Delaware Bankruptcy Litigation

A Closer Look at the Orleans Homebuilders Bankruptcy

Jason Cornell, Esq. — Mon, 15 Mar 2010 20:56:56 -0500

On March 1, 2010, Orleans Homebuilders filed for bankruptcy in the United States Bankruptcy Court for the District of Delaware. According to Orleans' Declaration in Support of First-Day Pleadings, the company filed for bankruptcy hoping to get the "breathing space" necessary to reorganize its business.

The circumstances leading up to Orleans filing for bankruptcy illustrate the recession's effect on home builders throughout the United States. In 2006, Orleans' revenue had reached $987 million, however, by 2009 revenues were down to $335 million. In response to the drop in new home sales, Orleans cut its spec home production by 53% and stopped construction all together in the Florida and Arizona markets. Although the company was able to remain cash flow positive, Orleans ultimately had to cut its staff by 67%. See Orleans' Declaration at p. 7.

Market conditions have not improved for home builders. Low sales, compounded by volatility in the credit markets, left Orleans with little option other than to file for bankruptcy. In order to continue its operations while in bankruptcy, Orleans filed a Motion Authorizing the Payment of Certain Critical Vendors on the same day that it filed for bankruptcy. As stated in the Motion, Orleans owes various vendors and third parties for pre-petition goods and services. Orleans is concerned that if the pre-pretition claims of its "critical vendors" are not paid immediately, these vendors will no longer provide services and the company will not be able to continue operations. See Motion at p. 9.

According to Orleans' bankruptcy petition, Jeffrey P. Orleans is the company's largest shareholder, owning over 11 million shares, or 59%, of class A stock. Orleans' largest trade creditors include:

84 Lumber Company ... $1.4 million
Robert K. Foster, Inc. ... $1.1 million
Sunrise Concrete Company ... $677,234
Concrete Solutions of Raleigh, Inc. ... $658,567
Archer Exteriors, Inc. ... $616,798

This bankruptcy proceeding is before the Honorable Peter J. Walsh, former Chief Judge of the United States Bankruptcy Court for the District of Delaware.

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Jason Cornell is a bankruptcy attorney who practices in the Wilmington, Delaware office of Fox Rothschild LLP. You may reach him at 302 427 5512, or jcornell@foxrothschild.com

Regent Communications Files for Bankruptcy, Seeking to Pay General Unsecured Claims in Full

Jason Cornell, Esq. — Sat, 13 Mar 2010 19:43:25 -0500

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.

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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.

What is a Fraudulent Transfer? Decision in Elrod Holdings Explains

Jason Cornell, Esq. — Sun, 07 Mar 2010 20:55:15 -0500

Introduction

Section 548 of the United States Bankruptcy Code allows for the avoidance of transfers that are either intentionally or constructively fraudulent. Section 548 provides, in relevant part, as follows:

(a)(1) The trustee may avoid any transfer ... of an interest of the debtor in property, or any obligation ... incurred by the debtor, that was made or incurred on or within 2 years before the date of the filing of the petition, if the debtor voluntarily or involuntarily -- (A) made such transfer or incurred such obligation with actual intent to hinder, delay or defraud any entity to which the debtor was or become, on or after the date that such transfer was made or become, on or after the date that such transfer was made or such obligation was incurred, indebted; or (B)(i) received less than reasonably equivalent value in exchange for such transfer or obligation; and (ii)(I) was insolvent on the date that such transfer was made or such obligation was incurred, or became insolvent as a result of such transfer or obligation; (II) was engaged in a business or a transaction ... for which any property remaining with the debtor was an unreasonably small capital; (III) intended to incur, or believed that the debtor would incur, debts that would be beyond the debtor's ability to pay as such debtor's matured ...

At first glance, section 548 appears to cast a wide net that would classify many types of transactions as fraudulent transfers. However, a recent decision by Judge Brendan L. Shannon in the Elrod Holdings bankruptcy shows the evidentiary hurdles a plaintiff must overcome in order to establish a fraudulent transfer claim under section 548.

Background

In 2006, Elrod Holdings (the "Debtor") filed for chapter 7 liquidation in the United States Bankruptcy Court for the District of Delaware. The Debtor began its business in 1965 designing, manufacturing and installing spectator seating for motor sport raceways. In 2005, the Elrod family sold 75% of their stock in the company to a company called Champlain for $35 million. Champlain paid the Elrods $26 million in cash and the remainder in notes.

Soon after the sale to Champlain, the Debtor's business quickly deteriorated. By June 2006, the Debtor, Elrods and certain lenders sought to restructure the company's debt. A few months after the restructuring, Safeco, the Debtor's bonding company, demanded that the Elrods provide personal guarantees before Safeco would issue further bonds on projects for which the Debtor was a contractor. When the Elrods refused to provide personal guarantees to Safeco, Safeco refused to issue construction bonds, resulting in the Debtor quickly running out of money.

Fraudulent Conveyance Claims

As part of the pre-bankruptcy restructuring, the Elrods agreed to purchase certain equipment from the Debtor and lease the same equipment back to the Debtor. After the commencement of the bankruptcy proceeding, George Miller, as the chapter 7 trustee, commenced an adversary action alleging that the Elrod's "participated and/or aided and abetted in the [sale leaseback], with the actual intent to hinder, delay, and/or defraud the Debtor's creditors." In addition to claiming that the sale leaseback was actually fraudulent, the trustee argued that the leaseback of the equipment was constructively fraudulent.

Court's Analysis

Looking first at whether there was "actual intent" for the fraudulent transfer claims, the Court noted (and the parties agreed) that it was the Debtor's intent that was key to determine whether a conveyance was fraudulent, not the intent of the party receiving the conveyance. The Elrods argued that there was no fraudulent intent on the part of the Debtor. The chapter 7 trustee, on the other hand, argued that the Elrod's intent to hinder, delay or defraud should be imputed to the Debtor because the Elrods dominated or controlled the Debtor.

