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

Introduction

On April 24, 2013, Synagro Technologies ("Synagro") and various affiliates filed chapter 11 petitions for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  Synagro recycles biosolid and organic materials generated by municipal and industrial waste water treatment centers.  The company describes its services to include "drying and pelletization, composting, incineration, alkaline stabilization, land application, collection and transportation, regulatory compliance, dewatering, facility cleanout services and product marketing."  See Synagro's Declaration in Support of Chapter 11 Petitions and First Day Pleadings (the "Decl.") at *3-4.

Operations

Synagro began in 1986 as RPM Marketing, Inc.  Although the company is currently headquartered in Houston, Texas, Synagro is moving its headquarters to White Marsh, Maryland.  Synagro operates four divisions - facilities, services, rail and drilling.  The facilities division provides waste water residuals management at fifteen different locations throughout the United States. Decl. at *4.  Synagro's services divisioin provides waste treatment services at facilities owned by individual customers.  Decl. at *5.  The company recently acquired a drilling division that provides waste management services to oil and gas production companies.  Finally, Synagro's rail division operates a fleet of rail cars and containers that dispose of over 500,000 tons of waste per year.  Decl. at *6.

Reasons for Bankruptcy

In April of 2007, Synagro entered into a $390 million first lien credit agreement and $150 million second lien credit agreement.  Decl. at *9-10.  In early 2012, the company realized it was unlikely to meet its debt ratio requirements under the first and second lien agreements.  Decl. at *15.  According to Synagro, its high debt ratios were the result of "a challenging operating environment in late 2011 and early 2012."  Id.  During the latter part of 2012, Synagro began negotiations with its lenders to see if an out of court restructuring was possible.  It was during these negotiations that the company realized that a traditional sale of assets would not satisfy its obligations under the second lien agreement and that a sale under section 363 of the Bankruptcy Code was necessary.  Decl. at *16.

Objectives in Bankruptcy

Synagro started the sale process in November of 2012.  Over one hundred potential purchasers were contacted to generate interest in purchasing the company.  Of those contacted, five provided written indications of interest.  Decl. at *17. On April 23, 2013, Synagro and EQT Infrastructure II Limited Partnership ("EQT") entered into an asset purchase agreement.  The EQT purchase agreement is subject to better and higher offers and must comport with section 363 of the Bankruptcy Code.  Decl. at *19.  The company hopes to sell substantially all of its assets through a court-approved bankruptcy sale. 

The Synagro bankruptcy is before the Honorable Brendan L. Shannon of the United States Bankruptcy Court for the District of Delaware.  This case is proceeding under case no. 13-11041(BLS).  Synagro is represented by the law firm Skadden, Arps, Slate, Meagher & Flom LLP.

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Jason Cornell is an equity partner with the law firm Fox Rothschild LLP.  Jason is a creditors' rights attorney who is admitted and practices before the United States Bankruptcy Court for the District of Delaware and the United States Bankruptcy Court for the Southern District of Florida.  You can reach Jason at 302 427 5512 or jcornell@foxrothschild.com. 

Below are some additional posts Jason has written on Delaware bankruptcy litigation:

  Ten Things Every Commercial Landlord Should Know About a Tenant in Bankruptcy.

  Seeking Relief from the Automatic Stay in Delaware.

  A Tale of Two Bankruptcy Auctions.

  What Information is Required in a Chapter 11 Disclosure Statement?

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Introduction

On Monday, April 22, 2013, Yarway Corporation filed a chapter 11 petition for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  According to papers filed by Yarway with the Bankruptcy Court, the company's origins go back to 1908 when it started manufacturing pipe clamps, steam traps and valves.  See Yarway's Affidavit in Support of First Day Pleadings (the "Decl."), at *1.  The company was privately owned until 1986, when it was sold to Keystone International, Inc..  Keystone was purchased by Tyco International Ltd. in 1997.  Decl. at *2

Operations

According to its Declaration, Yarway "allegedly manufactured, distributed and/or sold asbestos-containing products, which ceased entirely by 1988."  Decl. at *2.  The company stopped its manufacturing operations entirely in 2003 when it sold its manufacturing facility to an unrelated third party.  Id.  Even after the company sold off its manufacturing assets, it remained in existence in order to "defend, process and satisfy asbestos-related claims asserted against it."  Id. It's these asbestos related claims which are the basis for Yarway filing for bankruptcy. 

Reasons for Bankruptcy

Yarway contends that its bankruptcy filing is the result of the continued flow of asbestos-related claims due to human exposure to the company's asbestos-containing products.  The company places the asbestos claims in two primary categories:  (1) claims stemming from exposure to Yarway's gaskets and packing that was manufactured between the 1920s to the 1970; and (2) claims relating to the manufacture of joint packing consisting of Teflon and asbestos from the 1940s to the 1970s. Decl. at *3.

Yarway is faced with a huge amount of asbestos-related litigation.  The company contends that it was first named as a defendant in a lawsuit in 1991.  In the last five years over 10,000 new asbestos-related claims have been asserted against the company.  Since the beginning of Yarway's fiscal year (October 1, 2012), Yarway has received over 1,000 new asbestos claims.  Decl. at *3. In the past five years, Yarway has paid over $128 million in settlement costs for asbestos claims.  That number reached $18 million for this fiscal year alone.  Id.

 Objectives in Bankruptcy

Yarway contends that in 2012 it settled the last of its insurance policies known to provide coverage for asbestos-related claims.  The company believes it has no additional insurance coverage for future claims.  Decl. at *3-4.  By filing for bankruptcy, Yarway hopes to "negotiate, obtain approval of, and consummate a plan for reorganization that establishes an appropriately funded trust to provide for the fair and equitable payment of legitimate current and future Yarway asbestos claims ..." Decl. at *4. 

The Yarway bankruptcy is before Judge Brendan L. Shannon, under case no. 13-11025(BLS).  Yarway is represented by the law firms Sidley Austin LLP and Cole Schotz Meisel Forman & Leonard.

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Jason Cornell is an equity partner with the law firm Fox Rothschild LLP.  Jason is a creditors' rights attorney who is admitted and practices before the United States Bankruptcy Court for the District of Delaware and the United States Bankruptcy Court for the Southern District of Florida.  You can reach Jason at 302 427 5512 or jcornell@foxrothschild.com. 

Below are some additional posts Jason has written on Delaware bankruptcy litigation:

  Ten Things Every Commercial Landlord Should Know About a Tenant in Bankruptcy.

  Seeking Relief from the Automatic Stay in Delaware.

  A Tale of Two Bankruptcy Auctions.

  What Information is Required in a Chapter 11 Disclosure Statement?

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Introduction

On Monday, April 15, 2013 (the "Petition Date"), The Scooter Store Holdings, Inc. (the "Scooter Store" or "Debtor"), and various related entities filed chapter 11 petitions for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  Based in New Braunfels, Texas, Scooter Store is one of the nation's largest providers of power wheelchairs, scooters, lifts, ramps and other related equipment.  See Declaration in Support of Chapter 11 Petitions and First Day Motions (the "Decl.") at *3.  Scooter Store began its operations in 1991.  Since then, the company has served over 700,000 senior citizens and disabled persons through its equipment offerings and services.  Id.

Company Operations and Debt Structure

At the height of its operations, Scooter Store employed over 2,400 employees in 48 locations throughout the United States.  As of the Petition Date, however, the company had reduced its employees down to 300.  Decl. at *4.  In 2011, Sun Capital Partners purchased a majority voting interest in the company.  Sun owns debts, preferred stock and warrants that represent over 66% of the voting ownership interest in the company.  Decl. at *4-5. The company's debt includes a first lien loan agreement for $25 million, a second lien facility for $25 million and a third lien facility totaling $40 million.  Decl. at *6.

Events Leading to Bankruptcy

Prior to bankruptcy, Scooter Store defaulted on each of its three credit facilities.  Decl. at *7.  The company entered into forbearance agreements with its lenders in December of 2012 and again in March of 2013.  Id.  Debtor attributes in bankruptcy filing, in part, to changes in Medicare laws and regulations.  In 2011, Medicare changed the timing of its payments for mobility devices to a "13 month capped rental model."  Decl. at *8.  Under its business model, Scooter Store devoted significant amounts of cash to advertising, depriving it of the liquidity it needed to sustain the changes in timing and method of payment.  Id.

Besides the changes in the timing of payment, Scooter Store has also suffered due to government investigations which have harmed both the company's finances and goodwill.  The Debtor is the subject of a criminal investigation by the Department of Justice focusing on the company's former management.  Decl. at *8-9.  The company has also suffered from a civil investigation regarding its billing and reimbursement procedures. Decl. at *9. 

Objectives in Bankruptcy

Scooter Store filed for bankruptcy intending to sell substantially all of its assets pursuant to section 363 of the Bankruptcy Code.  Decl. at *10.  Under the company's "Reorganization Milestones," Scooter Store hopes to establish a bid deadline of July 23, 2013, with an auction on July 25, 2013 and a closing on the sale on or before July 30, 2013.  Decl. at *10. 

The Scooter Store bankruptcy is before Judge Peter J. Walsh of the Delaware Bankruptcy Court.  This bankruptcy is proceeding under Case No. 13-10904(PJW).  Scooter Store is represented by the law firm Young Conaway Stargatt & Taylor.

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Jason Cornell is an equity partner with the law firm Fox Rothschild LLP.  Jason is a creditors' rights attorney who is admitted and practices before the United States Bankruptcy Court for the District of Delaware and the United States Bankruptcy Court for the Southern District of Florida.  You can reach Jason at 302 427 5512 or jcornell@foxrothschild.com. 

Below are some additional posts Jason has written on Delaware bankruptcy litigation:

  Ten Things Every Commercial Landlord Should Know About a Tenant in Bankruptcy.

  Seeking Relief from the Automatic Stay in Delaware.

  A Tale of Two Bankruptcy Auctions.

  What Information is Required in a Chapter 11 Disclosure Statement?

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Introduction

Earlier today, Rotech Healthcare ("Rotech"), filed chapter 11 petitions for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  According to a declaration filed by Rotech's President and CEO (the "Declaration" or "Decl."), Rotech describes itself as "one of the largest providers of home medical equipment and related products and services in the United States ..."  The numbers back it up ... Rotech provides medical equipment and services in all 50 states employing over 4,000 employees in 409 operating locations.  Decl. at *3.   Using the information provided in Rotech's court filings, this post will look at Rotech's business, why the company filed for bankruptcy and what Rotech's objectives are now that it is in bankruptcy. 

Business History and Operations

Rotech Healthcare, Inc., and various related entities are the "debtors in possession" in the present bankruptcy proceeding.  The Rotech entities that just filed for bankruptcy, however, are the successors to Rotech Medical Corporation ("RMC").  RMC started in the medical equipment industry in 1981.  In 1997, RMC was acquired by Integrated Helath Services, Inc. ("Integrated").  When Integrated filed for bankruptcy in Delaware in February of 2000, it took all of its subsidiaries into bankruptcy with it, including RMC.  Rotech was formed in March 2002 as part of the IHS plan of reorganization.  Decl. at *8. 

Over 87% of Rotech's revenues come from the respiratory therapy equipment and related services.  Patients that require respiratory services often suffer from long term breathing disorders that require extended treatment.  Patients that use Rotech products usually come to the company through hospital or doctor referrals. Once a patient is set up using the company's equipment, service technicians follow-up as proscribed by the doctor.  The company provides 24 hour support service through a call center it operates in Murray, Kentucky.  Decl. at *4.  

Events Leading to Bankruptcy

Rotech attributes its present bankruptcy to high debt and low revenue.  By that, in 2002 when the company formed as part of the Integrated bankruptcy, Rotech took on over $500 million in debt.  Decl. at *13.  The company emerged from the Integrated bankruptcy expecting to "services its debt with robust revenues from reimbursement by third-party payors."  Id.  Instead, Rotech has experienced over $1.2 billion in aggregate losses since 2005 due to permanent reductions in insurer reimbursement rates.  Decl. at *15.  According to Rotech, the drop in reimbursement rates stemmed frm The Medicare Prescription Drug, Improvement and Modernization Act of 2003; The Deficit Reduction Act of 2005; and, the Medicare Improvement for Patients and Providers Act of 2008. 

Objectives in Bankruptcy

Towards the end of 2012, Rotech retained Barclays Capital to determine the feasibility of an out of court restructuring.  According to Rotech, lenders were generally unwilling to provide the additional financing needed to reorganize outside of chapter 11. Once the company decided that it needed to file for bankruptcy, Rotech started seeking support for a plan of reorganization.  Decl. at *18.  Under a plan support agreement, Rotech hopes to restructure its debt through a pre-arranged chapter 11 plan.  Decl.  at *19.  According to Rotech, the proposed plan provides that "trade creditors and vendors who agree to maintain or reinstate payment terms as existing prior to the commencement date will be paid in full upon the effective date of a plan." 

The Rotech bankruptcy is before Judge Peter J. Walsh.  The main case is proceeding under case no. 13-10741(PJW).  Rotech is represented by Young, Conaway, Stargatt & Taylor. 

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Jason Cornell is an equity partner with the law firm Fox Rothschild LLP.  Jason is a creditors' rights attorney who is admitted and practices before the United States Bankruptcy Court for the District of Delaware and the United States Bankruptcy Court for the Southern District of Florida.  You can reach Jason at 302 427 5512 or jcornell@foxrothschild.com. 

Below are some additional posts Jason has written on Delaware bankruptcy litigation:

  Ten Things Every Commercial Landlord Should Know About a Tenant in Bankruptcy.

  Seeking Relief from the Automatic Stay in Delaware.

  A Tale of Two Bankruptcy Auctions.

  What Information is Required in a Chapter 11 Disclosure Statement?

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Introduction

On March 24, 2013, NAMCO, LLC ("NAMCO") filed a chapter 11 petition for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  Based in Manchester, Connecticut, NAMCO sales swimming pool accessories and equipment throughout the Northeast and Mid-Atlantic United States.  See Declaration of Lee Diercks in Support of Chapter 11 Petition and First Day Motion (the "Declaration" or "Decl.") at *2.  In addition to selling pool supplies, NAMCO owns and operates a chemical repackaging center which allows the company to sell and distribute chemicals through its website.  Id.

Operations

Going in to bankruptcy, NAMCO operates thirty-seven (37) stores in ten states. The company's stores range anywhere in size from 11,000 to 60,000 square feet.  In addition to its retail stores, NAMCO operates in 190,000 square feet of office and distribution space and 40,000 square feet for its chemical repackaging center.  Id. at *3. 

NAMCO presently employs approximately 280 employees, none of whom are represented by unions.  Sales for fiscal year 2011 reached $92 million, however, annual sales in 2012 dropped to $82 million.  Decl. at *4.  NAMCO attributes its declining sales to weakened demand in the pool and patio industry.  According to NAMCO, the drop in demand, in turn, stems from "a poor housing market, an overall weak U.S. economy, complicated by unfavorable weather conditions ..."  Id. 

Objectives in Bankruptcy

In June of 2012, NAMCO entered into a debt agreement with Salus Capital Partners LLC.  NAMCO has approximately $18.6 million in pre-bankruptcy secured debt.  Of this amount, $9.3 million is drawn down on a revolver agreement with Salus.  Decl. at *6.  NAMCO is also a borrower under secured notes with a principal balance of $9.3 million.  Id.  The notes and revolving debt agreement are secured by substantially all of NAMCO's assets.

NAMCO defaulted on its debt agreements in December of last year.  Since learning of the default, NAMCO has been working with its lenders regarding a potential sale of a portion of the company in exchange for an infusion of additional cash.  Decl. at *9.  Through negotiations, NAMCO and Salus were able to agree on a debtor in possession financing agreement which would provide the company with much needed cash while going through bankruptcy. Id. at *9.  While in bankruptcy, NAMCO intends to use the Salus debtor in possession facility to either pursue a sale of the business or successfully reorganize.  Id. at *15. 

