No. 11-10372]. MSR listed$2.2 billion in assets and $1.9 billion in debt as of November 30,2010. MSR Resorts and its affiliates own iconic luxury resortproperties in the United States: the Grand Wailea Resort and Spa,the Arizona Biltmore Resort and Spa, the La Quinta Resort andClub and PGA West, Doral Golf Resort and Spa, and ClaremontResort and Spa.

On Jan. 28, 2011, CNL-AB LLC, a joint venture by affiliatesof Paulson & Co., and Winthrop acquired the equity interests inthe CNL portfolio through a foreclosure proceeding. Following theacquisition, five of the resorts with mortgage debt scheduled tomature Feb. 1, 2011, were sent to Chapter 11 after failing to reachan agreement on a debt extension with trusts overseeing asecuritized mortgage. A $1 billion mortgage backed by five of theformer CNL properties and $525 million of mezzanine loansmatured February 1.

The second largest bankruptcy filing was by Borders GroupInc., which listed $1.28 billion in assets and $1.29 billion inliabilities. Borders is the second largest book retailer in the U.S.As of January 29, the Debtors operated 642 stores under theBorders, Waldenbooks, Borders Express and Borders Outletnames, as well as Borders-branded airport stores.

Borders filed its chapter 11 petition in Manhattan [Lead CaseNo. 11-10614] on February 16. Lawyers at Kasowitz, Benson,Torres & Friedman LLP, in New York City, serve as bankruptcycounsel.



Bankruptcy Judge Arthur Gonzalez approved Borders'

strategic Store Reduction Program to facilitate its reorganizationand repositioning. That program called for closing about 200

underperforming stores, which is roughly 30% of its national storenetwork, and those going-out-of-business sales are on-going.

Seahawk Drilling Inc.'s bankruptcy ranked third. Theoffshore drilling company sought creditor protection on February11, in the U.S. Bankruptcy Court for the Southern District of Texas[Case No. 11-20089], listing $504 million in assets and $124million in debts as of the petition date.

Seahawk filed for bankruptcy to sell its assets to HerculesOffshore for $105 million in cash and shares. Seahawk said aChapter 11 filing is warranted to protect and preserve its goingconcern value and to facilitate a prompt sale of substantially all ofits assets for the benefit of all stakeholders. The BankruptcyCourt has set a March 15 sale hearing.

Other large bankruptcy filings in February were:

Southwest Georgia Ethanol LLC, a unit of First UnitedEthanol Co., which owns and operates an ethanol productionfacility in Mitchell County, Georgia, producing 100 million gallonsof ethanol annually. Southwest Georgia Ethanol soughtbankruptcy protection on February 1, in the Bankruptcy Court forthe Middle District of Georgia [Case No. 11-10145]. TheCompany listed $164 million in assets and $134 million inliabilities as of the Petition Date.

TerreStar Corporation – which is engaged in the mobilecommunications business through its ownership of TerreStarNetworks, its principal operating subsidiary, and TerreStar Global.TerreStar Corporation and TerreStar Holdings – followed its



affiliates and subsidiaries in bankruptcy by filing a chapter 11petition in Manhattan on February 16. TerreStar Corporationestimated its assets and liabilities at between $100 million and

$500 million as of the Petition Date. TerreStar Networks and 12other affiliates sought protection from creditors in the same courton October 19, 2010.

AES Thames LLC, which owns and operates a coal-firedpower plant in Montville, Connecticut, filed for Chapter 11bankruptcy on February 1 in the Bankruptcy Court for the Districtof Delaware [Case No. 11-10334]. The Company listedestimated assets and liabilities of $100 million to $500 million asof the Petition Date.

Notably, there were no pre-negotiated or prepackagedmega-case last month. In contrast, three of the five mega casesin January were prepacks. For fiscal year 2010, a total of 35prepackaged or pre-arranged cases were filed -- about one inevery three filings.

Three of last month's mega cases were filed in the SouthernDistrict of New York, one went to Delaware, one went to theSouthern District of Texas and one to the Middle District ofGeorgia. In January, four mega cases went to Delaware and onewent to the Northern District of Texas.

Lehman Brothers Holding Corp. remains the biggestcorporate bust in history. Lehman, which filed in 2008, had $639

billion in total assets and $613 billion in total debts at that time ofits filing.

Three-quarters of respondents in a recent AmericanBankruptcy Institute Quick Poll predict that bankruptcy filings will



increase in fiscal year 2011. A total of 53% of respondents"strongly agreed" that filings would increase, while 21%"somewhat agreed" that filings would increase.

