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

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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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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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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Introduction

Less than two years after its formation, credit card processor, Cynergy Data, filed for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  According to Cynergy's Declaration in Support of Chapter 11 Petitions and First Day Motions,  the company processes over $10 billion in credit payments over a twelve month period.  Cynergy's card volume is the result of transactions with over 80,000 merchants.

Cynergy filed for bankruptcy in order to receive bankruptcy court approval of the sale of substantially all of its assets to the ComVest Group under section 363 of the United States Bankruptcy Code.  Cynergy and ComVest entered into an asset purchase agreement following an auction process wherein Cynergy contacted over 48 different parties that might have an interest in purchasing its assets.  In response to its marketing efforts, 24 parties executed confidentiality agreements allowing them to review Cynergy's books and records in order to submit a bid.  Three final offers were submitted and ComVest and Cynergy executed an asset purchase agreement on August 26, 2009.

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 Introduction

Freedom Communications Holdings, the Orange County, California newspaper publisher, filed for bankruptcy in the United States Bankruptcy Court for the District of Delaware on September 1, 2009.  (You can review a copy of Freedom's Petition for Bankruptcy here.)  According to the Declaration of Freedom's Chief Financial Officer, the company's decision to file for bankruptcy was based on several factors, most notably the continual decline of advertising revenues in the newspaper industry and increased competition in web-based advertising. 

In September of 2008, Freedom defaulted under is prepetition credit agreement with its lenders.  Although the lenders agreed to several loan amendments, Freedom eventually realized that an out-of-court workout would not resolve its financial problems.  Besides declining ad revenue, Freedom's finances were further weakened by the settlement of a class action brought by various newspaper carriers.  Pursuant to the terms of the class action settlement, Freedom was obligated to pay over $28 million into an escrow account to fund the settlement.  The terms of the settlement agreement provided that the class action settlement would not become final until September 14, 2009.  By filing for bankruptcy before September 14th, Freedom contends that the "settlement funds have become property of the chapter 11 estate and, therefore, are subject to immediate return to the [company]."  (More information regarding the reasons behind Freedom's decision to file for bankruptcy are available in Freedom's Declaration in Support of Chapter 11 Petitions and First Day Pleadings)

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Introduction

Proliance International ("Proliance" or "Debtor"), an automotive heating and cooling parts manufacturer, filed for bankruptcy in the United States Bankruptcy Court for the District of Delaware on July 12, 2009.  The Debtor is represented by Jones Day of New York.  This bankruptcy proceeding is before the Honorable Christopher S. Sontchi of the Delaware Bankruptcy Court.  A review of the docket shows that the Court recently entered several of the Debtor's "first day motions" including a motion allowing the Debtor to honor certain pre-bankruptcy obligations and customer programs.  The United States Trustee has scheduled a meeting of creditors for August 14, 2009 at 4:00 p.m. (click here to read a prior post on section 341 meeting of creditors). 

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Introduction

With over $1.1 billion in debt, Cooper-Standard Automotive filed for bankruptcy on August 3, 2009 in the United States Bankruptcy Court for the District of Delaware.  Based in Novi, Michigan, Cooper labels itself  "a leading global manufacturer of fluid handling, body sealing, and noise, vibration and harshness control components ... for use in passenger vehicles."  (See Cooper's Declaration in Support of Chapter 11 Petitions). 

Like with many of the "mega" bankruptcy cases filed in Delaware, Cooper filed several "first day" motions contemporaneous with filing its bankruptcy petition (you can read Cooper's Voluntary Petition for Bankruptcy here). Through its first day motions, Cooper seeks authority from the Bankruptcy Court to allow it to incur $200 million in bankruptcy financing.  In order to insure continued operations at Cooper's seventy-eight manufacturing and design centers worldwide, Cooper also filed a motion seeking authority to pay employee wage and benefit obligations.  Certain vendors of Cooper will benefit from the company's motion to pay the pre-bankruptcy claims of vendors, shippers and other suppliers.

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Introduction

ProtoStar Ltd. ("ProtoStar"), a satellite operator that provides television and internet access throughout Asia, filed for bankruptcy in the United States Bankruptcy Court for the District of Delaware on June 29, 2009.  As reflected in ProtoStar's Declaration in Support of First Day Bankruptcy Motions, the company's satellites provide "direct-to-home" satellite television and internet connectivity to billions of users throughout India, Indonesia, Taiwan, the Philippines and Southeast Asia.  Starting in 2008, ProtoStar launched two satellites into orbit  - the PS I and PS II Satellites. 

Events Leading to Bankruptcy

The ProtoStar I satellite originally provided satellite services to Agrani Satellite Services Limited ("Agrani").  According to ProtoStar's Declaration, on April 1, 2009, Agrani sent a notice to ProtoStar claiming to terminate the parties' Satellite Capacity Agreement originally entered by the parties in November of 2007.  Two days later, ProtoStar received a termination notice from the Intersputnik International Organization of Space Communications ("Intersputnik"),  the organization that provided ProtoStar with its orbital rights pursuant to a sponsorship from the Republic of Belarus.  Like the Agrani termination notice, ProtoStar challenges the validity of the Intersputnik termination notice. 

On April 17, 2009, two weeks after receiving the termination notice from Intersputnik, ProtoStar received a notice of default from the agent for one of its prepetition lenders.  During this same time period, the company failed to make interest payments due on its secured notes.

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Introduction

CCS Medical Holdings ("CCS" or the "Debtor"), the parent of Chronic Care Solutions, KeyMed, TotalCare Wholesale, and other diabetes and chronic care suppliers, filed for bankruptcy on July 8, 2009.  CCS filed its bankruptcy petition in the United States Bankruptcy Court for the District of Delaware.  According to CCS's Declaration in Support of its First Day Pleadings (the "Declaration"),  CCS provides testing and insulin pump supplies to diabetes patients.  Besides diabetes equipment and supplies, CCS also sells urology, wound and respiratory care equipment. 

Going into bankruptcy, CCS has 1,600 employees, most of whom work in CCS's call centers addressing the needs of the Debtor's 400,000 patient-customers.  CCS's operations include patient enrollment, patient support, shipping and billing.  Based in Clearwater, Florida, CCS operates distribution centers in Florida, Virgnia, California, Colorado, Georgia and Texas.  Besides its distribution centers, CCS operates 37 offices in 17 states. 

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Introduction

Metromedia International Group, Inc. ("MIG" or "Debtor"), filed for bankruptcy on June 18, 2009 in the United States Bankruptcy Court for the District of Delaware.  According to the Declaration in Support of MIG's Chapter 11 Petition (the "Declaration"), MIG filed for bankruptcy due to entry of a judgment in an action commenced by various MIG preferred shareholders (the "Shareholder Action").  On June 5, 2009, the Court of Chancery of the State of Delaware entered a judgment against MIG for $188 million. 

The Shareholder Action was the result of shareholders seeking an appraisal of MIG's assets following a merger between MIG and CaucusCom.  MIG contends that the judgment entered in the Shareholder Action is "substantially overstated," causing MIG to appeal to the Delaware Supreme Court.  Despite filing the appeal, MIG was unable to stop the shareholders in the Shareholder Action from executing on the Delaware judgment.  By filing for bankruptcy, MIG was able to stay the execution of the Shareholder Action through the automatic stay under section 362 of the Bankruptcy Code.

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 Introduction

On May 17, 2009 (the "Petition Date"),  Pacific Ethanol filed for bankruptcy in the United States Bankruptcy Court of the District of Delaware.  According to Pacific Ethanol's Declaration in Support of First Day Pleadings (the "Declaration"), the company owns and operates four ethanol plants with combined production capacity of 200 million gallons of ethanol per year. Two of the company's plants are located in California (Stockton and Madera), one in Burley, Idaho and one in Boardman, Oregon. As stated in the Declaration, only the Oregon facility is operating as of the Petition Date.

Each of the company's four facilities operate as a separate LLC. All four, however, are parties to a marketing agreement with Kinergy Marketing LLC, granting Kinergy the exclusive right to buy and sell each plant's ethanol. Each of the four Pacific Ethanol facilities buy their corn used in ethanol production from Pacific Ag. Products, LLC.

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Introduction

Eddie Bauer, the Washington-based retailer, filed for bankruptcy on June 16, 2009, approximately four years after the company emerged from the Spiegel bankruptcy.  What started as one store opened by Eddie Bauer in 1920, grew to a clothing retailer with over 500 stores and catalogs reaching over 100 million customers.   During its history, the company was owned by General Mills in 1971, and then Spiegel in 1985.  As stated in its Declaration in Support of its First Day Motions (the "Declaration"),  Eddie Bauer was spun-off from Spiegel under Spiegel's Plan of Reorganization in May of 2005. 