In order to decide whether the intent of the Elrods would be imputed to the Debtor, the Court looked at the "intent imputation doctrine" recognized by the United States Bankruptcy Court for the Southern District of New York in Jackson v. Miskin (In re Adler, Coleman Clearing Corp.), 263 B.R. 406, 445 (S.D.N.Y. 2001)(finding that under "the domination and control rule, the requisite intent derives from a transferee who is in the position to dominate or control the debtor's disposition of his property, a circumstance that section 548(a)(1)(A) anticipates by its provision that the fraudulent conveyance by the debtor may be voluntary or involuntary.") Applying Adler, the intent of the transferees (the Elrods) can be imputed to the Debtor if (i) the Elrods possessed the requisite intent to hinder, delay or defraud the Debtor's creditors; (ii) the Elrods were in a position to dominate and control the Debtor; and (iii) the Elrod's domination and control related to the Debtor's disposition of its property.

In deciding whether the Elrods had the requisite fraudulent intent, the Court observed that fraudulent intent may be based on circumstantial evidence. Citing In re Vaniman Int'l Inc., the Court noted that "[a]s a general rule, fraudulent intent is found on the basis of circumstantial evidence because 'fraudulent intent is not susceptible to direct proof.'" In re Vaniman Int'l Inc., 22 B.R. 166 (Bankr. E.D.N.Y. 1982). Signs of fraud include evidence of a close relationship among the parties to a transaction, the transaction involves a "secret and hasty transfer" or contains inadequate consideration.

The Trustee argued that a close relationship did exist between the parties and that the Elrod's refusal to execute the bond agreement evidenced fraud. For purposes of summary judgment, the Court found that the Trustee had identified some of the "badges of fraud." Having made this determination, the Court next addressed whether the Elrods were in a position of control. Here, the Court noted that vicarious intent is an extreme situation that is dependent upon nearly total control of a debtor by the transferee. A typical case where transferee intent is imputed on the Debtor is one where the transferee is the sole shareholder of the Debtor and has complete control. The Trustee argued that although the Elrods comprise only a minority of the Debtor's board, they still exercised functional control of the Debtor. Even so, the Court found that functional control is not enough. To prevail, the Trustee must show that the Elrods had "formal, legal control as well as functional control."

After finding that actual intent did not exist, the Court next turned to the Trustee's allegations that the transfer of property was constructively fraudulent. Here the Court begin its analysis with the rule that whether a transfer conferred "realizable commercial value" was central to deciding whether the transfer at issue was constructively fraudulent. On this point, the Court found several examples of value provided by the Elrods in the sale leaseback transaction. First, the Elrods submitted an appraisal showing that the price at which the Elrods purchased the equipment from the Debtor was greater than the actual value of the equipment. Next, the Elrods introduced evidence that the rental payments from the Debtor to the Elrods were at a below market interest rate that was to the Debtor's benefit. The Trustee, on the other hand, offered no evidence to show the value provided by the Elrods was less than a reasonably equivalent value. Based on these findings, the Court granted summary judgment for the Elrods on the Trustee's fraudulent transfer claim.

Conclusion

Under most circumstances, claims alleging fraud must be pled with particularity. The decision in Elrod shows that a plaintiff alleging fraud must satisfy certain factual thresholds in order to overcome a motion for summary judgment. Further the decision shows the challenges for plaintiffs who seek to impute the allegedly fraudulent conduct of a third party on to a debtor.

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Jason Cornell is a bankruptcy attorney in the Wilmington, Delaware office of Fox Rothschild LLP. You may contact Jason at 302 427 5512, or jcornell@foxrothschild.com

Decision in Spansion Bankruptcy Addresses When Court Should Appoint a Special Committee of Creditors or Equity Holders

Jason Cornell, Esq. — Tue, 02 Mar 2010 21:16:12 -0500

Introduction

Recently, Judge Kevin J. Carey, Chief Judge of the United States Bankruptcy Court for the District of Delaware, issued a decision in the Spansion bankruptcy denying a motion for the appointment of an official committee of equity security holders. See In re Spansion, Inc., et al., Case No. 09-10690(KJC)(December 18, 2009). The decision is helpful as it provides a summary of the law in this and other jurisdictions on when is it appropriate for a bankruptcy court to appoint a special committee of creditors or security holders.

Background

Spansion designs semiconductors that are used in a broad range of applications, including cell phones, consumer electronics and automobiles. The company filed for bankruptcy in Delaware on March 1, 2009. In October of 2009, Spansion filed a disclosure statement and plan of reorganization which proposed no distributions to common equity holders. The security holders, acting through an informal "ad hoc committee," argued that the Debtors' reorganization value was based on projections that were too conservative. Opinion at *9. The security holders therefore asked the Court to create a special committee of equity holders in order to supervise the Debtors' reorganization and protect their interests.

Legal Standard

The Court began its analysis by looking to section 1102(a)(2) of the Bankruptcy Code which allows for the creation of additional committees within a bankruptcy proceeding. Under section 1102(a)(2):

On request of a party in interest, the court may order the appointment of additional committees of creditors or of equity security holders if necessary to assure adequate representation of creditors or of equity security holders. The United States Trustee shall appoint any such committee.

Citing a decision in the Edison Bros. bankruptcy, the Court noted that the ad hoc committee, as the party seeking the formation of a formal committee, has the burden of proving that an additional committee is needed for adequate representation. Victor v. Edison Bros. Stores (In re Edison Bros. Stores, Inc.), 1996 WL 534853, *4 (D.Del. Sept. 17, 1996). The Bankruptcy Code does not define "adequate representation." Id. at *3. Instead, the decision whether to appoint an additional committee falls within the discretion of the court based upon the facts of the case. Opinion at *5, citing In re Dana Corp., 344 B.R. 35, 38 (Bankr.S.D.N.Y. 2006). Finally, whether to grant a request and appoint an additional committee is considered extraordinary relief that is the exception, not the rule. Opinion at *6.

Analysis

In deciding whether to grant or deny the motion, the Court examined the evidence offered by the ad hoc committee and the Debtors regarding the valuation of the Debtors' business. Specifically, the ad hoc committee argued that the Debtors' proposed value excluded several assets that could signficantly increase the company's value. Debtors, on the other hand, argued that certain assets were appropriately excluded from the valuation analysis because the value of these assets was too speculative. In the end, the Court found that the equity holders had not met the required burden as the "only thing certain from the record before [the Court] is the uncertainty of the proffered valuations."