Total bankruptcies from October 1, 2009, to September 30,2010, were nearly 1.6 million, up 14% from fiscal year 2009 with1.4 million filings, according to the Administrative Office of theU.S. Courts. Bankruptcies have increased each fiscal year since2005, when Congress overhauled the Bankruptcy Code in anattempt to reduce the number bankruptcy filings.

In addition to the chapter 11 debtors mentioned in Mr.Muñoz's report, the Troubled Company Reporter provides detailedreporting about every chapter 11 filing nationwide. Stay tuned tolearn more about obtaining a trial subscription to the TCR at nocost or obligation.

Anticipated Large Chapter 11 Filings

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

Carlo Fernandez has compiled a list of seven companieshe's convinced are nearing Chapter 11 bankruptcy:

New Stream CapitalIstar Financial

SbarroNebraska BookUnited WesternSatelites MexicanosLECG Corp.



and we'll discuss each of these five troubled situations.

(A) New Stream Capital

Management of New Stream Capital, a Connecticut-based hedgefund that once boasted firm-wide assets of $1.2 billion, hasdistributed a prepackaged joint plan of liquidation along with adisclosure statement to solicit support for a prepackaged Chapter11 filing by its unit New Stream Secured Capital Fund (U.S.) LLCthis month.

However, before the planned prepackaged bankruptcy filing,creditors filed a petition in Delaware [Bankr. D. Del. Case No. 11-10690] seeking to force the fund into involuntary bankruptcy,saying the fund owes $320 million to U.S. and Cayman creditors.The petitioning investors are collectively owed over $90 million,representing roughly 28% of the approximately $320 million owedto all U.S. and Cayman investors.

The U.S. and Cayman investors claim they were misled with acostly 2009 "Restructuring Plan" that was a failure from theinception because -- despite New Stream's misrepresentationsthat over 90% of investors had approved -- the largest investorand the most significant assets were excluded from its scope.

Toptani Law Offices, Mazzeo Song & Bradham LLP and Stevens& Lee, represent the investor group opposing the pre-packaged

bankruptcy plan.

Joseph H. Huston, Jr., Esq., at the law firm of Stevens & Lee, inWilmington, Delaware, said in court papers that New Stream andits management, and the principal beneficiaries of purported



senior liens, are seeking to obtain releases for their improprietiesthrough the prepackaged plan.

(B) iStar Financial

iStar Financial provides custom-tailored investment capital tohigh-end private and corporate owners of real estate, includingsenior and mezzanine real estate debt, senior and mezzaninecorporate capital, as well as corporate net lease financing andequity.

iStar Financial reported a net loss of $58 million on $137 million ofrevenue for the three months ended December 31, 2010,compared to a net loss of $153 million on $168 million of revenuein 2009.

The Company's balance sheet at December 31 showed $9.17billion in assets, $7.48 billion in liabilities and $1.69 billion inequity.

iStar Financial in February engaged J.P. Morgan to arrange up to$3 billion in new senior secured credit facilities. The Companysaid the failure to consummate the new credit facilities oralternative financing could materially adversely affect theCompany and its ability to continue as a going concern. The WallStreet Journal's A.D. Pruitt said the deal, if successful, wouldenable iStar to refinance $2.2 billion in debt maturing in June, amajor step in shoring up its balance sheet. The Journal noted

iStar went through a restructuring in 2009 and was considered abankruptcy risk a year ago.

Standard & Poor's said last month that as iStar enters the secondquarter, it remains vulnerable to another downturn in the



commercial real estate markets if the moderate improvement inmarket funding for commercial real estate assets reverses. In thelonger term, management envisions returning to a balance sheet

with low leverage and unsecured funding for its CRE assets.Mending the firm's portfolio, however, will likely take an extendedperiod.

(C) Sbarro

Sbarro on March 3 entered into a Third Forbearance Agreementwith the Company's lenders under its first lien credit agreement.The Company remains in discussions with its various creditorgroups and other stakeholders regarding long-term solutions to itscapital structure.

The Third Forbearance Agreement provides that the holders ofSbarro's first lien debt will continue to temporarily forbear for anadditional 30 days from exercising certain rights and remediesunder the First Lien Credit Agreement. In light of its currentliquidity and capital resources, Sbarro did not make a $7.8 million

interest payment due February 1 to the holders of its senior notes.That would have been an event of default under the First LienCredit Agreement.

The lenders chose to extend the forbearance period to April 2.

The Bank of New York serves as trustee under the Indenture forthe senior notes.

The Company's outstanding obligations under the Indenture as ofFebruary 1, including accrued but unpaid interest, are $158million.



