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July 10, 2007
Tosses Creditors' Suit against Hedge Funds
A federal appellate court
on Monday ruled that the U.S. Trustee is the proper party to bring an
equitable subordination claim, throwing out a request brought by
unsecured creditors of former Internet company AppliedTheory Corp. to
pursue a suit against a group of hedge funds,
face='Times New Roman' size='3'>Bankruptcy Law360
size='3'>reported yesterday. The ruling by the U.S. Court of Appeals for
the Second Circuit affirmed an order by the district court, which in
turn affirmed a 2005 ruling by the U.S. Bankruptcy Court for the
Southern District of New York, refusing to allow AppliedTheory’s
official unsecured creditors’ committee to assert an equitable
subordination claim against various lenders, including Halifax Fund LP,
Palladin Partners I LP, Hatteras Partners LP, Spectrum Investment
Partners LP and Elliott International LP. The unsecured creditors
alleged that they suffered injury when the hedge funds “used their
control over AppliedTheory” to convert $30 million in unsecured
debt to secured debt, the Circuit Court said. The case is
In re AppliedTheory Corp. et
al. v. Halifax Fund LP et al., case number
06-3390 in the U.S. Court of Appeals for the Second Circuit.
href='http://bankruptcy.law360.com/Secure/ViewArticle.aspx?id=28951'>Read
more. (Registration required.)
name='2'>District Court Judge Faults 'Boilerplate' Notification of
Possible End to Bankruptcy Case
A bankruptcy judge's
dismissal of a
size='3'>Long Island
chapter 11 petition has been vacated by a federal judge who held that
the doctor had not been sufficiently warned of the consequences of
failure to follow court directives, the New York Law Journal
reported today. After debtor Florin Munteanu filed for bankruptcy,
Eastern District of New York Bankruptcy Judge Stan
Bernstein issued an order advising him of the fact that he 'may
consider and determine any motion to ... dismiss' at a scheduled
conference. However, Eastern District of New
York Judge Arthur D. Spatt held that this 'boilerplate warning' did not
provide Munteanu with adequate notice that the case could be dismissed.
'The notice by the bankruptcy court that it was considering dismissing
the petition for cause was not provided at a meaningful time, and did
not permit the appellant a meaningful opportunity to respond,' Spatt
wrote in In re Florin
Munteanu, 06 CV 6108. The decision has 'wide
implications' for the administration of chapter 11 proceedings, said
Gary Fischoff of Steinberg, Fineo, Berger & Fischoff of
size='3'>Woodbury
w:st='on'>
size='3'>N.Y.
attorney. Fischoff said that because the
initial case management order issued by Bernstein is similar to orders
issued by most bankruptcy court judges, the decision 'calls into
question the current framework for the administration of chapter 11
cases.'
href='http://www.law.com/jsp/article.jsp?id=1183971981696&rss=newswire'>Read
more.
Autos
face='Times New Roman' size='3'>
name='3'>Delphi
size='3'>Drops Finance Plan but Expects Another
Soon
The Delphi Corporation,
the large auto supplier, said Monday that it had terminated a $3.4
billion financing plan to bring the company out of bankruptcy protection
but that it expected to sign a new deal this month, the
face='Times New Roman' size='3'>New York Times
size='3'>reported today. The company said it planned to emerge from
bankruptcy by the end of the year, within six months of its original
timetable. Its board is scheduled to meet next Monday to consider a new
financing agreement. Delphi said previously that the lead investor in
the deal, the private equity firm Cerberus Capital Management, was
likely to withdraw as talks stalled on a labor agreement with the United
Automobile Workers union and Delphi’s former parent, General
Motors. Cerberus and other equity firms, including Appaloosa Management
and Harbinger Capital, had agreed in December to buy
w:st='on'>
size='3'>Delphi
planned to bring it out of bankruptcy in the first half of this
year.
size='3'>Delphi
Cerberus-led bid over a competing offer of $4.7 billion made by Highland
Capital Management. Delphi recently agreed to share confidential
financial information with
size='3'>Highland, according to a
regulatory filing, suggesting that
w:st='on'>
size='3'>Highland could be
involved in a new agreement.
href='http://www.nytimes.com/2007/07/10/business/10delphi.html?_r=1&oref=slogin&ref=business&pagewanted=print'>Read
more.
