Beard Group Corporate Restructuring Review For January 2011

8/7/2019 Beard Group Corporate Restructuring Review For January 2011

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Beard Group Corporate Restructuring ReviewFor January 2011

Presented byBeard Group, Inc.

P.O. Box 4250Frederick, MD 21705-4250

Voice: (240) 629-3300Fax: (240) 629-3360

E-mail: [email protected]

An audio recording of this presentation is availableat http://bankrupt.com/restructuringreview/

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Welcome to the Beard Group Corporate Restructuring Review forJanuary 2011, brought to you by the editors of the Troubled

Company Reporter and Troubled Company Prospector.

In this month's Corporate Restructuring Review, we'll discuss fivetopics:

first, last month's largest chapter 11 filings;

second, large chapter 11 filings TCR editors anticipate in

the near-term;

third, a quick review of the major pending disputes inchapter 11 cases that we monitor day-by-day;


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Beard Group Corporate Restructuring Review for January 2011 -- page 2

fourth, reminders about debtors whose emergence fromchapter 11 has been delayed; and

fifth, information you're unlikely to find elsewhere about

new publicly traded securities being issued by chapter 11debtors.

January 2011 Mega Cases

Now, let's review the largest January 2011 chapter 11 filings.

Danilo Muoz reports that there was a continued decrease in

large Chapter 11 filings. Five companies with assets of at least$100 million filed for Chapter 11 bankruptcy in January 2011,compared to eight mega filers in December, 13 in November,three in October and six in September.

There was no Chapter 11 case in January 2011 involving acompany with more that $1 billion in total assets -- unlikeDecember 2010, when one billion-dollar case was filed; and

November, with two billion-dollar cases filed.

Last month's largest Chapter 11 case was by plastic bottlemaker Constar International, which filed on January 11 in the U.S.Bankruptcy Court for the District of Delaware. Constar reported$418 million in total assets and $414 million in total liabilities.

Other large bankruptcies in January 2011 were:

* Appleseed's Intermediate Holdings, which does businessas Orchard Brands. Orchard Brands sells clothing to people 55and older. Appleseed's, the corporate entity, sought chapter 11protection on January 19 in the District of Delaware, estimating itsassets at less than $500 million and its debts at more than $500million;


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* publisher Summit Business Media Holding Company,sought protection on January 25, also in Delaware. Summit is abusiness-to-business publisher and event organizer serving the

insurance, investment advisory, professional services and mininginvestment markets. Summit estimate assets and debts of $100million to $500 million in its Chapter 11 petition;

* FRE Real Estate, filed a Chapter 11 petition on January 4in the Northern District of Texas, estimating assets and debts of$100 million to $500 million; and

* Ultimate Acquisition Partners and CC Retail, filed theirChapter 11 petitions on January 26 in Delaware. UltimateAcquisition and CC Retail own the Ultimate Electronics chain ofstores, selling high-end entertainment and consumer electronics.The retailer estimated its assets and debts at $100 million to $500million at the time of the filing.

A total of 113 mega-cases were filed in 2010. In January2010, no billion-dollar case was filed. However, 15 companieswith more than $100 million in total assets sought Chapter 11protection. The largest filer was Mesa Air Group, disclosing $975million in total assets and $868 million in total liabilities.

Constar, Appleseed's Intermediate Holdings and SummitBusiness Media commenced pre-negotiated cases in January2011. Constar reached an agreement with the holders of morethan 75% of its Senior Secured Floating Rate Noteholders

regarding the terms of a consensual restructuring transaction thatwill significantly deleverage its balance sheet. The restructuringplan calls for, among other things, a reduction of the Company'scurrent debt level of US$220 million by roughly US$135 million toUS$150 million, with a significant corresponding reduction in cashinterest.


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This is Constar's second trip to the bankruptcy court.Constar sought Chapter 11 protection in December 2008, filing apre-negotiated Chapter 11 plan that reduced its debt load by

roughly $175 million. That plan took effect in May 2009.Operating losses caused by a significant decline in demand forthe Company's products from Pepsi-Cola and other customerscaused the so-called Chapter 22 filing.

Appleseed's Intermediate Holdings reached an agreementwith over 80% of its first lien secured lenders and 100% of itssecond lien secured lenders on the terms of a reorganization that

will cut its debt by over 55% from $420 million to about $310million, and improve the Company's operating flexibility.Appleseed's Intermediate Holdings will seek approval of theDisclosure Statement explaining its Plan at a hearing on March 1,2011, at 3:30 p.m.

Summit Business Media obtained approval from 83% of itslenders for a debt restructuring plan that will cut its outstandingdebt obligations by more than half -- roughly $135 million -- andmaterially enhance the Company's financial position. TheCompany expects to emerge from its restructuring in the first halfof 2011.

For fiscal year 2010, a total of 35 prepackaged or pre-arranged cases were filed -- about one in every three filings in2010.

Lehman Brothers Holding Corp. remains the biggestcorporate bust in history. Lehman, which filed in 2008, had $639billion in total assets and $613 billion in total debts at that time ofits filing.