The NAMCO bankruptcy is before Judge Peter J. Walsh under case no. 13-10610(PJW).  NAMCO is represented by the law firm Olshan Frome Wolosky LLP. 

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Jason Cornell is an equity partner with the law firm Fox Rothschild LLP.  Jason is a creditors' rights attorney who is admitted and practices before the United States Bankruptcy Court for the District of Delaware and the United States Bankruptcy Court for the Southern District of Florida.  You can reach Jason at 302 427 5512 or jcornell@foxrothschild.com. 

Below are some additional posts Jason has written on Delaware bankruptcy litigation:

  Ten Things Every Commercial Landlord Should Know About a Tenant in Bankruptcy.

  Seeking Relief from the Automatic Stay in Delaware.

  A Tale of Two Bankruptcy Auctions.

  What Information is Required in a Chapter 11 Disclosure Statement?

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Background

On February 25, 2013 (the "Petition Date"), Ormet Corporation and various related entities filed chapter 11 petitions for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  As stated in the company's Declaration in Support of First-Day Motions and Applications (the "Decl.") at *4, Ormet began in 1956 as an aluminum manufacturer at a facility along the Ohio River in Hannibal, Ohio.  By 2004, the company had grown to eight facilities in six states with operations that included aluminum production, rolling, recycling and coating.  Id. 

Low prices for aluminum and high energy costs forced the company to file for bankruptcy protection in Ohio in January of 2004.  The Bankruptcy Court for the Southern District of Ohio confirmed Ormet's plan of reorganization in December of 2004.  Decl. at *5.  As the company enters bankruptcy a second time, this time in Delaware, Ormet operates an aluminum smelter facility in Hannibal Ohio (256 acres) and a refinery in Burnside, Louisiana (1,100 acres).  Decl. at *7.  In the weeks leading up to bankruptcy, Ormet employed over 1,100 individuals, 977 of which are represented by the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union.  Decl. at *8.

Reasons for Filing Bankruptcy

According to the company's Declaration, Ormet "is seeking the protections of chapter 11 of the Bankruptcy Code to provide breathing room to facilitate a sale of the Company's assets, maintain operations and maximize the value for the benefit of the Company, its estates, and the parties-in-interest."  Decl. at *17.  Ormet saw a substantial rise in the price of aluminum in 2010 and 2011.  Based on the increase in prices, the company decided to re-start its Burnside Refinery in order to produce alumina, a key ingredient in aluminum production.  Id.  Since April of 2011, however, the company has watched aluminum prices drop over $900 per metric tonne.  Id.  For each $100 per tonne drop in the price of aluminum, Ormet experiences a $27 million drop in annual revenue.  Id.

Aside from a drop in aluminum prices, Ormet is also experiencing a rise in costs for electricity, raw materials and employee related (pension) expenses. Decl. at *17.  The company describes its financial situation over the last six months as a "perfect storm" that has resulted in a drop in liquidity.  Id.

Objectives in Bankruptcy

Prior to filing for bankruptcy, Ormet implemented a program to improve liquidity by delaying payments for electricity and pension benefits.  Decl. at *18.  The company also embarked on a marketing campaign looking for a potential buyer of Ormet's assets or equity.  Decl. at *19.  Despite contacting 21 potential purchasers, none were willing to provide terms or conditions for a potential sale. Instead, Ormet received a single offer from an affiliate of its secured lender.  That lender has put together an offer pursuant to a stalking horse purchase agreement.  Id. Under the purchase agreement, Ormet's lender has agreed to purchase substantially all of the company's assets subject to higher and better offers.  The lender will also provide an additional $30 million in new money which will provide the company with the postpetition financing needed to run a chapter 11 auction and seek related relief through the bankruptcy court.  Decl. at *21.

The Ormet bankruptcy is before Judge Mary F. Walrath.  Ormet is represented by the law firm Morris, Nichols, Arsht & Tunnell LLP.  The case is proceeding under case no. 13-10334(MFW). 

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Jason Cornell is an equity partner with the law firm Fox Rothschild LLP.  Jason is a creditors' rights attorney who is admitted and practices before the United States Bankruptcy Court for the District of Delaware and the United States Bankruptcy Court for the Southern District of Florida.  You can reach Jason at 302 427 5512 or jcornell@foxrothschild.com. 

Below are some additional posts Jason has written on Delaware bankruptcy litigation:

  Ten Things Every Commercial Landlord Should Know About a Tenant in Bankruptcy.

  Seeking Relief from the Automatic Stay in Delaware.

  A Tale of Two Bankruptcy Auctions.

  What Information is Required in a Chapter 11 Disclosure Statement?

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Background

On January 11, 2013, Handy Hardware Wholesale, Inc. ("Handy" or the "Debtor") filed a chapter 11 petition for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  As stated in Handy's court filings, the company is a wholesale purchaser of hardware supplies which it in turn sells to its members at a discount.  See Declaration of Thomas J. Schifanella, Jr. in Support of Chapter 11 Petition and First Day Pleadings (the "Decl.") at *4.  The company's members operate over 1,300 retail stores, lumber yards and home centers in 14 states in the United States, Mexico, South America and Puerto Rico.  Id..  In order to purchase inventory for its members, Handy Hardware buys from over 1,300 vendors.  By purchasing in bulk, the company is able to purchase inventory at a reduced cost and pass the savings on to its members.  Id.

Events Leading to Bankruptcy

Handy Hardware began purchasing for its members in 1961.  Over the years the company continued to add more members.  In 1986, Handy began an expansion project wherein it expanded its Houston warehouse from 100,000 square feet to 560,000 square feet and built a second warehouse in Meridian, Mississippi.  Decl. at *15.  Whereas the Houston expansion was funded with cash, Handy funded the Meridian warehouse facility through a $20 million bond.  Decl. at *9. 

Handy took on the debt from the Meridian whereas as the country entered into a recession.  As a result of poor economic conditions, the company was unable to grow at levels necessary to sustain operations of the Meridian facility.  Decl. at *15.  Although sales reached $240 million in 2011, increased operational costs and debt service generated an $8.4 million loss. Id.

Objectives in Bankruptcy

Given the loss associated with the Meridian warehouse, Handy decided to close that facility and re-route deliveries to its Houston warehouse.  Decl. at *16.  In November, Handy notified its employees at the Meridian warehouse that their positions would be eliminated effective January 31, 2013.  Decl. at *15.  Through bankruptcy, the company intends to restructure its debt with its lenders and emerge from chapter 11 proceedings with a consensual plan of reorganization.  Decl. at *16.   Handy is represented by the Delaware law firm of Ashby & Geddes, P.A..

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Jason Cornell is an equity partner with the law firm Fox Rothschild LLP.  Jason is a creditors' rights attorney who is admitted and practices before the United States Bankruptcy Court for the District of Delaware.  You can reach Jason at 302 427 5512 or jcornell@foxrothschild.com. 

Below are some additional posts Jason has written on Delaware bankruptcy litigation:

  Ten Things Every Commercial Landlord Should Know About a Tenant in Bankruptcy.

  Seeking Relief from the Automatic Stay in Delaware.

  A Tale of Two Bankruptcy Auctions.

  What Information is Required in a Chapter 11 Disclosure Statement?

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Introduction

On January 28, 2013 (the “Petition Date”), School Specialty, Inc, (“School Specialty” or “Debtor”), along with various affiliated entities, filed chapter 11 petitions for bankruptcy with the Delaware Bankruptcy Court. According to the Declaration of School Specialty’s Chief Administrative Officer, the company is one of the largest suppliers of educational products, equipment and curriculum for public school systems in the United States. See Declaration of Gerald T. Hughes in Support of Chapter 11 Petitions and First Day Motions (the “Decl.”) at *3. This post will look at School Specialty’s business and finances, why the company filed for bankruptcy as well as what the company’s objectives are while in bankruptcy.

Business Operations

Based in Greenville, Wisconsin, School Specialty’s business falls in to two segments – school supplies and curriculum based products. Decl. at *3-4. The company’s school supplies segment includes “commodity-based” supplies, furniture and supplemental learning items such as classroom technology products. Decl. at *4. School Specialty generates over 70% of its revenue from its school supply business, offering both its own proprietary products and “branded products.” Decl. at *3. At the curriculum level, the company develops and publishes products used by educators in teaching a particular subject such as math, reading or science. Decl. at *4.

As of its Petition Date, School Specialty employed over 2,000 employees, a quarter of which are sales professionals and administrative support staff. Decl. at *5. In addition to its sales force, the Debtor’s marketing program relies on the publication of over 12 million copies of its catalog and sales through various websites.   Id.

Debtor’s Financials

According to its Declaration, School Specialty generated revenues of $489 million in the first half of fiscal year 2013. Decl. at *6. The company’s revenues are extremely diverse. By that, no particular state or product offering accounts for a significant percentage of revenues. Instead, revenues are generated from school districts spread out across the country which purchase varying degrees of the Debtor’s products. Going in to bankruptcy, School Specialty has $193.6 million in outstanding secured debt under a revolving credit facility and term loan. Decl. at *8-9. The company also has $157 million in outstanding subordinated debentures which come due in 2026. Decl. at *11. 

Events Leading to Bankruptcy

Despite its diverse revenue base, School Specialty must operate within a cyclical business cycle that is tied to the academic school year. Decl. at *13. This results in profitable months from May through October (when schools place orders for products), followed by months where the company operates at a loss. The cyclical nature of its business complicates School Specialty’s cash flow, budgeting and general finances. Id. Given that School Specialty sells primarily to public schools, the company’s revenues are correlated to a large degree to state and local budgets. Since the recession in 2008, state and local governments have delayed or suspended implementing new curriculum guidelines. This, in turn, has resulted in schools purchasing less instructional materials from the Debtor. Decl. at *14. 

In the years leading up to bankruptcy, School Specialty implemented various programs geared toward reducing costs or improving business performance. Decl. at *14. Such measures included consolidating its call centers, reducing its workforce by 30% and renegotiating portions of its debt instruments. Decl. at *14-15. Despite these efforts, by January 4, 2013, the Debtor reported that it was not in compliance with the liquidity requirements of certain loan agreements. Soon after School Specialty filed for bankruptcy protection. Decl. at *17-18. 

Objectives in Bankruptcy

In order to proceed in a chapter 11 bankruptcy proceeding, School Specialty would need to obtain postpetition financing. Leading up to bankruptcy, the company began negotiations with its prepetition lenders regarding bankruptcy financing. Eventually, a proposal was reached wherein the Debtor’s prepetition lender agreed to debtor financing of $144.7 million. Decl. at *19. This financing, however, was conditioned on Debtor’s agreement to conduct a sale of substantially all of its assets under section 363 of the Bankruptcy Code. Id.

As part of their negotiations with the lenders, School Specialty has agreed to an asset purchase agreement which will allow the lenders to credit bid a portion of their debt toward the purchase price of the company. Decl. at *20. The lenders bid, of course, is subject to higher and better offers pursuant to bid procedures and an auction that must be approved by the Bankruptcy Court. 

The School Specialty bankruptcy proceeding is before Judge Kevin J. Carey. This case is proceeding under case no. 13-10125. School Specialty is represented by the law firm Young Conaway Stargatt & Taylor. 

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Jason Cornell is an equity partner with the law firm Fox Rothschild LLP.  Jason is a creditors' rights attorney who is admitted and practices before the United States Bankruptcy Court for the District of Delaware.  You can reach Jason at 302 427 5512 or jcornell@foxrothschild.com. 

Below are some additional posts Jason has written on Delaware bankruptcy litigation:

  Ten Things Every Commercial Landlord Should Know About a Tenant in Bankruptcy.

  Seeking Relief from the Automatic Stay in Delaware.

  A Tale of Two Bankruptcy Auctions.

  What Information is Required in a Chapter 11 Disclosure Statement?

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Introduction

On January 21, 2013, Carl’s Patio, Inc., and various related entities, filed chapter 11 petitions for bankruptcy in the United States Bankruptcy Court for the district of Delaware. Carl’s Patio started in 1993 and describes itself in court filings as “one of the leading retailer merchandisers of upscale outdoor furniture and accessories in the country.” See Declaration in Support of Chapter 11 Petitions (the “Decl.”) at *2.  At the height of operations, the company operated retail locations in both California and Florida. However, prior to filing for bankruptcy, the Debtor closed five of its underperforming stores in California and four in Florida. The company currently operates ten retail stores and a warehouse in South Florida. Decl. at *4. Aside from retail locations, Carl’s Patio also sells its products online. Decl. at *5. 

Events Leading to Bankruptcy

Carl’s Patio sells products under its own private label – the “Fifth and Shore line,” as well as offering nationally branded merchandise. Although Carl’s sells national brands at a higher price point, the company enjoys a greater profit margin from its recently introduced private label. According to the company, it was the introduction of its private label which attributed to its net loss in sales for 2012. Specifically, in fiscal year 2011, Carl’s Patio generated a net income of $912,324 against sales of $34.3 million. In fiscal year 2012, however, the company generated a net loss of $1.8 million against sales of $29.9 million. This loss, according to the Declaration, was due “primarily to launching more collections in the Debtors’ Fifth & Shore private brand line than were necessary.” Decl. at *6.

In addition to excessive inventory, the Debtor also attributes its bankruptcy filing to the economic downturn in general as well as “unsuccessful strategic initiatives” aggravated by poor marketing and increased competition. Decl. at *10. In order to keep their doors open, the Debtor has had to rely on existing debt facilities and extending trade payables. Id. It was under these circumstances in which the company decided to hire outside restructuring professionals.

Marketing Efforts

As part of its restructuring efforts, Carl’s Patio approached potential purchasers who might be interested in buying the company.  In October, Weinberg Capital submitted a letter of intent to purchase the company as a going concern.  Decl. at *12. The parties executed a draft purchase agreement in December of 2012 wherein they agreed to a "stalking horse" purchase price of $4.1 million.  Decl. at *13. As stated in its Declaration, Carl’s Patio believes the company cannot continue with operations without either a sale of its business or other restructuring. Decl. at *15. 

The Carl's Patio bankruptcy is before Judge Kevin Gross.  Judge Gross is Chief Judge of the Delaware Bankruptcy Court.  Carl's Patio is represented by the law firm Bayard, P.A.

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Jason Cornell is an equity partner with the law firm Fox Rothschild LLP.  Jason is a creditors' rights attorney who is admitted and practices before the United States Bankruptcy Court for the District of Delaware.  You can reach Jason at 302 427 5512 or jcornell@foxrothschild.com. 

Below are additional posts Jason has written on Delaware bankruptcy litigation:

  Ten Things Every Commercial Landlord Should Know About a Tenant in Bankruptcy.

  Seeking Relief from the Automatic Stay in Delaware.

  A Tale of Two Bankruptcy Auctions.

  What Information is Required in a Chapter 11 Disclosure Statement?

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Introduction

On January 11, 2013, Penson Worldwide ("Penson"), a clearing and settlement provider for the investment trading industry, filed chapter 11 petitions for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  In papers filed with the Bankruptcy Court, Penson describes itself as a company that provides "execution, clearing, custody, settlement, and technology products and services to financial firms."  See Declaration of Bryce Engel in Support of Chapter 11 Petitions (hereinafter, the "Decl." ), at *3.  After its start in 1995, Penson grew to become one of the largest independent securities clearing brokers in the United States.  Through its subsidiaries, Penson also became one of the largest independent clearing brokers in Canada, Australia and the United Kingdom.  Id.

Reasons for Bankruptcy

Penson attributes its need for bankruptcy protection to lower investor volume in the public markets, which in turn led to less commission fees and increased regulatory capital requirements.  Decl. at *17.  Penson's earnings and profitability are highly correlated to the strength and performance of global investment markets.  The last couple of years have created "substantial economic uncertainty and prolonged volatility in the world's financial markets."  Decl. at *16.  In 2010, average daily trading volume in the stocks dropped by 5% and again fell by 8% in 2011.  Decl. at *17.  Less market participation means less revenue for Penson.  The company's problems were compounded by increased competition and the loss of one of the company's largest institutional customers.  Id.

