Delaware Bankruptcy Litigation : Delaware Bankruptcy Lawyer & Attorney : Fox Rothschild Law Firm : Financial Restructuring & Bankruptcy Litigation

On May 8, 2012, the U.S. Bankruptcy Court for the District of Delaware (the “Court”) entered its Order (the “Order”) Establishing Procedures to Assert Claims Arising under Section 503(b)(9) of the Bankruptcy Code (“503(b)(9) Claims”) in the chapter 11 cases of AFA Investment, Inc. and its affiliated debtors (collectively, the “Debtors”) (Bankr. D. Del. 12-11127 (MFW)). While unusual, it is not an extraordinary step taken by the Court; however, the claims procedures and timing established by the Order could seriously affect certain creditors’ rights in the Debtors’ cases.  A copy of the Order is available here .

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Summary

In a straight-forward 9 page decision signed May 1, 2012, Judge Walrath of the Delaware Bankruptcy Court granted a defendant’s motion to dismiss a preference complaint, but granted the plaintiff leave to amend. Judge Walrath’s opinion is available here (the “Opinion”).  Numerous posts on this blog discuss other opinions issued by the Delaware Bankruptcy Court dealing with preference payments, as can be seen here. PREFERENCE OPINION POSTS.

Additionally, this opinion is very similar to that discussed in this prior post: Decision in Everything But Water, LLC Requires Preference Claimants to Identify Transferees Specifically in Granting Motion to Dismiss.

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Introduction

On April 23, 2012, Bicent Holdings LLC, and various related entities (collectively "Bicent" or the "Debtors") filed petitions for bankruptcy in the United States Bankruptcy Court for the District of Delaware. According to a Declaration of Bicent's CFO (the "Declaration" or "Decl."), the company's need for bankruptcy protection stems in part from the continued drop in prices for natural gas, followed by Bicent defaulting under its loan agreements.  Decl. at * 12.  This post will look in greater detail to the events that led to Bicent filing for bankruptcy.  Further, it will provide a brief summary of the company's operations, debt structure and objectives while in bankruptcy.

Operations

Bicent is a privately held Delaware limited liability company.  As a result of acquisitions that date back to 2007, Bicent currently owns and operates two electric power plants - one in Montana, and a second in California.  Bicent's Montana electricity plant is a "coal-fired facility" which,  according to Bicent, operates under a state-of-the-art control system and utilizes clean emissions systems. The company views its Montana plant as one of the cleanest burning coal-fired electricity plants in operation.  Decl. at *5. 

Whereas the Montana plant is coal-fired, Bicent's California facility is a natural gas-fired electric facility.  This facility is located approximately 70 miles east of San Francisco and began operations in 1990.  Decl. at *6.

Besides power generation, Bicent also operates a power management services company known as CEM.  Based in Colorado, CEM provides operation and maintenance, design and construction management and other related services to power production companies.  Through CEM, Bicent can build, operate and run power plants for its customers.  Decl. at *7.

Events Leading to Bankruptcy

Bicent enters bankruptcy with prepetition debt totaling approximately $383 million.  The company's debt arises under three credit agreements - a first lien credit agreement, a second lien credit agreement and a mezzanine credit agreement.  According to Bicent, when it entered the credit agreements with its lenders, the company assumed it would continue to grow and would eventually refinance the credit agreement under favorable terms.  Decl. at *12.  Due to a substantial drop in the price of natural gas, however, Bicent's assets (specifically, the company's future earnings capacity) have also dropped, making it difficult for Bicent to refinance the loan agreements.

Earlier this year, Bicent was hit with a $22 million arbitration award.  The arbitration arose from one of Bicent's contracts to build a power plant in Hobbs, New Mexico. Although Bicent is attempting to vacate the arbitration award,  Bicent views the award as a significant legal proceeding which has adversely affected its business.  Bicent estimates that it has lost in excess of $50 million due to the events underlying the arbitration.  Decl. at *13.  Most significant, however, was the fact that Bicent had to write-off certain receivables from the Hobbs project, which in turn triggered defaults under the company's loan agreements.  Decl. at *15. 

Objectives in Bankruptcy

Prior to filing for bankruptcy, Bicent and its lenders entered into a Restructuring Support Agreement.  Under this agreement, Bicent intends to seek approval of a disclosure statement within the first 55 days of its bankruptcy proceeding and confirmation of its plan of reorganization within the first 105 days following the commencement of its bankruptcy petition.  