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Dow Jones' DBR Small Cap reports that the number ofbusinesses seeking bankruptcy protection in January 2011 fell12.2% from the prior month, dropping total commercial filings totheir lowest level since July 2008.

Three-quarters of respondents in a recent AmericanBankruptcy Institute Quick Poll predict that bankruptcy filings willincrease in fiscal year 2011. A total of 53% of respondents"strongly agreed" that filings would increase, while 21%"somewhat agreed" that filings would increase.

Total bankruptcies from October 1, 2009 to September 30,

2010, were nearly 1.6 million, up 14% from fiscal year 2009 with1.4 million filings, according to the Administrative Office of theU.S. Courts. Bankruptcies have increased each fiscal year since2005, when Congress overhauled the Bankruptcy Code in anattempt to reduce the number bankruptcy filings.

In addition to the chapter 11 debtors mentioned in Mr.Muoz's report, the Troubled Company Reporter provides detailedreporting about every chapter 11 filing nationwide. Stay tuned tolearn more about obtaining a trial subscription to the TCR at nocost or obligation.

Anticipated Large Chapter 11 Filings

Now, let's turn to the topic of large chapter 11 filings TroubledCompany Reporter editors anticipate in the near-term.

Carlo Fernandez has compiled a list of eight companies he'sconvinced are nearing Chapter 11 bankruptcy:

Sbarro Inc.Borders Group


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LECG Corp.Gametech InternationalUnited WesternSatelites Mexicanos

Tasty BakingHarry & David

and we'll discuss each of these eight troubled situations.

(A) Satelites Mexicanos

Satelites Mexicanos, S.A. de C.V. is a Mexico-based satellite

service provider in Latin America. Satmex's fleet offershemispheric and regional coverage throughout the Americas.According to Mr. Fernandez, Satmex has reached an agreementwith the holders of more than two-thirds of the outstandingprincipal amount of its Second Priority Senior Secured Notes due2013 regarding a comprehensive recapitalization to be effectedthrough the solicitation of a prepackaged plan of reorganization tobe filed in the United States bankruptcy court.

The recapitalization will provide the resources for theCompany to finance the timely completion of Satmex 8, a satellitescheduled to be launched in 2012 to replace the Company'sSatmex 5 satellite, and to lay the groundwork for the futureconstruction of Satmex 7, which is intended to replace theCompany's Solidaridad 2 satellite.

Satmex has joined in a Restructuring Support Agreement

among the Supporting Holders and Holdsat Mexico S.A.P.I. deC.V., a newly formed Mexican company to effect the proposedrecapitalization, and which will be majority controlled by certainMexican partners in compliance with applicable Mexican foreigninvestment laws.


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The Plan contemplates that the recapitalization will befinanced with the proceeds of an offering of up to $325 million innew senior secured debt financing and the proceeds of a rightsoffering.

Under the terms of the Plan, holders of Satmex's FirstPriority Senior Secured Notes due 2011 will be paid out in cash atpar plus accrued interest. Holders of Satmex's Second PrioritySenior Secured Notes will receive their pro rata share of (i) a poolof equity interests in the indirect parent of reorganized Satmexand (ii) rights to invest in additional shares of the reorganizedcompany. If the Plan is consummated and certain other

conditions are satisfied, existing stockholders of Satmex willreceive their share of $6.25 million under a purchase agreementwith Holdsat Mexico S.A.P.I. de C.V. as part of the recapitalizationtransactions.

Centerbridge Partners, L.P., Monarch Alternative Capital,L.P., Moneda Asset Management, New Generation Advisors, LLC,Outrider Management, LLC, and certain of their affiliates havecommitted to exercise all of the rights granted to them under thePlan as holders of the Second Priority Senior Secured Notes andto purchase any interests which are not subscribed by otherholders.

Lazard and its Mexican alliance partner, Alfaro, Davila yRios, S.C., are serving as financial advisors to Satmex, andGreenberg Traurig is serving as U.S. counsel and Santamarina ySteta and Rubio Villegas & Asociados are serving as the

Company's Mexican counsel.

Jefferies & Company, Inc. is serving as the financial advisorto certain holders of the Second Priority Senior Secured Notes,and Ropes & Gray LLP is serving as U.S. counsel and CervantesSainz as Mexican counsel to this group.


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Satmex contemplates a prepackaged bankruptcyreorganization in the U.S. less than five years after emerging froma prior U.S. Chapter 11 case.

Satmex's balance sheet at June 30, 2010, showed $438million in assets, $516 million in liabilities, and a $78 millionshareholders' deficit.

(B) LECG Corp.

Global business advisory services leader LECG Corporation

has obtained a limited duration waiver -- until February 28 -- fromits current lenders relating to LECG's compliance with certainfinancial covenants under its term credit facility. LECG alsoannounced the receipt of an indication of interest to acquire thefirm.