Penson's Financials

Penson's revenues for 2011 totaled $217.3 million. Decl. at *3.  A little under half of the company's revenues for 2011 came from clearing and commission fees, a quarter from interest income, 10% from technology products and 14% from other sources.  Id.  Penson's debt obligations include a $50 million revolving credit agreement, secured notes maturing in 2017 with a face value of $200 million and convertible notes maturing in 2014 with a face value of $60 million.  The company is also party to various inter company notes.  Decl. at *8-9.

Objectives in Bankruptcy

Prior to filing bankruptcy, Penson began negotiations with its note holders.  Those negotiations resulted in a consensual agreement for the liquidation of Penson's business.  Penson filed for bankruptcy with the intentions of implementing the previously agreed to "Joint Plan of Liquidation of Penson Worldwide, Inc., and Its Affiliated Debtors."  Decl. at *23.  The Penson bankruptcy proceeding is before Judge Peter J. Walsh.  Penson is represented by the Delaware law firm Young Conaway Stargatt & Taylor.

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Jason Cornell is a creditor's rights attorney and partner with the law firm Fox Rothschild LLP.  Jason is admitted and practices before the United States Bankruptcy Court for the District of Delaware.  You can reach Jason at 302 427-5512 or jcornell@foxrothschil.com. 

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Introduction

On November 14, 2012, Overseas Shipholding Group, Inc. ("OSG"), filed chapter 11 petitions for bankruptcy with the United States Bankruptcy Court for the District of Delaware.  OSG is a Delaware corporation and describes itself as a world leader in energy transportation.  See Declaration of OSG's Sr. Vice President in Support of Chapter 11 Petitions (the "Decl.") at *2.  The company was formed in 1969 as a result of the merger of five private companies.  The company's initial growth focused on delivering oil from Alaska to the western United States and the U.S. Virgin Islands.  In the last decade, however, the company has expanded its operations to include floating storage and offloading, as well as transporting liquefied natural gas ("LNG").  Decl. at *4.  This post will look at OSG's business operations and financial structure, why the company filed for bankruptcy and what its objectives are now that its in bankruptcy.

Business Operations and Finances

OSG has offices in North America, Europe and Asia in order to serve as a global shipper in the energy industry.  The company's vessels operate as either U.S. or non-U.S. flagged vessels.  The U.S. flagged vessels are built in the United States and maintained by U.S. crews to serve only U.S. ports.  The non-U.S. flagged vessels, on the other hand, provide international shipping using international vessels and crews.  Decl. at *5.  The company provides its customers with vessels through "charters".  Under this model, OSG can "charter-in" a vessel owned by another company that provides services for its customers, or it can "charter-out" one of its own vessels to another entity for a specific voyage.  Decl. at *6.

OSG operates a fleet of forty-one vessels that cover all of the five major fleet categories for crude oil vessels - VPlus, VLCC, Suezmax, Aframax and Panamax.  Decl. at *6.  The company's VPlus carriers are one of the largest tankers available, with a transportation capacity of 3.2 million barrels of crude oil. Id.  In addition to transporting crude oil, OSG also provides lightering services.  Lightering is the process where crude oil is removed from larger tankers and placed on to smaller tankers which can be transferred in to ports that do not accommodate large tankers. Decl. at *9.

Another major component of OSG's business is its "U.S. Flag" operations.  OSG is one of the largest owner/operators of "Jones Act" vessels.  The Jones Act, or Section 27 of the Merchant Marine Act of 1920, requires all goods delivered by water between U.S. ports be transported by ships flagged in the United States, built in the United States and crewed by citizens or permanent residents of the United States.  Decl. at *11.  OSG considers itself the "only major global tanker organization with a significant U.S. Flag Fleet."  Id.

Events Leading to Bankruptcy

OSG attributes its bankruptcy to two factors - (i)  a global decline in the demand for oil; and (ii) cash constraints due to maturing debt obligations.  Decl. at *25.  In recent years, OSG has had to deal with falling oil demand while at the same time experiencing more competition in the petroleum transportation industry.  With less demand for oil, there has also been less demand for OSG's tankers.  Changes in the nature of oil consumption are also affecting OSG's revenues.  Countries that import oil from abroad are now relying more on domestic production and existing inventories.  This drop in demand for foreign oil further depresses demand for tankers.  Decl. at *27.

Aside from weakening demand, OSG has also had to deal with increased supply in the tanker industry.  Before the 2008 recession, oil prices continued to rise, leading to additional orders for oil tankers. Once oil demand began to drop, the crude tanker charter rate fell in tandem.  For example, in 2009 the charter rate for VLCC tankers was $28,000 per day.  Decl. at *28.  By 2011, the charter rate for this tanker fell to $14,900 per day, representing a drop of 47 percent.  Id.

One of OSG's credit agreements is maturing in February 2013.  Decl. at *29.  Under this credit agreement, OSG is able to borrow up to $1.5 billion.  Under a second credit agreement, OSG's borrowing capacity drops from $1.5 billion to $900 million.  This $600 million drop in borrowing capacity comes at a time when OSG views the credit and capital markets as "all but closed" to the company.  Id.

Objectives in Bankruptcy

OSG filed for bankruptcy hoping to seek protection from its creditors and successfully reorganize.  Decl. at *30.  The company believes that without filing for bankruptcy, it will face individual creditor actions which will harm its business as a going concern.  The company also believes that bankruptcy is necessary in order to restructure its finances and provide it with additional liquidity.  The OSG bankruptcy is before Judge Peter J. Walsh.  OSG is represented by the Delaware law firm Morris Nichols Arsht & Tunnell LLP.

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Jason Cornell is an equity partner with the law firm Fox Rothschild LLP.  Jason is a creditors' rights attorney who is admitted and practices before the United States Bankruptcy Court for the District of Delaware.  You can reach Jason at 302 427 5512 or jcornell@foxrothschild.com. 

Below are additional posts Jason has written on Delaware bankruptcy litigation:

  Ten Things Every Commercial Landlord Should Know About a Tenant in Bankruptcy.

  Seeking Relief from the Automatic Stay in Delaware.

  A Tale of Two Bankruptcy Auctions.

  What Information is Required in a Chapter 11 Disclosure Statement?

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Introduction

On October 29, 2012, First Place Financial Corp., the holding company for First Place Bank (collectively, "First Place Bank" or "First Place"), filed Chapter 11 petitions for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  Based in Warren, Ohio, First Place Bank is a federally chartered stock savings association that is insured by the FDIC.  See Declaration in Support of First Day Motions (the "Decl.") at *2.   First Place operates over 40 branches in Ohio, Michigan, Indiana, and Maryland and describes itself as one of the "largest thrift institutions in the state of Ohio."  Decl. at *2.  The company's business model focuses on investing customer deposits in residential mortgage, home equity, commercial and construction loans.  Id.

Events Leading to Bankruptcy

First Place Bank is regulated by the Office of the Comptroller of the Currency (the "OCC").  However, prior to July 21, 2011, First Place was regulated by the Office of Thrift Supervision (the "OTS").   The OTS merged with the OCC effective July 21, 2011.  Decl. at *3, fn.1.  First Place has come under increased scrutiny by the OCC and OTS due to "excessive levels of adversely classified assets and inability to raise necessary capital ..." Decl. at *5.  These bad debts and poor liquidity, in turn, arose from the housing crisis that began in 2008, with drops in housing prices, increases in loan defaults and high unemployment.  Decl. at *3.

The OTS conducted examinations of the bank in August of 2010 and May of 2011.  As a result of the examinations, First Place Bank was found to have been operating with high levels of bad debts, poor earnings and inadequate levels of capital.  Decl. at *5.  The OTS required First Place to enter into Supervisory Agreements that were intended to develop plans to address problems at the bank.  Despite the Agreements, the bank's condition continued to worsen resulting in the OTS issuing a Cease and Desist Order on July 13, 2011.  Decl. at *5.  The Cease and Desist Order provided that if First Place Bank was unable to meet certain targets by December 31, 2011,  the bank was required to submit a contingency plan that provided for a merger with another federally insured bank or voluntary dissolution.  Decl. at *6.

Merger Attempts

Once First Place realized it was unable to satisfy the requirements of the Cease and Desist Order, it started considering ways in which to proceed with a merger or sale.  In June of 2012, First Place's investment banker began marketing the company to qualified purchasers.  Of the 44 potential purchasers identified by First Place, 15 expressed interest and 4 engaged in on-site due diligence.  Decl. at *7.  Of the four, only one entity, Talmer Bancorp, Inc., expressed an interest in acquiring First Place Bank.  Decl. at *8. 

Objectives in Bankruptcy

First Place and Talmer Bancorp ("Talmer") executed an asset purchase agreement on October 26, 2012.  According to the bank, if the Bankruptcy Court approves the sale to Talmer, First Place will be able to comply with OTS and OCC regulations, jobs will be saved and the bank will get to continue serving its customers.  Decl. at *8.  Under the Sale Agreement, First Place would be recapitalized to $205 million and Talmer would acquire the bank for $45 million.  Id.  After First Place entered into the asset purchase agreement with Talmer, the bank filed its chapter 11 petitions for bankruptcy hoping that the Delaware Bankruptcy Court will approve the proposed sale and allow remaining assets to be administered for the benefit of creditors.  Decl. at *10.

The First Place Bank bankruptcy proceeding is before the Honorable Brendan L. Shannon. The case is proceeding under Case No. 12-12961(BLS).  A copy of First Place Bank's Petition for Bankruptcy is available here for review.  A copy of First Place's Declaration in Support of First Day Motions is available here.  First Place is represented by the law firm Bayard, P.A.

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Jason Cornell is an equity partner with the law firm Fox Rothschild LLP.  Jason is a creditors' rights attorney who is admitted and practices before the United States Bankruptcy Court for the District of Delaware.  You can reach Jason at 302 427 5512 or jcornell@foxrothschild.com. 

Below are additional posts Jason has written on Delaware bankruptcy litigation:

  Ten Things Every Commercial Landlord Should Know About a Tenant in Bankruptcy.

  Seeking Relief from the Automatic Stay in Delaware.

  A Tale of Two Bankruptcy Auctions.

  What Information is Required in a Chapter 11 Disclosure Statement?

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On October 17, 2012, Back Yard Burgers, Inc. (the "Debtor" or "Back Yard Burgers"), filed chapter 11 petitions for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  Based in Nashville, Tennessee, Back Yard Burgers is a fast-food restaurant with 89 stores situated primarily in the southeastern United States.  See Debtor's Declaration in Support of Chapter 11 Petitions (hereinafter, the "Decl.") at *2.  Back Yard Burgers owns 25 of its restaurants.  The remaining 64 locations are owned by franchisees who have entered in to franchise agreements with the Debtor.  Id.

Back Yard Burgers opened its first restaurant in Cleveland, Mississippi in 1987.  The company competes in the general fast-food market, however, it focuses on that segment of the market that offers black-angus hamburgers and chicken grilled on-site.  Decl.at *4.  From January to August of 2012, the company generated revenue of $18.4 million and sustained a loss of $2.4 million.  Through franchising agreements, Back Yard Burgers generated $1.3 million in revenue for the first 8 months of 2012.  Id.

Back Yard Burgers attributes several factors to its need for bankruptcy protection - declining sales, increased food costs and high lease rates.  Decl. at *7.  According to the Debtor, in the years prior to bankruptcy its food sales were negatively affected by the downturn in the U.S. economy.  The company initially tried to address these issues without filing for bankruptcy protection, however, the Debtor contends that its prior attempts to reduce costs "were unsuccessful and actually exacerbated the problems."  Decl. at *2. 

The Debtor enters bankruptcy with several stores already closed.  While in bankruptcy, Back Yard Burgers intends to reject certain leases and contracts which the company believes are not profitable.  Decl. at *6-7.  The Debtor blames part of its problems on franchisees who "failed to effectively operate their franchised locations"  Decl. at *8. Back Yard Burgers purchased some of the underperforming franchised stores in an effort to improve operations.  In doing so, however, the company assumed lease obligations that exceeded monthly sales for certain stores.  Id.

Back Yard Burgers has operated at a loss for an extended period of time.  To meet debt obligations, the company has relied on funding from some of its key investors.  In the weeks prior to bankruptcy, the Debtor, its lender and certain investors entered in to a Plan Support Agreement.  Under the Support Agreement, the parties agreed upon a restructuring of Back Yard Burgers that is intended to result in the confirmation of a consensual plan of reorganization. Decl. at *3. 

The Back Yard Burgers bankruptcy is before the Honorable Peter J. Walsh of the United States Bankruptcy Court for the District of Delaware.  Judge Walsh previously served as Chief Judge of the Delaware Bankruptcy Court.  Back Yard Burgers is represented by Greenberg Traurig, LLP.  A copy of Back Yard's Petition for Bankruptcy is available here for review.  A copy of the company's Declaration in Support of Bankruptcy Petitions is available here. 

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Jason Cornell is a partner with the law firm Fox Rothschild LLP.  Jason is a creditors' rights attorney who is admitted and practices before the United States Bankruptcy Court for the District of Delaware.  You can reach Jason at 302 427 5512 or jcornell@foxrothschild.com. 

Below are additional posts Jason has written on Delaware bankruptcy litigation:

  Ten Things Every Commercial Landlord Should Know About a Tenant in Bankruptcy.

    Seeking Relief from the Automatic Stay in Delaware.

    A Tale of Two Bankruptcy Auctions.

    What Information is Required in a Chapter 11 Disclosure Statement?

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On October 17, 2012, Satcon Technology Corporation and various of its subsidiaries (collectively, "Satcon") filed chapter 11 petitions for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  Satcon's subsidiaries include Satcon Power Systems, Inc., Satcon Electronics, Inc., Satcon Power Systems, LLC, Satcon International and Satcon Technology.  As stated in Satcon's Declaration filed with the Delaware Bankruptcy Court (the "Decl."), Satcon provides "utility-grade power conversion solutions for the renewable energy market."  Decl. at *2.  More specifically, the company designs and produces power conversion equipment that allows renewable energy producers to connect to electric grids.  Id. 

Ten Things Every Commercial Landlord Should Know About a Tenant in Bankruptcy.

Satcon is one of many alternative energy companies that have filed for bankruptcy in Delaware in the last two years.  The company attributes its bankruptcy, in part, to the elimination by European governments of solar power subsidies.  In North America and Asia, Satcon has been forced to deal with greater competition and a drop in prices.  Decl. at *3.  In 2012, for example, Satcon's Powergate inverters used by utilities fell from its 2010 price of $.25 to $.15.  Decl. at *4.  Even though the company saw a substantial increase in the amount of products shipped from 2009 to 2011, revenue growth was far less substantial.  Decl. at *3. 

Formed in 1992, Satcon is a Delaware corporation headquartered in Boston, Massachusetts.  Decl. at *5.  Originally, the company focused on the design and manufacture of electrical power conversion for specialized markets such as hybrid electric vehicles and semiconductors.  Id.  In 1999, however, Satcon purchased Interpower Corporation, a Canadian company that sold power inverters used in renewable energy projects.  Decl. at *6.  Satcon's inverters take a direct current produced by a utility source and converts it into an alternating current capable of being used in an electric grid.  Id.  Typical customers include developers of large-scale solar farms.  Decl. at *7. 

 What Information is Required in a Chapter 11 Disclosure Statement?

From 2009 to 2011, Satcon watched its sales for power conversion products grow from $52 million to $188 million.  However, during this same period, the price of its products dropped considerably.  Decl. at *16.  In response to the drop in prices, the company began to reduce costs by closing its Canadian manufacturing facility and outsourcing production to contract manufacturers.  Id.  Under this approach, Satcon cut its workforce from 500 to approximately 100 as of October of 2012. Id. By June of 2012, Satcon was able to reduce its secured debt, trade debt and other expenses from $157 million to $72 million.  Decl. at *17.  By reducing its debt, Satcon also reduced its cash on hand. With limited liquidity, the company began experiencing problems trying to pay its vendors and lenders. Id.  Once the company determined that it could not reach a restructuring agreement with its lenders, Satcon decided to file for bankruptcy and restructure its debt and operations under the protection of the Bankruptcy Code.  Decl. at *19. 

