Posted on November 18, 2009 by Jason Cornell, Esq.

Trustees in the Pope & Talbot and Specialty Motors Bankruptcies File Hundreds of Preference Actions

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

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

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

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Posted on June 5, 2009 by Jason Cornell, Esq.

Clothing Retailer, Anchor Blue, Files for Bankruptcy in Delaware

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. 

The 363 Sales

Under one of Anchor Blue's asset purchase agreements, Levi Strauss & Co. agreed to serve as the stalking horse bidder for the purchase of the Levi's and Dockers outlet stores.  As the stalking horse, Levi's will submit an initial bid of $72 million.  Levi's bid sets the "floor" for subsequent bids.  In the event Levi's is not the successful bidder, its asset purchase agreement contains a break-up fee with the Debtor for $1.75 million (subject to approval by the Bankruptcy Court).

Anchor Blue's second asset purchase agreement seeks to auction off the Anchor Blue retail stores.  Under this asset purchase agreement,  Anchor Blue's lender agreed to serve as the stalking horse bidder.  Although the second purchase agreement contains certain protections for the stalking horse bidder, it does not provide a break-up fee like the one provided for Levi's.

Store Closings

In order to improve its profitability, Anchor Blue, working with its financial adviser Duff & Phelps, prepared a list of unprofitable stores which Anchor Blue intends to close.  According to its Declaration, Anchor Blue will conduct store closing sales that will allow it to sell the merchandise, furniture and equipment contained in the underperforming stores.  By closing certain stores, Anchor Blue hopes to reduce its overall administrative costs and increase liquidity.  

Whether Anchor Blue sells its stores, or closes unprofitable ones, landlords who lease commercial property to this company will want to know what happens when a debtor assumes or rejects a lease.  Late last year, I wrote a post on this blog titled "Ten Things Every Commercial Landlord Should Know About a Tenant in Bankruptcy."  Click here to read this prior post regarding issues that are relevant for commercial landlords when a tenant files for bankruptcy.

This bankruptcy proceeding is before the Honorable Peter J. Walsh, former Chief Judge of the Delaware Bankruptcy Court.  You can review a copy of Anchor Blue's Bankruptcy Petition here.

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

 
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Posted on April 28, 2009 by Jason Cornell, Esq.

Source Interlink, One of the Largest Magazine Publishers and Distributors in North America, Files for Bankruptcy

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. 

Events Leading to Bankruptcy

According to the Bankruptcy Declaration, the "recent economic recession and dislocation of credit markets has caused an unprecedented and severe decline in Debtors' print advertising revenue."  As the economy declines, many of the companies that advertise in Debtors' magazines have cut back on advertising spending.  Automotive manufacturers, one of Debtors' largest advertisers, are one of many industries Debtors' rely on for ad revenue that are in decline. 

Debtors' Finances

Going into bankruptcy,  Debtors debt structure includes an $867 million term loan, a secured revolver agreement drawn down to $160 million, subordinated trade debt of $70 million  and $465 million in unsecured notes.  As stated in the Declaration,  Debtors pledged substantially all of their assets as collateral securing the pre-petition loans.  Source-Canada Corp. is a non-debtor entity that Debtors contend is not a borrower or guarantor under the pre-petition loan agreements.  Even so, Debtors state that 65% of the voting stock in Source-Canada is pledged as collateral under loan security agreements. 

Although Debtors' stock is traded on NASDAQ, the company remains closely held.  Debtors estimate that there are only 125 holders of Debtors' common stock.  Debtors' largest shareholder is AEC Associates, which owns approximately 48% of the common stock outstanding.

First Steps in Bankruptcy

One of the first motions filed in this bankruptcy proceeding is Debtors' motion to seek additional time to file schedules and statements of financial affairs.  Debtors estimate that they have more than 50,000 creditors and serve over 100,000 retail stores in North America.  Given the size of Debtors' operations, they seek additional time to assemble and organize the information that must be filed with the Court.  Debtors did include in their bankruptcy petitions a list of its largest unsecured creditors.  Click here to review Source Interlink's list of its largest creditors. 

This bankruptcy proceeding is before the Honorable Kevin Gross.

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

 

 
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Posted on March 14, 2009 by Jason Cornell, Esq.

Monaco Coach Files for Bankruptcy and Seeks Order Approving Dealer Incentive Program

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. 

 

Debtors' Financials

According to Monaco's Motion to Use Cash Collateral,  Monaco's prepetition secured debt to Bank of America totals $35.6 million.  Bank of America contends that its working capital loan is secured by a first priority security interest in Monaco's accounts receivable and inventory.  Bank of America further asserts a second priority interest in Monaco's real estate.  Ableco Finance LLC claims that it has a term loan with Debtors for approximately $36.9 million.  Ableco's loan is secured with a second priority interest on Monaco's accounts receivables and inventory, and a first priority security interest on real estate. 

Monaco's top five trade creditors include Custom Chasis Products ($6.8 million), Quality Enterprises USA ($2.7 million),  Lazydays RV Center ($1.1 million), Onan Corp. ($1.0 million) and Hardwoods Specialty Products ($815,000).  Monaco's accounts receivables totaled $6.7 million immediately prior to filing for bankruptcy. 

Events Leading to Bankruptcy

Dealers in the RV industry commonly use "floor plan" financing with third party lenders to finance the dealer's purchase of RVs from manufacturers.  Floor plan loan agreements often require RV manufacturers to agree to repurchase RVs that remain unsold if the dealer defaults on the loan. Monaco has repurchase agreements with many of the floor plan lenders who loan to Monaco's dealers.  As the economy dropped, so too did demand for RVs.  The decline in demand led to greater dealer defaults, in turn requiring Monaco to repurchase inventory from the dealers in default.

Other factors also contributed to Monaco's need to file bankruptcy.  At the same time that consumers were reducing their spending in 2008, fuel costs rose substantially.  By the Fall of 2008, sales for Monaco's Class A diesel motorhomes (its least fuel efficient vehicle), dropped by 43%.  Monaco sells its RVs to dealers, not to consumers.  As a result of the drop in consumer demand, dealer inventories grew.  The overcapacity in the RV market triggered strong price competition, which further reduced revenues.  Finally,  the credit crisis that began in 2008 continues to limit dealer access to floor plan financing.  

Objectives in Bankruptcy

At its peak in 2006, Monaco employed approximately 6,500 employees.  By the time it filed for bankruptcy, it reduced its personnel down to 220.  Those employees that remain will maintain certain production lines while Monaco searches for a buyer.  Prior to bankruptcy, Monaco hired Imperial Capital Corporation to help Monaco sell portions of its business.  Imperial will continue working with Monaco to help find it a buyer during its bankruptcy. 

This bankruptcy proceeding is before the Honorable Kevin J. Carey, Chief Judge of the Delaware Bankruptcy Court.

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If you have any questions regarding this, or any other bankruptcy proceeding discussed on the Delaware Bankruptcy Litigation Blog, please contact Jason Cornell, Esquire at (302) 427-5512. 
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