The limited duration waiver is the third the Company hasreceived since November 15, 2010. The Term Credit Facilitymatures on March 31, 2011, and approximately $27.8 million isoutstanding under the facility. The Company says it does nothave sufficient resources to repay amounts outstanding under thefacility at this time.

The Company, in conjunction with William Blair & Company,the Company's financial advisor, continues to evaluate a variety ofpossible senior and subordinated debt and equity financingalternatives. The process is ongoing.

Separately, the Company received a non-binding indicationof interest with a view toward entering into a definitive acquisitiontransaction for the entire firm. The non-binding indication ofinterest sets the enterprise value of LECG at $104 million, on a


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cash free, debt free basis. LECG did not identify the party thatprovided the indication of interest.

LECG is a global litigation; economics; consulting and

business advisory; and governance, assurance, and tax expertservices firm with approximately 1100 employees in officesaround the world. LECG had $248 million in assets and liabilitiesof $127 million as of Sept. 30, 2010.

(C) Borders Group

The Wall Street Journal and Bloomberg News reported that

Borders Group is preparing for a possible bankruptcy-protectionwithin the next month. According to the Journal, Borders is stillfinalizing certain aspects of its restructuring plans ahead of apotential filing, including financing that would keep it afloat in courtand the number of stores it will need to close. Bloomberg News,citing people familiar with the matter, said the retailer will likelyclose at least 150 stores. Sources told the Journal that under thebankruptcy plans currently being negotiated, Borders is likely toclose between 150 and 200 stores.

Borders President Michael Edwards said at the end ofJanuary that the Company "is doing everything possible" tomaintain its relationships with vendors and publishers and avoid achapter 11 filing, and related that Borders has some kind ofcommitment from General Electric Capital Corp. for out-of-courtfinancing. John Wiley & Sons has disclosed that it has stoppedshipping books to Borders.

The sources also told the Journal that Borders is in talks withBank of America Corp. and General Electric Co.'s finance armabout a half-billion dollar debtor-in-possession financing pact thatwould keep the company operating after a court filing, the peoplesaid.


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The New York Times' DealBook said that Borders has askedpublishers to take up to one-third of the company's reorganizeddebt, but the exact percentage has not yet been determined. The

New York Times reported that the law firm Lowenstein Sandlerand the consulting firm Alvarez & Marsal represented publishersduring their meeting with Borders.

Jefferies & Co. is advising Borders on reworking its debtload.

Headquartered in Ann Arbor, Michigan, Borders Group is a

specialty retailer of books as well as other educational andentertainment items. It employs 19,500 throughout the U.S.,primarily in its Borders(R) and Waldenbooks(R) stores. The WallStreet Journal says Borders is the nation's second-largestbookstore chain by revenue, behind Barnes & Noble. As ofOctober 30, 2010, Borders had total assets of $1.35 billion, totalliabilities of $1.40 billion, and a stockholders' deficit of $40.8million.

[Borders filed for bankruptcy on Feb. 16]

(D) Sbarro Inc.

Sbarro, Inc., on January 31, determined that in light of itscurrent liquidity and capital resources, it will not make a $7.7million interest payment due on February 1, 2011, to the holders

of its senior notes under the Indenture, dated as of January 31,2007, among the Company, the guarantors named therein, andThe Bank of New York, as Trustee.

Sbarro said the failure to pay interest, if continued for 30days, will constitute an Event of Default under the Indenture.


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Accordingly, if the Company has not made this interestpayment by March 3, 2011, the Bank of New York or the holdersof at least 25% in principal amount of the outstanding senior notes

under the Indenture, will then have the right to provide anacceleration notice to the Company declaring the principal andunpaid interest on all the senior notes due and payable.

The Company's total outstanding obligations under theIndenture as of February 1, 2011, including accrued but unpaidinterest, are $157.7 million.

In addition, if the Company fails to make the interestpayment before the expiration of the grace period on March 3,2011, the failure will result in a new event of default under theFirst Lien Credit Agreement and the Second Lien CreditAgreement. As of February 1, 2011, there was $173.8 millionoutstanding under the First Lien Credit Agreement and $33.5million outstanding under the Second Lien Credit Agreement, ineach case including both principal and accrued but unpaidinterest.

The Company remains in discussions with its creditors andother stakeholders regarding the Company's long-term capitalstructure and potential strategic alternatives to address its long-term needs.

Melville, N.Y.-based Sbarro, Inc., is the world's leading Italianquick service restaurant concept and the largest shopping mall-

focused restaurant concept in the world. The Company has 1,056restaurants in 41 countries.

The Company's balance sheet at Sept. 30, 2010, showed$455 million in total assets and stockholder's equity of $16 million.


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The Wall Street Journal says Sbarro has hired the law firmKirkland & Ellis to advise it on restructuring its balance sheet.Sbarro has also hired Rothschild Inc. for restructuring advice.

(E) United Western Bancorp

United Western Bancorp Chairman Guy Gibson said in astatement that regulators' seizure of United Western's subsidiarybank could push the Company into bankruptcy and scuttle anyattempt to save the bank without using government funds.