Seeking Relief from the Automatic Stay in Delaware.

The Satcon bankruptcy is before the Honorable Kevin Gross.  Judge Gross is the Chief Judge of the Delaware Bankruptcy Court.  Satcon is represented by Dennis Meloro of Greenberg Traurig LLP.  A copy of Satcon's Declaration in Support of Bankruptcy Petitions is available here for review.  A copy of Satcon's Bankruptcy Petition is available here. 

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Jason Cornell is a partner with the law firm Fox Rothschild LLP.  Jason is a creditors' rights attorney who is admitted and practices before the United States Bankruptcy Court for the District of Delaware.  You can reach Jason at 302 427 5512 or jcornell@foxrothschild.com. 

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On October 16, 2012, battery maker A123 Systems, Inc., and various subsidiaries, filed chapter 11 petitions for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  A123 started its business in 2001 seeking to capitalize on the growing use of lithium-ion batteries in transportation and energy systems.  According to papers filed with the Bankruptcy Court, the company first began producing commercial batteries in 2006.  See Declaration of David Prystash in Support of Chapter 11 Petitions and First Day Motions (hereinafter the "Decl.") at *4.  By 2007, A123 began building two additional plants and leasing facilities in China to assemble the batteries.  Id.  A123 went public in September 2009 wherein its shares began trading on the NASDAQ Stock Market.  Decl. at *5. 

At the time the company filed for bankruptcy, A123 employed over 1,700 employees in facilities in the U.S. China and Germany.  The company's headquarters are based in Waltham, Massachusetts and U.S. manufacturing facilities are located in both Massachusetts and Michigan.  Decl. at *9.  From 2007 to 2011, A123's revenue grew from $41 million to $159 million.  However, despite the growth in revenue, the company has operated at a loss for every year its been in business.  Decl. at *9.

A123 describes its client base as "industry-leading companies that value and require high battery performance."  Decl. at *12.  One of its larger customers, Fisker, uses A123's batteries in its Fisker Karma vehicle.  Id. A123 determined in 2011 that some of its battery packs used in the Fisker vehicles had safety issues relating to the battery cooling system.  Although there were no "safety incidents" involving the defective batteries, the company nevertheless had to expend substantial amounts of time and expense correcting the problem.  Decl. at *31. Fisker reduced its orders of A123 batteries in third quarter 2011.  Id.

In 2012, A123's problems went from bad to worse.  In March the company began replacing batteries containing defective cells produced at its Michigan facility.   The "field campaign" to replace the defective batteries is estimated to cost over $51 million.  Because of this setback, the company expects to continue operating at a loss for the next several quarters.  Decl. at 31.  It was against this backdrop that A123 recently began looking for a buyer of its assets. 

Through a marketing campaign, the company identified several parties that were interested in purchasing certain assets.  Eleven parties signed confidentiality agreements and ten received access to A123's data room.  Decl. at *33.  Going in to bankruptcy, A123 has secured an agreement with Johnson Controls to receive $72.5 million in debtor in possession financing.  In addition to seeking approval of the debtor in possession financing, the company will seek approval to sell certain, but not all, of its assets to Johnson Controls under an asset purchase agreement.  The company believes it has identified other bidders who are willing to purchase those assets not acquired by Johnson Controls.  Decl. at *35.  At the end of the day, the objective of the bankruptcy proceeding is to sell substantially all assets pursuant to section 363 of the Bankruptcy Code.  Id.

A123 is represented by the law firm Latham & Watkins LLP.

    Ten Things Every Commercial Landlord Should Know About a Tenant in Bankruptcy.

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Jason Cornell is a partner and bankruptcy attorney with the law firm Fox Rothschild LLP.  Jason  practices before the United States Bankruptcy Court for the District of Delaware.  You can reach Jason at 302 427 5512, or jcornell@foxrothschild.com.

For  readers seeking more information concerning Delaware bankruptcy proceedings, below are prior posts I have written that address various bankruptcy-related issues:

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On October 10, 2012, Vertis Holdings, Inc. ("Vertis"), and various related entities, filed chapter 11 petitions for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  This is Vertis' third time in bankruptcy in recent years.  As stated in the company's Declaration in Support of Chapter 11 Petitions (the "Decl."), Vertis filed a prepackaged bankruptcy in Delaware in July of 2008.  Vertis filed its first bankruptcy in order to merge with American Color Graphics and restructure some of the company's debt.   Decl. at *10.  Vertis emerged from its first bankruptcy as the global economy entered a recession.  According to the company, the recession left it "overly leveraged and unable to service its restructured obligations.  Id. 

Vertis filed a second prepackaged bankruptcy in the Southern District of New York in November of 2010.  The second bankruptcy allowed the company to eliminate over $700 million in debt and raise $100 million from the sale of stock.  Decl. at *10-11.  Although Vertis viewed its second bankruptcy as a success, it emerged from bankruptcy facing a marketing and communications industry consisting of greater competition, slimmer margins and higher costs.  Decl. at *11.  Further, macroeconomic conditions led Vertis' customers to cut back on expenditures on the services and materials Vertis provides - advertising inserts and direct marketing.  The company's problems were compounded by the more recent loss of key customers which Vertis attributes to "the sheer competitiveness and substantial overcapacity of Vertis' marketplace, as well as customer concerns about Vertis' financial stability."  Decl. at *12. 

For those not familiar with Vertis' business, the company operates in two business sectors:  (i)  production of advertising inserts used in various publications; and  (ii) offering customers direct marketing programs.  Regarding the insert business, Vertis generated over $840 million in revenue for FY 2011, providing 71% of the company's revenue.  Decl. at *4.  Vertis' direct marketing program offers services such as data management, marketing campaign strategy and mail optimization services.  Id.  The company's revenue from its direct marketing divisions generated revenue of $284 million in FY 2011.   Decl. at *5.

Based in Baltimore, Maryland, Vertis operates throughout North America and provides goods and services to over 1,300 customers.  Decl. at *3.  Because of the nature of Vertis' business - advertising - it's services a broad client base that covers several industries, including grocery stores, home improvement stores, insurance companies and auto retailers.  Id. 

In the months leading up to bankruptcy, Vertis started a process whereby it sought a buyer of substantially all of the company's assets.  Through the bidding process, Vertis identified what it believed to be the highest and best offer to purchase the company's assets.  The prevailing bidder executed a stalking horse bidder agreement with Vertis.  Decl. at *16.  Under the agreement, the purchaser has agreed to pay $258.5 million for Vertis' assets, subject to higher offers.  After filing for bankruptcy, Vertis filed a sale motion wherein it seeks approval of bidding procedures, establishes criteria for qualified bids and outlines procedures for an auction.  Decl. at *18. 

The Vertis bankruptcy is before the Honorable Christopher S. Sontchi.  Vertis is represented by the law firm Richards Layton & Finger, P.A.  At the time of this post, the Clerk of the Court has noticed the 341 Meeting of Creditors for November 19, 2012 at 10:00 a.m. EST.  A copy of Vertis' bankruptcy petition is available here for review.  A copy of Vertis Declaration in Support of Bankruptcy Petitions is available here for review. 

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Jason Cornell is a partner and bankruptcy attorney with the law firm Fox Rothschild LLP.  Jason practices before the United States Bankruptcy Court for the District of Delaware.  You can reach Jason at 302 427 5512, or jcornell@foxrothschild.com.

For  readers seeking more information concerning Delaware bankruptcy proceedings, below are prior posts I have written that address various bankruptcy-related issues:

    Ten Things Every Commercial Landlord Should Know About a Tenant in Bankruptcy.

    Seeking Relief from the Automatic Stay in Delaware.

    A Tale of Two Bankruptcy Auctions.

    What Information is Required in a Chapter 11 Disclosure Statement?

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On September 28, 2012, Southern Air Holdings ("Southern Air" or "Debtor"), along with various related entities, filed chapter 11 petitions in the United States Bankruptcy Court for the District of Delaware.  As stated in its Declarations in Support of Chapter 11 Petitions and First Day Relief (the "Declaration" or "Decl."), Southern Air describes itself as a "long-haul, wide-body air cargo" provider for governments and commercial users.  Decl. at *2-3. Going in to bankruptcy, the company employs 611 full-time employees.  Southern Air is part of the United States government's "Civil Reserve Air Fleet."  Pursuant to agreements with the U.S.  Department of Defense, Southern receives air cargo contracts from the government and in turn agrees to pledge its aircraft in times of national emergency.  Decl. at *3.   Southern Air also has air cargo contracts with the United Kingdom Ministry of Defense.  Decl. at *4.

Aside from its military contracts, Southern Air provides air cargo services to commercial customers, the largest of which is DHL Worldwide Express.  Most of Southern's commercial contracts are known as "ACMI Contracts" whereby the Debtor provides aircraft, crew, maintenance and insurance.  Decl. at *4.  In 2011, Southern entered into a large contract with DHL whereby Southern uses its Boeing 777 fleet to ship DHL's cargo.  The company considers its relationship with DHL as "the cornerstone of [its] commercial air cargo transportation business."  Id.   Southern derives over 56% of its revenue from commercial air cargo transportation.  Its contracts with DHL make up over 63% of its commercial air cargo revenue.  Id.

Southern Air Transport was started in Miami, Florida in 1947.  In 1999, Southern Air was incorporated in Delaware and continues with the operations of the business that started in 1947.  The company is headquartered in Norwalk, Connecticut.  Southern Air is a privately held company with no publicly traded debt.  Decl. at *5-6. 

Southern Air attributes its bankruptcy to a significant reduction in air cargo spending on the part of the United States Department of Defense.  This drop in spending is due, in part, to the reduction in military personnel in Afghanistan and the mandatory budget cuts that are expected to be implemented by Congress.  Decl. at *10.  The drop in government spending hurt Debtor's revenues for the second and third quarters of this year.  By that, Debtor's revenue from government contracts for the second quarter of 2012 were off by 34% from the amount budgeted for the quarter.  The Debtor estimates that its revenue from government contracts will be 37% under budget for the entire year.  Id.  In addition to a drop in demand for government air cargo, Southern Air is also having to deal with what it describes as a "stagnant international freight market [] which is a direct result of the worst global economy in decades."  Id.

Southern Air began restructuring efforts back in 2010 by modernizing its fleet of aircraft.  This included retiring less fuel efficient 747s and leasing the more fuel efficient Boeing 777.  The company's pre-bankruptcy restructuring efforts were not enough to overcome the poor performance experienced in 2012.  In the months leading up to filing for bankruptcy in Delaware, Southern Air began discussions with certain lenders and investors regarding debtor in possession financing while the company reorganized under chapter 11.  Decl. at *13.  Those negotiations led to the execution of a "Support Agreement" in September pursuant to which the company would file a plan of reorganization and support agreement withing ten days of filing for bankruptcy.  Decl. at *15. 

The Southern Air Holdings bankruptcy proceeding is before Judge Christopher S. Sontchi under case no. 12-12690.  Southern Air is represented by the Delaware law firm of Young Conaway Stargatt and Taylor.  A link to Southern Air's bankruptcy petition is available here.   

For  readers seeking more information concerning Delaware bankruptcy proceedings, below are prior posts I have written that address various bankruptcy-related issues:

    Ten Things Every Commercial Landlord Should Know About a Tenant in Bankruptcy.

    Seeking Relief from the Automatic Stay in Delaware.

    A Tale of Two Bankruptcy Auctions.

    What Information is Required in a Chapter 11 Disclosure Statement?

-------------------------------------------------

Jason Cornell is a partner with the law firm Fox Rothschild LLP.  Jason is admitted and practices before the United States Bankruptcy Court for the District of Delaware.  You can reach Jason at 302 427-5512 or jcornell@foxrothschild.com.

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On September 11, 2012, Digital Domain Media Group and various related entities (collectively, "Digital Domain") filed chapter 11 petitions for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  Digital Domain filed several "first day" pleadings with the Bankruptcy Court, one of which is the Declaration of Digital Domain's Chief Restructuring Officer in Support of First Day Motions (the "Declaration").  As set forth in the Declaration, Digital Domain provides digital visual effects and computer-generated animation to the motion picture industry.  One of the related entities, Digital Domain Productions, has provided digital production work to over 90 major motion pictures.  Declaration at *3.  Mothership Media, Inc., a Digital Domain subsidiary, focuses on advertisement and entertainment "from concept to completion."  Id.  Another subsidiary, Digital Domain Institute, is a for-profit learning center which partnered with Florida State University to provide graduates with a Bachelor of Fine Arts degree focusing on motion picture and technical animation arts.  Decl. at *8. As of the date Digital Domain filed for bankruptcy, the company employs approximately 930 employees spread throughout is production facilities in California, Florida and British Columbia.  Decl. at *10.

According to Digital Domain's bankruptcy petition, the company has assets of $205 million against liabilities of $214 million. Assets include property and equipment which Digital Domain values at $78 million and film inventory valued at $29 million.  Decl. at *11. The company's debt consists of secured and unsecured notes, government contracts and lease obligations and traditional trade debt.  The debt includes $57 million in warrant and debt liabilities, $33 million in accounts payable and $35 million in government lease obligations.  Id.

Digital Domain attributes its bankruptcy to "negative working capital," which in turn caused the company to breach various liquidity covenants contained in its senior secured notes.  The senior secured lender issued a notice of default in August 2012. Although the parties entered into short term forbearance agreements, they were unable to reach a long term agreement concerning the defaults.  Decl. at 15.

Days before filing for bankruptcy, Digital Domain implemented a "strategic realignment" under which the company will focus on its core business of producing digital visual effects, animation and digital production for the entertainment and advertising industries.  As part of its restructuring, the company is stopping operations at its Port St. Lucie facility.  While in bankruptcy, the Senior Noteholders have agreed to provide debtor in possession financing while Digital Domain prepares for a sale of assets under section 363 of the Bankruptcy Code. 

The Digital Domain bankruptcy is before Judge Brendan L. Shannon of the United States Bankruptcy Court for the District of Delaware.  Digital Domain is represented by the law firm Pachulski Stang Ziehl and Jones LLP.  The bankruptcy is proceeding under case number 12-12568.  The Office of the United States Trustee has scheduled a meeting of creditors for October 19, 2012 at 10:30 a.m..

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Jason Cornell is a bankruptcy attorney with the law firm Fox Rothschild LLP.  Jason practices before the Delaware Bankruptcy Court.  You can reach Jason at 302 252 5833 or jcornell@foxrothschild.com.

For  readers seeking more information concerning Delaware bankruptcy proceedings, below are prior posts that address various bankruptcy-related issues:

    Ten Things Every Commercial Landlord Should Know About a Tenant in Bankruptcy.

    Seeking Relief from the Automatic Stay in Delaware.

    A Tale of Two Bankruptcy Auctions.

    What Information is Required in a Chapter 11 Disclosure Statement?

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On August 29, 2012, Contec Holdings, Ltd ("Contec") and various related entities filed chapter 11 petitions for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  Simultaneous with filing its bankruptcy petitions, Contec also filed with the Bankruptcy Court a declaration of the company's Chief Restructuring Officer in support of its first day motions (the "Declaration").  Contec was started in 1978 and provides repair services for cable and broadband operators.  The company services equipment such as cable set-tops, modems and satellite receivers.  See Declaration at *2.

Contec operates repair centers in New Jersey, Washington and Mexico.  The company employs 177 employees in the U.S. and 2,134 employees through a Mexican subsidiary.  In 2008, Bain Capital Partners, LLC acquired a controlling share of Contec.  Decl. at *4-5. 