The Company's Financials

According to Eddie Bauer's Voluntary Bankruptcy Petition (the "Petition"), the company has assets worth approximately $476 million against debts of $426 million.  The Petition lists the following companies as its ten largest unsecured trade creditors:

1. RR Donnelley Receivables ... $855,526
2. Expeditor's International ... $700,000
3. Boom ... $464,976
4. Midland Paper ... $299,469.97
5. Vipdesk Connect Inc. ... $250,000
6. Fry, Inc. ... $225,000
7. Stageplan Inc. ... $217,807
8. Newgistics ... $200,000
9. Scheiner Commercial ... $178,572
10. Epsilon ... $150,000

The company generates approximately half of its sales revenue ($444 million in 2008), from retail sales, a quarter from outlet store sales ($253 million), and a quarter from direct sales ($274 million).  Combined, net merchandise sales in 2008 reached $971 million.  Add in royalties and various joint ventures, and Eddie Bauer's total revenues for 2008 reached $1.02 billion. 

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Introduction

Hayes Lemmerz, one of the world's largest wheel manufacturers, filed for bankruptcy in the United States Bankruptcy Court for the District of Delaware on May 11, 2009.  This is Hayes second time in to bankruptcy within the last ten years.  The company previously filed for bankruptcy in Delaware in 2001.  According to its Declaration in Support of First Day Pleadings (the "Declaration"), Hayes Lemmerz's first bankruptcy was due to excessive debt, poorly integrated acquisitions and underperforming facilities.  Eight years later, Hayes is in bankruptcy again, however, this time the company claims its bankruptcy is "the result of economic forces beyond Hayes' control and [is] necessary to implement a balance sheet restructuring."   

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Introduction

On June 12, 2009, MagnaChip Semiconductor ("MagnaChip"), filed a Chapter 11 Petition for Bankruptcy in the United States Bankruptcy Court for the District of Delaware.  As reflected in MagnaChip's Declaration in Support of First Day Motions (the "Declaration"), MagnaChip manufactures and sells analog and mixed-signal semiconductor products for consumer electronics.  MagnaChip's conductors are used in products ranging from computer notebooks to cell phones and flat screen televisions.

This post will look at MagnaChip's business, including its revenue, debt and assets.  Further, the post will provide a brief explanation as to why MagnaChip filed for bankruptcy and what it hopes to accomplish while in bankruptcy. 

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Introduction

Anchor Blue Retail Group ("Anchor Blue"), the California-based clothing retailer, filed for Bankruptcy in the United States Bankruptcy Court for the District of Delaware on May 27, 2009 (the "Petition Date").  According to its Declaration in Support of First Day Motions (the "Declaration"),  the company has over 2,800 employees and annual sales in 2008 of $370 million.  Anchor Blue operates two different retail formats:  the Anchor Blue stores and Levi's and Dockers outlet stores. 

Objectives in Bankruptcy

In the months leading up to bankruptcy,  Anchor Blue sought to sell all of its assets as a going concern.  The Company's efforts resulted in it entering into two separate asset purchase agreements.  In addition to the asset purchase agreements, Anchor Blue also entered into a debtor-in-possession financing agreement that provides financing for its bankruptcy proceeding while the company seeks to sell assets under section 363 of the Bankruptcy Code. 

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 Introduction

R.H. Donnelly Corporation ("Donnelly" or the "Debtor"), the Cary, North Carolina publisher of phone directories, filed for bankruptcy in the United States Bankruptcy Court for the District of Delaware on May 28, 2009.  According to its Declaration in Support of First Day Motions (the "Declaration"), the Debtor operates "Dex Net," a business database containing information on over 600,000 businesses in 28 states.  Besides its on line services, the Debtor publishes directories in over 600 different markets reaching over 75 million users.

Debtors' Financials

By the end of 2008, Donnelly's assets were valued at $11.9 billion.  Its revenues for 2008 reached $2.62 billion.  As stated in its Declaration, Donnelly derived 15% of its revenue in 2008 from the sale of advertising to national and regional companies that purchase ad space in multiple directories.  As a result of the weakening economy, many of these larger ad purchasers cut back on their advertising, creating a negative effect on Donnelly's revenue.

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Introduction

Visteon Corporation  filed for bankruptcy in the United States Bankruptcy Court for the District of Delaware on May 28, 2009.  According to Visteon's Declaration in Support of First Day Motions (the "Declaration"), Visteon is one of the largest suppliers of automotive components to original equipment manufacturers ("OEM") worldwide.  With manufacturing and engineering facilities in 27 countries, Visteon's sales reached $9.54 billion in 2008. 

Ford's Role in Visteon's Bankruptcy

In 2000, Visteon spun-off from Ford Motor Company after decades as a parts division of Ford.  By 2006, Visteon began a two year restructuring of its business that would result in Visteon reducing its workforce by 15,000 employees.  During its pre-bankruptcy restructuring,  Visteon was able to close or sell-off over 30 of its facilities, saving hundreds of millions of dollars in engineering and administrative costs.

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Introduction

White Energy, Inc. ""White Energy" or the "Debtor"), one of the largest ethanol and gluten producers in the United States, filed for bankruptcy in the United States Bankruptcy for the District of Delaware on May 7, 2009.  According to its Declaration in Support of First Day Motions (the "Declaration"), White Energy generated over $500 million in revenue in 2008.  Based in Dallas, Texas,  White Energy operates three ethanol production facilities in Kansas and Texas. 

White Energy produces both ethanol and gluten (an ingredient used by food producers) at its Russell, Kansas facility.  As stated in its Declaration, the Debtor processes wheat to make gluten.  White Energy uses starch, a byproduct from gluten production, in its ethanol production. By doing so, White Energy is able to reduce its overall costs to produce ethanol.

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Introduction

Norwood Promotional Products, one of the leading suppliers of imprinted promotional products, filed for bankruptcy in the United States Bankruptcy Court for the District of Delaware on May 5, 2009.  According to Norwood's Declaration in Support of its Bankruptcy Motions (the "Declaration"), Norwood's bankruptcy was the result of weakening demand for its products, an inability to meet debt obligations, increased production costs and flooding at one of its manufacturing facilities.  Based in Indianapolis, Indiana,  Norwood employs over 2,200 employees and has assets of $150 million against liabilities of $205 million.  In 2007, Norwood's annual revenue reached $325 million.

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Introduction

Accredited Home Lenders ("AHL"),  the San Diego-based mortgage lender, filed for bankruptcy in the United States Bankruptcy Court for the District of Delaware on May 1, 2009.  According to AHL's Declaration in Support of Bankruptcy Motions (the "Declaration"),  during its 19 years in business, AHL grew to "one of the nation's premier mortgage banking institutions,"  with over 2,500 employees and annual residential loan origination as high as $2 billion.  

At the height of the real estate bubble, the majority of AHL's revenue came from the origination of subprime residential loans.  Once the U.S. real estate market began to decline,  AHL began experiencing significant borrower defaults, which in turn reduced its liquidity.  According to its Declaration, by August of 2007 AHL stopped originating new loans and laid off over half of its employees. 

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Introduction

Filene's Basement, the "value-price" clothing retailer with stores throughout the United States, filed for bankruptcy on May 4, 2009 in Delaware.  According to its Affidavit in Support of First Day Motions (the "Affidavit"),  Filene's Basement began 90 years ago as one of the first "off-price" stores where retailers and manufacturers could sell merchandise at substantially reduced prices.  By the mid-1990s, Filene's operated 56 stores across the United States.  By the time it filed for bankruptcy, Filene's was operating only 26 stores and looking to sell off assets. 

Debtor's Financials

Filene's fiscal year ended January 31, 2009.  According to its Affidavit, Filene's annual sales reached $422 million against operating losses of $53 million.  Going int to bankruptcy, Filene owes over $16 million under a revolving loan agreement and $52 million under unsecured subordinated promissory notes.  Filene estimates that it owes trade creditors approximately $30 million and has accrued expenses of $35 million.

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Introduction

On April 27, 2009, Source Interlink and 17 of its affiliates (the "Debtors") filed chapter 11 bankruptcy petitions in the United States Bankruptcy Court for the District of Delaware.  As reflected in its bankruptcy petitions, Debtors have assets totaling $2.4 billion against debts of $2.0 billion.  According to Debtors' Declaration in Support of First Day Motions,  Debtors began in 1995 as "The Source Company" and by 1998 Debtors became a "leader of direct magazine distribution, an information repository and the preeminent front-end checkout management provider for major retail chains by acquiring ten magazine retail display companies." 