United Western Bank of Denver, Colo., was closed on

January 21, 2011, by the Office of Thrift Supervision, whichappointed the Federal Deposit Insurance Corporation as receiver.Deposits and assets were sold by the F.D.I.C. to First-CitizensBank & Trust Company of Raleigh, North Carolina.

Mr. Gibson said he was surprised by federal regulators'seizure of United Western Bancorp's subsidiary bank because theholding company had $149 million in committed funding toward a$200 million capital raising needed to meet regulators'requirements.

As of September 30, 2010, United Western Bank had around$2 billion in total assets and $1.6 billion in total deposits. First-Citizens Bank & Trust Company did not pay the FDIC a premiumfor the deposits of United Western Bank.

Denver, Colorado-based United Western Bancorp, Inc., is a

holding company whose principal subsidiary, United WesternBank, was a community bank focused on Colorado's Front Rangemarket and selected mountain communities. The holdingcompany reported $2.2 billion in assets and debts of $2.1 billionas of June 30, 2010.


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(F) Gametech International

GameTech International on February 1, 2011, receivedwritten notice from U.S. Bank National Association, as agent for a

group of lenders, stating that the forbearance period under theCompany's credit facility expired on January 31, 2011. The letterfurther states that the Lenders and the Agent have the immediateright to commence action against the Company, enforce thepayment of the notes under the credit facility, commenceforeclosure proceedings under certain loan documents, andotherwise enforce their rights and remedies against the Company.

GameTech said it is actively engaged in discussions withU.S. Bank.

The Company's balance sheet at August 1, 2010, showed$47.5 million in total assets, $37.7 million in total liabilities, and$9.8 million in stockholders' equity. The outstanding balanceunder the term loan is $24.8 million.

GameTech International designs, develops, manufactures,and markets interactive computerized bingo equipment andsystems, video lottery terminals, slot machine gaming devices,and related software.

(G) Tasty Baking

On January 14, 2011, Tasty Baking Company entered into awaiver agreement and seventh amendment to its 2007 Credit

Agreement, with Citizens Bank of Pennsylvania, as administrativeagent, collateral agent, swing line lender and letter of creditissuer; and Bank of America, N.A., Sovereign Bank, andManufacturers and Traders Trust Company, each as a Lender.


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The Bank Agreement provides Tasty Banking with a $100million secured credit facility, consisting of a $55 million fixedasset line of credit, a $35 million working capital revolver and a$10 million low-interest job bank loan from Citizens in partnership

with the Commonwealth of Pennsylvania. The Bank Amendmentprovides that the Banks waive compliance with certain obligationsunder the Bank Agreement that would otherwise constitute anEvent of Default until June 30, 2011.

Tasty Baking Company, founded in 1914 and headquarteredin Philadelphia, Pennsylvania, is one of the country's leadingbakers of snack cakes, pies, cookies, and donuts with

manufacturing facilities in Philadelphia and Oxford, Pennsylvania.Tasty Baking Company offers more than 100 products under theTastykake brand name.

As of September 25, 2010, the Company had $185 million intotal assets and $169 million in total liabilities.

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In addition to the challenged companies mentioned in Mr.Fernandez's report, the Troubled Company Reporter provides on-going reporting about more than 3,000 companies experiencingfinancial distress or restructuring their balance sheets in a judicialproceeding. Stay tuned to learn more about obtaining a trialsubscription to the TCR at no cost or obligation.

Major Pending Disputes In Chapter 11 Cases

Next we'll quickly review major pending disputes in four largechapter 11 cases that Troubled Company Reporter editorsmonitor day-by-day.


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The dispute between Lehman and JPMorgan Chase stemsfrom Lehman seeking to recover $8.6 billion of collateralJPMorgan allegedly extracted from Lehman using insider

information just a few days before the company filed forbankruptcy.

In December 2010, JPMorgan filed a countersuit againstLehman Brothers Holdings Inc. for allegedly misleading the bankinto lending the company $70 billion by assuring that BarclaysCapital Inc. would purchase all the Lehman broker-dealer'ssecurities, which it never did. Barclays is the UK-based bank that

acquired the assets of Lehman's broker dealer unit. JPMorganalleged that with Lehman's help, Barclays cherry picked thesecurities that it wanted, took JPMorgan's $5 billion of margin,and left billions of dollars of Lehman Brothers' worst securitiesbehind. JPMorgan further asserted that it was left with more than$25 billion of outstanding loans to Lehman secured by a depletedcollateral pool.

In recent developments, Lehman filed a motion on January31 with the U.S. Bankruptcy Court for the Southern District of NewYork seeking dismissal of the JPMorgan counter-lawsuit. Lehmanargued that if JPMorgan has a complaint at all, it is with Barclays.Lehman pointed out that the allegations raised in the counter-suitare directed to Barclays including an allegation that the U.K. bankdirectly told JPMorgan that it would purchase the broker-dealer'sassets. Lehman also said that the counter-suit should bedismissed because it does not allege that anyone at the company

made a false statement to JPMorgan at the time of the company'scollapse.