After finding that the equity holders failed to carry their burden and establish they would receive a distribution from the Debtors, the Court turned to whether the equity holders would have adequate representation in the bankruptcy proceeding without the creation of a special committee. The equity holders argued that the proposed plan and disclosure statement disenfranchised existing shareholders. Further, the equity holders argued that their interests were not represented by the Debtors or the Official Committee of Unsecured Creditors. However, the Court noted that even if it were to agree with the equity holders and find that the Debtors and Committee did not represent their interest, the Court nevertheless found that the equity holders were "well organized, well represented by counsel, and adequate to the task of representing its interests without 'official' status." Based on these findings, the Court denied the request for formation of a special committee.

Conclusion

Judge Carey's decision in Spansion illustrates an interesting aspect of bankruptcy practice. Although the security holders were denied their request for the creation of a formal committee, the Court nevertheless went to great lengthes to examine the security holders' claims against the Debtor. By this, the Court considered whether Spansion's valuation of its business was too conservative. Although the Court found that the equity security holders did not make a sufficient record to show Spansion improperly valued the company, the equity holders did receive the full attention of the Court. This point is important as it illustrates how interested parties, as a group, can have their concerns addressed in a bankruptcy proceeding without the formation of a special committee.

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Jason Cornell is an attorney in Wilmington, Delaware with the law firm Fox Rothschild LLP. You can contact Jason at 302 427 5512, or jcornell@foxrothschild.com

Chp. 7 Trustee Files Preference Actions in HomeBanc Mortgage Bankruptcy

Jason Cornell, Esq. — Mon, 01 Mar 2010 20:39:44 -0500

George Miller, the Chapter 7 Trustee in the HomeBanc Mortgage bankruptcy, recently filed approximately 400 preference actions against various defendants under section 547 of the Bankruptcy Code. According to a Summons filed in one of the adversary actions, the first pre-trial conference is scheduled in the United States Bankruptcy Court for the District of Delaware on April 21, 2010. The HomeBanc bankruptcy, along with these adversary actions, are before the Honorable Kevin J. Carey, Chief Judge of the Delaware Bankruptcy Court.

HomeBanc originally filed petitions for relief on August 9, 2007, under chapter 11 of the Bankruptcy Code. On February 24, 2009, the cases were converted to chapter 7. Thereafter, the Office of the United States Trustee appointed George Miller as the Chapter 7 Trustee. According to documents filed in support of the Debtor's bankruptcy petition, prior to filing for bankruptcy, HomeBanc originated, serviced and sold retail mortgage loans. HomeBanc also managed and invested in mortgage-backed securities.

Section 547(c)(1) of the Bankruptcy Code excludes from preference liability payments "made to be a contemporaneous exchange for new value given to the debtor." Judge Carey recently issued a decision that addresses the extent to which a party may rely on the new value defense. A copy of Judge Carey's decision is available here.

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Jason Cornell is a bankruptcy attorney in the Wilmington, Delaware office of Fox Rothschild LLP. You can contact Jason at 302 427 5512, or jcornell@foxrothschild.com.

The Second Largest Newspaper Publisher in the U.S., Affiliated Media, Files for Bankruptcy In Delaware

Jason Cornell, Esq. — Sun, 31 Jan 2010 20:35:25 -0500

On January 22nd, Affiliated Media, Inc. (the "Debtor" or "Affiliated"), filed a chapter 11 petition for bankruptcy in the United States Bankruptcy Court for the District of Delaware. According to documents filed with the Bankruptcy Court, the Debtor's operations include daily and weekly newspapers, "niche publications," internet websites, four radio stations and a television station in Alaska. Affiliated's bankruptcy follows a drop in revenue from $1.3 billion in 2007 to $1.06 billion in 2009. Advertising revenue, the largest component of Debtor's revenue, dropped 14% over the last year.

Prior to bankruptcy, Affiliated circulated a prepacked plan of reorganization and disclosure statement. Under the plan, Affiliated hopes to reduce approximately $930 million in debt down to $150 million. If all goes as planned, Affiliated plans to emerge from bankruptcy in a short amount of time "poised for future growth and stability." This bankruptcy proceeding is before the Honorable Kevin J. Carey, Chief Judge of the Delaware Bankruptcy Court. Judge Carey is also presiding over the Tribune bankruptcy, another major newspaper publisher seeking bankruptcy protection in Delaware.

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Jason Cornell is a bankruptcy attorney in the Wilmington, Delaware office of Fox Rothschild LLP. If you have questions regarding a Delaware bankruptcy proceeding, you may contact him at 302 427-5512, or jcornell@foxrothschild.com.

Fairfield Residential Files for Bankruptcy in Delaware and Begins Assumption of Certain Contracts and Leases

Jason Cornell, Esq. — Mon, 28 Dec 2009 20:15:35 -0500

Introduction

Fairfield Residential, one of the nation's largest developers of apartment communities, filed for bankruptcy in the United States Bankruptcy Court for the District of Delaware on December 13, 2009. According to an affidavit filed by Fairfield's Chief Restructuring Officer (the "Affidavit"), the company employs approximately 2,000 individuals and operates in 40 real estate markets throughout the United States. (A copy of the Affidavit is available here). In the months leading up to bankruptcy, Fairfield listed assets of $958 million against liabilities of $835 million. These figures are down considerably compared to 2008 when Fairfield's assets were valued at $1.2 billion, against liabilities of $978 million.

Fairfield attributes its filing for bankruptcy to the "unprecedented collapse in the real estate and capital markets [which] have dramatically affected the Debtors." Like with many other developers, Fairfield relies on its ability to refinance or sell investments to generate capital. Capital markets began to tighten lending starting in the fourth quarter of 2008. With high concentrations of properties in California, Nevada and Florida, Fairfield also experienced loss in value of their properties. The drop in property values triggered defaults under various loans, in some cases releasing the lenders' obligations to fund payments to Fairfield. See Affidavit, pp. 19-20.

Objectives in Bankruptcy

As stated in Fairfield's Affidavit, the company hopes to win Court approval of a disclosure statement and plan of reorganization on an expedited basis. Pursuant to the proposed plan, a "New Fairfield" will be created that will assume certain executory contracts and operating liabilities of various rental properties. Those assets not transferred to the New Fairfield will be transferred to a liquidating trust that will liquidate the non-transferred assets for the benefit of unsecured creditors. See Affidavit, p. 29.

Fairfield has begun filing motions to assume executory contracts relating to its construction and development business. According to a recent motion to assume contracts, the company is required to assume certain contracts and agreements before January 27, 2010. (Read Fairfield's Twelfth Motion to Assume Executory Contracts and Leases here.)