Based in Bonita Springs, Florida,  Debtors import and export over 1,500 different publications. Since its formation in 1995, Debtors rapidly expanded their operations by merging or acquiring various entities.  In  February 2005, Debtors merged with Alliance Entertainment Corp., a distributor of home entertainment products.  Three months later, Debtors acquired Chas Levy Circulating Co., a magazine wholesaler.  Less than one year after acquiring Chas Levy, Debtors purchased magazine and book distribution markets in the Washington D.C. metropolitan and Southern California areas.  By August 2007, Debtors purchased Primedia, owner of publications such as Motor Trend, Automobile, Surfer and Soap Opera Digest. 

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Introduction

AbitibiBowater ("AbitibiBowater" or "Debtor"), one of the largest newsprint producers in the world, filed for bankruptcy in the United States Bankruptcy Court for the District of Delaware on April 16, 2009.  According to AbitibiBowater's bankruptcy petition, the Debtor has assets totaling $9.9 billion.  Based in Montreal, Quebec, AbitibiBowater owns 24 pulp and paper facilities and 30 wood products facilities in the United States, Canada, the United Kingdom and South Korea.  As stated in its Declaration in Support of Bankruptcy Motions (the "Declaration"), AbitibiBowater employs over 15,000 people worldwide.

Events Leading to Bankruptcy

According to its Declaration, demand for AbitibiBowater's newsprint experienced an "unprecedented decline" due to the recent downturn in the global economy.  Besides weak demand for its print products, AbitibiBowater's business was negatively affected by increased competition, volatility in paper prices and a continued decline in the advertising industry.  Add to this high debt levels and a lack of liquidity and bankruptcy became the only viable option for this Debtor.  

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Introduction

Aventine Renewable Energy ("Aventine"), one of the country's largest ethanol producers, filed for bankruptcy in the United States Bankruptcy Court for the District of Delaware on April 7, 2009.  In the ethanol production process, corn is broken down either through a dry mill or wet mill process.  Both processes produce ethanol and create by-products that are used in the animal feed industry.  Ninety percent of Aventine's revenue comes from the sale of ethanol, while 10% of its revenue come from the sale of ethanol by-products formed in the milling process. 

Aventine's Business

According to Aventine's Declaration in Support of Bankruptcy Petitions, Aventine operates two ethanol production facilities - one in Pekin, Illinois and one in Aurora, Nebraska.  Combined, the two facilities produce over 200 million gallons of ethanol each year.  In 2007, Aventine sought to expand its business by adding two more ethanol plants.  By the time Aventine filed for bankruptcy, construction of one of the new facilities was delayed and the builder for the second facility terminated the contract due to Aventine's failure to make payment.

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Introduction

Sportsman's Warehouse, the Utah-based sporting retailer, filed for bankruptcy in Delaware on March 21, 2009.  Sportsman's Warehouse filed for bankruptcy along with its wholly-owned subsidiaries (collectively, the "Debtors").  At the time they filed bankruptcy, Debtors employed over 3,200 employees in their stores, headquarters and distribution centers.  According to Debtors' Declaration in Support of First Day Motions (the "Declaration"),  Debtors' assets in 2008 totaled $436 million, against liabilities of $452 million.  Further, revenues reached $741 million in 2008, yet Debtors incurred operating losses of $25 million.

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 Introduction

Indalex Holdings Finance ("Indalex"), the second largest aluminum extruder in the United States, filed for bankruptcy in Delaware on March 20, 2009.  As is common in the aluminum industry, Indalex products are made-to-order for its customers.  According to pleadings filed in Indalex's bankruptcy, its products are used in several different markets including transportation, construction, electric and consumer equipment.  Read Indalex's Declaration in Support of its First Day Motions (the "Declaration") here.

Indalex's Financials

Indalex lists its prepetition secured debt at $305 million.  Two weeks prior to filing for bankruptcy,  Indalex entered into a forbearance agreement with its lenders due to various loan defaults.  The forbearance agreement was necessary as Indalex was unable to make interest payments on its term loans that came due on February 27, 2009.  In exchange for entering into the loan forbearance, Indalex agreed to provide its lenders with weekly cash flows, retain a financial adviser and produce a restructuring plan. 

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Introduction

Chicago media giant, Sun-Times Media Group ("Sun-Times" or "Debtors"), filed chapter 11 bankruptcy petitions in the Delaware Bankruptcy Court on March 31, 2009.  In initial pleadings filed with the Bankruptcy Court,  Sun-Times states that it is in a "unique position" for a newspaper company in bankruptcy in that it filed bankruptcy "without any outstanding funded debt."  Unlike other media companies in bankruptcy, Sun-Times claims to have a "significant pool of unencumbered assets."  Click here to read Sun-Times' Declaration in Support of First Day Motions (hereinafter, the "Declaration"). 

Debtors' Businesses

Sun-Times is the parent company for over 100 newspapers, websites and other news media in the Chicago area.  Besides publishing and distributing the Chicago Sun-Times, Debtors own Pioneer Press Group which publishes 39 weekly papers in the Chicago suburbs, the SouthtownStar, the Post-Tribune in Indiana, the Beacon News in Aurora, Illinois and the Napersville Sun in Napersville, Illinois.  On weekdays, the Chicago-Sun Times' circulation exceeds 319,000 copies, while Debtors' suburban daily and weekly papers reach 217,000 copies. 

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Introduction

On March 22, 2009, Metal components manufacturer Morton Industrial Group ("Morton" or "Debtors") filed for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  The company began in 1963 as Mortan Metalcraft Co. in Morton, Illinois.  By the time it filed for bankruptcy, Mortan grew to become one of the largest manufacturers of metal components used in backhoes, excavators, tractors, wheel loaders, power generators, turf care equipment and other industrial equipment.  (Read Morton's Affidavit in Support of First Day Motions here).

At the time it filed for bankruptcy, Morton employed 993 employees.  The Debtors operate five manufacturing facilities:  two in Illinois, two in North Carolina and one in Pennsylvania.  Morton's plants in Illinois generate over two-thirds of the company's revenues.  In 2008, Morton's total revenues exceeded $200 million. 

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Introduction

The Fairchild Corporation ("Fairchild" or the "Debtor"), filed for bankruptcy in Delaware on March 18, 2009.  Fairchild's bankruptcy proceeding is before the Honorable Christopher S. Sontchi of the United States Bankruptcy Court for the District of Delaware.  According to its press release, Fairchild operates in three markets:  aerospace, real estate and motor cycle apparel.  In the aerospace industry, Fairchild distributes parts and equipment to companies servicing aircraft.  Fairchild's business also includes managing and developing commercial real estate.  Finally,  with its apparel business, Fairchild designs and produces motorcycle apparel for companies such as Harley Davidson and PoloExpress.  (Read Fairchild's Affidavit in Support of Bankruptcy Motions here.)

The DIP Financing Motion and Relief From the Automatic Stay

One of Fairchild's "first day" motions seeks debtor-in-possession ("DIP") financing, refinancing of prepetition debt and modification of  the automatic stay (the "DIP Motion").  As stated in the DIP Motion,  Fairchild's prepetition debt totals $19 million and Fairchild seeks to refinance its debt with a postpetition revolving credit facility up to $23 million (the "DIP Facility").  Under the DIP Facility, PNC, as postpetition lender, would receive a "priming lien" that is senior or equal to previously encumbered property.  Fairchild seeks the priming lien for the DIP Facility pursuant to 11 U.S.C. 364(d)(1)(authorizing a bankruptcy court to approve DIP financing secured by an equal or superior lien on property of the estate already subject to a lien, provided the holder of the primed lien receives adequate protection). 

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Introduction

Masonite Corporation,  one of the world's largest door manufacturers, filed for bankruptcy in the United States Bankruptcy Court for the District of Delaware on March 16, 2009.  Masonite manufactures interior and exterior doors, door components and insulated glass inserts.  Its products are sold in over 70 countries under two brands:  Masonite and Premdor.

Events Leading to Bankruptcy

The steep decline in housing and construction was a leading cause of Masonite's drop in revenue.  In 2006, Masonite sold 55 million doors, however, that number dropped to 36 million by 2008.  In addition to the slowdown in residential construction, Masonite's troubles worsened when Home Depot, one of its largest customers (accounting for 11% of Masonite's revenue), stopped purchasing from Masonite and began purchasing from a competitor. 