Melville, New York-based Sbarro is the world's leading Italianquick service restaurant concept and the largest shopping mall-focused restaurant concept in the world. The Company has 1,056

restaurants in 41 countries.

The Company's balance sheet at September 30, 2010, showed$455 million in assets, $439 million in liabilities, and andstockholder's equity of $16 million.

The Wall Street Journal reported that Sbarro has hired the lawfirm of Kirkland & Ellis to advise it on restructuring its balancesheet. Sbarro has also hired investment bank Rothschild Inc. forrestructuring advice.

(D) Nebraska Book

NBC Acquisition Corp. and its Nebraska Book operatingsubsidiary have hired legal and financial advisers to help inrestructuring debt and preparing for a Chapter 11 filing ifnecessary, Bloomberg News reported, citing people familiar with

the talks.

If there is a distressed exchange or a Chapter 11 filing, GoldmanSachs Group Inc. and Cerberus Capital Management LP couldend up in control after purchasing debt at discount, those peoplesaid, according to Bloomberg.

Headquartered in Lincoln, Nebraska, Nebraska Book Company

operates on-campus and off-campus college bookstores.Revenues in the last 12-month period ending December 31, 2010,were roughly $608 million.



The Company reported a $16.3 million net loss for the quarterended Dec. 31 on net revenue of $69.2 million. The operatingloss was $13.3 million.

NBC Acquisition carries a 'Caa1' corporate family rating and'Caa2' probability of default rating, with a developing outlook, fromMoody's Investors Service.

In February 2011, Moody's said the downgrade from 'Caa1' to'Caa2' reflects the heightened default risk for the company, whichcould include a transaction that Moody's would deem a distressedexchange, as NBC faces significant near term debt maturities.Substantially all debt of Nebraska Book Company (the operatingentity) matures before March 15, 2012. And because othersecurities will mature during 2011, Moody's believes the companymust implement a comprehensive refinancing of its capitalstructure over the next six to nine months. Moody's said thedeveloping outlook reflects the uncertainty around NBC's ability toexecute a refinancing plan in the very near term.

(E) United Western

United Western Bancorp said it was surprised in January that itsbanking subsidiary was seized by regulators, and says theseizure could force it into bankruptcy.

In February, United Western sued the Office of Thrift Supervision,the Acting Director of the OTS and the Federal Deposit Insurance

Corporation in the United States District Court for the District ofColumbia, arguing that none of the grounds cited by the ActingDirector of the OTS existed at the time of the Bank's seizure.

On Jan. 21, 2011, the Acting Director of the OTS, in cooperation



with the FDIC, seized the Bank and appointed the FDIC receiverbased on three alleged grounds:

(i) the Bank was undercapitalized and failed to submit anacceptable capital restoration plan within the timeprescribed by statute;

(ii) the Bank was likely to be unable to pay its obligationsor meet its depositors' demands in the normal course ofbusiness; and

(iii) the Bank was in an unsafe or unsound condition totransact business.

United Western chairman Guy A. Gibson called the seizure orderappointing the FDIC as receiver, “arbitrary and capricious” andsaid it lacked any rational basis in applicable law.

The Company's complaint refutes the allegations made by theFDIC and the OTS, and importantly, among other facts, cites the

Bank's capital position provided no basis to accelerate thestandard 45-day time frame for filing a capital restoration plan.On Dec. 3, 2010, the OTS directed the Bank to take a capitalwrite-down with the intent of lowering the Bank's capital ratio asmuch as necessary in order to create the illusion that the Bankwas not adequately capitalized. The result of this directive was tolower the Bank's total risk-based capital ratio to 7.8% (which isonly 0.2% below the 8.0% ratio required to be considered

adequately capitalized). But for the OTS's arbitrary andcapricious directive, the Bank would have remained within thetechnical definition of adequately capitalized and not been subjectto the requirement that it submit a CRP.



Denver, Colorado-based United Western Bancorp is a holdingcompany whose principal subsidiary, United Western Bank, is acommunity bank focused on Colorado's Front Range market and

selected mountain communities. As of September 30, 2010,United Western Bank had around $2.05 billion in total assets and$1.65 billion in total deposits.

First-Citizens Bank & Trust Company did not pay the FDIC apremium for the deposits of United Western Bank. In addition toassuming all of the deposits of the failed bank, First-Citizens Bank& Trust Company agreed to purchase essentially all of the assets

(F) SatMex

Satelites Mexicanos [S.A. de C.V.] announced in January that ithad reached an agreement with the holders of more than two-thirds of the outstanding principal amount of its Second PrioritySenior Secured Notes due 2013 regarding a comprehensiverecapitalization to be effected through a prepackaged plan of

reorganization to be filed in the United States Bankruptcy Courtfor the District of Delaware.