Contec attributes its bankruptcy "to fast-paced and drastic technological and economic changes" which in turn has resulted in a decline in demand for cable services.  Decl. at *8.  Contec's revenues and profits have been on a continual decline in recent years.  Contec services the cable and satellite industry - an industry that has undergone rapid consolidation as cheaper alternatives to cable come on to the market.  As the number of cable providers shrinks, competition has increased among set top repair providers.  Decl. at *9.  Greater competition, shrinking demand and substantial debt ultimately led Contec to file for bankruptcy.

In late August Contec and certain of its creditors entered into a "Plan Support Agreement."  Under the Support Agreement, Contec sought support for a prepackaged plan of reorganization.  According to Contec, its senior lender supports the prepackaged plan and the company expects to receive similar support from other prepetition lenders.  Decl. at *10.  Under the proposed plan, Contec's senior secured debt will convert to equity.  The company's lenders have also made a carve out so that unsecured trade claims receive a "full recovery."  Decl. at *10-11. 

The Contec bankruptcy is before Judge Kevin J. Carey of the United States Bankruptcy Court for the District of Delaware.  Contec is represented by the law firm Pepper Hamilton.

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Jason Cornell is a bankruptcy attorney with the law firm Fox Rothschild LLP.  Jason practices before the Delaware Bankruptcy Court.  You can reach Jason at 302 252 5833 or jcornell@foxrothschild.com.

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Earlier this month, Tri-Valley Corporation and various affiliates (collectively "Tri-Valley" or "Debtors") filed chapter 11 petitions for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  This post will look briefly at Tri-Valley's business, why the company filed for bankruptcy as well as Tri-Valley's objectives while in bankruptcy.

On the same day that Tri-Valley filed petitions for bankruptcy, the company filed with the Bankruptcy Court what are commonly referred to as "first day motions."  Tri-Valley also filed a declaration of its President and CEO in support of its first day motions and applications (the "Declaration" or "Decl.").  As stated in its Declaration, Tri-Valley describes itself as a crude oil and natural gas exploration, development and production company. Decl. at *2.  The company also explores parts of Alaska for precious metals.  Id.

Most of Tri-Valley's oil and natural gas production properties are located in either the Oxnard Oil Field near Oxnard, California or the Edison Oil Field near Bakersfield, California.  The company also has natural gas fields in parts of Northern and Central California.  Tri-Valley produces a heavy oil out of the Oxnard wells with average production ranging from 300 to 500 barrels per day.  The company's operations in Oxnard generated a profit of $1.6 million in 2011 due in part to higher oil prices and production as well as lower production costs.  See Decl. at *5-6. 

According to Tri-Valley, several factors caused the company to file for bankruptcy protection, however, the three most significant causes included (i) low cash flow stemming from operations; (ii) disputes concerning one of the company's partnerships; and, (iii) an investigation of the company by the Securities and Exchange Commission.  Decl. at *18.  Beginning in 2011, Tri-Valley's operations became dependent on obtaining additional cash.  Without additional cash, the company could not fund the testing, drilling and development necessary to run an oil production company.  High volatility in future oil prices also hampered the company's revenues.  Id. Entities which had previously provided Tri-Valley with funding refused to do so without the company first filing for bankruptcy. 

On February 2, 2012, Tri-Valley received a subpoena from the SEC seeking documents and other data spanning from 2002 to the present.  The SEC seeks documents relating to the company's financial conditions, operations, transactions, business as well as the offer and sale of securities.  According to Tri-Valley, the SEC is conducting a fact finding investigation concerning possible violation of federal securities laws.  Decl. at *20.  News of the SEC investigation further hampered the company's operations and ability to obtain third party financing. Id. 

In June, Tri-Valley retained a financial consultant to review the company's finances and advise Tri-Valley on its alternatives.  After discussions with the company's core constituencies, the decision was made to place the company in bankruptcy and seek a sale of Tri-Valley's assets under section 363 of the Bankruptcy Code.  Decl. at *21.  Tri-Valley intends to begin the bankruptcy sale process immediately.  The company also intends to file a chapter 11 plan of reorganization within 30 days of its bankruptcy filing through which Tri-Valley can distribute the proceeds from its 363 sale.  Decl. at *22. 

The Tri-Valley bankruptcy is before the Honorable Mary F. Walrath of the Delaware Bankruptcy Court under case no. 12-12291(MFW).  Tri-Valley is represented by the law firm Landis Rath and Cobb LLP.  A copy of Tri-Valley's Petition for Bankruptcy is available here for review.  Tri-Valley's Declaration in Support of First Day Pleadings is available here.  Finally, a copy of the Request to Schedule a Meeting of Creditors is available here. 

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Jason Cornell is a bankruptcy attorney with the law firm Fox Rothschild LLP. Jason practices before the United States Bankruptcy Court for the District of Delaware.  You can contact Jason at jcornell@foxrothschild.com or at 302 252 5833.  For readers seeking more information concerning Delaware bankruptcy proceedings, below are prior posts that address various bankruptcy-related issues:

    Ten Things Every Commercial Landlord Should Know About a Tenant in Bankruptcy.

    Seeking Relief from the Automatic Stay in Delaware.

    A Tale of Two Bankruptcy Auctions.

    What Information is Required in a Chapter 11 Disclosure Statement?

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Earlier this month, GameTech International, Inc., and various related entities (collectively, "GameTech"), filed chapter 11 petitions for bankruptcy in the United States Bankruptcy Court for the District of Delaware. According to GameTech's Declaration in Support of its Chapter 11 Petitions (the "Decl."), the company entered the electronic bingo business in 1994  and the video lottery terminal ("VLT") and slot machine business in 2007.  Decl. at *5.   Based in Reno, Nevada, GameTech is a Delaware corporation that was incorporated in 1994.  GameTech also does business under GameTech Canada, a Canadian corporation and GameTech Mexico, a Mexican corporation.  Decl. at *3. 

The bingo segment of GameTech's business leases electronic bingo equipment and licenses operating software throughout the U.S. and Canada.  The company generates revenue through leasing and licensing fees with nonprofits, Native American tribes, casinos and other users of its equipment and software.  As for its VLT business, GameTech produces slot machines, video poker and other games and software.  Decl. at *3.  GameTech's total revenue for 2011 exceeded $30 million.  The company expects revenues to drop in 2012 and then increase again in 2013.  Id.

GameTech attributes its need for bankruptcy protection to a couple of factors.  First,  the gaming equipment market has become more competitive ever since 2008.  Further, GameTech's acquisition of the VLT business in 2007 has resulted in a "severe financial and operational strain" on the company.  Decl. at *7.  The VLT acquisition, coupled with the construction of new corporate headquarters, created liquidity problems which prevented GameTech from investing in technology upgrades.  Without the upgrades, GameTech has had trouble competing in the electronic gaming market.  Decl. at *8. 

The GameTech bankruptcy is due in part to the alleged actions of one of the company's competitors.  According to its Declaration,  prior to bankruptcy GameTech negotiated a forbearance agreement with its lenders.  The forbearance agreement expired on June 30, 2012.  Prior to its expiration, however, GameTech's lenders sold their rights and obligations under the credit agreement to one of GameTech's competitors.  Thereafter, the competitor notified GameTech that it was unwilling to further extend the forbearance agreement.  Soon after, the competitor sent GameTech a proposed merger agreement wherein it intended to acquire the company.  Once negotiations between GameTech and its competitor fell apart regarding the terms of a merger, GameTech filed its petitions for bankruptcy in Delaware.  Decl. at  *8-9. 

The GameTech bankruptcy is before Judge Peter J. Walsh.  GameTech is represented by the law firm Greenberg Traurig. 

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Jason Cornell is a bankruptcy attorney with the law firm Fox Rothschild LLP. Jason practices before the United States Bankruptcy Court for the District of Delaware.  You can contact Jason at jcornell@foxrothschild.com or at 302 252 5833.  For readers seeking more information concerning Delaware bankruptcy proceedings, below are posts covering various bankruptcy-related issues:

    Ten Things Every Commercial Landlord Should Know About a Tenant in Bankruptcy.

    Seeking Relief from the Automatic Stay in Delaware.

    A Tale of Two Bankruptcy Auctions.

    What Information is Required in a Chapter 11 Disclosure Statement?

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In June, Northstar Aerospace and various related entities (collectively, "Northstar") filed chapter 11 petitions for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  Northstar describes itself as a supplier of "components and assemblies for the commercial and military aerospace markets."  The company also provides machining, repair and overhaul services for the aerospace industry.  See Northstar's Declaration in Support of First Day Motions (the "Decl.") at *3.  The company enters bankruptcy following a marketing process for the sale of its business.  Id.  By filing for bankruptcy, Northstar hopes to continue with operations while the company finds a buyer.  Decl. at *4.  Click here to review a copy of Northstar's Declaration in Support of First Day Motions. 

Northstar operates six production facilities in the U.S. and Canada, the largest of which is located in Bedford Park, Illinois.  The Northstar U.S. Debtors include Northstar USA, Derlan USA Inc., Northstar Chicago and Northstar Phoenix.  Besides the U.S. companies, Northstar also has a Canadian parent company and various Canadian affiliates.  Decl. at *6.  The Northstar U.S. and Canadian entities work together to provide products used in helicopters manufactured by Boeing (the Apache helicopter), Sikorsky (the Blackhawk helicopter) and AgustaWestland (the Wildcat helicopter), among others.  Decl. at *7.  Even though the company provides parts and services to several helicopter manufacturers, the majority of Northstar's revenue comes from is contracts with Boeing.

Northstar attributes part of its need for bankruptcy on a lack of cash.  The company purchases metals and other raw materials from third party suppliers which must meet high standards set by Northstar customers.  Northstar's materials can only be purchased from qualified suppliers, however, the qualification process for a supplier can be both lengthy and expensive.  Decl. at *13.  Recent announcements concerning Northstar's financial problems have led most of Northstar's suppliers to require cash in advance or at the time of delivery.  Id.

Given that the Northstar bankruptcy was filed over a month ago, the Delaware Bankruptcy Court has had an opportunity to consider and rule on many of Northstar's initial motions.  On July 3rd, the Bankruptcy Court entered the following orders:

The Northstar bankruptcy is before Judge Peter J. Walsh.  Northstar is represented by the Delaware law firm, Bayard P.A. 

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Jason Cornell is a bankruptcy attorney with the law firm Fox Rothschild LLP. Jason practices before the United States Bankruptcy Court for the District of Delaware.  You can contact Jason at jcornell@foxrothschild.com or at 302 252 5833.  For readers seeking more information concerning Delaware bankruptcy proceedings, below are posts covering various bankruptcy-related issues:

    Ten Things Every Commercial Landlord Should Know About a Tenant in Bankruptcy.

    Seeking Relief from the Automatic Stay in Delaware.

    A Tale of Two Bankruptcy Auctions.

    What Information is Required in a Chapter 11 Disclosure Statement?

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On May 30, 2012, RG Steel, LLC and various related entities (collectively "RG Steel" or "Debtors") filed petitions for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  According to the Declaration of the company's CFO (the "Decl."), RG Steel enters bankruptcy as the fourth largest flat-rolled steel company in the United States.  At full capacity,  the company can produce 8.2 million tons of steel per year.  Decl. at 2.

Based in Sparrows Point, Maryland, RG Steel operates steel producing facilities in Maryland, Ohio and West Virginia.  RG Steel was formed in March 2011 as the result of a stock purchase agreement with Severstal U.S. Holdings II, Inc., and various related entities (collectively, "Severstal").  Decl. at *5.  RG Steel's acquisition of Severstal required Severstal to deliver $450 million in net working capital at closing. After the acquisition, however, RG Steel asserted an $82 million claim against Severstal.  According to RG Steel, this "working capital shortfall" brought on by "Severstal's misrepresentations has greatly exacerbated the company's liquidity problems, which ultimately culminated in the commencement of these cases."  Decl. at *6.  In addition to the capital shortfall claim, RG Steel also brings claims against Severstal for breach of representations, warranties and indemnification.  Decl. at *6.

Days after filing for bankruptcy, RG Steel filed a motion authorizing the sale of certain "idled" or "excess" assets (the "Sale Motion").  Under the Sale Motion, the company seeks authority to sell their idled steel facilities in Steubenville, Ohio.  The Sale Motion also seeks approval of procedures to sell or abandon other "excess assets" without having to seek further court approval.  See Sale Motion at *2-3.  As part of the Debtors' marketing efforts, three potential purchasers have expressed interest in the Steubenville facility.  According to the Debtors, the best offer for the Steubenville property totals $15 million.  Sale Motion at *4.  The Sale Motion provides for auction procedures in the event Debtors receive an offer exceeding the current offer which is "no more burdensome to the Debtors."  Sale Motion at *5.

RG Steel attributes its bankruptcy filing to "substantial liquidity problems" due to a drop in steel prices while raw material prices remain high.  Decl. at *14.  Normally, steel prices move in tandem with the prices of raw materials such as iron ore, scrap metal and coke.  Decl. at *14.  However, steel and material prices diverged last summer.  The company's financial problems worsened when they discovered the working capital shortfall claims attributed to Severstal.  Decl. at *14. 

The RG Steel bankruptcy proceeding is before the Honorable Kevin J. Carey of the United States Bankruptcy Court for the District of Delaware.  Judge Carey recently served as Chief Judge of the Delaware Bankruptcy Court.  Debtors are represented by the law firms Morris, Nichols, Arsht & Tunnell LLP and Wilkie Farr & Gallagher LLP.

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Jason Cornell is a bankruptcy attorney with the law firm Fox Rothschild LLP. Jason practices before the United States Bankruptcy Court for the District of Delaware.  You can contact Jason at jcornell@foxrothschild.com or at 302 252 5833.

For those not familiar with corporate bankruptcy proceedings, below are prior posts on issues that frequently arise in bankruptcy:

    Ten Things Every Commercial Landlord Should Know About a Tenant in Bankruptcy.

    Seeking Relief from the Automatic Stay in Delaware.

    A Tale of Two Bankruptcy Auctions.

    What Information is Required in a Chapter 11 Disclosure Statement?

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On June 22, 2012, Ritz Camera & Image, LLC, and various related entities (collectively, the "Debtors" or "Ritz II"), filed chapter 11 petitions for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  Those familiar with Ritz Camera know that the company's predecessor, Ritz Camera Centers, Inc. ("Ritz I") previously filed petitions for bankruptcy with the Delaware Bankruptcy Court in February 2009.  Ritz II, which was originally owned by David Ritz, members of the Ritz family, and other investors, was the successful bidder at Ritz I's bankruptcy auction. 

According to the Declaration of Debtors' Chief Restructuring Officer (the "Decl."), Ritz II is the largest specialty camera and image chain in the United States.  The company operates 265 stores in over 30 states.  Decl. at *3.  Debtors also own Ritz Interactive, LLC ("Ritz Interactive").  Debtors describe Ritz Interactive as an "e-commerce network of interactive websites including RitzCamera.com, WolfCamera.com, BoatersWorld.com, CameraWorld.com, PhotoAlley.com, eAngler.com, ScrapbookingAlley.com, NeedleCraftsEtc.com, CeilingFansandMore.com, and ShotAtShark.com."  Ritz Interactive is set-up so that it fills most of its online customer orders by purchasing inventory from the Debtors.  Ritz Interactive's annual revenue for FY 2011 totaled approximately $36 million, whereas Ritz II's annual revenue totaled approximately $254 million.  Decl. at *4-5. 

Approximately 18 months after Ritz II closed on the purchase of Ritz I's assets, Ritz II refinanced its secured debt and sought additional funding.  The refinancing resulted in a $25 million secured credit facility.  whereas the subordinated debt generated an additional $8 million. In return for receiving the additional funding, the Ritz family became a minority interest holder in the Debtors.  Decl. at *4. 

According to the Debtors, the company made a profit in the second half of 2011 and sales were "significantly improved" in May of 2012.  Decl. at *7.  Despite the relative success, Debtors were unable to continue operations without additional liquidity and a reduced store count.  Debtors enter bankruptcy intending to reject store leases they believe are not profitable and restructure their debts in a way that the company hopes will preserve business operations. Id. 

