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

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.

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

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:

• Print
• Comments
• Trackbacks
• Share Link

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.

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

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.

• Print
• Comments
• Trackbacks
• Share Link

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.

• Print
• Comments
• Trackbacks
• Share Link

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.

• Print
• Comments
• Trackbacks
• Share Link

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.

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

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.

• Print
• Comments
• Trackbacks
• Share Link

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.

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

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.

• Print
• Comments
• Trackbacks
• Share Link

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. 

• Print
• Comments
• Trackbacks
• Share Link

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.

• Print
• Comments
• Trackbacks
• Share Link

Introduction

On August 4, Judge Mary F. Walrath issued an opinion in the Eclipse Aviation bankruptcy that discusses the scope of the Court's subject matter jurisdiction.  This issue - the subject matter jurisdiction of the bankruptcy courts - comes up less frequently in decisions than issues such as plan confirmation, relief from stay or avoidance actions (to name a few).  Often, the subject matter jurisdiction of a proceeding is simply not in dispute.  This reason alone is why Judge Walrath's decision is worth review:  it provides a brief but thorough look at how the Court decides whether it has jurisdiction over a particular matter.

Background

The procedural context of the Eclipse Aviation decision is interesting in itself.  The Plaintiff, a purchaser of aircraft from the Debtor, filed a motion to dismiss the Complaint it had previously filed as an adversary action.  Plaintiff originally filed the Complaint seeking declaratory relief that it possessed certain property interests in undelivered aircraft that were in the Debtor's possession.  During the course of the bankruptcy, Debtor was unable to consummate a sale of its assets and the case quickly converted to a chapter 7 liquidation.  Once a chapter 7 trustee (the "Trustee") was appointed, the Trustee sought to sell the estate assets including the planes that Plaintiff claimed an interest in.

• Print
• Comments
• Trackbacks
• Share Link

Earlier this month, Bettina M. Whyte, the SemGroup Litigation Trustee (the "Trustee") filed approximately 350 adversary actions against various creditors in the SemCrude bankruptcy.  The majority of the adversary actions are preference actions under 11 U.S.C. section 547 of the United States Bankruptcy Code.  Some of the adversary actions, however, allege defendants received fraudulent transfers from various SemCrude debtors (the "Debtors"). 

As stated in the Trustee's pleadings, Debtors filed for bankruptcy in July of 2008.  On November 30, 2009, Debtors' Fourth Amended Joint Plan of Reorganization (the "Plan") was confirmed by the United States Bankruptcy Court for the District of Delaware.  Debtors bankruptcy proceeding, as well as the Trustee's adversary actions, are before the Honorable Brendan L. Shannon. 

Pursuant to Plan,  the Trustee was appointed to oversee the SemGroup Litigation Trust.  Under the Plan, the Litigation Trust may pursue certain claims that would otherwise belong to the Debtors.  It is these claims that the Trustee seeks to liquidate through the various adversary actions.  

To read other posts on this blog concerning the SemCrude bankruptcy proceeding, click here.  Further, click here to read prior posts regarding developments in Delaware preference litigation, including a look at other recently commenced preference actions. 

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

Jason Cornell is a bankruptcy attorney with Fox Rothschild LLP.  Jason practices in Fox Rothschild's Wilmington, Delaware office.  He may be contacted at 302 427-5512, or jcornell@foxrothschild.com.

• Print
• Comments
• Trackbacks
• Share Link

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.

• Print
• Comments
• Trackbacks
• Share Link

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.

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

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.

• Print
• Comments
• Trackbacks
• Share Link