The Company said early this month has been advised that certainof the holders of its First Priority Senior Secured Notes due 2011have retained Michael Sage, Esq., at the law firm of Dechert LLPand a March 2 organizational meeting was scheduled to discussthe company's and noteholders' next steps.

The Company said that under the terms of its proposed Plan,holders of the First Priority Senior Secured Notes will be paid outin cash at par plus accrued interest without premium or penalty.To the extent not paid pursuant to a bankruptcy court order



authorizing the use of cash collateral or otherwise, the accruedand unpaid fees and expenses of the indenture trustee and thecollateral trustee related to the First Priority Senior Secured Notes

(including the accrued and unpaid fees and expenses of theircounsel and the counsel to the ad hoc committee of holders of theFirst Priority Senior Secured Notes) will be paid in full in cash onthe effective date of the Plan.

Satmex has also entered into a commitment letter with JefferiesFinance providing for $325 million of committed senior securedexit financing, which may be used, along with the proceeds of thepreviously-announced $96 million fully-backstopped rights offeringof equity securities to holders of Second Priority Senior SecuredNotes, to, among other things, repay the First Priority SeniorSecured Notes and fund the timely completion of Satmex 8, asatellite scheduled to be launched in 2012 to replace theCompany's Satmex 5 satellite.

Satmex is a Mexico-based satellite service provider. Satmex'sfleet offers hemispheric and regional coverage throughout the

Americas.

Satmex balance sheet a June 30, 2010, showed US$438 millionin assets, US$516 million in liabilities, and a US$78 millionshareholders' deficit.

Satmex had a net loss of US$6.12 million on US$53 million ofrevenue for the six months ended June 30, 2010, compared with

a net loss of US$8.81 million on US$50 million of revenue for thesix-month period ended June 30, 2009.

Satmex has a 'C' issuer rating and 'Ca' long term corporate familyrating, with negative outlook, from Moody's Investors Service.



(G) LECG

LECG Corporation and LECG Partners LLP transferred certainassets of their U.S. tax, consulting and business advisory, andassurance practices of its Consulting and Governance businesssegment to Grant Thornton LLP. In conjunction with thistransaction, approximately 33 managing directors of LECG, andsubstantially all of the client-serving employees and administrativestaff serving under these managing directors, became employeesof Grant Thornton. As consideration, Grant Thornton paid LECG$6.3 million, which included $175,000 per managing director thatjoined Grant Thornton.

LECG expects to sell account receivables and work-in-progressattributed to the practices to Grant Thornton and to sell its U.K.-based consulting and business advisory practice to GrantThornton or Grant Thornton’s U.K. member firm. Whenconsummated, these transactions will represent the divestiture byLECG of a substantial part of its Consulting and Governance

segment.

This transaction does not cover LECG’s other Europeanpractices, which include economics consulting, forensicaccounting services and tax services.

On February 28, LECG entered into a Tenth Amendment andLimited Duration Waiver to the 2007 Credit Agreement arranged

by the Bank of Montreal. The Administrative Agent and theLenders, for a limited period and subject to certain conditions,waived the LECG Entities' failure to be in compliance with certainrepresentations and warranties and financial and non-financialcovenants under the facility. The LECG Entities have agreed to



continue to pursue the sale of assets and business lines to raisethe funds needed to repay the LECG Entities' obligations to theLenders by the end of March 2011. The LECG Entities must

operate their business in accordance with an agreed upon cashbudget through the end of March 2011. They must also repaydebts by at least $15 million from net cash proceeds by March 15.

LECG reported total assets of $248 million, $126 million in totalliabilities, $26 million in convertible redeemable preferred stock,and $95 million in stockholders' equity at September 30.

* * *

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 experiencingfinancial distress or restructuring their balance sheets in a judicialproceeding. Stay tuned to learn more about obtaining a trialsubscription to the TCR at no cost or obligation.

Major Pending Disputes In Chapter 11 Cases

Next we'll quickly review major pending disputes in four largechapter 11 cases that Troubled Company Reporter editorsmonitor day-by-day.

(A) Lehman Brothers

Ivy Magdadaro identified two major disputes in the LehmanBrothers bankruptcy. The disputes involve litigation the Companyinitiated against deep-pocket defendants Barclays Capital Inc.



and JPMorgan Chase in an effort to recover billions of dollars forLehman creditors.

