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

Manufactured Homebuilder, Champion Enterprises, Files for Bankruptcy Hoping to Find Buyer

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.

 

First Steps in Bankruptcy

Champion's Declaration summarizes the various first day motions it filed at the same time that it filed for bankruptcy.  One of the more significant "first day motions" is a motion to approve debtor in possession financing to fund Champion's restructuring.  According to the Declaration,  Champion considered seeking debtor in possession ("DIP") financing from third parties, however, Champion's prepetition lenders (with liens on substantially all of Champion's assets) rejected certain proposals for alternative financing.  Champion weighed the risks associated with litigating with its prepetition lenders over third party financing and instead decided to borrow from its prepetition lenders. Under the DIP financing motion, Champion seeks $32 million in a "new money loan." 

During the months leading up to bankruptcy, Champion attempted to find a suitable buyer for the company.  As of the petition date, Champion had not found a buyer, but hopes to do so under the sale provisions of the Bankruptcy Code. This bankruptcy proceeding is before the Honorable Kevin Gross.  Click here to review the Chamber Procedures for Judge 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 a Delaware bankruptcy proceeding, you may contact Jason at 302 427-5512, or jcornell@foxrothschild.com. 
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Posted on September 2, 2009 by Jason Cornell, Esq.

Payment Processor, Cynergy Data, Files for Bankruptcy Seeking to Sell Substantially All of its Assets

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.

 

Sale Process

At the same time that it filed for bankruptcy, Cynergy also filed a motion approving bid procedures and the sale of substantially all of its assets.  Included in the sale motion are procedures to designate those contracts that will be assumed and assigned under the asset purchase agreement.  Cynergy proposes sending "Cure Notices" which will identify the contracts to be assigned, as well as the cure amount for any defaults, as provided for under section 365 of the Bankruptcy Code.  The sale motion also spells out how parties can file objections to the Cure Notice.

Creditors whose contracts are assumed and assigned to the purchaser of Cynergy's assets may stand in a substantially better position than those creditors whose contracts or leases are not assumed and assigned.  Under section 365 of the Bankruptcy Code, a debtor in bankruptcy must "cure" defaults under a contract , or provide adequate assurance that the debtor will promptly cure, before the contract can be assumed and assigned to a third party.

Cynergy's Financials

According to Cynergy's Petition for Bankruptcy, the company has assets of $109 million against debts of $186 million.  As stated in the Declaration, Cynergy entered into a senior credit facility for $39.8 million with Comerica Bank as agent, and a junior credit facility for $80 million with Dymas Funding Company as agent (both credit agreements are prepetition).  The company lists its 10 largest unsecured creditors as follows:

  1. Process America ... $2.8 million
  2. Paymentech ... $2.6 million
  3. TSYS ... $1.4 million
  4. wwwmygrantsitenet  ... $1.4 million
  5. Second Source ... $1.1 million
  6. DJM*Lifstylefit.com ... $900,764
  7. wwwfedgrantusa.com ... $812,629
  8. Merchant Processing Services ... $756,782
  9. Pivotal Payments ... $509,068
  10. Fast Transact ... $503,110

This bankruptcy proceeding is before the Honorable Kevin Gross. 

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Jason Cornell is a bankruptcy attorney in the Wilmington, Delaware office of Fox Rothschild LLP.  If you have questions regarding this or any other Delaware bankruptcy proceding, you may contact Jason at 302 427-5512, or jcornell@foxrothschild.com.  Fox Rothschild LLP does not represent Cynergy Data LLC in this bankruptcy proceeding.
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Posted on July 8, 2009 by Jason Cornell, Esq.

Metromedia Files Bankruptcy Following Shareholder Appraisal Action

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.

MIG's Corporate History

From its beginnings in the 1920s in to the 1990s, MIG operated businesses in the entertainment, photo and lawn and garden industries.  At different times in its history, MIG operated under the names "The Actava Group" and "Fuqua Industries."  Following mergers in 1995, MIG began shifting its operations to media, communications and entertainment in emerging countries that were previously part of the Soviet Union.  By 1997, MIG sold off most of its U.S. assets to MGM for $573 million.  Five years later, MIG used the proceeds from the sale to MGM to develop phone, radio and cable ventures in eastern Europe, Russia and Asia. 

By 2003, after several years of growth, MIG found itself low on cash and forced to sell assets and cut overhead.  Within two years of implementing a restructuring program, MIG scaled its business back so that all of its operations were limited to the Republic of Georgia. 

In 2007, MIG's board approved the sale of its common stock to a joint venture between Sun Capital Partners and Salford Capital Partners. By August of 2007, Sun Capital and Salford Capital, under the name "CaucusCom," acquired 90% of MIG's stock.  Following the stock purchase by CaucusCom, MIG's preferred shareholders exercised their right to demand an appraisal of the fair market value of their shares. 