Lehman, its Official Committee of Unsecured Creditors,JPMorgan and bankruptcy examiner Anton Valukas have inked anagreement to keep confidential the documents they subpoenaed


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from the examiner. The agreement, which is yet to be approvedby the Bankruptcy Court, requires the examiner to produce thedocuments for use solely in connection with Lehman's lawsuit,subject to the confidentiality protection of the Court's September

2010 order.

(2) Lehman-Barclays Dispute

Another dispute Lehman has is with Barclays Capital Inc.,where Lehman sued Barclays to undo an alleged $11 billionwindfall in relation to Barclays' acquisition of Lehman's brokerdealer unit. Lehman alleged that the sale that was closed

involved an exchange of assets priced to be between $50-52million for only a payment of $45 billion. The lawsuit was filed inNovember 2009. Since then, Barclays has countersued for $3billion.

The suit was litigated extensively last year and a trialconcluded on Nov. 22, 2010, when parties made their final closingarguments. Post-trial briefs were submitted in late November.

To date, no ruling has been issued by the Court. TheFinancial Times reports that a decision on this matter is expectedthis month or next. The FT further notes that a decision on theLehman-Barclays controversy could impact the dispute betweenLehman and JPMorgan relating to seized collateral.

(C) Tribune Corp.

In Tribune Co., the major dispute is the alleged fraudulentconveyance of the $13 billion leveraged buy-out of the companyin 2007 by Sam Zell and certain other executives of the Company.


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The Official Committee of Unsecured Creditors in TribuneCo.'s chapter 11 case filed separate complaints concerning the2007 LBO back in November. The lenders in the transaction, onthe one hand, and the company's shareholders, directors and

officers, on the other hand, were sued by the Creditors Committeefor their roles in the LBO. Among the lenders being sued areJPMorgan Chase and Merrill Lynch Capital Corporation.

At the request of the Committee, Judge Kevin Carey of theU.S. Bankruptcy Court for the District of Delaware stayedprosecution of the Committee complaint against the LBO lenders.The Complaint seeks to avoid and recover payments of principal

or interest on the LBO loans made by Tribune within 90 days priorto the company's bankruptcy filing. The Complaint seeks torecover not less than $178 million. The Committee said the staywas warranted to conserve estate resources and preserve thestatus quo pending the outcome of ongoing plan negotiations.

Tribune's plan process has been complicated, with fourcompeting plans vying for confirmation. Two of those four planshave been abandoned. The so-called Step Lenders withdrewtheir Plan in December. The so-called Bridge Lenders withdrewtheir Plan in late January, after reaching a settlement that calls for$64.5 million in cash plus distributions under a trust created underthe Tribune Plan. Thus, two competing plans are left -- one isbacked by Tribune Co., and the other is backed by AureliusCapital Management, one of the company's largest bondholders.

The Tribune-backed plan calls for the settlement of

bankruptcy-related legal claims. The company's Plan could wipeout any recovery by bondholders. The Aurelius-backed plan callsfor a legal strategy to recover billions of dollars from lendersinvolved in funding the 2007 buy-out of the company.


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A hearing to consider approval of the plans in Tribune's casehas been scheduled in March 2011.

Tribune is the second largest newspaper publisher in the

United States. It filed for bankruptcy in Dec. 2008.

(D) Washington Mutual

In Washington Mutual's chapter 11 proceeding, the majordispute is between WaMu and JPMorgan case, which revolvesaround $4 billion in JPMorgan's possession. WaMu andJPMorgan filed lawsuits against each other in relation to the funds

dispute in 2009.

The parties have agreed to a global settlement pact that callsfor the division of about $10 billion in bank deposits, tax refundsand other assets among JPMorgan, WaMu and the FederalDeposit Insurance Corporation. Under the settlement, $7 billionwould go to WaMu, mostly to be distributed under the company'sreorganization plan, and the remaining $3 billion would be dividedbetween JPMorgan and the FDIC. The global settlement alsoprovides for paying off WaMu creditors and ending lawsuitsWaMu, JPMorgan and the FDIC filed against one another afterWaMu's collapse. The global settlement is the core of theChapter 11 Plan before Judge Mary Walrath in Delaware. Theglobal settlement, however, hasn't been executed because onJanuary 7, Judge Walrath refused to confirm the WaMubankruptcy plan in its entirety.

The company scored a partial victory as Judge Walrathfound that the global settlement is reasonable. However, thecourt did not find certain non-debtor releases under the plan to bereasonable. Judge Walrath said the releases for directors,officers and other professionals granted by the proposed plan


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were "much too broad" and "inappropriate" and must be limited toa specific list.

Business & Law relates that WaMu filed a proposal to

address Judge Walrath's comments on January 18. Theproposed changes involve rewording of the plan and re-solicitingcreditors' votes on the plan releases. The changes werepresented to Judge Walrath at a January 20 status conference.