The Ritz Camera & Image bankruptcy proceeding is before the Honorable Kevin Gross.  Judge Gross is the Chief Judge of the Delaware Bankruptcy Court.  Debtors are represented by the law firm Cole, Schotz, Meisel, Forman & Leonard, P.A.

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Jason Cornell is a bankruptcy attorney with the law firm Fox Rothschild LLP. Jason practices before the United States Bankruptcy Court for the District of Delaware.  You can contact Jason with questions or comments at jcornell@foxrothschild.com or at 302 252 5833.

For those not familiar with corporate bankruptcy proceedings, below are posts on issues that frequently arise in bankruptcy:

    Ten Things Every Commercial Landlord Should Know About a Tenant in Bankruptcy.

    Seeking Relief from the Automatic Stay in Delaware.

    A Tale of Two Bankruptcy Auctions.

    What Information is Required in a Chapter 11 Disclosure Statement?

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Introduction

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

Operations

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

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

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

Events Leading to Bankruptcy

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

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

Objectives in Bankruptcy

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

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

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

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Introduction

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

Events Leading to Bankruptcy

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

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Introduction

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

Pinnacle's Business Model

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

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

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Introduction

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

Solar Trust's Operations

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

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

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Introduction

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

AFA's Operations

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

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Introduction

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

Cetero's Business Operations

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

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

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

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

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

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

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

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Introduction

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

Pemco's Business Operations

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

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Introduction

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

Business Operations

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

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Introduction

On February 10th, electricity operator LSP Energy LP ("LSP") filed chapter 11 petitions for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  As stated in court filings, LSP owns and operates an electricity plant located in Batesville, Mississippi.  Aside from its gas-fired electric generation facility, LSP's assets consist primarily of 58 acres of land in which it operates its facility.  See Declaration of LSP's President in Support of First Day Motions (the "Declaration" or "Decl.").

Events Leading to Bankruptcy

LSP runs three "gas-fired combined cycle electric generating units."  Decl. at *3.  In May of last year, one of the company's combustion turbines experienced a mechanical failure which triggered an interruption in operations.  According to the company, the service interruption from the turbine has lasted longer, and with greater effect, than originally anticipated.  Despite repairs, inspections and part replacements, the damaged turbine remains out of operation and is not expected to be back on line until March of this year.  See Decl. at *4-5. 

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Introduction

Earlier this month, International Media Group and various of its affiliates (the "Debtors"), filed chapter 11 petitions for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  Debtors' Chief Restructuring Officer filed with the Court a Declaration in Support of First Day Pleadings (the "Declaration") wherein he described the Debtors as pioneers in multi-lingual programming on U.S. television.  The Debtors started their business in 1977 and at one time broadcast content in 20 different languages.  By the 1990s, however, Debtors focused their programming on Asian languages.  Today, Debtors' television stations offer programming primarily in Chinese, Korean, Filipino, Vietnamese, English and Japanese.  Decl. at *3. 

Events Leading to Bankruptcy

Debtors' televisions stations are not network affiliated, but instead operate independently as local, "over the air" stations.  Decl. at *3.  Beginning in 2008, the television broadcasting industry experienced a strong decline in demand for advertising.  The drop in demand was especially significant in the paid programming sector of the industry - the same sector that Debtors operate in.  At the same time that the Debtors were experiencing a drop in demand, the company was also unable to find financing necessary to re-finance its debt.  As a result, Debtors received a default notice from their lenders which resulted in the parties entering in to a forbearance agreement in April of 2009.  Decl. at *5.

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Introduction

On January 3, 2012,  Coach Am Group Holdings Corp., along with certain of its affiliates ("Coach" and/or "Debtors") filed petitions for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  Aside from Coach America, Coach also operates under the brand names CUSA, American Coach Lines and Gray Line.  According to the Declaration of Coach's Chief Restructuring Officer (the "Declaration" or "Decl."),  Coach enters bankruptcy with approximately 6,000 employees and a fleet of over 3,000 vehicles. 

Events Leading to Bankruptcy

Like many chapter 11 debtors before it, Coach believes that its business is operationally sound, however, it needs to reorganize as a result of the recession that began in 2008.  Specifically, the company contends that its debt requirements and increased insurance costs have negatively affected liquidity.  Without sufficient cash, Coach is unable to implement much needed capital improvements.  Decl. at *7. 

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Introduction

On October 4, 2011, Real Mex Restaurants, Inc. ("Real Mex") filed chapter 11 petitions for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  In addition to Real Max, several of the company's subsidiaries also filed for bankruptcy protection.  These subsidiaries include Acapulco Restaurants, Inc., Chevys Restaurants, LLC, El Torito Restaurants, Inc., and El Paso Cantina, Inc. (collectively with Real Mex, the "Debtors").  This post will provide a brief summary of Real Mex's business operations, factors that lead to the company's bankruptcy filing, as well as the company's objectives now that it is in bankruptcy.  As I often do, much of the information provided in this post comes from the Declaration of Debtors' CFO in Support of First Day Motions (the "Declaration" or "Decl.").

Background

Real Mex describes itself as the "largest full service Mexican casual dining restaurant chain operator in the United States in terms of number of restaurants."  Decl. at *3.  As of June of 2011, Real Mex operated 178 restaurants, the vast majority of which are in California.  In addition to operating restaurants, Real Mex also franchises or licenses 30 restaurants in 10 states and two foreign countries.  The company's restaurants are spread all over the U.S., with stores in Washington state, New York, Florida and Louisiana (among others).  Id.

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Introduction

On October 17, 2011, commercial real estate developer Security National Properties Funding III, LLC ("Security National"), and certain affiliates filed chapter 11 petitions for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  Based in Eureka, California, Security National owns and operates 33 commercial properties in fifteen states across the U.S.  The company's holdings include commercial office space, retail locations, a mobile home park and industrial-use property.  See Declaration of Security National's CFO (the "Declaration"), filed with the Bankruptcy Court in conjunction with its bankruptcy petitions.  As is often the case,  this post will look at the debtor-company's finances and operations, why the company filed for bankruptcy and what it hopes to achieve while in bankruptcy.

Security National's Finances and Operations

Security National owns properties throughout the United States with specific holdings in Alabama, Alaska, Illinois, Kansas, Maine, Michigan, Minnesota, Mississippi, Montana, Nebraska, New York, North Carolina, South Carolina, Texas and Wyoming.  The company acquired most of its properties between 1993 and 2006.  Security National describes its business strategy as acquiring underperforming properties and then implementing a "stabilization of these properties through aggressive leasing and cost-cutting measures."  Decl. at *3. 

In 2009, Security National's lenders conducted an appraisal of the company's properties.  According to the lender's appraisal, the company's real estate portfolio was valued at $176 million.  Since receiving this appraisal, Security National points out that it has improved occupancy rates and income on its properties.  Decl. at *3.

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Introduction

On October 5, 2011, Open Range Communications ("Open Range"), filed chapter 11 petitions for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  According to the Declaration of Open Range's CFO (the "Declaration" or "Decl."), the company sought bankruptcy protection in order to either sell its assets as a going concern or wind down operations through a liquidation.  Decl. at *10.  This post will look at Open Range's business and the events leading to its bankruptcy.

Business History

Open Range describes itself as a wireless network provider to "unserved and underserved rural Americans."  Decl. at *2.  Based in Greenwood Village, Colorado, Open Range began operations in 2004.  By 2009, Open Range had secured a $267 million loan with the U.S. Department of Agriculture's Rural Utilities Services program.  Open Range's loan from the Department of Agriculture helped the company fund its buildout of its wireless broadband network.  Id.

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Introduction

As reported in the media, Friendly's Ice Cream Corporation ("Friendly's"), filed petitions for bankruptcy this week in the United States Bankruptcy Court for the District of Delaware.  According to the Declaration of Friendly's CFO (the "Declaration" or "Decl."), Friendly's and four of its affiliates filed petitions for reorganization under Chapter 11 of the Bankruptcy Code.  Relying primarily on the Declaration, this post will look at Friendly's businesses, why the company filed for bankruptcy as well as what the company's objectives are now that it is in bankruptcy.

Friendly's Business

Friendly's describes itself as a "leading full-service, family-oriented restaurant chain and provider of ice cream products in the Eastern United States."  Decl. at *2.  Going in to bankruptcy, the company operates 490 restaurants in 16 states.  Aside from its restaurant operations, Friendly's also manufactures and sells ice cream in supermarkets and other stores.  Id.  Friendly's owns 250 of its restaurants, whereas the remaining stores operate under franchise agreements.  The company's franchised stores are operated by 40 independent businesses.  Id. at *5.  Restaurant sales reached over $213 million in the first eight months of this year.  Id.

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On September 7, 2011, NewPage Corporation ("NewPage" or "Debtors") filed petitions for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  As stated in NewPage's Declaration in Support of First Day Motions (the "Declaration" or "Decl."), filed with the Bankruptcy Court, NewPage produces coated paper used in magazines, brochures catalogs and textbooks.  NewPage manufactures its products in paper mills located in Kentucky, Maine, Maryland, Michigan, Minnesota, Wisconsin and in Nova Scotia, Canada.  Decl. at *4.

NewPage sells the majority of products in the United States and Canada.  The company uses three primary sales channels - direct sales to customers, sales to brokers who re-sell the products to end users and specialty sales to packaging and label manufacturers.  Decl. at *7.  Going in to bankruptcy, NewPage's workforce consists of approximately 6,000 employees, 70% of whom are represented by labor unions.  The Debtors have 16 collective bargaining agreements with its unions, most of which are settled and ratified.  One collective bargaining agreement remains open and subject to negotiation as of the Debtors' petition date.

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Introduction

Yesterday, Solyndra LLC, a California-based manufacturer of solar cells, filed chapter 11 petitions for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  Less than one month ago, another solar cell manufacturer, Evergreen Solar, also filed petitions for bankruptcy in Delaware (my prior post concerning the Evergreen bankruptcy is available here for review).  According to papers filed by Solyndra in its bankruptcy proceeding, several factors attributed to its bankruptcy filing.  Like Evergreen, Solyndra suffered from a worldwide drop in solar panel prices.  This post will look at Solyndra's business, why it filed for bankruptcy, as well as what the company hopes to achieve through the bankruptcy process.

Background

Based in Fremont, California, prior to bankruptcy Solyndra manufactured and sold photovoltaic solar power systems designed for commercial and industrial users.  See Declaration of Solyndra's CFO in Support of First Day Motions (the "Declaration" or "Decl.") at *3.  A copy of Solyndra's Declaration is available here for review. The company began in 2005, focusing on research and development of its products.  By 2007, Solyndra entered into a lease for its first production facility and by July of 2008, it began shipping product.  Decl. at *5

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On August 15, 2011, Evergreen Solar ("Evergreen"), filed chapter 11 petitions for Bankruptcy in the United States Bankruptcy Court for the District of Delaware.  According to the Declaration of Evergreen's CEO, Michael El-Hillow (the "Declaration" or "Decl."), filed in support of its bankruptcy petitions, Evergreen incorporated in Delaware in 1994 and manufactures "multi-cystalline silicon wafers."  The company uses its silicon wafers in the production of photovoltaic solar cells, which in turn are installed in solar panels under the Evergreen trade name.  Decl. at 3.

Solar panels are the primary source of revenue for Evergreen. In 1997, the company began selling solar panels in Europe.  Evergreen continues to focus its sales on European consumers as governments in Europe traditionally subsidize consumer purchases of solar equipment.  To get its product to market, Evergreen sells through distributors, system integrators and other resellers that incorporate the company's product into an integrated system. Decl. at 4.

In 2007, Evergreen began construction on a manufacturing facility in Devens, Massachusetts.  In 2010, Evergreen began production in its facility in Wuhan, China.  Aside from the Massachusetts and Chinese facilities, Evergreen also manufactures components for its solar panels at a facility in Midland, Michigan.  Earlier this year, Evergreen closed the Devens, Massachusetts facility and plans to stop production at the Michigan facility as well.  Decl. at 5.

Evergreen attributes its bankruptcy filing to "an intensely competitive and rapidly evolving" solar power market.  Decl. at 12.  Further, Evergreen must compete with the Chinese solar industry - an industry it views as highly subsidized, yet unencumbered by high labor costs.  Prices in the solar industry dropped considerably in 2010 and 2011 due to both overcapacity and a general decline in demand.  Decl. at 13. 

Through bankruptcy, Evergreen hopes to market and sell substantially all of its assets.  Certain of the company's noteholders have agreed to a section 363 sale of assets wherein the noteholders will seek to credit bid for the Evergreen's assets.  Decl. at 17.  Through the auction process, the sale of Evergreen would be subject to higher and better offers of third parties, subject to the approval of the Bankruptcy Court.  Decl. at 17. 

The Evergreen bankruptcy is before the Honorable Mary F. Walrath.  Evergreen's bankruptcy counsel is Pachulski Stang Ziehl & Jones LLP.

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Jason Cornell practices before the Delaware Bankruptcy Court with the law firm Fox Rothschild LLP.  You can reach Jason at 302 427-5512 or jcornell@foxrothschild.com.

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Introduction

On August 12, 2011, Manistique Papers ("Manistique") filed a petition for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  Manistique seeks to reorganize its debts under Chapter 11 of the United States Bankruptcy Code.  According to the company's Declaration in Support of its Chapter 11 Petition (the "Declaration" or "Decl."), Manistique operates a "100 percent recycled fiber facility and [is] a leading North American producer of high-bright groundwood specialty products."  Decl. at *3.  This post will look at the nature of Manistique's business, why the company filed for bankruptcy as well as some of the company's objectives while in bankruptcy.

Manistique's Business

Based in Manistique, Michigan, Manistique operates a 100 year-old paper recycling mill on the Manistique River that employs approximately 150 people.  Operations at the Manistique mill include a 500-ton per day recycled paper facility, a paper manufacturing machine, two boilers and a waste water system.  Decl. at *4.  At full capacity, Manistique can produce 125,000 tons of recycled paper per year.  The company's end user for its product includes manufacturers of educational workbooks, office products and suppliers in the food services industry.  Id.

The Manistique mill was originally built by the owner of the Minneapolis Tribune in 1914 and was sold to the Mead Corporation in 1940.   Id.  The Marshall Field family acquired the mill in 1959, followed by Kruger Inc. in 1991 and private equity firm Merit Capital Partners in 2006.   Id.

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Introduction

On June 26, 2011, clothing retailer Deb Shops, Inc. ("Deb") and its related entities filed petitions for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  This post will look at why Deb filed for bankruptcy, the scope of the company's business, as well as provide an update on the Deb bankruptcy proceedings in the Delaware Bankruptcy Court.  Much of the information contained in this post comes from the Debtors' Declaration in Support of First Day Motions (the "Declaration" or "Decl."), filed in the Bankruptcy Court the same day Deb filed its petitions for bankruptcy.  Portions of Deb's Declaration are available here for review.

Reasons for Bankruptcy

It has been a long three years for retailers in the United States.  According to Deb, beginning in 2008 U.S. retailers have faced a challenging market due to the foreclosure crisis, increased unemployment and the tightening of commercial credit.  Decl. at *16.  The recession in the U.S. has reduced discretionary consumer spending, which in turn led to poor operating performance by Deb.  By January of 2009, Deb's poor performance triggered a loan covenant violation with its lenders.  Although the company was able to reach agreements with its lenders following the covenant breach, Deb continued to suffer from "liquidity issues" which made it difficult for the company to maintain proper inventory levels.  Decl. at *17.

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Introduction

On Monday, June 13, 2011, Perkins & Marie Callender's, Inc. ("Debtors"), filed chapter 11 petitions for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  According to the Declaration of Debtors' CEO in Support of its Chapter 11 Petitions (the "Declaration" or "Decl"), Debtors operate approximately 600 restaurants in North America.  As the name suggests, Debtors operate two types of restaurants - the Perkins chain and the Marie Callender's chain.  While the company owns many of the restaurants, the majority of stores are operated by franchisees.  See Decl. at *4.  A copy of Debtors' Declaration is available here for review.