Despite the drop in sales, revenue for 2008 reached $1.82 billion, 65% of which came from operations in the United States and Canada. Masonite's drop in revenue (when compared to 2006 and 2007) made it difficult for the company to meet its debt obligations. According to its Declaration in Support of First Day Motions (the "Bankruptcy Declaration"), Masonite's debt totaled $2.2 billion at the time it filed for bankruptcy.

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Introduction

Monaco Coach Corporation,  the Oregon-based RV manufacturer,  filed for bankruptcy in the United States Bankruptcy Court for the District of Delaware on March 5, 2009.  Three days after filing for Bankruptcy,  Monaco filed a motion seeking approval of a dealer incentive program (the "Dealer Motion").  The Bankruptcy Court approved Monaco's Dealer Motion on March 10, 2009.  In addition to the dealer incentive program, the Dealer Motion also authorizes Monaco to pay various prepetition obligations to dealers. 

A Look at Debtors' Business

Monaco is one of the largest U.S. producers of recreational vehicles ("RVs").  One month prior to filing for bankruptcy, Monaco employed approximately 2,250 employees.  Since filing for bankruptcy, Monaco reduced its payroll to 220 employees.  Monaco operates manufacturing facilities in Oregon and Indiana and distributes its RVs through 700 dealers in North America.  Sales reached $1.32 billion in 2006 and $1.29 billion in 2007.  However, by November 30, 2008, Monaco's sales dropped to $690 million. 

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Introduction

Magna Entertainment Corp. ("Magna"), one of the largest owner/operators of horse racetracks in the United States, filed for bankruptcy in the United States Bankruptcy Court for the District of Delaware on March 5, 2009.  As reflected in the Affidavit in Support of Magna's First Day Motions,  besides operating racetracks, Magna provides simulcast "live racing content to the inter-track, off-track betting and account-wagering markets."  Magna also owns horse boarding and training centers. 

Magna's racetracks include:

• Santa Anita Park
• Gulfstream Park
• Thistledown
• Remington Park
• Golden Gate Fields
• Portland Meadows
• Lone Star Park at Grand Prairie
• Pimlico
• Laural Park
• Magna Racino
• The Meadows

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Introduction

Pacific Energy Resources Ltd ("Debtors"), a group of oil and gas producers that develop resources in the Western United States, filed chapter 11 petitions for bankruptcy on March 8, 2009.  Debtors filed their bankruptcy petitions in the United States Bankruptcy Court for the District of Delaware. As stated in the Affidavit in Support of First Day Motions, Debtors own oil and gas reserves located offshore of California and Alaska.  In 2008, Debtors' revenue exceeded $226 million.  Despite strong revenue, the drop in oil prices towards the end of 2008 required Debtors to enter into forbearance agreements with its lenders.  By mid-February, the lenders declared Debtors in default and three weeks later, Debtors filed for bankruptcy.

Debtors' Postpetition Financing

Under Debtors' Motion to Approve DIP Financing,  Debtors seek up to $40 million in debtor-in-possession financing (the "DIP Facility").  The DIP Facility refunds prepetition loans totaling $142 million and grants superpriority liens to J. Aron & Company and Silver Point Finance, Debtors' collateral agents.  According to their Motion,  Debtors are unable to rely solely on cash collateral to fund the bankruptcy.  Without the DIP Facility, Debtors contend they would lack the liquidity necessary to reorganize.

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Introduction

On March 1, 2009,  Spansion, Inc., ("Spansion"), a manufacturer of semiconductors used to provide "flash memory," filed for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  According to its Affidavit in Support of First Day Motions (the "Affidavit"),  Spansion's chapter 11 bankruptcy includes Spansion Inc., Spansion LLC, Spansion Technology LLC, Spansion International, Inc. and Cerium Laboratories LLC.  Read Spansion's bankruptcy petition here.

Spansion's Business

Spansion describes its flash memory semiconductors as a "critical component in a broad range of electronic products including mobile phones, consumer electronics, automotive electronics, networking and telecommunications equipment, data center services, personal computers and PC peripheral applicatons."  Between 2006 and 2007, Spansion obtained 12 percent market share in the flash memory market.  By 2008, its market share grew to 14 percent. 

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Introduction

Qimonda Richmond, LLC ("Debtors"), the U.S. subsidiary of Qimonda AG, filed for bankruptcy in the United States Bankruptcy Court for the District of Delaware on February 20, 2009.  According to Debtors' Affidavit in Support of its Bankruptcy Motions (the "Affidavit"),  Qimonda AG is one of the largest producers of semiconductor "memory products" with operations in Europe, Asia and North America.  Qimonda AG specializes in the production of "dynamic random acess memory" ("DRAM") memory products with end users such as HP, Dell, IBM and Sony.  Debtors' U.S. operations are located in North Carolina, Virginia, California and Texas. 

Why Qimonda Filed For Bankruptcy

Beginning in March of 2007, the market price for Qimonda AG's memory products began to drop due to decreased demand.  As more and more DRAM products came onto the market,  prices continued to fall.  According to Debtors' Affidavit, DRAM prices dropped 85% in 2007 and 58% in 2008.  In an effort to restructure its business, Qimonda AG closed its Vermont operations in June 2008.  In October, Qimonda AG let go over 1,000 employees at its Richmond facility.  Two months later Qimonda was notified by the New York Stock Exchange that it was not in compliance with the NYSE's listing standards as its market capitalization fell below $100 million.  Qimonda AG began insolvency proceedings in Germany on January 23, 2009 and this bankruptcy proceeding soon followed.

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Introduction

Ritz Camera, the largest specialty camera retailer in the U.S., filed a chapter 11 bankruptcy petition in the United States Bankruptcy Court for the District of Delaware on February 22, 2009.  Besides operating 800 photo stores, Ritz Camera also operates 130 boating stores under the name "Boater's World Marine Centers."  Read Ritz's Affidavit in Support of Bankruptcy Motions here.

In 2001, Ritz acquired substantially all of the assets of Wolf Camera while Wolf  was in bankruptcy.  While the Boater's World stores remained profitable through 2007, Ritz's photo finishing business became far less profitable as consumers switched from film to digital photography.   The recession that emerged in 2008 only worsened an already challenging economic climate for Ritz.  By January 2009, Ritz's lenders began reducing its available credit and bankruptcy became the only viable option. 

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Introduction

Foamex International Inc. ("Foamex" or "Debtors"), located in Media, Pennsylvania, filed for bankruptcy in the United States Bankruptcy Court for the District of Delaware on February 18, 2009.  Foamex is one of the largest manufacturers of polyurethane and polymer foam products. (Read Foamex's Declaration in Support of First Day Motions here).  Foamex generated $980 million in revenue for the four quarters ending in September 2008.  Foamex operates facilities in the United States, Canada, Mexico and China and manufactures goods that fall into four categories:  technical products, foam products, automotive products and carpet cushion products.

The Critical Vendor Motion

One of the first motions Foamex filed in its bankruptcy was a Motion to Honor Prepetition Obligations with Critical Vendors (the "Critical Vendor Motion").  Pursuant to the Critical Vendor Motion,  Foamex sought an Order from the Court allowing it to pay prepetition obligations to critical vendors up to $29 million.  Foamex sought to pay the prepetition invoices for those vendors that agree to deal with it during bankruptcy under "normal trade terms." 

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Introduction

On February 19, 2009, W L Homes, also known as John Laing Homes, filed for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  According to their Affidavit in Support of  First Day Bankruptcy Motions,  Debtors sold over 1,300 homes in 2007, generating revenues of $948 million.  With the crash of housing market, Debtors' home sales dropped to approximately 560 homes in 2008, with revenue declining to $287 million. 

Prior to filing for bankruptcy, Debtors had over 100 development projects underway ranging from entry level condos to multimillion dollar homes.  Through bankruptcy, Debtors plan to exit their "non-core regions" and move forward with more successful developments in the southern California region. 

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 Introduction

Pliant Corporation,  the Chicago manufacturer of plastic shipping materials, filed for bankruptcy in the Delaware Bankruptcy Court on February 11, 2009.  This is Pliant's second time in bankruptcy, having confirmed a plan of reorganization from its first bankruptcy in June of 2006.  On the same day that Pliant filed its 2009 bankruptcy petition, it filed its prepackaged plan of reorganization and disclosure statement.  The same factors that contributed to Pliant's first bankruptcy (high commodity prices, lack of liquidity and growing debt) contributed to Pliant's need to file the pre-packaged bankruptcy presently before the Bankruptcy Court.