Bicent's bankruptcy proceeding is before the Honorable Kevin Gross.  Judge Gross is the Chief Judge of the Delaware Bankruptcy Court.  Bicent is represented by the law firm Young Conaway Stargatt & Taylor.  A copy of Bicent's Declaration in support of its bankruptcy petitions is available here for review.  A copy of Bicent's bankruptcy petition is available here for review.

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Jason Cornell is a bankruptcy attorney with the law firm Fox Rothschild LLP.  Jason practices before the United States Bankruptcy Court for the District of Delaware and the United States Bankruptcy Court for the Southern District of Florida.  Should you have questions regarding a bankruptcy-related matter, you can reach Jason at 302 252 5833 or jcornell@foxrothschild.com.

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Introduction

On February 24, 2012, U.S. Capital/Fashion Mall, LLC, and its parent company, U.S. Capital Holdings, LLC (collectively, "U.S. Capital"), filed chapter 11 petitions for bankruptcy in the United States Bankruptcy Court for the Southern District of Florida.  U.S. Capital owns the Plantation Fashion Mall in Broward County, Florida.  According to the company's Chapter 11 Case Management Summary (the "Summary" or "Summ.") filed with the Bankruptcy Court, U.S. Capital owns what it describes as a "major regional retail mall and office building located at the geographic center of Broward County ..." Summ. at *2.

Events Leading to Bankruptcy

U.S. Capital and its insurers have been involved in six years of coverage litigation following damage sustained by the mall during Hurricane Wilma. The company contends that hurricane damage it sustained from Wilma caused it to lose one of its major anchor tenants.  In addition to hurricane damage, U.S. Capital was also forced to deal with fire safety issues which the company believes were left behind by the mall's previous owners.  Ultimately, the City of Plantation forced the mall to cease operations and terminate its leases.  Summ. at *2.

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Introduction

On April 1, 2012, Pinnacle Airlines Corp. ("Pinnacle") and four of its subsidiaries, filed chapter 11 petitions for bankruptcy in the United States Bankruptcy Court for the Southern District of New York.  Based in Memphis, Tennessee, Pinnacle is a regional airline carrier that provides air service to legacy carries such as Delta, United and US Airways.  According to the Declaration of Pinnacle's Chief Operating Officer (the "Declaration"), Pinnacle provides over 1,300 daily flights from cities in the United States, Canada and Mexico.  Decl. at *6. 

Pinnacle's Business Model

Pinnacle provides regional air services using a fleet of jet and turboprop aircraft.  The company uses two primary types of agreements with its larger airline customers - a capacity purchase agreement or a revenue pro-rate agreement.  With a capacity purchase agreement, Pinnacle charges the larger carriers a fixed fee for flights regardless of the number of passengers who are booked on the flight.  Under this type of agreement, the larger, "mainline" carrier pays Pinnacle's fuel, maintenance and ground costs.  Historically, the capacity purchase agreements have been profitable for Pinnacle.  Decl. at *3

Under a revenue pro-rate agreement, Pinnacle's compensation from the mainland carriers varies based on ticket sales.  Equally important, under these agreements Pinnacle is required to pay fuel and other costs.  Unlike the capacity purchase agreements, the pro-rate agreements create greater volatility in Pinnacle's costs and revenue streams.  Decl. at *3. 

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Introduction

On April 2, 2012, Solar Trust of America ("Solar Trust") filed chapter 11 petitions for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  As stated in the Declaration of Solar Trust's CEO (the "Declaration" or "Decl."), the company was started in 2005 by its corporate parent, Solar Millennium AG.  Solar Millennium started Solar Trust intending to develop solar energy utility projects in the southwestern United States.  In 2009, Solar Millennium created a joint venture company with Ferrostaal AG.  This joint venture became the holding company for Solar Trust.  Decl. at pgh. 7.

Solar Trust's Operations

As a company in the developmental phase, Solar Trust does not currently have any operational solar facilities. Instead, the company has several projects that are at different stages of development.  One of Solar Trust's projects, the "Blythe Project," is located on over 7,000 acres of public land in Riverside County, California.   Once completed, the Blythe solar power plant is expected to be one of the largest solar power plants in the world.  Decl. at pgh. 15.

Solar Trust entered into a grant of right of way with the U.S. Department of Interior, Bureau of Land Management, for the land used for the Blythe Project.  Under this right of way agreement, Solar Trust pays the federal government approximately $2.3 million in rent annually.  Solar Trust also entered into a Large Generator Interconnection Agreement ("LGIA") with various California utilities.  The LGIA will permit Solar Trust to connect to California's power distribution network.  According to Solar Trust, its energy transmission rights under the LGIA are a highly valuable asset due to proposed network upgrades related to the Blythe Project.  Decl. at pgh. 15.