This bankruptcy proceeding is before the Honorable Brendan L. Shannon.

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Jason Cornell is a bankruptcy attorney in Wilmington, Delaware with the law firm Fox Rothschild LLP. He may be reached at 302 427 5512, or jcornell@foxrothschild.com.

Grocery Retailer, Penn Traffic, Files for Bankruptcy With Hopes of Finding a Buyer

Jason Cornell, Esq. — Mon, 23 Nov 2009 20:57:17 -0500

Introduction

The Penn Traffic Company, the Syracuse, New York based grocery retailer, filed for Bankruptcy in Delaware on November 18, 2009. According to documents filed with the United States Bankruptcy Court for the District of Delaware, this is Penn Traffic's third time in bankruptcy within the last ten years. With annual revenues of $872 million, Penn Traffic is one of the largest food retailers in the Northeastern United States. Aside from operating 79 retail stores, Penn Traffic also provides transportation, warehousing, distribution and retail support for C&S Wholesale Grocers. (Click here to review a copy of Penn Traffic's Declaration filed in support of various bankruptcy motions).

Events Leading to Bankruptcy

Penn Traffic lists several reasons for its most recent bankruptcy filing. Like many debtors before it, Penn Traffic cites the "global economic downturn" as the leading cause if its financial difficulties. Despite the fact that the company cut costs by $6.2 million last year, Penn Traffic lost over $18.3 million in 2009 and $41.7 million in 2008. The company faces higher operational costs due to a continued decline in the number of customers that come in to its stores. Further, these customers are spending less per individual than in years past.

Besides the recession, Penn Traffic was also hit hard by litigation brought by the SEC in 2007. The SEC litigation followed a two year investigation of the company's accounting practices. In addition to the SEC civil litigation, the U.S. Attorney for the Southern District of New York brought criminal charges against certain officers of the company. These individuals were later terminated by Penn Traffic and a settlement in the civil action was reached almost a year ago. Even though the SEC litigation is over for the most part, Penn Traffic notes in its bankruptcy Declaration that "the effects of the significant legal and auditing costs continue to date."

Penn Traffic's Financials

Penn Traffic has two primary loans - a senior secured credit facility with a balance of $42 million and a supplemental real estate facility with a balance of $10 million. According to Penn Traffic's bankruptcy petition, the company's ten largest unsecured creditors include:

ABC Refrigeration ... $405,216
Coca Cola ... $343,102
Deli Boy Prov. Co. ... $326,623
EMC ... $183,846
G. Weston Bakeries ... $315,213
Karabus Management ... $437,328
Local 23 Health Fund ... $518,996
Nat'l Indus. Portfolio ... $344,183
New York State Fair ... $333,160
Stroehmann Bakeries ... $213,105

Objectives in Bankruptcy

The company sought, unsuccessfully, to find additional financing to help it reorganize. Through an agreement with its secured lenders, Penn Traffic is able to use cash collateral to fund its operations. However the continued use of cash collateral is contingent on the company seeking a sale under section 363 of the Bankruptcy Code. Without a sale, Penn Traffic believes it will have no choice but to close all 79 retail stores and 4 warehouses.

The United States Bankruptcy Court for the District of New Jersey, in a recent decision, spelled out the standard for a sale of a debtor's business outside the ordinary course of business. In re Congoleum Corp., 2007 WL 1428477 at 2 (Bankr.D. N.J. 2007). Under Congoleum, a debtor seeking to sell substantial assets must establish a "sound business purpose." Factors in support of a sound business purpose include: (i) a sound business reason; (ii) accurate and reasonable notice; (iii) adequate price; and, (iv) good faith. These factors will be relevant if Penn Traffic succeeds in finding a buyer for its assets.

This bankruptcy proceeding is before the Honorable Peter J. Walsh, a former Chief Judge of the United States Bankruptcy Court for the District of Delaware.

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

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

Jason Cornell, Esq. — Wed, 18 Nov 2009 16:04:08 -0500

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:

Term loans of $45 and $59 million;
Letters of credit for $40 and $43 million; and,
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.

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

Jason Cornell, Esq. — Wed, 18 Nov 2009 14:48:10 -0500

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

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

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

Decision in S-Tran Holdings Bankruptcy Looks at When a Letter of Credit Constitutes Property of the Estate

Jason Cornell, Esq. — Sat, 24 Oct 2009 14:18:40 -0500

Introduction

Judge Kevin J. Carey, Chief Judge of the Delaware Bankruptcy Court, issued a decision recently in the S-Tran Holdings bankruptcy that addresses whether letters of credit constitute property of the bankruptcy estate. The Court's decision in S-Tran Holdings is worth review as letters of credit are a common part of a debtor's pre and post-petition financing. Recent decisions hold that certain components of letters of credit (such as the proceeds drawn from the letter of credit) are estate property, while other components (like the collateral pledged for the letter of credit) are not estate property. S-Tran explains why. (A copy of the decision in S-Tran is available here).

Background

The debtor in S-Tran sued its insurer in an effort to recover the proceeds from a letter of credit and a cash deposit, both held by the insurer. In order for the insurer to provide coverage to S-Tran, S-Tran had to provide a $477,000 cash deposit and letters of credit totaling $3.5 million. A week prior to S-Tran's bankruptcy filing, the debtor's insurer drew on portions of the letter of credit to pay third parties and placed the remaining proceeds from the letter of credit in a loss reserve account. After filing for bankruptcy, S-Tran demanded the insurer return the proceeds from the letters of credit, however, the insurer refused.

Whether Letter's of Credit are Property of the Estate

The Court in S-Tran did not have to look far for case law regarding the treatment of letters of credit in the bankruptcy context. In 2006, Judge Walsh issued an opinion in Oakwood Homes recognizing the "well established" rule that letters of credit, and the proceeds they generate, are not property of the estate. OHC Liquidation Trust v. Discover Re (In re Oakwood Homes Corp.), 342 B.R. 59, 67 (Bankr.D.Del. 2006). However, citing the Third Circuit, the court in Oakwood Homes also held that "the collateral pledged as a security interest for the letter of credit is [property of the estate]." Id., citing Int'l Fin. Corp. v. Kaiser Group Int'l Inc. (In re Kaiser Group Int'l Inc.) 399 F.3d 558, 566 (3d Cir. 2005)(citations omitted).