WaMu shareholders, who have been consistent in opposingthe WaMu Plan, did not waste time in appealing Judge Walrath'sapproval of the $10 billion global settlement. On January 19, the

shareholders said they want the U.S. Court of Appeals for theThird Circuit to directly consider their appeal. The shareholdersquestion whether the global settlement can be found reasonablewithout any evidentiary record.

No final ruling on the plan has been entered as of January31, which technically means that J.P. Morgan and the FDIC havethe option to cancel the settlement.

On top of a delay in obtaining confirmation, WaMu has alsobeen hounded with insider trading allegations.

Weil Gotshal & Manges LLP's Brian Rosen, counsel toWaMu, has said the company is eyeing a bankruptcy exit inMarch. Dow Jones Daily Bankruptcy Review reports that WaMuis set to take a revamped plan to Judge Walrath on March 28.

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The Troubled Company Reporter provides detailed reportingabout every chapter 11 filing nationwide. Stay tuned to learn moreabout obtaining a trial subscription to the TCR at no cost orobligation.


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Delayed Exits From Chapter 11

Julie Anne Lopez reports about six Chapter 11 debtors

whose emergence from Chapter 11 has been delayed -- TribuneCo., WR Grace & Co., Lehman Brothers, Oriental Trading,Washington Mutual and Pfizer Inc.'s Quigley unit.

(A) Tribune

On January 28, Judge Kevin Gross, the Court-appointedmediator in Tribune's Chapter 11 case, disclosed that settlement

discussions have resulted in the bridge lender group's acceptanceof the plan of reorganization proposed by the Debtors. The bridgelenders include Marathon Asset Management LP and King StreetCapital LP.

The Bridge Loan Settlement provides that the bridge lendersgroup will support Tribune's proposed Plan, and accept $64.5million in cash as well as attorney fees and their share ofdistributions from trusts that will pursue legal claims on theeffective date of the Plan.

In exchange, the Bridge Plan Proponents will withdraw theirproposed plan of reorganization.

Accordingly, only two competing plans for ending Tribune'stwo-year stay in bankruptcy are left and will compete for courtapproval at the confirmation hearing scheduled to begin March 7.

The two remaining plans differ in their approach to resolvinglegal claims relating to the pre-petition leveraged buy-outtransaction. The companys plan proposes to settle these claimsand wipe out billions of dollars of bond debt. The bondholdergroup led by Aurelius Capital Management proposes an


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aggressive litigation strategy to recover billions of dollars from thelenders they blame for funding the LBO transaction that handedreal estate developer Sam Zell control of the company.

Parties have until February 15 to file objections toconfirmation of the Plans.

(B) W.R. Grace

W.R. Grace marked its ninth year in bankruptcy on April 2,2010 -- one of the longest in the history of corporate restructuring.On January 31, 2011, Judge Judith Fitzgerald confirmed W.R.

Grace's Joint Plan of Reorganization, overruling all unresolvedobjections, and finding that the Plan satisfies all of therequirements under Section 1129 of of the Bankruptcy Code.

Judge Fitzgerald said the Joint Plan is the result of years oflitigation and arms'-length negotiations, and there is no evidencethat the Joint Plan was proposed in bad faith

The confirmed reorganization plan calls for setting up twoasbestos trusts to compensate personal injury claimants andproperty owners.

Grace's Joint Plan will now go to the United States DistrictCourt for the District of Delaware for a final stamp of approval.This is a necessary step before Grace may exit Chapter 11.

While the plan must still be confirmed by a federal District

Court in Delaware, the decision by Judge Fitzgerald is key toGrace exiting bankruptcy.

"She blessed the plan and her blessing is very, veryimportant," the Baltimore Sun quoted Peter A. Chapman,president of Bankruptcy Creditors' Service, as saying. Mr.


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Chapman said District Court judges, who get involved inbankruptcy cases involving the compromise and settlement ofpersonal injury claims, usually follow the lead of the bankruptcy

judge. He predicted that the District Court would rule quickly,

perhaps within 30 days.

Bankruptcy Creditors' Service publishes newsletters aboutmajor corporate restructurings, including W.R. Grace BankruptcyNews. More information about those newsletters is available athttp://bankrupt.com/newsstand/

(C) Lehman Brothers

In Lehman Brothers' chapter 11 cases, an amended Chapter11 plan of reorganization and accompanying disclosure statementwas filed on January 25. The amended plan offers bondholdersmore money after some creditors didn't support the company'sprior proposals. Under the amended plan, creditors that holdsenior unsecured claims against Lehman recover 21.4% of theirclaims, up from 17.4% in the original plan. The company'sgeneral unsecured creditors recover 19.8% of their claims, upfrom 14.7%.

Creditors of Lehman's subsidiaries also see betterrecoveries. Lehman Commercial Paper Inc.'s general unsecuredcreditors would recover 51.9% of their claims while those ofLehman Brothers Commodity Services Inc. recover 49.8%.Creditors of Lehman Brothers Special Financing Inc. recover22.3% of their general unsecured claims.