Hours after Pliant filed for bankruptcy,  an ad hoc committee of second lien noteholders filed an Objection to Pliant's Motion for Interim Financing.  The ad hoc committee objected to Pliant's proposed DIP loan claiming it was "inappropriate, overreaching, violates the Intercreditor Agreement, is not representative of the best financing available to the Debtors and is not in the best interests of the Debtors' estates."  This post focuses on some of the issues raised by Pliant's Motion for Interim Financing and the ad hoc committee's Objection.  Doing so provides a useful look at the Bankruptcy Code's requirements for postpetition financing.

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Autobacs Strauss, the after-market auto parts and auto service provider, filed a chapter 11 bankruptcy petition in the Delaware Bankruptcy Court on February 4, 2009.  As reflected in Autobacs' declaration in support of its bankruptcy motions,  Autobacs operates 86 retail stores and has approximately 1,450 employees.  At the beginning of 2009, it listed assets valued at $75 million and liabilities of $72 million.

Autobacs is a subsidiary of Autobacs Seven, a Japanese auto parts retailer.  Autobacs Seven formed the Debtor in March of 2007 through the purchase of bankrupt auto parts suppliers R&S Parts and 1945 Route 23 Associates.  Autobacs Seven invested substantial assets in the Debtor in order to renovate stores and expand product lines.  Although Debtor's expansion allowed it to increase sales, it was never able to generate a profit. 

Autobac's objectives in bankruptcy include closing poor performing stores and focusing more on auto services.  This proceeding is before the Honorable Christopher S. Sontchi.

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Introduction

On January 14, 2009,  Nortel Networks Inc. filed for bankruptcy in United States Bankruptcy Court for the District of Delaware.  On the same day that Nortel filed in Delaware,  its parent, Nortel Networks Corporation, along with various Canadian affiliates, filed an application with the Ontario Superior Court of Justice seeking relief from creditors.  As stated in Nortel's affidavit in support of its bankruptcy motions,  Nortel traces its origins back to the Bell Telephone Company of Canada.  In 2000, during the height of the telecommunications bubble, Nortel had 93,000 employees and annual revenue of $250 billion. 

Since the telecommunications bust, Nortel implemented several restructurings, reducing its payroll from 93,000 employees to 30,000 employees in 2008.  To reduce itself to one third of its original size, Nortel began outsourcing its manufacturing, spinning off "non-core" business and consolidating various departments, including research and development.  Despite its restructuring efforts, Nortel has been unable to keep costs below revenue for the last couple of years, which in turn led to its filing for bankruptcy. 

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Introduction

Smurfit-Stone Container Corp. ("Smurfit"), the $7.5 billion paper-based packaging manufacturer, filed for bankruptcy in the Delaware Bankruptcy Court on Monday, January 26, 2009.  Smurfit is one of the world's largest manufacturers of container board and corrugated containers used to ship, store and display products.  According to Smurfit's Affidavit in support of its bankruptcy motions,  Smurfit's bankruptcy was the result of an "unprecedented decline in demand" for the company's products,  as well as a drop in prices due to increased competition and volatility in the pulp and paper industry.  Further, recent changes in the capital markets reduced the company's prospects for refinancing its debt outside of bankruptcy. 

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Introduction

Broadstripe, LLC, the St. Louis-based cable, phone and internet provider, filed for bankruptcy in Delaware on January 2, 2009.  Broadstripe was formerly known as Millennium Digital Media Capital, LLC and began in 1998 as a cable operator.  During its first two years in business, Broadstripe acquired cable companies in Maryland, Washington, Oregon and Michigan.  By the time it filed for bankruptcy, Broadstripe grew to provide media services to approximately 300,000 homes. 

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Introduction

Flying J Inc.,  the oil refiner and retailer, and one of the largest privately held companies in the United States,  filed for bankruptcy on December 22, 2008.  Flying J, and some of its related entities (the "Debtors"), filed their chapter 11 petition for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  The bankruptcy proceeding is before the Honorable Mary F. Walrath, former Chief Judge of the Delaware Bankruptcy Court.

According to the Debtors' Declaration in Support of First Day Pleadings,  Debtors began in 1968 with four retail gas stations and by 2007 grew to a "fully integrated oil company" with sales exceeding $16 billion. Debtors operate over 200 "travel plazas" on highways in 41 states.  The Debtors' plazas combine retail stores with restaurants, motels and tractor trailer service centers.  Debtors also offer banking, wireless Internet services and insurance.

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Introduction

PPI Holdings, Inc., an industrial parts manufacturer, filed for bankruptcy in Delaware on December 12, 2008.  As stated in the Declaration in Support of PPI's First Day Motions,  PPI designs and manufactures metal stamping in a process known as "fineblanking."  In addition to the automotive market, PPI's products are used in the construction, agriculture and lawn and garden industries.  Based in Rochester Hills, Michigan, PPI operates six manufacturing facilities in North America.  Read the PPI petition for bankruptcy here.

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Introduction

EZ Lube, LLC, the Santa Ana, California based quick lube operator, filed for chapter 11 bankruptcy protection on December 9, 2008 in the United States Bankruptcy Court for the District of Delaware.  Read the EZ Lube bankruptcy petition here.  According to EZ Lube's Affidavit in Support of First Day Motions,  the Debtor operates 82 retail locations, the majority of which are located in Southern California.  EZ Lube began with one store in 1988 and implemented a business model whereby it opened new stores on leased property and acquired leasehold interests in all of the assets of the individually run stores.   At the time it filed for bankruptcy, EZ Lube employed approximately 1,000 employees including technicians, store managers, cashiers and service crew. 

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KB Toys filed for chapter 11 bankruptcy protection this morning in the United States Bankruptcy Court, District of Delaware (read the KB Toys Bankruptcy Petition here).  According to its affidavit in support of its bankruptcy motions,  KB operates 277 shores in shopping malls, 40 stores in strip malls and 114 outlet stores (read the KB Affidavit in Support of bankruptcy motions here).  KB lists its annual sales at $480 million.

KB previously filed for bankruptcy in 2004.  During its 2004 bankruptcy, it reduced the number of stores from 1,200 to 650.  I suspect you will see similar store-closings in this bankruptcy.  Whether KB rejects store leases, or assumes the leases,  landlords need to pay close attention to this bankruptcy.  Attached is a link to a previous post I prepared titled "Ten Things Every Commercial Landlord Should Know About a Tenant in Bankruptcy."  This link provides a brief summary of some of the issues landlords should consider when a commercial tenant such as KB files for bankruptcy.

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Introduction

Tribune Company,  owner of major newspapers such as the Chicago Tribune, Los Angeles Times, The Sun, Orlando Sentinel and the Morning Call, filed for bankruptcy in the United States Bankruptcy Court, District of Delaware, on December 8, 2008.  As reflected in the Tribune Company's Bankruptcy Affidavit,  Tribune is the largest employee-owned media and entertainment company in the United States with its newspapers reaching 80% of the households throughout the country.  Tribune publishes 8 "major market daily newspapers" and operates television stations in 19 markets, 7 of which are in the 10 largest television markets in the United States.

Although Tribune's operations are impressive, the financial data released in its Affidavit and Chapter 11 Bankruptcy Petition show the enormity of this bankruptcy proceeding.  According to  documents filed with the Court,  the "Tribune entities" have $7.6 billion in total assets and $13.9 billion in total liabilities.  Tribune's List of Thirty Largest Unsecured Creditors, included in its bankruptcy petition, states that JP Morgan Chase Bank, as agent for various lenders, holds a claim for $8.5 billion. 

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Introduction

Hawaiian Telcom Communications, Inc. ("Hawaiian Telcom" or the "Debtors"), received an unwelcome objection to its Motion to Approve the Use of Cash Collateral one day after it filed for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  The 125 year-old telecommunications provider filed its motion on an interim basis, seeking authority from the Court to use its cash collateral and provide adequate assurance to its prepetition lenders.  Hawaiian Telcom's senior noteholders filed the Opposition to Debtors' Motion to Approve the Use of Cash Collateral on behalf of holders of floating and fixed rate notes maturing in 2013.  The noteholders argue in their opposition papers that the Debtors seek to improperly cross-collateralize the prepetition lenders' "partially-secured prepetition claims."  The noteholders also object to what they see as the Debtors' attempt to grant the lenders a veto over the Debtors' expenditures and require the payment of high fees and bonuses to the lenders professionals.