Applying Oakwood and Kaiser, the Court in S-Tran found that the issuers of the letters of credit paid S-Tran's insurer the proceeds of the letters of credit, which the insurer then used to pay third parties and create a reserve account. "Because the letter of credit proceeds were not paid with or secured by the Debtors' property, the fact that the proceeds were paid prior to the bankruptcy filing does not transform those entire proceeds into property of the estate." S-Tran Holdings, et al., v. Protective Insurance Company, at *8, Adv. No. 07-51341, Oct. 5, 2009 (Bankr. D.Del.).

Conclusion

Like the debtor in Oakwood Homes, S-Tran sought to recover the proceeds from the letter of credit under section 542 of the Bankruptcy Code alleging claims for turnover of estate property. However, like the court in Oakwood Homes, the Court in S-Tran held that section 542 is a remedy that is available only for debtors seeking to recover what is acknowledged to be estate property. Section 542 is not appropriate, however, if a debtor seeks to recover claims that remain unliquidated or in dispute. Although S-Tran might have a claim for excess letter of credit proceeds, the Debtor cannot recover such excess under section 542 until the amount of the claim has been liquidated.

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

Accuride Corporation Files for Bankruptcy in Delaware Hoping to Win Approval of Pre-Arranged Restructing Plan

Jason Cornell, Esq. — Sat, 17 Oct 2009 20:09:47 -0500

Introduction

Accuride Corporation, the Indiana-based manufacturer of heavy and medium-duty wheels, filed for bankruptcy in the United States Bankruptcy Court for the District of Delaware on October 8, 2009. According to Accuride's Declaration in Support of First Day Motions, the company filed for bankruptcy in order to reduce its debt through confirmation of a pre-arranged restructuring plan. Specifically, Accuride seeks approval of a plan of reorganization that (i) extends the maturity date on its loans to 2013; (ii) cancels notes in exchange for 98% of the common stock of reorganized Accuride; (iii) offers new senior secured notes worth $140 million; and, (iv) provides current stockholders with 2% of the stock issued for reorganized Accuride.

Accuride's Business

Accuride and Accuride Canada were formed in 1986 for the purpose of acquiring all of the assets of a division of Firestone. Two years after formation, Phelps Dodge Corporation purchased Accuride. One year after Phelps' purchase, Kohlberg Kravis Roberts & Co. acquired a controlling interest in Accuride. As stated in Accuride's Bankruptcy Declaration, Accuride's stock originally traded on the New York Stock Exchange, however, it was subsequently delisted and now trades in the over-the-counter market.

The Company's Financials

In its Petition for Bankruptcy, Accuride lists its assets at $682 million, against liabilities of $847 million. Accuride's sales reached $1.4 billion in 2006, however, by 2008 sales were down to $931 million. The company's senior credit facility includes a term loan with a balance of $303 million and a revolving credit facility with a principal balance of $100 million. In addition to its credit facility, the company issued notes worth $275 million. According to Accuride's Petition for Bankruptcy, its ten largest unsecured trade creditors are as follows:

Matalco Inc. ... $1.1 million
Joseph Tryerson ... $804,609
Ryerson ... $791,756
Gallatin Steel ... $557,663
American Colloid ... $323,409
PrimeTrade Inc. ... $321,506
Anixter Fasteners ... $248,044
Foseco Metallurgical $236,594
Hydro Aluminum $230,801
B&B Metals Processing ... $228,683

Events Leading to Bankruptcy

Accuride is one of several auto parts suppliers that filed for bankruptcy in recent months. As with other parts manufacturers, Accuride attributes it bankruptcy filing to the global economic downturn. In its Bankruptcy Declaration, Accuride cites an industry publication that reports a drop in demand for trucking vehicles by 23% in the first half of 2007. Forecasts predict further declines for 2009. Given the poor economic outlook for the last three years, Accuride's stock price fell from $16.91 in 2007 to $.36 per share at the time it filed for bankruptcy.

This bankruptcy proceeding is before the Honorable Brendan L. Shannon.

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

A Tale of Two Bankruptcy Auctions

Jason Cornell, Esq. — Sun, 04 Oct 2009 15:23:32 -0500

Introduction

In recent months, bankruptcy auctions went forward in two different bankruptcy proceedings that illustrate the extent to which auctions can vary both procedurally and substantively. One auction involved the sale of a single asset and lasted less than an hour, while the second auction involved the sale of the debtor's entire business and lasted over the course of several days. This post is intended to provide a brief "compare and contrast" of these two auctions in an effort to provide insight into a process that is a common component of corporate bankruptcies.

Two Different Auctions

For the sake of clarity, the auctions referenced in this post will be named "Short Auction" and "Long Auction," referring to time required to complete each auction. Short Auction was part of a chapter 11 bankruptcy of a multi-national corporation with assets valued in the hundreds of millions of dollars. Short Auction involved the sale of a large piece of commercial real estate, whereas Long Auction involved the sale of the debtor's entire business. The debtor selling assets in the Long Auction also filed under Chapter 11, however, its total assets were a fraction of the size of the debtor involved in the Short Auction.

Short Auction began at 8:00 in the morning at the Delaware offices of the debtor's attorney. Several parties were present at the auction, including representatives for the two bidders for the debtor's asset and counsel for the debtor. A court reporter was also present to make a record of the auction process. Long Auction, in contrast, started at 8:00 p.m. and included counsel for the creditors' committee, debtors and counsel for the bidders. In Short Auction, a successful bidder emerged within 30 minutes of the commencement of the auction. Long Auction, on the other hand, went late in the night and was adjourned for several days while bidders explored additional financing.

Take Aways from Both Auctions

Why was Short Auction short and Long Auction long? The answer is rather straight forward - Short Auction involved the sale of a small component of the debtor's overall business, whereas Long Auction sought to sell all of debtor's business. Further, the buyers in Short Auction came to the table with cash compared to the Long Auction that included credit bids and other contingencies that complicated the process.

In Short Auction, there was only one "break out session" where a bidder sought higher authority from a decision maker who was available by phone. Long Auction, on the other hand, had several break out sessions, some lasting close to an hour. The point of all this is that auctions in bankruptcy vary as to duration and result, however, at the end of the day parties will want to make sure the auction was fair and the result of arms-length negotiations (as was the case in both Short and Long Auctions). And although the debtor's decision to sell its assets outside the ordinary course of business fall under the broad discretion of the business judgment rule, the Bankruptcy Court will nevertheless scrutinize the successful bid to insure that it is in the best interest of the bankruptcy estate and the result of a good faith negotiations by the parties.