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Introduction

On April 2, 2012, AFA Foods, Inc., and certain of its affiliates (collectively, "AFA"), filed petitions for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  AFA is a Delaware company with operations based out of King of Prussia, Pennsylvania.  According to a court filing of the company's CEO (the "Declaration" or "Decl."), AFA operates meat processing facilities in California, Georgia, New York, Pennsylvania and Texas.  Decl. at *3.  AFA does not purchase or raise cattle.  Instead, it purchases meat from third parties and produces various ground beef products which it sells to the fast food and retail food markets.  Id.  

AFA's Operations

AFA's revenues for 2011 totaled approximately $958 million.  Going in to bankruptcy, the company listed $219 million in assets against $197 million in liabilities.  Decl. at *4.  AFA consists of nine companies - AFA Investment, Inc.; American Foodservice Corporation; American Fresh Foods, Inc.;  American Fresh Foods, L.P.; AFA Foods, Inc.; American Fresh Foods, LLC; Fairbank Reconstruction Company; American Foodservice Investment Company, LLC; and United Food Group, LLC.  Id.  AFA Investment, Inc., serves as the parent company and is owned by Yucaipa Corporate Initiatives Fund II, LLC.  Decl. at *5. 

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Introduction

On March 26, 2012, Contract Research Solutions, Inc., and certain affiliates (collectively "Cetero"), filed chapter 11 petitions for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  In a declaration prepared by Cetero's Chief Financial Officer (the "Declaration" or "Decl."), the company stated that prior to filing for bankruptcy it had already secured bankruptcy financing, reached an agreement with certain lenders regarding a sale process and reached a "comprehensive plan support agreement" that the company believes will satisfy its administrative and priority claimants.  Decl. at *3.  This post will look at Cetero's business, why the company filed for bankruptcy and what the company's objectives are while in bankruptcy.

Cetero's Business Operations

Based in Cary, North Carolina, Cetero provides early phase clinical research through its labs in Florida, Missouri, North Dakota, Texas and Canada.  Name-brand pharmaceutical and generic drug companies hire Cetero to provide testing services which are used in new drug applications submitted by the companies to the U.S. Food and Drug Administration.  Decl. at *4.  Part of the company's services include recruiting individuals to participate in pharmaceutical testing to measure the effectiveness of a drug company's product.  In order to carry out the testing for Cetero's 200+ customers, the company maintains over 1,400 patient beds in its five testing facilities.  Decl. at *5. 

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On March 21st, Blue Springs Ford ("Blue Springs") filed a chapter 11 petition for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  Based in Blue Springs, Missouri, Blue Springs has operated as an authorized Ford dealership since 1978.  Like most dealerships, the company sells and services Ford vehicles and provides general maintenance and repair services.  See the Declaration of Blues Springs' President in Support of First Day Motions (the "Declaration" or "Decl.") at *2. 

At the time it filed for bankruptcy, Blue Springs employed 124 people and had monthly payroll expenses of approximately $557,000.  Decl. at *2.  Blue Spring operates under a financing agreement with Ford Motor Credit Company.  As of the petition date, Blue Spring had a secured debt obligation with Ford Motor Credit for approximately $7.9 million.  The company's unsecured debt obligations total $2.1 million.  Id.  Blue Spring achieved $60.8 million in net revenues in 2011. 

According to Blue Spring, its need to file for bankruptcy "is the direct result of the Debtor's involvement in pending state court litigation where the Debtor is vigorously defending itself."  Decl. at *3.  Prior to filing for bankruptcy, Blue Spring was sued in Missouri state court by a plaintiff alleging Blue Spring failed to fully disclose vehicle history regarding the sale of a used vehicle.  The state court litigation went to trial in February 2010 which resulted in a jury verdict against Blue Spring in the amount of $171,520 in actual damages and $1.75 million in punitive damages. 

Blue Spring sought unsuccessfully to have the state court judgment reduced, arguing that it was 54 times the amount of actual damages.  With remittutur unsuccessful, Blue Spring appealed.  Due to the size of the verdict, Blue Spring was unable to post bond pending the appeal.  According to Blue Spring, negotiations regarding the a resolution of the state court matter have been unsuccessful.  In order to try to protect itself from the judgment, Blue Spring filed for bankruptcy hoping to "preserve the value of its business and assets."  Decl. at *4. 

The Blue Springs bankruptcy is pending before the Honorable Mary F. Walrath.  Judge Walrath previously served as Chief Judge of the Delaware Bankruptcy Court.  Blue Springs is represented by the law firm Polsinelli Shughart P.C.