(1) Lehman-Barclays Dispute

Ms. Magdadaro reports that Lehman Brothers lost in itsattempt to recover an alleged $11 billion "windfall" related toBarclays's acquisition of Lehman's brokerage unit, as BankruptcyJudge James Peck in the Southern District of New York ruled onFebruary 22 that the transaction was fair.

Barclays acquired the Lehman unit in September 2008,shortly after Lehman filed for bankruptcy. U.S. regulatorsrecommended the quick approval of the sale and thus, thetransaction was completed in a week. Barclays was the solebidder for Lehman's assets. In November 2009, Lehman filed alawsuit alleging that the sale involved an exchange of assetsworth $50 billion to $52 billion, but only got $45 billion for it.Barclays filed a countersuit claiming some $3 billion in certainassets.

In his ruling, Judge Peck said, "the sale process may havebeen imperfect, but it was still adequate under the exceptionalcircumstances of Lehman Week."

The Barclays transaction, the Court held, provided themeans for the most favorable disposition of the assets with theleast amount of risk. Judge Peck said the lapses in disclosure at

the 2008 sale hearing did not affect the fairness or alter theoutcome of the hearing, and are not characterized as willfulmisconduct.



In effect, Judge Peck rejected Lehman's claims that Barclays

received an undeserved windfall from the 2008 sale. The Courtalso held that Barclays stands to get at least $800 million of the

$3 billion sought in its countersuit.

Barclays has been in dispute with James Giddens, thetrustee of the Lehman brokerage business, over $2.3 billion ofclearance box assets, $769 million in customer reserve accounts,and $4 billion in margin assets. Mr. Giddens is winding downLehman's brokerage business under the authority of theSecurities Investor Protection Corp.

Judge Peck said Barclays is entitled to the remainingclearance box assets, but it must forgo the margin assets andmight get securities in the reserve accounts if there isn't a deficitfor customers.

The Court's ruling upholds the right of the Lehman estates tosome $4.8 billion, which will remain available for customers.

The trial for the Lehman-Barclays lawsuit ran its course fromApril to November of last year.

Lehman's case is the biggest corporate bankruptcy filed sofar in U.S. history.

(2) Lehman-JPMorgan Dispute

Lehman Brothers is also involved in an $8.6 billion lawsuitagainst JPMorgan Chase for collateral and damages. JPMorganhad been Lehman's banker at the time it filed for bankruptcy andsold its brokerage unit to Barclays. Lehman seeks to recoversome $8.6 billion of collateral JPMorgan allegedly extracted from



Lehman using insider information a few days before thebankruptcy filing.

Ms. Magdadaro reports that JPMorgan filed a revisedcountersuit in mid-February in Manhattan bankruptcy court, wherethe suit is pending, saying Barclays and Lehman called certainLehman assets "toxic waste" and "goat poo" and knowinglyexcluded those assets from their sale agreement, but misledJPMorgan into taking those bad assets. JPMorgan cited e-mailsfrom Lehman employees in making its allegations.

JPMorgan said Lehman left it with $25 billion in unpaid loanssecured by undesirable assets like those left out of the Barclayssale.

The revised lawsuit also reflected an allegation of "fraudulentinducement to lend," saying that when JPMorgan made Lehman a$70 billion intraday loan on the day Lehman filed for bankruptcy,Lehman knew that JPMorgan would not be able to recover anyclaims through the collateral.

Lehman filed its suit against JPMorgan in May. JPMorganfiled the original countersuit in December, in response toLehman's accusations. The parties have filed motions to dismissthe others' claims.

(B) Tribune Corp.

Ms. Magdadaro reports that the major dispute over the $13billion leveraged buy-out of Tribune in 2007 is expected to beamong the issues taken up at a 2-week hearing beforeBankruptcy Judge Kevin Carey on Tribune's restructuring plansthat started earlier this month.



Tribune creditors formally filed lawsuit over the LBO in

November, naming lenders JPMorgan Chase and Merrill Lynch

Capital Corporation, Tribune executive Sam Zell and otherdirectors and officers. The suit seeks to recover not less than$178 million. The creditors have agreed to stay prosecution ofthe suit while the Company is putting full effort on its ongoing planapproval process.

Disputes over the LBO have placed holders of about $2.5billion in Tribune debt from before the LBO against lenders owedmore than $10 billion for funding the buy-out.

Judge Carey is being asked to choose between tworeorganization proposals for Tribune. Judge Carey has said hemight reject both proposals.

The competing plans both aim to distribute $6.75 billion innew stock and other consideration to creditors, but they differ ontheir position about claims related to the 2007 buy-out.