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Eclipse Aviation,  the New Mexico manufacturer of small jet aircraft, filed for bankruptcy in Delaware on November 25, 2008.  As stated in the Affidavit in Support of Eclipse's Bankruptcy Motions,  Eclipse was started 10 years as a manufacturer of aircraft ideal for individual pilots, small companies seeking corporate aircraft and air taxi services serving smaller hubs.  In order to produce affordable aircraft, Eclipse created a "manufacturing strategy" based upon low production costs and high volume. 

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Introduction

On November 10, 2008, National Wholesale Liquidators (“NWL” or the “Debtor”), filed a chapter 11 petition for bankruptcy in the United States Bankruptcy Court for the District of Delaware (read the NWL bankruptcy petition here). According to the Declaration of NWL’s CFO, NWL began business as a merchandise close-out store 24 years ago. Since1984, NWL has grown to almost 2,000 employees working in stores and distribution centers in 10 states throughout the Northeast and Midatlantic.

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Introduction

On November 10, 2008, DBSI, Inc. (“DBSI” or “Debtors”) filed petitions for chapter 11 bankruptcy in the United States Bankruptcy Court for the District of Delaware. As reflected in the Declaration of DBSI’s CEO, Douglas Swenson, (read the DBSI Declaration here), the Debtors consist of a conglomerate of real estate entities valued at over $2.65 billion. From its beginnings in 1980, to the date that it filed for bankruptcy, DBSI had raised over $1.5 billion in capital, allowing it to operate numerous commercial real estate projects and businesses. DBSI employs 131 employees.

Not Your Ordinary Chapter 11 Bankruptcy

According to the Debtors’ bankruptcy petition, DBSI’s 50 largest unsecured creditors hold claims ranging from $26.7 million to $2.4 million (read the DBSI bankruptcy petition here). In a more “typical” bankruptcy, these creditors would consist of large trade vendors of the debtor, or unsecured lenders and stakeholders in the bankrupt company. For DBSI, however, all fifty of its largest unsecured creditors are individuals, not corporations.

The reason individuals have such large stakes in DBSI, instead of corporations, has to do with the nature of its business. DBSI generates revenue through the creation of tenants-in-common real estate transactions. Under such transactions, DBSI acquires an interest in commercial or residential real estate and then sells off fractional interests of the real estate to investors as tenants-in-common. DBSI then enters into a master lease with the tenants-in-common investors, subleasing the property to commercial tenants. DBSI collects rent from the tenants, pays the operating expenses for the venture, keeps a management fee for itself and distributes the proceeds to investors.

The Slide Into Bankruptcy

DBSI provides four reasons for its bankruptcy filing: the credit crisis, rising costs, a weakening real estate market and various activities by stakeholders. Without lenders providing capital, DBSI could not continue its real estate purchase and sales operations. Additionally, with costs rising, many of DBSI’s master lease programs became unprofitable. Next, the drop in real estate values interrupted DBSI’s ability to market land collateral for its bond and note debtor-entities. Finally, some of the Debtors’ investors commenced actions in court seeking temporary restraining orders against DBSI. Combined, these events led DBSI to seek restructuring in bankruptcy court.

DBSI’s Financials

Bonds issued March 2001 … $4,335,000 (mature Dec. 31, 2008)
Bonds issued June 2001 … $9,240,000 (mature Dec. 31, 2008)
Bonds issued November 2001 … $8,951,000 (mature Dec. 31, 2009)
Bonds issued February 2003 … $35,612,000 (mature Feb. 28, 2008)
Secured notes issued August 2005 … $54,138,018 (due Dec. 31, 2012)
Secured notes issued October 2006 … $74,824,251 (due Dec. 31, 2014)
Secured notes issued February 2008 … $88,673,374 (due Dec. 31, 2015)
“Put” option on partnerships … $25,000,000
Short-term fund offering … $24,703,000
Unsecured notes issued January 2007 … $34,997,282 (due Dec. 31, 2011)
Land option fund … $5,000,000

First Steps In Bankruptcy

Although DBSI’s business and financial structure may differ from more typical chapter 11 debtors, its initial motions are ordinary for a debtor of this size. DBSI’s “first day” bankruptcy motions seek orders from the court allowing it to provide adequate assurance to its utilities, pay pre-petition taxes, use DBSI’s cash management system and reject certain leases. DBSI’s bankruptcy proceeding was assigned to the Honorable Peter J. Walsh, former Chief Judge of the Delaware Bankruptcy Court.
 

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Issues Important to Gateway's Creditors:  The Critical Vendor Motion

MPC Computers, LLC, formerly Gateway Computers ("Gateway, or the "Debtors"), filed for bankruptcy in the United States Bankruptcy Court for the District of Delaware on Thursday, November 6, 2008.  In addition to filing its chapter 11 bankruptcy petition,  the Debtors filed various first day motions with the Court.  Included among Debtors' initial motions is a motion authorizing Debtors to pay pre-bankruptcy claims of "certain critical vendors."  (Read Gateway's critical vendor motion here)

Gateway's critical vendor motion seeks important protections for selected vendors.  Those creditors chosen to participate in the vendor program will receive payment for their pre-bankruptcy  claims.  In exchange for receiving payment, the vendors must agree to continue to supply goods or services to the Debtors under terms similar to those provided to the Debtors before bankruptcy.  However, the Debtors reserve the right to negotiate better trade terms with a critical vendor as a condition to payment.

Some of the key terms of Gateway's critical vendor program include:

• Critical vendors and the Debtors shall work together to determine in "good faith" the amount of the critical vendor's prepetition claim;
• Critical vendors agree to be bound by the agreed upon trade terms so long as the Debtors do not default under such terms; and,
• Critical vendors agree not to assert reclamation claims.

Background on the Debtors' Business and Events Leading to Bankruptcy

As reflected in the declaration of Gateway's CFO,  Curtis Akey,  Gateway provides computer-based products and services to mid-sized businesses, government agencies and educational organizations (read here the Declaration of Gateway's CFO in Support of Debtors' Chapter 11 Petitions).  Since October 1, 2008,  Gateway has reduced its workforce from 900 to 340 employees. 

MPC-Pro, LLC acquired Gateway in October of 2007.  As a result of this aquisition,  the Debtors' revenue rose to $895 million.  Six months after the aquisition, Debtors decided to stop manufacturing at their Tennessee facility and outsource a substantial portion of its manufacturing to Flextronics at its Juarez, Mexico facility.  The Flextronics' facility came online slower than planned and with limited production.  On October 28, 2008, Flextronics informed the Debtors that it was discontinuing its supply of products and services to Debtors.  As stated in the Akey Declaration, MPC's purchase of Gateway, followed by the unsuccessful outsourcing to Flextronics and the overall lack of liquidity led to the present bankruptcy filing.

Ten Largest Unsecured Creditors

Flextronics Logistics … $24.6 million
Flextronics Latin America … $22.7 million
Microsoft … $11.9 million
Arima Photovoltaic … $7.2 million
Quanta Computer … $7.0 million
Intel Americas … $5.6 million
Document Storage Systems ... $3.8 million
EliteGroup Computer Systems ... $3.6 million
Quanta Service Nashville … $3.2 million
Transgroup … $1.9 million

Affiliated Debtors

MPC Corporation
GTG PC Holdings, LLC
MPC Computers, LLC
MPC-G, LLC
MPC Solutions Sales, LLC
Gateway Pro Partners, LLC
Gateway Professional, LLC
Gateway Companies, Inc.
MPC-Pro, LLC

Bankruptcy Case Information

This bankruptcy proceeding is before the Honorable Peter J. Walsh, former Chief Judge of the Delaware Bankruptcy Court.  Some of Judge Walsh's more recent opinions include:  In re Grossman's,  In re American Remanufacturers,   and  In re NVF. 

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A Look at VeraSun’s Business

Based in Sioux Falls, South Dakota, VeraSun Energy Corporation (“VeraSun” or the “Debtor”), grew in its seven year history to become the leading producer of ethanol. As stated in a declaration of VeraSun’s chief financial officer in support of its “first day” bankruptcy motions (VeraSun declaration), VeraSun has fourteen production facilities in eight states producing over 1.4 billion gallons of ethanol annually. VeraSun employs approximately 932 employees, over one third of whom are salaried employees. The Debtor’s annual payroll expenses totals approximately $60 million, including payroll taxes.

Why VeraSun Filed for Bankruptcy

Given that ethanol is a blend component used in gasoline, VeraSun’s sales are influenced to a large degree by fuel prices. VeraSun produces corn-based ethanol, which means that the price of its largest commodity, corn, is tied to factors such as crop production, government regulation and annual rainfall. The high volatility in the price of corn and gasoline in 2008, combined with a unfavorable hedging strategy on the price of corn, led to VeraSun sustaining significant third quarter losses in 2008. VeraSun’s hedging strategy on corn was based on the assumption that corn prices would continue to rise in 2008. Instead, the price of a bushel of corn fell by 63% by August of 2008, resulting in third quarter losses estimated between $60 and $100 million.

