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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).


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..


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.


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.


Recently, the LandSource Creditor Litigation Liquidating Trust (the “Litigation Trust”), commenced various avoidance actions in the United States Bankruptcy Court for the District of Delaware.  This post will look briefly at the events leading to the commencement of this bankruptcy proceeding. Further, the post will look at some of the issues that confronted the Debtor during the reorganization process.


LandSource Communities Development, LLC (“LandSource”), filed petitions for bankruptcy on June 8, 2008.  LandSource is a home builder.  Like other builders throughout the U.S., the company was severely affected by the decline in the U.S. real estate market, as well as the decrease in the availability of credit following the subprime mortgage crisis.  The drop in the demand for housing led to increased inventories of homes for builders.  This further depressed prices, worsening conditions even more for LandSource.

In January of 2008, LandSource was found to be in default of its prepetition loan agreements.  Specifically, the company exceeded the credit exposure limit due to the drop in value of its developed and non-developed property.  Despite entering into forbearance agreements with its lenders, LandSource was unable to restructure its debt without bankruptcy court protection.

Events During the Bankruptcy Proceeding

From the start, it was important that LandSource receive postpetition financing.  Under the debtor in possession financing agreement, LandSource was required to file a plan of reorganization by October 6, 2008.  By October 18, 2008, LandSource had failed to file a plan of reorganization resulting in its First Lien Lenders filing their own plan of reorganization.  Under the Lenders’ Plan, there would be an auction to sell off the company’s assets.

As economic conditions worsened, LandSource and its lenders determined that an auction to sell off assets was not feasible.  Instead, the parties agreed to a plan that reorganized LandSource as a going concern.  Under the revised plan, unsecured creditors would receive cash payments versus equity in the reorganized company.  Once the plan became effective, Lennar Corporation, a partner of LandSource, agreed to invest over $138 million in the newly reorganized company.

Commencement of the Preference Actions

On July 20, 2009, approximately 13 months after filing for bankruptcy, the Bankruptcy Court entered an order confirming LandSource’s Second Amended Chapter 11 Joint Plan of Reorganization (the “Plan”).  LandSource’s Plan became effective July 31, 2009.  Pursuant to the Plan, preference actions belonging to the bankruptcy estate were assigned to the Litigation Trust.  Under the Order confirming LandSource’s Plan, KDW Restructuring & Liquidation Services LLC was appointed the Litigation Trustee.

Pachulski Stang Ziehl Young and Jones serves as Plaintiff’s counsel.  This bankruptcy proceeding, along with these avoidance actions, are before the Honorable Kevin J. Carey, Chief Judge of the Delaware Bankruptcy Court.  For further information regarding this bankruptcy proceeding, see the Memorandum of Law in Support of Confirmation of the Second Amended Joint Plan, filed by Barclays Bank as administrative agent.  A copy of Barclay’s Memorandum is available here.  Prior posts from this blog concerning Delaware preference litigation are available here.