Events Leading to Bankruptcy

Debtors describe themselves as "leading operators of family-dining and casual-dining restaurants."  Decl.  at *2.  Many of Debtors stores are located in California and Florida - two of the states hit hardest by the recession over the last couple of years.  High unemployment rates nationwide have lowered consumer discretionary income, which in turn has had a negative impact on Debtors' sales.  Decl. at *7.  Debtors also note that many of their stores, when compared to their competitors, have become "facially dated and stale," which limits the company's ability to maintain customer traffic.  Id.

Debtors' Financials

According to the Debtors, the company's trade debt totals approximately $8.6 million.  A copy of Debtors' Petition for Bankruptcy is available here, wherein Debtors list their 40 largest unsecured creditors.  Also in their Petition, Debtors list assets worth $289 million against total debts of $440 million.  Debtors' debt include $132 million in senior secured notes that mature in 2013, $190 million in unsecured notes and a revolving credit agreement with a limit of $26 million. 

First Steps in Bankruptcy

As is often the case in chapter 11 proceedings, the Debtors in this proceeding have filed certain "first day motions" wherein they seek relief from the Bankruptcy Court on an expedited basis.  One of the motions that may be of interest to trade creditors is Debtors Motion for Authority to Pay Claims Arising Under 11 U.S.C. 503(b)(9) (the "Twenty Day Claims Motion" or "Motion"). Under the Twenty Day Claims Motion, Debtors seek authority from the Bankruptcy Court to pay pre-bankruptcy claims for vendors and suppliers who are entitled to administrative priority status under 11 U.S.C. 503(b)(9).  According to the Debtors, such relief is essential to the company's operations as it will encourage vendors to continue providing post-bankruptcy trade credit going forward.  Decl. at **27-28. 

Debtors also filed a Motion to Reject Non-Residential Real Property Leases and Abandon Property (the "Motion to Reject").  According to the Debtors, prior to bankruptcy the company determined that certain stores were not profitable and should be closed.  Debtors have determined that the "Closed Locations" are no longer beneficial to the bankruptcy estates and that the Court should authorize Debtors to reject the various leases. 

Conclusion

This bankruptcy proceeding is before the Honorable Kevin Gross of the United States Bankruptcy Court for the District of Delaware.  A copy of Judge Gross' Chamber Procedures are available here for review.  Debtors are represented by the law firms Young Conaway Stargatt & Taylor, LLP and Troutman Sanders LLP. 

For those readers who are unfamiliar with the bankruptcy process, below are some of my prior posts that address common issues that arise in bankruptcy: 

Ten Things Every Commercial Landlord Should Know About a Tenant in Bankruptcy;

What to Expect in a Section 341 Meeting of Creditors;

A Closer Look at Chapter 11 Bankruptcy Auctions; and,

Subject Matter Jurisdiction of the Bankruptcy Court.

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Jason Cornell practices in the Financial Restructuring Department of the law firm Fox Rothschild LLP in Wilmington, Delaware.  You can reach Jason at (302) 427-5512, or jcornell@foxrothschild.com.

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Introduction

On May 23, 2011, Jackson Hewitt Tax Services Inc. ("Jackson Hewitt") filed a petition for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  This post will look at Jackson Hewitt's operations, why the company filed for bankruptcy, as well as what Jackson Hewitt hopes to achieve will in bankruptcy.  As is often the case,  much of the information discussed in this post comes from the Debtor's Declaration in Support of First Day Pleadings (the "Declaration" or "Decl.").  A copy of the Declaration filed in the Jackson Hewitt bankruptcy is available here for review.

Jackson Hewitt's Operations

Jackson Hewitt provides tax return preparation services for individual and corporate clients throughout the United States.  The company claims to be the second largest tax return preparer in the United States, having prepared approximately 2.6 million returns in the 2011 tax season.  Decl. at p. 2.  Jackson Hewitt operates through a network of 700 franchisees who work out of over 4,800 offices in the U.S..  Most of the returns prepared by Jackson Hewitt - approximately 84% - are prepared by one of the company's franchisees.  Id. 

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Introduction

On March 28, 2011, Harry & David Holdings ("Debtors") filed petitions for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  Debtors describe themselves as a "specialty retailer and producer of branded premium gift-quality fruit, gourmet food products and other gifts ..."  See Debtors' Declaration in Support of First Day Filings ("Decl."), at p. 3, a copy of which is available here for review.  Debtors sell their products under various name brands, including Harry & David, Wolferman's and Cushman's.  The company's more popular products include Moose Munch, Royal Riviera Pears and the Fruit-of-the-Month Club.  Decl. at p. 4.  This post will look briefly at the nature of Debtors' businesses, why Debtors' filed for bankruptcy and what Debtors hope to achieve while in bankruptcy.

Debtors' Businesses

Unlike many distributors, Debtors grow, manufacture and package many of the items that generate revenue for their businesses.  Debtors' operations include 3,400 acres of land in Oregon, approximately two-thirds of which are orchards in Southern Oregon.  Debtors' holdings also include a 54,000 square foot bakery and "chocolate complex," as well as a 646,000 square foot fruit and gift packaging center.  Decl. at p. 4.  Debtors also operate a 72,000 square foot call center in Oregon and maintain fruit packing and gift assembly complexes in Hebron, Ohio.  Id.

Debtors sell their products to consumers through direct marketing and retail stores.  Debtors' direct marketing includes sales through catalogs, direct mail and the internet.  Debtors also operate 70 retail stores generally located in malls and other retail centers.  Debtors also operate a "flagship Country Village store" in Medford, Oregon.  Decl. at p. 5. 

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Introduction

On February 1, 2011, AES Thames, LLC ("AES" or "Debtor") filed petitions for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  According to the Declaration of AES's President in Support of First Day Motions (the "Declaration"), AES owns and operates a coal-fired power plant in Montville, Connecticut.  This post will look briefly at AES's business, why the company filed for bankruptcy and what AES hopes to accomplish while in bankruptcy.

The Company's Operations

AES is a subsidiary of The AES Corporation ("AES Corporation").  As parent company to the Debtor, AES Corporation generates and sells electricity in twenty-nine countries.  Declaration at 3.  AES Corporation delivers electricity to over 11 million people worldwide, whereas it's debtor-subsidiary, AES, is capable of generating electricity for 100,000 homes.  As parent, AES Corporation produces energy from various fuel sources, including coal, gas, fuel oil and certain renewable sources, whereas the Debtor relies on coal for energy production   Declaration at *3-4. 

Events Leading to Bankruptcy

In addition to providing electricity, AES provides steam to a paperboard plant owned by Smurfit Stone-Container Corporation ("Smurfit Stone").  AES contends that its bankruptcy is due, in part, to the "uneconomic and onerous provisions" of its Steam Sale Agreement with Smurfit Stone.  Under the Public Utility Regulatory Policy Act ("PURPA"), Debtor is required to sell steam as a condition to selling electricity.  Although the production of steam represents only a fraction of the Debtor's overall production, the requirements under PURPA have resulted in the company selling steam at a significant loss.  Declaration at *8.  The company also attributes its bankruptcy filing to the increased cost of energy production.  Declaration at *7.

Objectives in Bankruptcy

AES hopes, while in bankruptcy, to receive a "breathing spell from prepetition litigation."  Declaration at *9.  Earlier this year, Smurfit Stone commenced a civil action in Connecticut seeking injunctive relief that would require AES to continue providing steam to Smurfit Stone, despite Debtor's contentions that it provides steam at a significant loss.  Declaration at *9.  While in bankruptcy, the Debtor states that it is considering all options, including rejection of its agreement to sell steam to Smurfit-Stone.

This bankruptcy proceeding is before the Honorable Kevin J. Carey, Chief Judge of the Delaware Bankruptcy Court.  Debtor is represented by the law firm Landis Rath and Cobb LLP. 

For those readers who are unfamiliar with the bankruptcy process, below are some of my prior posts that cover common topics in bankruptcy: 

Ten Things Every Commercial Landlord Should Know About a Tenant in Bankruptcy;

What to Expect in a Section 341 Meeting of Creditors;

A Closer Look at Chapter 11 Bankruptcy Auctions; and,

Subject Matter Jurisdiction of the Bankruptcy Court.

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Jason Cornell is a bankruptcy attorney with the law firm Fox Rothschild LLP.  Jason practices in Fox Rothschild's Wilmington, Delaware office.  You can reach Jason at 302 427 5512  or jcornell@foxrothschild.com.

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Introduction

On October 31, 2010, Wolverine Tube, Inc. ("Wolverine") filed petitions for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  According to the Declaration of Wolverine's President in Support of Debtors' Petitions (the "Declaration"),  the company's bankruptcy filing resulted from several factors, most notably a drop in cash due to volatility in commodity prices and high debt obligations.  See Declaration at pp. 2-3.  A copy of Wolverine's Declaration is available here for review and a copy of Wolverine's Petition for Bankruptcy is available here for review.

Company Background

Wolverine is a Delaware corporation formed in 1987 as successor to a company started in Detroit, Michigan in 1916.  Headquartered in Huntsville, Alabama, Wolverine manufactures and supplies copper tubing used in air conditioning systems, refrigeration, appliances and power equipment.  The majority of the company's business stems from the sale of tubing used by manufacturers of air conditioning units.  As of the date of filing for bankruptcy, Wolverine employed 850 employees and operates at seven facilities in the U.S., Mexico, China, Portugal and in the Netherlands.

Debtors' Finances

Going in to bankruptcy, Wolverine's book value of assets totals $115 million against liabilities of $238 million.  Revenues for the year ending in 2009 totaled $275 million, which according to the company "represents a significant decrease in net revenue compared to the prior year due to, among other things, a decrease in shipment because of lower demand as a result of the economic downturn."  Declaration at p. 7.  The company forecasts revenues for 2010 at $281 million.  In 2009, Wolverine issued 15% senior secured notes totaling $121.6 million to various noteholders.  These notes replaced previously issued notes paying at 10.5% interest.  Declaration at p. 15.

Objectives in Bankruptcy

According to Wolverine, its main objective in bankruptcy is to "restructure [its] indebtedness and significantly de-lever [its] balance sheet."  Declaration at p. 3.  To reach this objective, the company began negotiations pre-bankruptcy with its secured noteholders in an effort to reach an agreement regarding restructuring Wolverine's businesses.  As a result of these negotiations, Wolverine reached a restructuring agreement with noteholders holding approximately 71% of the outstanding principal.  This agreement with the noteholders was memorialized in a Plan Support Agreement which the company filed with the Bankruptcy Court as an exhibit to its Declaration.  Declaration at p. 3.  Wolverine's Plan Support Agreement is available here for review. 

This bankruptcy proceeding is before the Honorable Peter J. Walsh.  Judge Walsh previously served as Chief Judge of the Delaware Bankruptcy Court.  Wolverine is represented by the law firm Cozen O'Connor P.C..

For those readers who are unfamiliar with the bankruptcy process, below are some of my prior posts that cover common topics in bankruptcy: 

Ten Things Every Commercial Landlord Should Know About a Tenant in Bankruptcy;

What to Expect in a Section 341 Meeting of Creditors;

A Closer Look at Chapter 11 Bankruptcy Auctions; and,

Subject Matter Jurisdiction of the Bankruptcy Court.

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Jason Cornell is a bankruptcy attorney with the law firm Fox Rothschild LLP.  Jason practices in Fox Rothschild's Wilmington, Delaware office.  You can reach Jason at 302 427 5512 or jcornell@foxrothschild.com.

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On October 28, 2010, Banning Lewis Ranch Co. LLC and Banning Lewis Ranch Development I & II, LLC (collectively, "Banning"), filed chapter 11 petitions for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  A copy of one of the Banning bankruptcy petition is available here for review.  Banning owns over 21,000 acres of land situated on the east side of Colorado Springs, Colorado.  According to Banning's List of Unsecured Creditors, the company's three largest debts are for loans in excess of $170 million (combined).

According to reports by the Colorado Springs Gazette, there are currently 200 families living in the Banning community.  In Banning's Resolutions authorizing the company to file for bankruptcy, Banning states that its bankruptcy was the result of "uncertain economic and financial conditions generally."

The Banning bankruptcy is before the Honorable Kevin J. Carey, Chief Judge of the Delaware Bankruptcy Court.  Banning's bankruptcy counsel in this proceeding is Cross and Simon LLC. 

For those readers who are unfamiliar with the bankruptcy process, below are some of my prior posts that cover common topics in bankruptcy: 

Ten Things Every Commercial Landlord Should Know About a Tenant in Bankruptcy;

What to Expect in a Section 341 Meeting of Creditors;

A Closer Look at Chapter 11 Bankruptcy Auctions; and,

Subject Matter Jurisdiction of the Bankruptcy Court.

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Jason Cornell is a bankruptcy attorney with the law firm Fox Rothschild LLP.  Jason practices in Fox Rothschild's Wilmington, Delaware office.  You can reach Jason at 302 427 5512 or jcornell@foxrothschild.com.

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On October 20, 2010, Emivest Aerospace Corporation ("Emivest") filed a petition for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  Emivest manufactures the SJ30 business jet, which according to the company is "the world's fastest, highest flying and longest range, light business jet."  See Debtors' Declaration in Support of Chapter 11 Petition and First Day Pleadings at p. 3 the "Declaration").   Based in San Antonio, Texas, Emivest currently has three jets that are under production and orders for an additional 200 planes.  Decl. at p. 4.

Emivest was founded by Ed Swearingen in 1958, under the name Swearingen Aircraft.  Swearingen started a new company in 1995, Sino Swearingen Aircraft Corporation ("SSAC").  SSAC was funded primarily by entities affiliated with government of Taiwan.  From this investment came the production of the SJ30 aircraft.  In 2005, Emivest Aviation LLC acquired a controlling interest in SSAC.  As a result of this merger, SSAC changed its name to Emivest Aerospace Corporation.  Decl. at p. 3.

In November of 2009, an arbitration award was entered against Emivest in favor of Wells Fargo Securities LLC.  The arbitration award resulted from claims by Wells Fargo that Emivest owed it a transaction fee for an equity transaction.   An arbitration panel agreed with Wells Fargo and awarded it over $4.2 million.  In June of this year, Emivest and Wells Fargo entered into a forbearance agreement whereby Wells Fargo would not collect on the arbitration award.  In return, Emivest agreed to pay $700,000 in monthly installments.  As of the date of filing for bankruptcy, Emivest had paid Wells Fargo $225,000 under the agreement.  Decl. at p. 7-8.

Aside from the arbitration award, Emivest has also suffered from a lack of sufficient funding.  According to Emivest, the company suffers from significant write-downs that are the result of "inherent production inefficiencies and low initial production volumes typically associated with transitioning a complex product from development to commercial production."  Decl. at p. 8.  In the months prior to bankruptcy, Emivest realized that its large debt and lack of liquidity would require it to seek protection under chapter 11 of the Bankruptcy Code.  Working with its financial advisors, Emivest will explore in bankruptcy new financing, re-financing its current debt and/or selling part or all of the company under section 363 of the Bankruptcy Code.

This bankruptcy proceeding is before the Honorable Mary F. Walrath, a former Chief Judge of the Delaware Bankruptcy Court.  Emivest's bankruptcy counsel is Morris, Nichols, Arsht & Tunnell LLP.

For those readers who are unfamiliar with the bankruptcy process, below are some of my prior posts that cover common topics in bankruptcy: 

Ten Things Every Commercial Landlord Should Know About a Tenant in Bankruptcy;

What to Expect in a Section 341 Meeting of Creditors;

A Closer Look at Chapter 11 Bankruptcy Auctions; and,

Subject Matter Jurisdiction of the Bankruptcy Court.

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Jason Cornell is a bankruptcy attorney with Fox Rothschild LLP.  Jason practices in Fox Rothschild's Wilmington, Delaware office.  You can reach Jason at 302 427 5512 or jcornell@foxrothschild.com.