Current Assets

Going into bankruptcy,  MIG lists its principal asset as 46% of the membership interests in International Telcell Cellular ("ITC").  According to MIG's Declaration, ITC owns Magticom, the largest cellular and fixed phone provider in Georgia.  MIG also owns interests in Ayety TV, a Georgian cable provider and Telenet, an internet service provider. 

Besides its corporate assets, MIG has nine employees who control the Debtors' operations and investments.  Two of Debtors' employees are based in the U.S., while the remaining seven work in London and Georgia. 

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 bankruptcy proceeding, you may contact Jason at (302) 427-5512 or jcornell@foxrothschild.com.

 
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Posted on June 20, 2009 by Jason Cornell, Esq.

Pacific Ethanol Files for Bankruptcy and Seeks DIP Financing From Its Prepetition Lenders

 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.

Pacific Ethanol's Financials

Going into bankruptcy, Pacific Ethanol's secured debt totals $247 million.  According to its bankruptcy petition, the company's largest unsecured trade creditors are as follow:

  • Delta T Corporation ... $2 million
  • Iderdrola Renewables ... $256,840
  • Novozymes North America ... $172,699
  • Simplex Grinnell ... $152,237
  • Northstar Chemical ... $83,857
  • Collins Electric ... $63,383

In the weeks before bankruptcy, Pacific Ethanol considered obtaining debtor financing from various parties including Lyles United, Bank of America, Versa Capital, PNC and Blackrock Kelso. However, in order to obtain debtor in possession financing, the postpetition lender would likely require a lien that primed WestLB's prepetition credit facility. This proved problematic for Pacific Ethanol as WestLB was unwilling to consent to its lien on the company's assets being primed by a postpetition DIP lender. Unwilling to fight with WestLB in Bankruptcy Court regarding the parties' rights under section 364(d) of the Bankruptcy Code (governing the use of debtor financing), Pacific Ethanol decided to enter into a debtor in possession credit facility with WestLB wherein WestLB would prime its own prepetition lien.

Pacific Ethanol, like other ethanol producers that filed for bankruptcy before it, was adversely affected by volatility in corn, natural gas and ethanol prices.  Corn prices do not rise and fall in the same manner as ethanol prices.  The price of ethanol is tied, to a great degree, to fuel prices.  The price of corn (a major ingredient in ethanol production), is affected by factors such as crop yields and weather patterns.  Pacific Ethanol claims its bankruptcy was the result of fluctuations in ethanol and corn prices, combined with high debt and a lack of cash. 

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 bankruptcy proceeding, you may contact Jason at (302) 427-5512 or jcornell@foxrothschild.com.

 
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Posted on June 1, 2009 by Jason Cornell, Esq.

R. H. Donnelley Corporation Files for Bankruptcy Hoping to Implement a Pre-Bankruptcy Restructuring Agreement With Certain Creditors

 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.

Going into bankruptcy, Donnelly's prepetition secured debt totals $3.6 billion.  Combined with its unsecured debt, Donnelly has total debt outstanding of $9.9 billion.  Like with other Chapter 11 debtors,  Donnelly's large debt played a significant role in its need to file for bankruptcy.  Donnelly's debt is the product of various aquisitions.  By 2009, the company faced interest payments of $400 million, and by 2010, principal payments were due totaling $1.39 billion. 

The Debtor's Restructuring Plan

Weeks prior to filing for bankruptcy, Donnelly entered into a restructuring agreement with a large majority of its unsecured bondholders and secured lenders.  According to the Debtors, the tentative restructuring plan "should provide a strong platform for the consensual plan of reorganization to be filed by the Debtors ... and should signficantly facilitate these proceedings ..."  Under the restructuring agreement, Donelly hopes to shed approximately $6.4 billion in debt - no small undertaking.

Donnelly's unsecured creditors will want to know what the percentage payout will be under a proposed plan of reorganization.  Statements made by Donnelly's CFO suggest that unsecured creditors will receive a high payout on claims in this bankruptcy.  According to Donnelly's Petition for Bankruptcy, it ten largest unsecured trade creditors are as follows:

  1. Google ... $2.4 million
  2. RR Donnelly Receivables ... $2.1 million
  3. Amdocs Inc. ... $1.7 million
  4. Yahoo ... $1.6 million
  5. Specialty Directory Distrib. Services ... $882,625
  6. Harmelin Media ... $745,891
  7. Product Development Corp. ... $723,843
  8. Quebecor Wordl ... $355,412
  9. Qwest ... $274,511
  10. Wiese Research Assoc. ... $272,500

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 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 April 10, 2009 by Jason Cornell, Esq.

Aventine Renewable Energy Files for Bankruptcy and Immediately Seeks Court Approval of Post-Petition Financing

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.