The first competing plan is backed by Tribune Co. Thecompany's plan is sponsored by JPMorgan, along with hedgefunds Angelo Gordon and Oaktree Capital Management, inexchange for immunity from potential lawsuits creditors mightcommence over the lenders' role in funding the LBO transaction.In return for releases, the lenders agree to allocate $400 million toTribune creditors.

The other competing plan is backed by Aurelius CapitalManagement, one of Tribune's largest bondholders. The Aureliusplan seeks the formation of a litigation trust so that the Buy-Out



Lenders led by JPMorgan may be sued for extending loans toTribune and thereby causing Tribune to become insolvent.

Aurelius has said in court papers that a lender lawsuit couldrecover more than $1.57 billion for Tribune creditors. Aureliusfurther predicts a 57% chance of victory in the potential lenderlawsuit.

Tribune is the second largest newspaper publisher in theU.S. It filed for bankruptcy in December 2008.

(C) Washington Mutual

Washington Mutual Inc. will seek approval of additionaldisclosure materials on March 21 and seek confirmation on May 2of the reorganization plan modified to comply with Judge MaryWalrath's January 7 opinion.

The sixth amended version of WaMu's plan, which was filedwith the Court on February 8, still contemplates the distribution of

funds to holders of allowed claims of more than $7 billion,including the $4 billion of previously disputed funds on depositwith JPMorgan Chase Bank. The Modified Plan is still premisedon a global settlement of lawsuits involving WaMu, JPMorgan andthe Federal Deposit Insurance Corporation. WaMu sued theFDIC and JPMorgan for over $12 billion after WaMu's bankingunit was seized and sold in 2008 for $1.88 billion. The deadlineto approval of the settlement has also been extended through the

end of April.

Judge Walrath rejected the prior version of the plan inJanuary, saying the third-party releases under the plan were toobroad and inappropriate.



In the new plan, in accordance with Judge Walrath's

directive, all creditors are given the option both to vote for or

against the plan and to opt out of releases being given to thirdparties. In her opinion in January, Judge Walrath said it was fairfor a creditor to forfeit a distribution under the plan in return for theability to sue third parties.

This recent development means WaMu won't hit its goal ofexiting bankruptcy by the end of the first quarter.

(D) TOUSA

A group of TOUSA Inc.'s lenders, led by Citicorp NorthAmerica, won an appeal from a bankruptcy court ruling thatrequired them to turn over more than $400 million to thecompany's creditors.

In a February 11 ruling, Judge Alan Gold of the U.S. DistrictCourt for the Southern District of Florida criticized Bankruptcy

Judge John Olson for making "legally and factually"unsupportable conclusions.

In October 2009, Bankruptcy Judge Olson ruled that thepayment to lenders, which came from a $500 million loan TOUSAobtained in July 2007, were fraudulent transfers made while thecompany was insolvent.

TOUSA made the payment to the lenders in light of its roleas guarantor of a joint venture loan obtained by its subsidiary forthe purchase of Transeastern Properties in 2005. The JointVenture defaulted on its obligation and TOUSA had to enter into arefinancing pact to settle those obligations.



According to Judge Gold, the payment to the lenders was

not a fraudulent transfer but rather payment for an outstanding

debt by the party that owed it.

Judge Gold also rejected the bankruptcy judge's finding thatthe transfer at issue was made using any subsidiary's property.He said evidence showed that the subsidiaries did not receive theproceeds of the 2007 loan and had no power to distribute it.

Judge Gold also disagreed that the subsidiaries did notobtain value in the form of imminent default and bankruptcy. Hemaintained that 2007 settlement with the Lenders constitutedindirect value to the subsidiaries because it allowed their parent toavoid imminent default under the 2005 loans.

* * *

The Troubled Company Reporter provides detailed reportingabout every chapter 11 filing nationwide. Stay tuned to learn more

about obtaining a trial subscription to the TCR at no cost orobligation.

Delayed Exits From Chapter 11

Julie Anne Lopez reports about four Chapter 11 debtorswhose emergence from bankruptcy has been delayed:

Tribune Co.W.R. Grace [& Co.]Lehman BrothersWashington Mutual



(A) Tribune

Ms. Lopez reports that the two-week confirmation hearing inTribune's Chapter 11 case began earlier this month. Thecompany and Aurelius Capital fired their opening shots andpresented the Court with two rival plans.

The first plan is a restructuring plan favored by seniorcreditors, the Company and many unsecured creditors based ona settlement of legal claims surrounding the company's 2007leveraged buyout. The plan would essentially shift the company’sdebt, and assets, into the hands of JPMorgan Chase and otherlenders.