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Jason Cornell is a bankruptcy attorney with the law firm Fox Rothschild LLP.  Jason is admitted and practices before the United States Bankruptcy Court for the District of Delaware and the United States Bankruptcy Court for the Southern District of Florida. You can reach Jason at (561) 804-4415, or jcornell@foxrothschild.com.

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Introduction

On March 5, 2012, Pemco World Air Services ("Pemco"), filed chapter 11 petitions for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  According to the Declaration of Pemco's CFO (the "Declaration"), Pemco describes itself as "an industry leader in maintenance, repair and overhaul for wide and narrow body aircraft and regional jets from around the world."  Decl. at *2.  In addition to maintenance and repair, Pemco also is one of the leading providers of narrow body aircraft cargo conversions. Id. 

Pemco's Business Operations

Pemco provides its maintenance and overall services out of three service facilities located in Tampa, Florida; Dothan, Alabama; and Erlanger Kentucky.  At its service facilities, the company provides customers with scheduled and unscheduled maintenance, interior refurbishment, interior and equipment installations as well as equipment repair and upgrades.  Decl. at *3.  Going in to bankruptcy, Pemco has 877 employees, approximately 25% of which are represented by the International Association of Machinists and Aerospace Workers AFL-CIO Local 1632.  Id.

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Introduction

On Monday, Arcapita Bank BSC ("Arcapita"), a Bahraini closed joint stock company, filed chapter 11 petitions for bankruptcy in the United States Bankruptcy Court for the Southern District of New York.  As stated in the First Day Declaration of Arcapita's Executive Director (the "Declaration" or "Decl."), the company describes itself as a "leading global manager of Shari'ah-compliant alternative investments and operates as an investment bank," instead of a domestic bank licensed in the United States.  Decl. at *3.  Arcapita is based in Bahrain and operates under a wholesale banking license issued by the Central Bank of Bahrain.  Id.  This post will look briefly at Arcapita's business, why the company filed for bankruptcy as well as some of its objectives while in bankruptcy.

Business Operations

Arcapita began its business in 1996. By the time the company filed for bankruptcy, its operations had grown such that it now employs 268 people with offices in Bahrain, Atlanta, London, Hong Kong and Singapore.  The company's core business focuses on investing on its own account, as well as on behalf of third parties, in investments that are compliant with Islamic Shari'ah rules and principles.  Decl. at *3.  In addition to investing, the company also manages approximately $7 billion in assets under investment.  Id.  Arcapita lists assets valued at $3.06 billion against liabilities of $2.55 billion.  Id. 

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Summary

In an opinion issued March 16, 2012, Judge Sontchi of the Delaware Bankruptcy Court ruled that unpaid debts subject to a judicial lien are dischargeable in bankruptcy. Judge Sontchi’s opinion is available here (the “Opinion”).  The Opinion, like all those published by Judge Sontchi, walks readers through the relevant law in making its final ruling; in this case determining what liens are dischargeable pursuant to the bankruptcy code.

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In a 17 page decision entered March 9, 2012, Judge Carey of the Delaware Bankruptcy Court granted a motion for relief from the Bankruptcy Code’s automatic stay to allow an undersecured creditor to exercise its remedies against a debtor’s collateral.  A copy of Judge Carey's opinion is available here (the "Opinion").  The Opinion was issued in a case nearly identical to that discussed in this post: Dirt-for-Debt, or Just Dirt: Judge Carey's Latest Decision in All Land Investments, LLC.

The Debtor is related to that in the Dirt-for-Debt post. The creditor moving for relief from stay is the same.  The experts are the same. Judge Carey’s decision and holdings are the same. If you like the feeling of déjà vu, by all means, read the opinion referenced in the Dirt-for-Debt post and this opinion both.  If you are only going to read one, though, make it the Dirt-for-Debt opinion as Judge Carey provides more information regarding the debtors, and it makes for a better visualization of what happened.

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Summary

In a 28 page decision dated March 9, 2012, Judge Carey of the Delaware Bankruptcy Court denied confirmation of a debtor’s plan and granted the motion to lift the automatic stay filed by a creditor with a lien against a majority of the debtor’s assets.  Judge Carey’s opinion is available here (the “Opinion”).  A Dirt-for-Debt exchange is one where a debtor conveys to a secured creditor the collateral securing its loan in full satisfaction of the creditor’s claim. A more important aspect of this term, however, is that it is very catchy (it got your attention - didn’t it?) and was used by Judge Carey in the Opinion.
 

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