Lehman's Chief Executive, Bryan Marsal said the amendedplan represents a "fair economic compromise", will expedite theadministration of the Chapter 11 cases, and will acceleratedistributions to creditors.


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The amended plan has received the support of the OfficialCommittee of Unsecured Creditors. The processing of theamended plan is subject to acceptance by the requisite majoritiesof creditors entitled to vote on the plan.

Lehman said it has reached tentative deals with affiliates inGermany and The Netherlands for the consent to the amendedplan.

The UK group led by Lehman Brothers International(Europe) said it could present its own plan if it was unhappy withthe proposed compromise, according to a January 26, 2011 report

by the Financial Times.

Linda Sandler and David McLaughlin of Bloomberg Newsnoted that the document outlining the Plan didn't list a votingdeadline or propose a date for the confirmation hearing.According to the Financial Times, Lehman hopes to present adisclosure statement explaining its chapter 11 plan to theBankruptcy Court for approval by July and win creditors' supportby November 2011.

Confirmation of the amended plan is conditioned on theBankruptcy Court issuing a confirmation order and an orderapproving a so-called "derivative claims framework" -- amethodology that will be applied to calculate the allowed amountof a derivative claim or derivative guarantee claim againstLehman and its affiliated debtors.

Over the coming weeks, meetings will be arranged withvarious stakeholder groups to provide briefings on the amendedplan.

Lehman has been in bankruptcy since Sept. 15, 2008.


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(D) Oriental Trading

In Oriental Trading Co., Ms. Lopez says the company's exitfrom Chapter 11 is still up in the air. The company sought

Chapter 11 protection on August 25, 2010, and obtainedconfirmation of its plan on December 16.

In January, Bloomberg News said the company wasscheduled to conduct a roadshow presentation for prospectivelenders under a $200 million loan exit financing facility. OnJanuary 25, Krista Giovacco at Bloomberg News, citing a personfamiliar with the transaction, said Oriental Trading cut the interest

rate it will pay on the $200 million exit financing pact by onepercentage point.

Oriental Trading proposes to pay 5-1/2 percentage pointsmore than the London interbank offered rate on the six-year termloan, said the person who declined to be identified because theterms are private, according to Bloomberg. Libor, the rate bankscharge to lend to each other, will have a 1.5% floor, compared to1.75% as initially proposed. The report further said the companytightened the so-called original issue discount by one cent, to 99cents on the dollar.

[Oriental Trading emerged from Chapter 11 on Feb. 14.]

(E) Washington Mutual

Weil Gotshal's Brian Rosen, the attorney overseeingWashington Mutual's bankruptcy, said the company could be outof bankruptcy in March after reworking its recently rejected plan ofreorganization, according to Tom Hals at the InternationalBusiness Times. IBT said once the company's reorganization


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plan is approved and goes into effect, it will begin distributingmore than $7 billion to creditors.

On January 7, Judge Mary Walrath rejected Washington

Mutual's plan of reorganization but approved a legal settlementthe company had proposed.

Washington Mutual filed for bankruptcy in September 2008after its savings and loan was seized by regulators in the biggestbank failure in U.S. history. The seized bank was sold by theF.D.I.C. to JPMorgan for $1.88 billion, setting off 18 months oflegal battles that were resolved with the settlement plan.

Judge Walrath rejected the reorganization in part because ofvarious provisions that protected certain parties from being sued.

Washington Mutual subsequently filed a proposal to resolveJudge Walrath's criticisms. Many proposed changes involvedamending the wording of the plan, but some proposals will bemore time consuming, like soliciting some creditors again over thegranting of releases from lawsuits.

The official committee of shareholders is asking the court forpermission to obtain documents and take depositions from agroup of hedge funds that supported the company'sreorganization plan. The shareholders seek to investigate insidertrading allegations made by an individual investor, Nate Thoma,during the company's confirmation hearings.

(F) Quigley

Dow Jones Newswires' Pat Fitzgerald reported on January21 that motions filed by an ad hoc committee of asbestosclaimants to push Pfizer's Quigley unit out of bankruptcy andallow them to start suing Pfizer for an estimated $900 million of


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liability for asbestos damages are on schedule. The Dow Jonesreport said talks aimed at a deal that will produce a Chapter 11plan for Quigley have been successful so parties expect an end tothe hostilities with the ad hoc committee.

Brown Rudnick's Edward Weisfelner told Judge StuartBernstein at a Jan. 13 hearing in the case that the parties are"dangerously close to a resolution." Mr. Weisfelner predicted thatfinal documents will be on the table within another couple ofweeks.

Mr. Weisfelner represents the ad hoc panel that was

successful in its campaign to block Pfizer's original Chapter 11proposal for the Quigley unit, which they said shortchanged them.

Pfizer spokesman Christopher Loder told Dow Jones inDecember that the company is ready "to contribute additionalfunds to the Quigley plan to satisfy the court's concerns."