In addition to fluctuations in corn and gas, VeraSun’s bankruptcy was also the result of its inability to service its debt. In 2007, VeraSun purchased ASA Opco Holdings, LLC for $405.6 million. To purchase ASA, VeraSun borrowed $233.4 million. In April of 208, VeraSun purchased US BioEnergy Corporation for $756.9 million, borrowing $525.1 million to fund its second acquisition. Both acquisitions represented VeraSun’s growth strategy in ethanol production. However, the unexpected shifts in fuel and corn prices meant VeraSun needed to raise cash in order to sustain its operations. A failed equity offering, coupled with the recent freeze on lending, gave VeraSun no other choice than to file for bankruptcy protection.

Administrative Claim Status for Vendors

One of the first motions the Debtor filed in this bankruptcy proceeding was a motion to confirm administrative expense status on obligations arising from the prepetition delivery of goods (read VeraSun's bankruptcy motion here). Prior to filing for bankruptcy, VeraSun estimates that it ordered over $30 million in goods from vendors that were delivered to VeraSun within 20 days of the filing for bankruptcy. Such goods include grains, natural gas, and chemicals used in ethanol production. VeraSun has not paid for these goods and seeks an order from the court finding that VeraSun can pay such claims in the ordinary course of business, and that such claims are entitled to administrative claim status.

VeraSun filed the motion to pay administrative claims, in part, due to concerns that its vendors would need assurances that they will receive compensation for their goods and services in a timely manner. Without assurances that the Debtor can timely pay invoices as they come due, VeraSun worries that it could sustain significant harm if its vendors interrupt production or service.

VeraSun’s Financials

According to its petition for bankruptcy (read the VeraSun bankruptcy petition), VeraSun has total assets estimated at $3.4 billion, and total liabilities of $1.9 billion. Its ten largest unsecured creditors include:

Wells Fargo (Indenture Trustee) … $447 million
Fagen Inc. … $16.6 million
Cargill … $12.9 million
Haas TCM Processing … $5.4 million
Union Pacific Railroad … $5.3 million
Crown Iron Works … $2.8 million
Norfolk Southern … $2.5 million
CSX Transportation … $2.2 million
Citigroup … $2.1 million
ICM Inc. … $2.1 million

VeraSun’s prepetition debt is as follows:

UBS Credit Facility (Secured) … $81.7 million
Senior Secured Notes … $210 million (2012 maturity date)
Senior Unsecured Notes … $450 million (2017 maturity date)
ASA Senior Credit Facility (Secured) … $26.7 million
AgStar Credit Facilities (Secured) … $464.9 million
Marion Construction Term Note (Secured)… $90 million (2013 maturity date)

The Delaware Bankruptcy Proceeding

This bankruptcy proceeding is assigned to the Honorable Brendan L. Shannon. The following are some of Judge Shannon’s opinions in prior bankruptcy proceedings: In re Elrod Holdings,  In re Three A's Holdings, and In re APCO Liquidating Trust.  VeraSun is represented by the law firm of Skadden, Arps, Slate, Meagher & Flom LLP. Given that the Debtor has over 1,700 creditors and potential parties in interest, it has filed a motion with the court seeking to have Kurtzman Carson Consultants, LLC appointed as the Debtor’s claims and balloting agent.
 

Affiliated Debtors

The following are a list of affiliated Debtors who also filed bankruptcy petitions:

VeraSun Energy Corporation
ASA Abion, LLC
ASA Bloomingburg, LLC
ASA Linden, LLC
ASA OpCo Holdings, LLC
US Bio Marion, LLC
US BioEnergy Corporation
VeraSun Albert City, LLC
VeraSun Aurora Corporation
VeraSun BioDiesel, LLC
VeraSun Central City, LLC
VeraSun Charles City, LLC
VeraSun Dyersville, LLC
VeraSun Fort Dodge, LLC
VeraSun Granite City, LLC
VeraSun Hankison, LLC
VeraSun Hartley, LLC
VeraSun Janesville, LLC
VeraSun Litchfield, LLC
VeraSun Marketing, LLC
 

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Background on the Bankruptcy Filing

On October 26, 2008, Value City Department Stores filed chapter 11 bankruptcy petitions in the United States Bankruptcy Court for the Southern District of New York. According to information contained in the Debtor’s first day motions (read here), Value City’s slide into bankruptcy began following the decline in the housing market and the tightening of credit markets. The increased cost of gas, compounded by rising unemployment, reduced consumer spending. Value City’s position worsened even more when the liquidity crisis in the financial markets interrupted its ability to properly stock its stores and service its debt.

Value City's efforts to reorganize began almost one year prior to filing for bankruptcy. In late 2007, the retailer assigned and subleased 24 of its store locations to Burlington Coat Factory for $25 million. The majority of stores subleased to Burlington underwent “going out of business sales” and then ceased operations. In addition to the stores subleased to Burlington, Value City conducted going out of business sales at an additional 50 stores prior to filing bankruptcy.

Although the subleases and store closing generated considerable revenue for Value City, in September of 2008 it entered into a forbearance agreement with its pre-petition lenders. Under the forbearance agreement, Value City agreed to close an additional 29 stores and submit to a budget. Despite these arrangements, Value City’s revenues continued to drop in the third quarter of 2008. Its lenders issued a notice of default on the forbearance agreement on October 13, 2008. Thirteen days later, Value City filed for Bankruptcy.

A Summary of Value City’s Business

Based out of Columbus, Ohio, Value City describes itself as a “full-line, value priced retailer carrying men’s, women’s and children’s apparel, accessories, shoes, home fashions, electronics and seasonal items.” The Debtor operates stores from New Jersey to Georgia, and as far west as Missouri. In business for over 80 years, Value City employed 4,500 employees at the time it filed for bankruptcy.

From January 1 to August 31, 2008, Value City recorded sales in excess of $288 million and losses of $70 million. Before bankruptcy, Value City purchased inventory from over 1,000 vendors. Approximately one week prior to filing bankruptcy, Value City had an outstanding balance of $26 million under a revolving pre-petition loan, and $10.5 million under a pre-petition letter of credit.

Primary Objectives In Bankruptcy

After defaulting under the pre-petition credit agreements, Value City was left with no form of credit by which to purchase merchandise and generate revenue. Given the lack of options, the Debtor decided to conduct going out of business sales at the majority of its remaining stores. Additionally, Value City intends to assume and assign leases pursuant to expedited procedures (assuming its motion for expedited procedures is granted), and reject those leases that it deems “burdensome”  to the Debtor and its estate.

A day after it filed for bankruptcy, Value City filed a motion with the Bankruptcy Court seeking “streamlined procedures” for the assumption or rejection of various leases, as well as a motion seeking authority to honor various pre-petition customer programs. The procedures motion, if granted in its present form, will allow the Debtor to reject “unfavorable” leases and abandon, at Value City’s discretion, personal property and fixtures arising from the rejected leases. Value City currently has approximately 100 unexpired leases. The motion to continue various customer programs (i.e. gift cards, store credits and warranty programs) is intended to reassure customers that Value City will fulfill all prior obligations. Value City filed the customer programs motion in order to maintain customer satisfaction during upcoming going out of business sales.
 

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Background on the Debtor

Metromedia Steakhouses Company, L.P., parent company to Bonanza Steakhouse and Ponderosa Steakhouse,  filed petitions for chapter 11 bankruptcy in the District of Delaware on October 22, 2008.  As stated in Metromedia's affidavit in support of first day motions,  Bonanza Steakhouse began in Texas in 1963 and grew to over 600 restaurants in the 1980s, most of which were operated as franchises.  Likewise, Ponderosa grew to almost 700 restaurants in the 1980s, half of which were company-operated and half franchised. 

By 2007,  Metromedia's Bonanza division was down to 48 restaurants in 14 states.  Ponderosa reduced the number of its restaurants to 285 locations in 17 states.  At the time it filed for bankruptcy, Metromedia's restaurants employed 2,070 hourly employees and 230 salary based employees. 

Why Metromedia Filed for Bankruptcy

To remain profitable in the restaurant industry requires high name recognition, good location, quality food and service, as well as attractive stores.  A restaurant's business model can be affected greatly by dining trends, food preferences, demographic changes and consumer spending.  An inability to identify and respond to changes in the market can have immediate adverse effects on an otherwise successful restaurant business.  According to Metromedia,  its restaurant sales suffered from increased local and regional competition in the full-service restaurant industry.  Further, the downturn in the economy, coupled with increased fuel prices, reduced consumers' willingness to dine out.

