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

Introduction

Fairfield Residential, one of the nation's largest developers of apartment communities, filed for bankruptcy in the United States Bankruptcy Court for the District of Delaware on December 13, 2009.  According to an affidavit filed by Fairfield's Chief Restructuring Officer (the "Affidavit"), the company employs approximately 2,000 individuals and operates in 40 real estate markets throughout the United States.  (A copy of the Affidavit is available here).  In the months leading up to bankruptcy, Fairfield listed assets of $958 million against liabilities of $835 million.  These figures are down considerably compared to 2008 when Fairfield's assets were valued at $1.2 billion, against liabilities of $978 million.

Fairfield attributes its filing for bankruptcy to the "unprecedented collapse in the real estate and capital markets [which] have dramatically affected the Debtors."  Like with many other developers, Fairfield relies on its ability to refinance or sell investments to generate capital.  Capital markets began to tighten lending starting in the fourth quarter of 2008.  With high concentrations of properties in California, Nevada and Florida, Fairfield also experienced loss in value of their properties.  The drop in property values triggered defaults under various loans, in some cases releasing the lenders' obligations to fund payments to Fairfield.  See Affidavit, pp. 19-20.

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Introduction

The Penn Traffic Company, the Syracuse, New York based grocery retailer, filed for Bankruptcy in Delaware on November 18, 2009.  According to documents filed with the United States Bankruptcy Court for the District of Delaware,  this is Penn Traffic's third time in bankruptcy within the last ten years.  With annual revenues of $872 million, Penn Traffic is one of the largest food retailers in the Northeastern United States.  Aside from operating 79 retail stores, Penn Traffic also provides transportation, warehousing, distribution and retail support for C&S Wholesale Grocers.  (Click here to review a copy of Penn Traffic's Declaration filed in support of various bankruptcy motions). 

Events Leading to Bankruptcy

Penn Traffic lists several reasons for its most recent bankruptcy filing.  Like many debtors before it, Penn Traffic cites the "global economic downturn" as the leading cause if its financial difficulties.  Despite the fact that the company cut costs by $6.2 million last year, Penn Traffic lost over $18.3 million in 2009 and $41.7 million in 2008.  The company faces higher operational costs due to a continued decline in the number of customers that come in to its stores.  Further, these customers are spending less per individual than in years past. 

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Introduction

On November 15, 2009, Champion Enterprises filed for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  According to Champion's Declaration in Support of First Day Bankruptcy Motions (the "Declaration"),  the company's bankruptcy is the result of an overall decline in the demand for manufactured housing and tightening of credit for potential home buyers.  Based in Troy, Michigan, Champion manufacturers homes at 22 home building facilities in 13 states.  At the time it filed for bankruptcy, Champion employed 1994 employees.

The Company's Financials

Champion lost $52 million in 2008, compared to a profit of $3.9 million in 2007.  Sales dropped by 23% during this same time period.  For the second quarter of 2009, Champion's revenues dropped over 55%, down to $129.5 million compared to $289 million in the second quarter of 2008.  According to its Declaration, the company's debt structure is as follows:

1. Term loans of $45 and $59 million;
2. Letters of credit for $40 and $43 million;  and,
3. Convertible unsecured notes of $180 million.

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The Chapter 7 Trustees in the Pope & Talbot and Specialty Motors bankruptcies recently filed hundreds of complaints in the United States Bankruptcy Court for the District of Delaware.  George Miller is the Chapter 7 Trustee in the Pope & Talbot bankruptcy while Jeoffrey Burtch is the Trustee in the Specialty Motors (aka "Von Weise Inc.") bankruptcy.  Both groups of complaints seek the avoidance and recovery of alleged preferential transfers from various creditors of the debtors. 

The adversary actions filed in both Pope and Specialty Motors are before the Honorable Christopher S. Sontchi.  In prior preference actions, Judge Sontchi entered scheduling orders similar to the form scheduling order attached here.  A copy of Judge Sontchi's Chamber Procedures are attached here.

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Jason Cornell is a bankruptcy attorney at the law firm Fox Rothschild LLP in Wilmington, Delaware.  If you have questions regarding a Delaware bankruptcy proceeding,  you can reach Jason at 302 427 5512, or jcornell@foxrothschild.com.

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Introduction

Judge Kevin J. Carey, Chief Judge of the Delaware Bankruptcy Court, issued a decision recently in the S-Tran Holdings bankruptcy that addresses whether letters of credit constitute property of the bankruptcy estate.  The Court's decision in S-Tran Holdings is worth review as letters of credit are a common part of a debtor's pre and post-petition financing.  Recent decisions hold that certain components of letters of credit (such as the proceeds drawn from the letter of credit) are estate property, while other components (like the collateral pledged for the letter of credit) are not estate property.  S-Tran explains why.  (A copy of the decision in S-Tran is available here).