The other plan, backed by Aurelius Capital Management, isa competing plan offered by junior bondholders that would openthe case up to massive litigation in which each creditor wouldhave a chance to seek its own recovery in the courts. This planwould take a more aggressive stance toward getting funds from

those who pushed Tribune’ s leveraged buyout -- namely its chiefexecutive Sam Zell.

After hearing opening statement from both sides, JudgeCarey warned he might reject both plans. The judge's warning isseen as an attempt to push both sides to negotiate a settlementthat could finally end the two-year bankruptcy case, but therewere no immediate signs of compromise.

David Kurtz, a managing director of Lazard, testified that aproposed legal settlement underpinning Tribune's Chapter 11 planis a reasonable solution to allow the publisher to emerge frombankruptcy. Mr. Kurtz was the first witness in the two-week trial.



(B) W.R. Grace

In W.R. Grace, several parties took an appeal from JudgeFitzgerald's order confirming the company's Joint Plan ofReorganization.

The Official Committee of Unsecured Creditors, a group oflenders under the Prepetition Bank Credit Facilities, and GarlockSealing Technologies filed the appeals.

The State of Montana, Her Majesty the Queen in Right ofCanada, and BNSF Railway Company have also asked the Courtto reconsider its January 31 Confirmation Order.

To address motions seeking a clarification of her January 31ruling, Judge Fitzgerald added a statement to her decisionemphasizing that she is recommending that the District Courtenter an order issuing and affirming the Confirmation Order.

Grace's Joint Plan is now before the United States DistrictCourt for the District of Delaware for a final stamp of approval.This is a necessary step before Grace may exit Chapter 11.

Grace will mark its tenth year in bankruptcy on April 2.

(C) Lehman Brothers

Ms. Lopez reports that certain Lehman noteholders haveopposed the approval of a rival restructuring plan proposed by anad hoc group of creditors led by Paulson & Co. in mid-December.The noteholders contend that the treatment of Class 5subordinated noteholders under the rival plan is unfair and will



breach contractual obligations to Class 3 senior noteholders.They also question whether The Bank of New York Mellon --which acts as the subordinated noteholders' indenture trustee -- is

adequately representing them and whether that representation isbeing done in good faith.

Lehman amended its plan in January to offer bondholdersmore money after some creditors didn't support the Company'sprevious proposals. Under the amended plan, creditors that holdsenior unsecured claims against Lehman recover 21.4% of theirclaims, up from 17.4% in the original plan. The Company'sgeneral unsecured creditors recover 19.8% of their claims, upfrom 14.7%. Creditors of Lehman's subsidiaries also see betterrecoveries. The Company’s amended plan received the supportof the Official Committee of Unsecured Creditors.

Lehman's lawyer, Harvey Miller, Esq., at Weil Gotshal saidthe Company plans to end its bankruptcy case this year aftercreditors vote on its liquidation proposals.

Lehman, which filed the biggest bankruptcy in U.S. history,has said many illiquid assets may take years to sell to paycreditors after the Chapter 11 plan is approved. Lehman hasbeen in bankruptcy since September 15, 2008.

(D) Washington Mutual

Washington Mutual filed a new reorganization plan and a

new settlement agreement in early February. Judge Walrathrejected an earlier version of the plan in January and gave WaMua list of things to change.



The Company said the new plan and the new settlement had

been altered to comply with Judge Walrath’s ruling. It dropped itsplan to sell stock in the only piece of the company that will exit

bankruptcy -- a reinsurance company that would be co-owned bythe hedge fund creditors.

WaMu says the amended plan will satisfy the lingeringconcerns of the court, and a new hearing is scheduled to reviewthe new plan on March 21.

The plan is centered around resolving disputes related to theFDIC's sale of the company to JPMorgan in 2008.

WaMu has been in bankruptcy since September 2008.

New Publicly Traded Securities

Moving on, Psyche Maricon Castillon reports about fivecompanies who issued or will issue shares of new common stock

upon emergence pursuant to the plans of reorganization they filedin their Chapter 11 cases.

(A) Javo Beverage

Javo Beverage, a California-based manufacturer of coffeeand tea-based dispensed beverages, drink mixes and flavorsystems, filed for bankruptcy on Jan. 24. It filed a plan of

reorganization a little less than a month after, on Feb. 15.

The Company's Plan provides for the issuance of newshares of common stock upon emergence. Under the Plan, in full



satisfaction of the claims of certain creditor classes, the new stockwill be distributed as follows:

* Holders of DIP financing claims aggregating $3 millionwill receive roughly 28% of the new stock.

* Holders of 5.8 million in senior notes will receiveroughly 53% of the stock of the reorganized Debtor.

* Holders of $23.7 million in subordinated notes willreceive roughly 19% of the new stock.