Metromedia's Financials

In June of 2008,  Metromedia listed $59.2 million in total assets (including cash, accounts receivables, inventories and intangibles).  Metromedia's liabilities total $278.5 million.  Ponderosa Restaurants generated gross sales for the first half of 2008 of approximately $38.9 million.

Objectives in Bankruptcy

For several years, Ponderosa and Bonanza have experienced declining sales, causing Metromedia to close under-performing stores.  However, due to a reduction in revenue, Metromedia lacked the resources necessary to terminate leases.  Instead, it was often forced to sublease the stores at terms below the originally contracted rental amount.  Through bankruptcy (including the ability to reject or assume and assign leases), Metromedia hopes to trim its operations to a "manageable and profitable core of restaurants."

The Metromedia bankruptcy is being presided over by the Honorable Mary F. Walrath.  Metromedia is represented by Pachulski Stang Ziehl & Jones LLP.

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Background on Greatwide

Greatwide Logistic Services, the largest non-asset based trucking company in the United States, filed a petition for chapter 11 bankruptcy in Delaware on October 20, 2008. By “non-asset based,” Greatwide operates a network of 6,000 independent contractor owner-operators and approximately 20,000 independent third-party carriers. Located in Dallas, Texas, Greatwide provides four primary services: trucking, back-office management to agents who source freight shipments, freight brokers who arrange shipping for customers, and distribution logistics. Trucking and other transportation services generate over 50% of Greatwide’s annual revenue.

Why Greatwide Filed for Bankruptcy

Several factors contributed to Greatwide’s need to file for bankruptcy, increased fuel costs being at the top of the list. Besides the higher cost of fuel, Greatwide’s revenues also suffered due to a significant decline in freight shipments. Having less cash on hand, Greatwide began discussions with its lenders in June of 2008. Ultimately, Greatwide missed an $8 million principal and interest payment due on June 30, 2008. UBS, one of Greatwide’s lenders, issued a notice of default on July 1st.

Greatwide’s Financials

Greatwide has a first lien credit facility for $370 million, secured by substantially all of Greatwide’s assets and pledges of capital stock. UBS serves as the administrative agent for the first lien facility. Greatwide also has a second lien credit facility of $117 million, also secured by Greatwide’s assets. In addition to the secured first and second tier loans, Greatwide has an unsecured loan with a principal balance of $90 million, plus $24 million owed in interest.

Unexpected Insurance Costs

It is worth mentioning that Greatwide’s unexpected increase in insurance costs may have played a role in its decision to file for bankruptcy. As reported in the affidavit in support of Greatwide’s first day motions, in August of 2008, Greatwide began negotiating a debt restructuring with its secured lenders. During negotiations with its lenders, Greatwide assumed that its insurer would require no more than $5 million in additional collateral coverage in order to renew its workers’ compensation and general liability policies. Instead, the insurer required an additional $32 million in collateral. The required additional collateral, according to Greatwide, “effectively rendered the proposal that hand been under consideration [with its secured lenders] no longer feasible …”

Unsecured Creditors

Greatwide lists its five largest unsecured creditors as: UBS ($90mm), Comdata Corp. ($2.5mm), Fenway Partners ($2mm), Pilot Fuel Corp. ($1.4mm), and Primerica Life Insurance Co. ($1.4mm). 

Greatwide's bankruptcy is being presided over by the Honorable Peter J. Walsh.

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Debtor Information

WorldSpace, Inc., a satellite-based radio provider to countries in Europe, India, the Middle East and Africa, filed for bankruptcy in the United States Bankruptcy Court for the District of Delaware on October 16, 2008. As reflected in WorldSpace’s Declaration in Support of First Day Motions, the Debtor is based in Silver Spring, Maryland and owns two satellites that orbit over Asia and Africa, with a third satellite yet to be launched. Prior to filing bankruptcy, WorldSpace intended to expand service to Italy, Bahrain, the United Arab Emirates, Germany and Switzerland.  WorldSpace's bankruptcy proceeding is before Judge Peter J. Walsh.

Events Leading Up to WorldSpace’s Bankruptcy Filing

Between July and September of 2008, WorldSpace entered into four forbearance agreements with its senior secured note holders. After the fourth forbearance period, WorldSpace began discussions with interested purchasers and investors who could assist WorldSpace with its obligations to note holders. Concerned over its ability to pay employees and critical vendors, WorldSpace filed for bankruptcy.

Debtor’s Financials

Total assets ..... $307,382,000.00
Total debts ..... $2,122,904,000.00 (according to Debtors’ petition, the listed debt amount includes a $1.8 billion contingency under a royalty agreement).

Debtor In Possession
Financing ..... $13,000,000.00 (proposed)

Objectives in Bankruptcy

WorldSpace and its note holders began negotiations for debtor in possession financing
before it filed for bankruptcy. If the debtor in possession financing is approved, WorldSpace hopes that the loan will provide enough liquidity to find a buyer for its assets. Many of WorldSpace’s employees have gone without pay for months. Weeks prior to filing for bankruptcy, insiders of WorldSpace had to lend the Debtor money to pay some of its expenses.

Bankruptcy Professionals

WorldSpace’s bankruptcy counsel includes Shearman & Sterling LLP in New York, and Pachulski Stang Ziehl & Jones LLP in Delaware.
 

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On October 3, 2008, Comfort Co, Inc., the Delaware holding company for Sleep Innovations, Inc., filed for chapter 11 bankruptcy protection in the United States Bankruptcy Court for the District of Delaware.  Sleep Innovations designs, manufactures and distributes products including pillows, mattresses and mattress covers to retailers throughout North America.  As stated in the debtor's first day motions,  Sleep Innovations employed 836 employees at the time it filed for bankruptcy and has affiliates in California, Mississippi, Indiana, Georgia, Illinois, Iowa, Massachusetts and Texas.

Weak consumer spending, compounded by volatile commodity prices, contributed to Sleep Innovations' filing for bankruptcy.  The bedding industry is highly correlated to the housing market.  As the U.S. housing market deteriorated,  so too did consumer demand for mattresses.  Sleep Innovations also had to deal with the recent increase in the petrochemical prices.  As a manufacturer that relies on foam products,  the rise in petroleum products lowered Sleep Innovations' profitability.

Sleep Innovations' gross sales for 2007 totaled $432 million.  At the time it filed for bankruptcy, the Debtor's first lien credit agreement totaled $290 million, and the second lien credit agreement totaled $50 million.  Sleep Innovations' trade debt totaled $34 million.  Sleep Innovations largest unsecured creditors include:

• Dow Chemical ... $3.5 million
• BASF ... $2.9 million
• Standard Fiber ... $2.2 million
• Huntsman Polyurethanes ... $705,000
• Supreme Quilting ... $656,000
• IBM ... $599,000
• Weyerhaeuser ... $469,000
• Momentive Performance Mat. ... $449,000
• Alix Partners ... $426,000
• Rothschild, Inc.  ... $326,000

Sleep Innovations is represented by Duane Morris, LLP.  Lowenstein Sandler represents the Creditors' Committee.

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On September 15, 2008, Motor Coach Industries International ("Motor Coach") filed for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  Motor Coach designs, manufactures and sells motor coaches throughout the United States and Canada.  At the time it filed for bankruptcy, Motor Coach had 750 employees on its payroll with manufacturing facilities in Winnipeg, Canada and North Dakota.  Motor Coach also operates nine sales centers throughout the United States and Canada.

Although Motor Coach generated $644 million in revenue for 2007, this amount represented a decline of $82 million from the previous year.  Motor Coach's loss of revenue was the result of a 20% decline in its private sector sales, compounded by lower sales to its public sector customers.  Fluctuations in the U.S.-Canadian exchange rate compounded Motor Coach's problems.  Each year, Motor Coach purchases $200 million in Canadian dollars to fund its Canadian operations.  Appreciation by the Canadian dollar in 2007 decreased the company's cash flow by $30 million.  Like many manufacturers, an increase in commodity prices in 2008 further eroded Motor Coach's profitability.

One of Motor Coach's primary objectives in bankruptcy is to reduce its debt by $300 million.  In order to do so, Motor Coach is in negotiations with its pre-bankruptcy lenders to gain support for restructuring its debt.  By reducing interest payments, Motor Coach hopes to improve cash flows and implement its business plan.

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