Background

The debtor in S-Tran sued its insurer in an effort to recover the proceeds from a letter of credit and a cash deposit, both held by the insurer.  In order for the insurer to provide coverage to S-Tran, S-Tran had to provide a $477,000 cash deposit and letters of credit totaling $3.5 million.  A week prior to S-Tran's bankruptcy filing, the debtor's insurer drew on portions of the letter of credit to pay third parties and placed the remaining proceeds from the letter of credit in a loss reserve account.  After filing for bankruptcy, S-Tran demanded the insurer return the proceeds from the letters of credit, however, the insurer refused.

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Introduction

Accuride Corporation, the Indiana-based manufacturer of heavy and medium-duty wheels, filed for bankruptcy in the United States Bankruptcy Court for the District of Delaware on October 8, 2009.  According to Accuride's Declaration in Support of First Day Motions, the company filed for bankruptcy in order to reduce its debt through confirmation of a pre-arranged restructuring plan.  Specifically, Accuride seeks approval of a plan of reorganization that (i) extends the maturity date on its loans to 2013;  (ii) cancels notes in exchange for 98% of the common stock of reorganized Accuride;  (iii) offers new senior secured notes worth $140 million; and, (iv) provides current stockholders with 2% of the stock issued for reorganized Accuride.

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Introduction

In recent months, bankruptcy auctions went forward in two different bankruptcy proceedings that illustrate the extent to which auctions can vary both procedurally and substantively. One auction involved the sale of a single asset and lasted less than an hour, while the second auction involved the sale of the debtor's entire business and lasted over the course of several days.  This post is intended to provide a brief "compare and contrast" of these two auctions in an effort to provide insight into a process that is a common component of corporate bankruptcies.

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Samsonite Corporation, one of the world's largest luggage manufacturers, filed for bankruptcy in the United States Bankruptcy Court for the District of Delaware on September 2, 2009.  According to Samsonite's Declaration in Support of First Day Motions, the company "does not anticipate that any of its customers or suppliers will be materially affected by this [bankruptcy] filing."  While this is good news for Samsonite's customers, the outcome for the company's landlords is less certain.

As stated in its Declaration, Samsonite leases 173 retail stores in 38 states.  Due to a sudden drop in consumer demand for travel products, Samsonite experienced a significant reduction in its cash flow.  As a result, the company engaged in a restructuring process that culminated in the filing of its bankruptcy petition in Delaware.  Through bankruptcy, Samsonite intends to reject up to 84 leases for those stores the company deems unprofitable. 

Landlords dealing with commercial tenants in bankruptcy face a host of issues, including administrative rent, rejection damages and adequate assurance.  A previous post on this blog titled "Ten Things Every Commercial Landlord Should Know About a Tenant in Bankruptcy" provides a good introduction to the issues that confront a landlord when a commercial tenant files for bankruptcy.  Judge Peter J. Walsh, a former Chief Judge of the Delaware Bankruptcy Court, recently issued an opinion in the Sportsman's Warehouse bankruptcy that provides a very helpful understanding of how bankruptcy courts approach claims for administrative rent and taxes that arise under a lease.  Landlords in Samsonite may find Judge Walsh's decision particularly relevant as Judge Walsh is also the judge presiding over the Samsonite bankruptcy.  

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Jason Cornell is a bankruptcy attorney with Fox Rothschild LLP in Wilmington, Delaware.  If you have questions regarding this or any other Delaware bankruptcy proceeding, you may contact Jason at 302 427-5512, or jcornell@foxrothschild.com.

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Introduction

Barzel Industries, the Massachusetts-based metal manufacturer, filed for bankruptcy on September 14, 2009, in the United States Bankruptcy Court for the District of Delaware.  One of the initial documents Barzel filed with the Bankruptcy Court is a Declaration in Support of First Day Pleadings (the "Declaration").  According to the Declaration, as of the petition date Barzel has 600 employees working at 15 different manufacturing and distribution facilities in the U.S. and Canada.

Events Leading to Bankruptcy

According to the Declaration, Barzel's bankruptcy was the result of operating losses that began in 2008 and continued in to 2009.  Barzel ties its losses directly to the "current global economic recession and credit crisis, and the resulting dramatic downturn in the automotive, transportation, manufacturing and construction industries in the United States and Canada."  These industries account for much of Barzel's business.  Barzel's problems worsened following a drop in the price of steel.  With prices and demand both down, Barzel sought to reduce expenses and improve its operations by closing 6 facilities and reducing its workforce by 350 employees.

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