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Jason Cornell is a bankruptcy attorney in the Wilmington, Delaware office of Fox Rothschild LLP. If you have questions regarding a chapter 7 or 11 bankruptcy proceeding, you are welcome to contact Jason at 302 427-5512, or Jcornell@foxrothschild.com.

Samsonite Files for Bankruptcy and Plans to Reject Up to 84 Store Leases

Jason Cornell, Esq. — Thu, 17 Sep 2009 21:28:20 -0500

Samsonite Corporation, one of the world's largest luggage manufacturers, filed for bankruptcy in the United States Bankruptcy Court for the District of Delaware on September 2, 2009. According to Samsonite's Declaration in Support of First Day Motions, the company "does not anticipate that any of its customers or suppliers will be materially affected by this [bankruptcy] filing." While this is good news for Samsonite's customers, the outcome for the company's landlords is less certain.

As stated in its Declaration, Samsonite leases 173 retail stores in 38 states. Due to a sudden drop in consumer demand for travel products, Samsonite experienced a significant reduction in its cash flow. As a result, the company engaged in a restructuring process that culminated in the filing of its bankruptcy petition in Delaware. Through bankruptcy, Samsonite intends to reject up to 84 leases for those stores the company deems unprofitable.

Landlords dealing with commercial tenants in bankruptcy face a host of issues, including administrative rent, rejection damages and adequate assurance. A previous post on this blog titled "Ten Things Every Commercial Landlord Should Know About a Tenant in Bankruptcy" provides a good introduction to the issues that confront a landlord when a commercial tenant files for bankruptcy. Judge Peter J. Walsh, a former Chief Judge of the Delaware Bankruptcy Court, recently issued an opinion in the Sportsman's Warehouse bankruptcy that provides a very helpful understanding of how bankruptcy courts approach claims for administrative rent and taxes that arise under a lease. Landlords in Samsonite may find Judge Walsh's decision particularly relevant as Judge Walsh is also the judge presiding over the Samsonite bankruptcy.

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Jason Cornell is a bankruptcy attorney with 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.

Metal Manufacturer, Barzel Industries, Files Bankruptcy Seeking To Sell Majority of Assets

Jason Cornell, Esq. — Thu, 17 Sep 2009 19:51:46 -0500

Introduction

Barzel Industries, the Massachusetts-based metal manufacturer, filed for bankruptcy on September 14, 2009, in the United States Bankruptcy Court for the District of Delaware. One of the initial documents Barzel filed with the Bankruptcy Court is a Declaration in Support of First Day Pleadings (the "Declaration"). According to the Declaration, as of the petition date Barzel has 600 employees working at 15 different manufacturing and distribution facilities in the U.S. and Canada.

Events Leading to Bankruptcy

According to the Declaration, Barzel's bankruptcy was the result of operating losses that began in 2008 and continued in to 2009. Barzel ties its losses directly to the "current global economic recession and credit crisis, and the resulting dramatic downturn in the automotive, transportation, manufacturing and construction industries in the United States and Canada." These industries account for much of Barzel's business. Barzel's problems worsened following a drop in the price of steel. With prices and demand both down, Barzel sought to reduce expenses and improve its operations by closing 6 facilities and reducing its workforce by 350 employees.

Barzel's cost-cutting measures were not enough and in May of this year, the company missed an interest payment due on its Senior Secured Notes, two-thirds of which are held by JPMorgan Chase. With few options remaining, Barzel began looking for potential purchasers of the company. As a result of its marketing efforts, 72 parties executed confidentiality agreements and 12 made offers to pursue a purchase transaction.

On September 14, 2009, Barzel entered into an asset purchase agreement with Chriscott USA Inc. and 4513614 Canada. Under the APA, Barzel will sell substantially all of its assets for $65 million unless a better offer comes about through the bankruptcy auction process. Barzel's lenders have agreed to finance its bankruptcy proceeding through December 11, 2009, while Barzel completes the auction process.

According to Barzel's Bankruptcy Petition, its assets total $365 million against debts totaling $384 million. This bankruptcy is before the Honorable Christopher S. Sontchi.

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

Whitehall Jewelers Files Over 90 Preference Actions in Delaware Bankruptcy Court

Jason Cornell, Esq. — Fri, 04 Sep 2009 22:23:13 -0500

Introduction

In June of last year, retailer Whitehall Jewelers filed for Bankruptcy in the United States Bankruptcy Court for the District of Delaware. Last month, 14 months after filing for bankruptcy, Whitehall filed over 90 adversary actions in Delaware seeking to recovery payments the company made to various creditors during the 90 days prior to its filing for bankruptcy.

Debtors in bankruptcy (or their assignee) routinely seek to recover what they allege are "avoidable transfers" from the creditors who received payments as the debtor slides into bankruptcy. While "ordinary course of business" and "new value" are core defenses frequently relied upon by defendants in a preference action, there are less common defenses that should not be overlooked.

This post will look briefly at the "mere conduit" defense. Although the mere conduit defense is not always available to certain creditors, it is helpful to have an understanding of how the mere conduit defense has been applied by bankruptcy courts in both the District of Delaware and other jurisdictions.

The Elements of a Preference Action

Congress provides a debtor in bankruptcy with a cause of action for preference payments pursuant to section 547(b) of the United States Bankruptcy Code. Under section 547(b), a debtor in bankruptcy may "avoid any transfer of an interest of the debtor in property (1) to or for the benefit of a creditor; (2) for or on account of an antecedent debt owed by the debtor for such transfer was made; (3) made while the debtor was insolvent; (4) made (A) on or within 90 days before the date of the filing of the petition ..."

Mere Conduit Defense

Congress also provided parties who received alleged "preference payments" with several defenses. The "mere conduit" defense is set forth under section 550(a)(1) of the Bankruptcy Code and provides an exception to a debtor's ability to recover preferential transfers:

Except as otherwise provided in this section, to the extent a transfer is avoided under section ... 547 ... the [debtor] may recover, for the benefit of the estate, the property transferred, or, if the court so orders, the value of such property, from -

(1) the initial transferee of such transfer or the entity for whose benefit such transfer was made ...