The Bankruptcy Court for the District of Delaware willconvene a hearing on March 16 to consider adequacy of theDisclosure Statement explaining Javo's Plan. If the disclosuredocument gets the bankruptcy court's stamp of approval, thecompany's plan will be sent to creditors for a vote.

(B) RHI Entertainment

Judge Martin Glenn of the Bankruptcy Court for the SouthernDistrict of New York adjourned to March 29 the hearing toconsider confirmation of the plan of reorganization filed by RHIEntertainment to allow more discussions with the Company'sprincipal lenders.

RHI, a New-York based developer, producer and distributorof made-for-television movies, mini-series and other television

programming worldwide, filed a prepackaged Chapter 11 case inDecember. The plan had been accepted by all of the second-liendebt and 94% of the first-lien obligations.



Under the Plan, the Debtor will enter into new term loans

and issue new common stock and warrants. The existing publicequity will be cancelled. The Plan provides that on the effective

date:

(1) holders of the Debtors' first lien debt will receive (i) $300million of new term loan obligations and (ii) roughly 99% of thenew common stock (subject to dilution), and

(2) holders of the Debtors' second lien debt will receive (i)roughly 1% of the new common stock (subject to dilution), (ii) newwarrants representing 15% ownership of the new common stockon a fully diluted basis, and (iii) a limited fee and expensereimbursement of up to $250,000.

(C) Chesapeake Corp.

A bankruptcy judge in Richmond, Virginia, will convene ahearing on March 29 to consider confirmation of the plan ofreorganization filed by Chesapeake Corp., the former paperboard

and plastic packaging manufacturer now named Canal Corp.

The Company will issue shares of new common stock uponemergence. Under the Plan, general unsecured creditors with$200 million in claims are projected to recover about 4/10ths of1% of the amount they're owed. Holders of $50 million in revenuebonds will receive 2.28 cents on the dollar for their claims, andholders of $250 million in subordinated notes get nothing.

(D) Oriental Trading

Oriental Trading, the U.S.'s largest direct merchant of value-priced party supplies, arts and crafts, toys and novelties, and a



leading provider of school supplies and affordable home decorand giftware, exited Chapter 11 on February 14 after a six-monthstay.

The Company filed a prepackaged Chapter 11 case inAugust after reaching agreement on the terms of a pre-arrangedplan of reorganization with a substantial majority in principalamount of the Company's first lien lenders. Under the plan, theCompany reduced its funded debt by more than 70% to $200million.

OTC Holdings Corp., the holding entity, reached a settlementwith first- and second-lien lenders in December. Originally,second-lien lenders were to get only warrants for 2.5% of thestock with a strike price based on an enterprise value of $427.5million of the Company. They will instead get five-year warrantsfor 5% of the stock in the reorganized company based on a $422million enterprise value. They will also receive five-year warrantsfor 4.5% based on a $447 million enterprise value.

The plan gives the stock in the reorganized debtor plus cashor a new $200 million second-lien note to senior lenders owed$403 million. As the result of another settlement with thecreditor's committee, first-lien lenders are providing $1.1 millionfor unsecured creditors with $6.8 million in claims.

(E) Tronox

Tronox, a chemicals company, emerged from bankruptcy onFebruary 14 after a two-year stay. Pursuant to its Amended JointPlan of Reorganization, which was confirmed in November,Tronox will use a combination of debt and new money equityinvestments to meet its working capital needs and fund



distributions required by the Plan, which will include (a) totalfunded first lien debt of no more than $470 million and (b) theproceeds of a $185 million rights offering open to substantially all

unsecured creditors and backstopped by certain holders ofTronox's prepetition unsecured notes. Holders of generalunsecured claims will receive their pro rata share of 50.9% of thecommon equity of reorganized Tronox, and received theopportunity to participate in the Rights Offering for an aggregateof up to 45.5% of the common equity of reorganized Tronox.Equityholders in Tronox Incorporated will receive a package ofwarrants, consisting of two tranches, to purchase their pro ratashare of a combined total of 7.5% of the common equity ofreorganized Tronox.

* * *

That ends the Beard Group Corporate Restructuring Review forFebruary 2011, brought to you by the editors of the TroubledCompany 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 NancyFrasier or Charlie Covell at (240) 629-3300 or visithttp://bankrupt.com/freetrial/ and we'll add you to the distributionlist.

That telephone number, again, is (240) 629-3300 and that Website address, one more time, is http://bankrupt.com/freetrial/.

Tune in to our next Restructuring Review on April 16th. Thankyou for listening.

corporate restructuring review for february 2011

Documents