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On October 12, 2010, Consolidated Horticulture Group, LLC and Hines Nursery LLC (the "Debtors"), filed petitions for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  According to the Declaration filed by Debtors' President and CEO, Stephen Thigpen (the "Declaration"),  Debtors are one of the largest commercial nurseries in North America, selling shrubs and container-grown plants to commercial and retail customers.  Decl. at *2.  The company's customers include independent, local nurseries, as well as retail chains such as Home Depot, Wal-Mart and Lowes.  Id.  A copy of the Debtors' Declaration is available here for review.

As of the petition date, Debtors employed 825 full-time and 75 part-time employees.  Debtors grow 5,100 varieties of shrubs and plant, operating out of eight nurseries in Arizona, California, Oregon and Texas.   Most of the company's products are grown under the Hines Nurseries trade name.  Decl. at *4.  As is common in the nursery industry,  Debtors' sales are highly seasonal.  Sales for the company are strongest during the second quarter when Spring gardening is underway.    In 2009, 55% of the company's sales occurred during the second quarter.  Decl. at *12.

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Introduction

On September 6, 2010, Schutt Sports ("Schutt" or the "Debtor") filed petitions for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  This post will look briefly at the nature of Schutt's business, why it filed for bankruptcy and what it hopes to achieve while in bankruptcy.  As is often the case, much of the information contained in this post comes from Schutt's Declaration in Support of First Day Relief (the "Declaration").  A copy of Schutt's Declaration is available here for review.

Schutt's Business

Schutt describes itself as the "leading designer, manufacturer, distributor and marketer of team sporting equipment ..."  The Debtor leads the market in the sale of football helmets and face guards.  In addition to football equipment, the company sells softball pitching equipment, baseball bases and sports collectibles.  Decl. at *4.  The end users for Schutt's products include children, high schools, college and professional sports teams.  Schutt's sells its product in the U.S., Canada, Germany and Japan.  Decl. at *7. 

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Introduction

On October 4, 2010, International Garden Products filed chapter 11 petitions for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  International Garden Products ("IGP") is the parent company of Iseli Nursery ("Iseli") and Weeks Wholesale Rose Grower ("Weeks").  As affiliates of IGP, Iseli and Weeks also filed petitions for relief and are requesting the Court allow the companies to be jointly administered as a single bankruptcy proceeding.  See Declaration of James H. Hubert, III in Support of First Day Relief at pp. 7-8 (hereinafter "Hubert Decl. at  p. ___").  This post will look briefly at the nature of IGP's business and the reasons it filed petitions for bankruptcy.

Background

Incorporated in 1996, IGP grows and sells horticultural products to independent garden centers and landscapers throughout the United States.  Iseli focuses on growing conifers, Japanese Maples, and similar ornamental trees.  Weeks, on the other hand, grows and sells high quality roses.  IGP's businesses differentiate themselves from other growers by offering "premium quality" roses and trees which are sold to high end garden centers.  In doing so, the company focuses less on sales to high volume, national retailers.  Instead, IGP tends to sell its products in garden centers that can earn a higher price for for higher quality products.  Decl. at pp. 2-3.

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Introduction

On September 21, 2010, Thompson Publishing Holding Co., Inc. ("Thompson") and various related entities, filed petitions for bankruptcy in the United States Bankruptcy for the District of Delaware.  (View a copy of Thompson's Petition for Bankruptcy here.)  This post will look briefly at Thompson's business, why it filed for bankruptcy and what it hopes to achieve while in bankruptcy.  Much of the information provided in this post comes from Thompson's Declaration in Support of Chapter 11 Petitions (the "Declaration"), a copy of which is available for review here.

Thompson's Business

Thompson provides various forms of publications and information on a subscriber basis to professionals in the health care, financial services, human resources, legal and environmental industries (among others).  The company offers approximately 300 products and services that are delivered to customers in various formats, including newsletters, books, web subscriptions and email alerts.  Thompson's customer base comprises over 70,000 subscribers that include industries such as financial institutions, law firms, hospitals and accounting firms.  The vast majority of the company's revenues (74%) derive from subscription fees for Thompson's services.  Declaration at *3.

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 Introduction

On August 25, 2010, Trico Marine Services, Inc., filed petitions for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  According to Trico's Declaration in Support of First Day Pleadings (the "Declaration"), the company offers "sub sea services" including trenching and surveying services used in the offshore oil industry. Trico also provides towing and supply and service vessels to the offshore industry in regions such as Africa, Brazil, Asia and northern Europe. Located in Woodlands, Texas, Trico Marine Services is the parent company of 43 subsidiaries.  See Declaration at pgh. 4.  A copy of Trico's Petition for Bankruptcy is available here.

Events Leading to Bankruptcy

As a service provider to the oil industry, Trico's overall performance is dependent to a large degree on demand for oil and nature gas.  Beginning in 2009, the oil industry began reducing expenditures on oil and natural gas projects, due in large part to the "global economic slowdown."  Declaration at pgh. 27.  The worsening in global economic conditions led to a drop in demand for oil, leading to less demand for Trico's support services worldwide.  Lacking sufficient cash, Trico could no longer service its debts and other obligations.  Id. at pgh. 28.

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Introduction

On August 12, 2010, Caribbean Petroleum Corporation filed petitions for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  Caribbean Petroleum imports and distributes petroleum products in Puerto Rico through a network of 184 service stations.  This post will look at the events leading up to the company's filing for bankruptcy, as well as what the company hopes to accomplish while in bankruptcy.

One of the first documents Caribbean Petroleum filed with the Bankruptcy Court was the Declaration of Nicolas Pena (the "Pena Declaration"), Chief Financial Officer of the Debtor.  As stated in the Pena Declaration, Caribbean Petroleum's major assets include a deep water dock in San Juan, Puerto Rico, a "tank farm" containing 48 multipurpose tanks and 28 tanks that hold liquid petroleum gas.  In addition to the tanks and dock, Caribbean Petroleum owns six pipelines that connect the dock to the tank farm.  The company' s dock is the only on in San Juan harbor capable of servicing vessels up to 850 feet in length.  Pena Decl., pp. 6 - 7.

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Introduction

On July 6, 2010, Trade Secrets, Inc., and its affiliates (the "Debtors"), filed for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  A copy of the Debtors' bankruptcy petition is available here.  According to Debtors' Declaration in Support of Chapter 11 Petitions (the "Declaration"),  Debtors operate 612 retail and hair salon locations in the United States and Puerto Rico.  Debtors operate the majority of their stores in malls, while approximately 20% of its stores are operated in outdoor shopping centers.  Stores focus on the sale of hair care products and offer hair salon services.

Debtors' Business

Debtors operate four different types of stores:  Trade Secret, Beauty Express, PureBeauty and BeautyFirst.  As stated in the company's Declaration, Debtors operate 484 stores as "Trade Secret", 53 stores as "Beauty Express" and 31 stores as "BeautyFirst."  The Trade Secret and Beauty Express stores focus primarily on retail sales, while PureBeauty and BeautyFirst focus on salon services.  Debtors coordinate distribution of product for all stores through their headquarters in Ontario, Canada. 

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Introduction

On May 31, 2010, Specialty Products Holding Corp ("SPHC" or the "Debtor"), filed for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  This post is one of two posts regarding the SPHC bankruptcy.  The first post will look at the Debtor's businesses and events leading up to the bankruptcy filing, while a second post will look at how SPHC intends to deal with the large volume of asbestos claims that forced it to file for bankruptcy.

The Debtors' Business

According to documents filed in the Debtor's bankruptcy proceeding, up until May of this year SPHC operated under the name RPM, Inc., or Republic Powdered Metals, Inc..  SPHC is the parent company to Bondex International, Inc. ("Bondex").  Bondex filed for bankruptcy protection in Delaware at the same time as SPHC and the two bankruptcy proceedings are being jointly administered.  See Debtor's Declaration in Support of First Day Pleadings at *3. 

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Introduction

On May 11, 2010, Chem Rx Corporation ("Chem Rx" or "Debtor"), filed petitions for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  Based in Long Beach, New York, Chem Rx claims to be the third largest long term care pharmacy in the United States (a link to the company's website is available here).  Chem Rx's customers include nursing homes, group homes, correctional institutions and other long-term care facilities.  The company sells both prescription and non-prescription drugs, medical equipment and surgical supplies to institutions in New York, New Jersey, Pennsylvania and Florida.  See Chem Rx's Declaration in Support of Chapter 11 Petitions and Request for First Day Relief (the "Declaration") at *2.

Background

As stated in its Declaration, Chem Rx was founded in 1958 as a retail pharmacy in New York.  By growing internally, and making certain acquisitions, Chem Rx grew to be the third largest long-term pharmacy in the U.S., behind Omnicare, Inc. and PharMerica Corporation.  The Debtor operates under four subsidiaries, each licensed in a separate state.  Acting primarily as a distributor, Chem Rx purchases pharmaceuticals in bulk and re-sells the product in response to physician orders. 

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Introduction

North American Petroleum Corp ("North American") filed for bankruptcy protection in the United States Bankruptcy Court for the District of Delaware on May 26, 2010.  According to North American's Declaration in Support of First Day Motions (the "Declaration"),  the company describes itself as an "exploration and production company which predominantly engages in unconventional well drilling operations for natural gas extraction" throughout Oklahoma.  The majority of the company's operations arise under a "Farmout Agreement" with Enterra Energy Corp.  Under the agreement, North American provides drilling services to Enterra and in return receives a 70% interest in Enterra's natural gas reserves.  See Declaration at *3. 

Events Leading to Bankruptcy

Working under the Farmout Agreement, North American and Enterra have developed more than 60 wells in Oklahoma.  In addition to the Farmout Agreement, North American and Enterra work under a Cost Recovery Agreement whereby Enterra agrees to provide funding for waste-water disposal and other well-related infrastructure needed by North American.  Enterra recently claimed that North American owed $15 million under the Cost Recovery Agreement.  Enterra also claimed that North American failed to meet certain drilling deadlines, causing Enterra to send a notice of termination of the Farmout Agreement.  North American's problems worsened when Enterra filed mechanic's liens against the company and then notified North American's customers of the liens ($9.2 million total). Worse still, Enterra instructed North American's customers to withhold funds pending the dispute.  See Declaration at *4-5.

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Introduction

Magic Brands, LLC, the owner of food chains "Fuddruckers" and "Koo Koo Roo,"  filed for bankruptcy in Delaware on April 21, 2010.  The company filed a chapter 11 petition for bankruptcy, hoping to reorganize its business and conduct a sale of most of its assets under section 363 of the Bankruptcy Code.  This post will look at the structure of Magic Brands' business, why it filed for bankruptcy, as well as what it hopes to achieve by filing for bankruptcy.  As is often the case on this blog, the information contained in this post comes primarily from the Declaration filed in support of the Debtor's first day bankruptcy pleadings.  A copy of the Declaration of Magic Brands' CFO is available here.

Magic Brands' Business

Fuddruckers began in 1980 in San Antonio, Texas, selling the "World's Greatest Hamburger" in a casual restaurant setting.  Since its beginnings, the company grew to 200 restaurants across the United States.  Presently, Magic Brands owns and operates 85 Fuddrucker restaurants plus it has franchise agreements with 135 Fuddrucker restaurants.  In 2003, the Debtor acquired Koo Koo Roo, a fast food chain located in Southern California.  Currently Magic Brands operate 13 restaurants under the Koo Koo Roo name. 

Magic Brands derives the majority of its revenue from operations of its corporate owned restaurants.  According to the company's Declaration, only 6% of Magic Brands' revenue comes from its franchisees and vending operations.  The company's revenue for 2009 totaled $144 million, down 5% from 2008. 

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Introduction

On March 30, 2010, Electrical Components International ("ECI"), filed a Petition for Bankruptcy in the United States Bankruptcy Court for the District of Delaware.  One of the first documents filed in ECI's bankruptcy proceeding was the Declaration of ECI's CEO in Support of Chapter 11 Petitions (the "Declaration").  The Declaration provides a good summary of the nature of ECI's business, the events leading up to ECI's bankruptcy, as well as ECI's objectives in bankruptcy.  Relying primarily on information provided in ECI's Declaration, this post will look briefly at why ECI filed for bankruptcy and what it hopes to achieve while in bankruptcy.

ECI's Business and Bankruptcy

ECI designs, builds and sells wire harnesses to the "white goods" appliance manufacturers.  The company's goods are also sold to customers in the transportation and HVAC industries.  Wire harnesses consist of wires and related components used in various electronic components.  Some of ECI's larger customers include Bosch, Chrysler, Delphi and GE.  ECI manufactures its wire harnesses in eleven plants, six of which are in Mexico, two in China and one in Poland.

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On March 1, 2010, Orleans Homebuilders filed for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  According to Orleans' Declaration in Support of First-Day Pleadings, the company filed for bankruptcy hoping to get the "breathing space"  necessary to reorganize its business. 

The circumstances leading up to Orleans filing for bankruptcy illustrate the recession's effect on home builders throughout the United States.  In 2006, Orleans' revenue had reached $987 million, however, by  2009 revenues were down to $335 million.  In response to the drop in new home sales, Orleans cut its spec home production by 53% and stopped construction all together in the Florida and Arizona markets.  Although the company was able to remain cash flow positive, Orleans ultimately had to cut its staff by 67%.  See Orleans' Declaration at p. 7.

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Regent Communications, a radio broadcasting company that operates 62 stations throughout the U.S., filed chapter 11 bankruptcy petitions in the Delaware Bankruptcy Court on March 1, 2010.  According to documents filed in support of Regent's bankruptcy petitions, the company enters bankruptcy with a pre-bankruptcy restructuring agreement that is supported by a large majority of Regent's prepetition senior lenders.  (See Regent's Declaration in Support of Bankruptcy Petitions here).  According to Regent's Declaration, the company's proposed Plan of Reorganization "provides for a full cash recovery to holders of general unsecured claims or such other treatment so as to render such holders unimpaired."

Regent attributes its need for bankruptcy on the general decline in ad revenue in the radio industry.  Radio companies rely on advertising dollars to operate.  The current recession has led many companies to cut back on advertising.  Regent also admits that it is highly overleveraged - its prepetition debt to lenders is approximately $204 million in secured loans (against assets of $166 million). 

Soon after filing for bankruptcy, Regent filed a motion seeking approval of its Disclosure Statement. The Honorable Kevin Gross, the judge presiding over Regent's bankruptcy, entered an Order on March 2, 2010 scheduling a hearing to consider Regent's Disclosure Statement on March 22, 2010 at 10:00 a.m. EST.  You may download a copy of Regent's Bankruptcy Petition here.

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Jason Cornell is an attorney with the law firm Fox Rothschild, LLP.  Jason practices in Fox Rothschild's Wilmington, Delaware office.  You may reach him at 302 427 5512, or jcornell@foxrothschild.com.

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On January 22nd, Affiliated Media, Inc. (the "Debtor" or "Affiliated"), filed a chapter 11 petition for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  According to documents filed with the Bankruptcy Court,  the Debtor's operations include daily and weekly newspapers, "niche publications," internet websites, four radio stations and a television station in Alaska.  Affiliated's bankruptcy follows a drop in revenue from $1.3 billion in 2007 to $1.06 billion in 2009.  Advertising revenue, the largest component of Debtor's revenue, dropped 14% over the last year.

Prior to bankruptcy, Affiliated circulated a prepacked plan of reorganization and disclosure statement.  Under the plan, Affiliated hopes to reduce approximately $930 million in debt down to $150 million.  If all goes as planned, Affiliated plans to emerge from bankruptcy in a short amount of time "poised for future growth and stability."  This bankruptcy proceeding is before the Honorable Kevin J. Carey, Chief Judge of the Delaware Bankruptcy Court.  Judge Carey is also presiding over the Tribune bankruptcy, another major newspaper publisher seeking bankruptcy protection in Delaware.   

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

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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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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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