Application of the Mere Conduit Defense

Courts deciding whether to apply the mere conduit defense look to whether the defendant who allegedly received the preferential transfers had "dominion and control" over the payments. U.S. Interactive v. Sampson Travel Agency (In re U.S. Interactive), 321 B.R. 388, 395 (Bankr. D. Del. 2005). For a defendant to establish the mere conduit defense, it must show that the payments received from the debtor "merely slipped through his hands to another party." Id., citing Bailey v. Big Sky Motors, Ltd. (in re Ogden), 314 F.3d 1190, 1196 (10th Cir. 2002); see also, Christy v. Alexander & Alexander of New York Inc., (In re Finley, et al.), 130 F.3d 52, 58 (2d Cir. 1997). If the defendant had the right to put the money to its use as it saw appropriate, the mere conduit defense does not apply. Official Comm. of Unsecured Creditors v. Guardian Ins. 401 (In re Parcel Consultants, Inc.), 287 B.R. 41, 46 (Bankr. D. N.J. 2002).

In U.S. Interactive, the court found that the defendant, a travel agent, did not satisfy the mere conduit defense because the defendant was able to deposit the funds into its own checking account and do with the money as it saw fit. Instead, what is required to satisfy the mere conduit defense is evidence that the initial recipient of the payments lacked the power to decide who to pay with the funds. The decision in U.S. Interactive suggests that if the initial recipient of the money received from the debtor is required to deposit the funds in a separate account (versus its general operating account), and those funds are subsequently forwarded to a third party, the defense may apply.

Conclusion

Clearly, the mere conduit defense has limited application to parties who are defending a preference action. However, for those defendants whose circumstances show they lacked "dominion and control" over the payments, and instead forwarded the payments to a third party, the defense can be a valuable tool in reducing or eliminating exposure in a preference action.

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Jason Cornell is an attorney who practices in Fox Rothschild's Wilmington, Delaware office. If you have questions regarding this, or any other bankruptcy matter, you may contact Jason directly at 302 427-5512, or jcornell@foxrothschild.com. Please be advised that Fox Rothschild LLP does not represent Whitehall Jewelers in this bankruptcy proceeding. Click here if you would like to read other posts on this blog regarding issues that arise in preference litigation.

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

Jason Cornell, Esq. — Wed, 02 Sep 2009 21:32:08 -0500

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:

Process America ... $2.8 million
Paymentech ... $2.6 million
TSYS ... $1.4 million
wwwmygrantsitenet ... $1.4 million
Second Source ... $1.1 million
DJM*Lifstylefit.com ... $900,764
wwwfedgrantusa.com ... $812,629
Merchant Processing Services ... $756,782
Pivotal Payments ... $509,068
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.

Freedom Communications Files for Bankruptcy in Delaware Following Decline in Advertising Revenue

Jason Cornell, Esq. — Wed, 02 Sep 2009 19:47:13 -0500

Introduction

Freedom Communications Holdings, the Orange County, California newspaper publisher, filed for bankruptcy in the United States Bankruptcy Court for the District of Delaware on September 1, 2009. (You can review a copy of Freedom's Petition for Bankruptcy here.) According to the Declaration of Freedom's Chief Financial Officer, the company's decision to file for bankruptcy was based on several factors, most notably the continual decline of advertising revenues in the newspaper industry and increased competition in web-based advertising.

In September of 2008, Freedom defaulted under is prepetition credit agreement with its lenders. Although the lenders agreed to several loan amendments, Freedom eventually realized that an out-of-court workout would not resolve its financial problems. Besides declining ad revenue, Freedom's finances were further weakened by the settlement of a class action brought by various newspaper carriers. Pursuant to the terms of the class action settlement, Freedom was obligated to pay over $28 million into an escrow account to fund the settlement. The terms of the settlement agreement provided that the class action settlement would not become final until September 14, 2009. By filing for bankruptcy before September 14th, Freedom contends that the "settlement funds have become property of the chapter 11 estate and, therefore, are subject to immediate return to the [company]." (More information regarding the reasons behind Freedom's decision to file for bankruptcy are available in Freedom's Declaration in Support of Chapter 11 Petitions and First Day Pleadings)

Debtor's Operations

Freedom Communications' origins go back to 1935 when R.C. Hoiles purchased The Orange County Register. From its beginnings through 2000, the company purchased newspapers and other publications in the states of Arizona, California, Colorado, Florida, Illinois, Indiana, Missouri, New Mexico, North Carolina, Ohio and Texas. According to Freedom's Declaration, as of its petition date, the company owns 90 daily or weekly publications and 30 daily newspapers. In addition to print publications, Freedom also owns eight television stations, most of which are either ABC or CBS affiliates. Including contractors, Freedom employs over 8,200 individuals.

Debtor's Financials

Freedom lists its assets with a book value of $757 million, against liabilities totaling over $1 billion. Included in Freedom's debt is its credit agreement of approximately $770 million. The remaining $306 million in liabilities includes trade claims, contract claims, lease claims, non qualified retirement plan claims and litigation claims. According to Freedom's Petition for Bankruptcy, the company's ten largest unsecured creditors include:

JP Morgan (unsecured loan) ... $770 million
Class Action Plaintiffs ... $28.9 million
Kingworld Productions, Inc. ... $1.5 million
North Pacific Paper ... $1.2 million
Bowater America, Inc. ... $753,326
Inland Empire Paper ... $590,502
SP Newsprint Co. ... $548,151
Vertis Inc. ... $381,416
Impression Inks West ... $374,591
Abitibi Consolidated Sales ... $356,630

Conclusion

This bankruptcy proceeding is before the Honorable Brendan L. Shannon. There has been substantial activity in this case within the first 24 hours of the petition date. Included among the company's "first day" bankruptcy motions is a motion to pay certain critical vendors, a motion seeking administrative claim status of postpetition goods and a motion to establish procedures for the rejection of executory contracts and leases. (To read a prior post on issues relevant to lease rejection, click here).

Many debtors file for bankruptcy in an effort to sell-off assets under the protection of section 363 of the United States Bankruptcy Code. Freedom states in its Declaration that it filed for bankruptcy in order to restructure its debt under a plan of reorganization. To that end, the company intends to file a disclosure statement and plan of reorganization within 45 days from the date it filed for bankruptcy.