Pfizer has denied it is liable for any asbestos damagestemming from Quigley, a defunct manufacturer of industrialgoods. However, Pfizer wants an end to Quigley's bankruptcy. InSeptember, Judge Bernstein held that Pfizer engaged in bad faithand vote-buying in connection with the original Chapter 11 plan.

Pfizer bought Quigley in 1968, and operated it for a briefperiod while it continued to make items containing the deadlymaterial. As of 2004, when Pfizer put Quigley into Chapter 11protection, the companies were grappling with more than 400,000

claims for asbestos-related damages, notes the report.

New Publicly Traded Securities

Moving on, Psyche Maricon Castillon reports that threebankrupt companies, which have filed plans of reorganization or


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obtained confirmation of their reorganization plans, contemplatethe issuance of new publicly traded stocks. These are: Mesa Air,Innkeepers USA Trust, and Loehmann's.

(A) Mesa Airlines

Judge Martin Glenn in the U.S. Bankruptcy Court for theSouthern District of New York entered a final order confirmingMesa Airlines' Third Amended Plan of Reorganization on January20. Mesa Air said it expects to emerge from bankruptcy inFebruary as a private company. The reorganized company willissue new notes, common stock and warrants to creditors.

Mesa sought protection under Chapter 11 in January 2009after it failed to reduce its debt enough in an out-of-courtrestructuring. The plan the company submitted to the courtrestructures its debt of more than $2 billion and keeps the carrierflying connector flights for US Airways and United Airlines.

The plan also gives control of the carrier to unsecuredcreditors, in addition to a 10% equity stake to US Airways. Whilein bankruptcy, Mesa cut its fleet to 76 planes from 178 andrejected more than 70% of the leases it held at the time of itsChapter 11 filing.

(B) Innkeepers USA Trust

Innkeepers USA Trust has reached a deal with its majorcreditors that will cut the bankrupt hotel chain's debt by over $400

million and clear the way for the company to emerge fromChapter 11 protection.

As part of the deal, asset management firm Five Mile CapitalPartners LLC and Lehman ALI, a unit of Lehman BrothersHoldings Inc, together agreed to provide $174.1 million in equity


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capital to the company. Five Mile and Lehman also agreed toconvert $200.3 million of their debt into 100 percent equity in thereorganized Innkeepers.

Judge Chapman of the U.S. Bankruptcy Court for theSouthern District of New York rejected an earlier agreementbetween Innkeepers and Lehman ALI.

The latest deal is backed by Midland Loan Services Inc, aspecial servicer to a $825 million fixed rate mortgage loan whichwill be reduced to $622.5 million under the proposed plan.

Innkeepers said the Five Mile/Lehman bid values thecompany at about $1.14 billion. The deal is yet to receivebankruptcy court approval.

Bankruptcy Law360 reported that Judge Chapman hasextended the company's exclusive right to file a restructuring planuntil March 29.

(C) Loehmann's

The U.S. Bankruptcy Court confirmed Loehmann's Plan ofreorganization at a hearing February 7. Loehmann is expected toexit bankruptcy by the end of the month.

Loehmann filed the Plan in December 2010. The Planprovides, among other things, for a $25 million equity investmentin Loehmann's Holdings, Inc. pursuant to a Rights Offering

through which Eligible Holders of Class A Notes Claims that voteto accept the Plan will be granted the opportunity to exerciserights to purchase shares of New Convertible Preferred Stock onthe Effective Date and the conversion of the Class A Notes Claimsinto New Common Stock.


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Only those Holders of Class A Notes Claims that are EligibleHolders -- meaning those Holders that are Qualified InstitutionalBuyers acting on their own behalf or on behalf of other QualifiedInstitutional Buyers -- that vote to accept the Plan will be

permitted to participate in the Rights Offering. If Class 4 -- theholders of the Class B Notes Claims -- accepts the Plan, theHolders of Class B Notes Claims will receive New CommonStock. If Class 4 does not vote to accept the Plan, the Holders ofClass B Notes Claims will receive no distribution under the Plan.

Loehmann's plan met objections from the U.S. Trusteerelating to plan releases, a priority tax creditor, and several

Michigan tax authorities who complained that the plan will denythem nearly $330,000 in unpaid taxes.

Loehmann's obtained approval of the disclosure statementexplaining its plan in early January.

That ends the Beard Group Corporate Restructuring Review forJanuary 2011, brought to you by the editors of the TroubledCompany Reporter and Troubled Company Prospector. If you'dlike to receive the Troubled Company Reporter for 30-days at nocost -- and with no strings attached -- call Nancy Frasier orCharlie Covell at (240) 629-3300 or visit bankrupt-[dot]-com-[slash]-free-trial and we'll add you to the distribution list. Thattelephone number, again, is (240) 629-3300 and that Web siteaddress, again, is bankrupt-dot-com-slash-free-trial.

Tune in to our next Restructuring Review on March 16th.

Documents

Beard Group Corporate Restructuring Review For January 2011