Besides producing ethanol,  Aventine operates a "marketing alliance" whereby it buys ethanol from other producers and sells it on the open market, receiving a commission.  In addition to purchasing from its alliance members, Aventine purchases ethanol on the spot market which it then sells through its distribution network.  Aventine's distribution network covers fuel markets on the east, west and gulf coasts of the United States. 

Events Leading to Bankruptcy

Aventine is not the first ethanol producer to recently file for bankruptcy.  In November, VeraSun Energy, a South Dakota-based ethanol producer, also filed bankruptcy in Delaware (read my post regarding the VeraSun bankruptcy here).  Like VeraSun, volatility in corn and ethanol prices played a significant role in Aventine's need to file for bankruptcy. 

Aventine's success is dependent to a large degree on what it calls the "corn spread" - the difference in price between ethanol and corn.  Although corn is the prime ingredient in ethanol, corn and ethanol prices do not move in tandem.  As stated in Aventine's Declaration, weather, crop conditions and international trade affect the price of corn, whereas crude oil and gasoline demand affect the price of ethanol.  In 2006, the commodity spread for ethanol reached historically high levels, only to fall to what Aventine considers "near break even cash margins" in 2008. 

Aventine's Bankruptcy Financing

One of Aventine's "first day" motions in bankruptcy is its Motion to Obtain Post-Petition Financing (the "DIP Financing Motion" or the "Motion").  Under the Motion, Aventine seeks $30 million in post-petition financing which it contends is "essential to the Debtors' efforts to preserve and maximize the value of their assets." Prior to bankruptcy, Aventine business operations were funded through cash receipts from operations.  Aventine's lenders assert a lien and security interest against these "cash collateral" assets.  According to Aventine's Motion, the lenders' claims against its cash leave it with no unencumbered cash in which to operate going forward.  Aventine therefore filed the DIP Financing Motion in order to use cash collateral to pay for services and expenses.

Aventine's Financials

According to Aventine's bankruptcy petition, Aventine has assets totaling $779 million and debts totaling $491 million.  Aventine lists the following entities as holding the largest trade creditor claims:

  1. Union Tank Car Co. ... $1.9 million
  2. Shell Energy ... $1.5 million
  3. Agri Energy ... $1.4 million
  4. Delta T Corp. ... $1.3 million
  5. Aurora Coop Elevator ... $1.1 million

This bankruptcy proceeding is before the Honorable Kevin Gross of the United States Bankruptcy Court for the District of Delaware.

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Jason Cornell is a corporate bankruptcy attorney in Fox Rothschild's Financial Services Department. 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 January 31, 2009 by Jason Cornell, Esq.

Nortel Files Bankruptcy In Delaware and Seeks Similar Relief From Creditors in Canada

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. 

The Common Carriers and Warehouse Motion

On its petition date, Nortel filed several "first day" bankruptcy motions, including a motion to pay prepetition common carrier and warehouse fees.  The Bankruptcy Court approved the motion the next day.  Pursuant to the Court's order granting the motion, Nortel is authorized in its discretion to pay prepetition common carrier and warehouse fees in the ordinary course of business.  The Court authorized Nortel to pay up to $3.5 million in common carrier charges and $5 million in warehouse fees.

Approximately two weeks after filing its motion to pay carrier and warehouse fees,  Nortel filed a motion to supplement first day orders.  In its motion to supplement,  Nortel stated that it received $6 million in additional common carrier charges which were not considered in the original motion.  Nortel now seeks to expand the relief granted in the motion to pay carriers, as well as expand or amend the relief sought in other first day motions.  Assuming the Court grants the motion to supplement, it will do so under section 105(a) of the Bankruptcy Code.  Section 105(a) provides, in pertinent part:  "[t]he court may issue any order, process or judgment that is necessary or appropriate to carry out the provisions of [the Bankruptcy Code]."

Creditor Constituency

You learn a lot about a debtor by looking at its largest creditors.  Acording to Nortel's petition for bankruptcy,  its ten largest unsecured trade creditors include:

  • Export Development Canada ... $187 million
  • Flextronics ... $22 million
  • Flextronics America ... $19 million
  • Flextronics Int'l ... $4.9 million
  • Seal Consulting ... $4.6 million
  • Computer Science Corp. ... $4.0 million
  • Jabil Circuit Inc. ... $3.8 million
  • Beeline ... $3.5 million
  • Infosys ... $2.9 million
  • JDS Uniphase Corp. ... $2.9 million

Conclusion

Rising costs and steeper competition were not the only factors leading to Nortel's bankruptcy.  The lack of financing also played a signficant role.  Now that it has filed for bankruptcy, it will be important to see whether Nortel is able to sell off assets to generate much needed cash.  Nortel's bankruptcy proceeding is before the Honorable Kevin Gross.
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