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Jason Cornell is a bankruptcy attorney who practices in Wilmington, Delaware with Fox Rothschild LLP. If you have questions regarding this or any other Delaware bankruptcy proceeding, you may contact Jason at 302 427-5512, or jcornell@foxrothschild.com. Fox Rothschild LLP does not represent Freedom Communications Holdings in this bankruptcy proceeding.

Auto Parts Manufacturer, Proliance International, Files for Bankruptcy 18 Months After a Tornado Destroys Distribution Facility

Jason Cornell, Esq. — Mon, 10 Aug 2009 21:33:20 -0500

Introduction

Proliance International ("Proliance" or "Debtor"), an automotive heating and cooling parts manufacturer, filed for bankruptcy in the United States Bankruptcy Court for the District of Delaware on July 12, 2009. The Debtor is represented by Jones Day of New York. This bankruptcy proceeding is before the Honorable Christopher S. Sontchi of the Delaware Bankruptcy Court. A review of the docket shows that the Court recently entered several of the Debtor's "first day motions" including a motion allowing the Debtor to honor certain pre-bankruptcy obligations and customer programs. The United States Trustee has scheduled a meeting of creditors for August 14, 2009 at 4:00 p.m. (click here to read a prior post on section 341 meeting of creditors).

Debtor's Business

According to Proliance's Declaration in Support of First Day Motions (the "Declaration"), the company's origins go back to 1915 when it began manufacturing radiators for automobiles and fire engines. Proliance today is the product of a merger between Transpro Inc. and Modine Aftermarket Holdings, Inc.. There are two primary component's to the Debtor's business - domestic and international operations.

On February 5, 2008, a tornado destroyed Proliance's domestic distribution center in Southaven, Mississippi. The tornadoes ruined a substantial portion of Proliance's auto and truck heat exchange inventory. With the loss of this inventory, Proliance encountered "severe liquidity constraints" which the company views as "one of the major precipitating factors for these cases." See Debtors' Declaration at p. 5.

Debtor's Financials

Within the U.S., Proliance is one of the largest manufacturers of heat exchange products. The company list net sales for 2008 of $350 million. According to the Declaration, sales for 2008 were down 11.1% when compared to 2007. The Debtor attributes most of its drop in sales in 2008 to the destruction of its Mississippi distribution center.

In 2007, Proliance entered into a prepetition credit agreement with Silver Point Finance as administrative agent and collateral agent for the prepetition lenders. Although the prepetition credit facility provides up to $100 million in debt, going into bankruptcy the company owed $33.6 million under a term loan and $6.5 million under a revolving loan facility.

The Debtor estimates its trade debt totals $51.7 million. This amount includes moneys owed to both domestic and foreign vendors. According to Proliance's Bankruptcy Petition, its ten largest unsecured creditors include the following:

Enterex Industrial ... $17.1 million
Transtec Global ... $11.8 million
U&C Auto Parts ... $2.6 million
Alcoa Mill Products ... $1.8 million
Luvata Netherlands ... $1.3 million
Foshan Guang Dong Automotive ... $1.2 million
President Automotive Industries ... $1.2 million
Lumei Auto Radiator ... $1.1 million
Sapa/Norca Heat Transfer ... $918,685
Tianjin Xinyue Auto Part Co. ...$878,026

The company lists total assets of $160 million against debts totaling $133 million.

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Jason Cornell is a bankruptcy attorney with 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.

A Closer Look at the Cooper-Standard Automotive Bankruptcy

Jason Cornell, Esq. — Tue, 04 Aug 2009 20:50:12 -0500

Introduction

With over $1.1 billion in debt, Cooper-Standard Automotive filed for bankruptcy on August 3, 2009 in the United States Bankruptcy Court for the District of Delaware. Based in Novi, Michigan, Cooper labels itself "a leading global manufacturer of fluid handling, body sealing, and noise, vibration and harshness control components ... for use in passenger vehicles." (See Cooper's Declaration in Support of Chapter 11 Petitions).

Like with many of the "mega" bankruptcy cases filed in Delaware, Cooper filed several "first day" motions contemporaneous with filing its bankruptcy petition (you can read Cooper's Voluntary Petition for Bankruptcy here). Through its first day motions, Cooper seeks authority from the Bankruptcy Court to allow it to incur $200 million in bankruptcy financing. In order to insure continued operations at Cooper's seventy-eight manufacturing and design centers worldwide, Cooper also filed a motion seeking authority to pay employee wage and benefit obligations. Certain vendors of Cooper will benefit from the company's motion to pay the pre-bankruptcy claims of vendors, shippers and other suppliers.

The Debtors' Financials

According to Cooper's Petition for Bankruptcy, the company's ten largest unsecured creditors are as follows:

Senior Subordinated Notes Due 2014 ... $313 million;
Senior Notes Due 2012 ... $200 million
State of Ohio EPA ... $2.7 million
Robert Bosch LLC ... $713,782
Gil-Mar Manufacturing ... $477,815
Summit Metals ... $449,326
EMS Chemie NA ... $448,778
Evonik Degussa Corp. ... $437,456
TSM Corporation ... $395,688
Premier Tool & Die ... $375,451

According to its Declaration, Cooper's earnings (not sales) in 2008 were $218 million, an 8% drop compared to 2007 earnings of $285 million. The company admits in court papers that the drop in production in the auto industry left Cooper "overleveraged." Cooper initially sought to restructure outside of bankruptcy. In the year prior to bankruptcy, Cooper reduced its workforce by 1,300 salaried employees. To reduce its debt load, Cooper hired Lazard to assist in negotiations with its lenders. Cooper's lenders agreed to a forbearance agreement in July and extended the agreement through August 14, 2009. During these negotiations, Cooper and its lenders agreed to enter into debtor in possession financing whereby the lenders agreed to provide a "superpriority senior secured postpetition credit facility."

Corporate History

This bankruptcy proceeding is filed under the caption "Cooper-Standard Holdings, Inc., et. al." As stated in the Declaration, CSA Acquisition Corp. was formed in 2004 as a Delaware corporation through a joint venture between The Cypress Group LLC and Goldman Sachs. CSA Acquisition then entered into a stock purchase agreement with Cooper Tire & Rubber Company and Cooper Tyre & Rubber Company UK Limited. The venture purchased Cooper for $1.165 billion in cash.

This bankruptcy proceeding is before the Honorable Peter J. Walsh, former Chief Judge of the Delaware Bankruptcy Court.

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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.