name='4'>Tower's
w:st='on'>
size='3'>Sale
Objections
Despite reaching a deal
with a group of its unions recently, Tower Automotive continues to face
opposition from a slew of parties that are worried about the terms of
the auto supplier's sale and assumption motion,
face='Times New Roman' size='3'>Bankruptcy Law360
size='3'>reported yesterday. The dispute dates back to 1997, when
size='3'>R.J.
face='Times New Roman' size='3'>Tower
assigned its rights under a joint venture agreement
including its right to acquire a 40 percent stake in Metalsa, to Tower
Automotive de Mexico, according to documents. In light of Tower's
bankruptcy, Grupo Proeza and Metalsa have expressed fear that this 40
percent stake will be misconstrued as belonging to the debtor rather
than its nondebtor subsidiary.
href='http://bankruptcy.law360.com/Secure/ViewArticle.aspx?id=28890'>Read
more. (Registration required.)
name='5'>Dura to Sell Division for $160.2 Million
Rochester Hills,
Mich.-based Dura Automotive Systems Inc. said Thursday that it has
reached an agreement with Elkhart, Ind.-based Atwood Acquisition Co. to
sell its Atwood Mobile Products division for $160.2 million in
cash, Crain’s
Detroit Business reported today.
Dura, which filed for chapter 11 bankruptcy protection in
October 2006, in May announced its intent to sell the division. Founded
in 1909, Atwood makes products for the recreational and specialty
vehicles and manufactured housing, including windows and doors,
specialty glass, hardware, appliances and electronics. Atwood was
acquired by Dura in 1999. A hearing to approve auction procedures is
scheduled for July 24 in U.S. Bankruptcy Court in
w:st='on'>
href='http://crainsdetroit.com/apps/pbcs.dll/article?AID=/20070705/REG/70705001'>Read
more.
Subprime
Mortgages
name='6'>Judge Approves Subprime Lender's Trustee
Request
Bankruptcy Judge Samuel
J. Steiner ordered that a U.S. Trustee be appointed to oversee MILA Inc.
on Friday, just days after the subprime lender filed for chapter
11, Bankruptcy
Law360 reported yesterday. Asking the court to
appoint a chapter 11 trustee was one of the first things MILA did after
filing its voluntary petition for bankruptcy last week. The company said
a U.S. Trustee should oversee the sale of software the company owns to
ensure the company's creditors get the maximum possible return. The
Mountlake Terrace, Wash.-based company listed assets of $7.9 million and
href='http://bankruptcy.law360.com/Secure/ViewArticle.aspx?id=28873'>Read
more. (Registration required.)
name='7'>Commentary: Lenders and Regulators Need to Ensure the
Suitability of Mortgage Loans
The Federal Reserve, with
authority over unfair and deceptive mortgages, should impose rules on
all lenders — banks and nonbanks — deeming a mortgage unfair
if it’s issued without evidence of a borrower’s ability to
repay, according to a
size='3'>New York Times editorial today.
Though mortgage lenders say that subprime loans have allowed millions of
Americans to buy a first home, most subprime loans were for refinancing,
not first-time purchases, so as defaults rise, foreclosures are
projected to outnumber first-home purchases, according to the
nonpartisan Center for Responsible Lending. Lenders also assert that
borrowers with weak credit had no choice other than costly,
adjustable-rate subprime loans. During the boom, many subprime lenders
did not worry about being paid back over time, because they sold many of
the loans to Wall Street. Those who made a lot of money on subprime
loans don’t stand to lose their houses now that the game is
ending. It’s up to regulators and lawmakers to impose discipline
when the market does not.
href='http://www.nytimes.com/2007/07/10/opinion/10tue2.html?pagewanted=print'>Read
more.
name='8'>Solutia Seeks Court Approval for Huntsman
Deal
Solutia Inc. has asked
the court overseeing its chapter 11 proceedings to sign off on a
settlement deal with one of its raw material suppliers, saying that both
parties have a significant business interest in averting litigation and
reaching a consensual resolution of their claims and disputes,
Bankruptcy Law360
reported yesterday. The bankrupt chemical products maker
said in court documents filed Friday that it had reached a deal with
Huntsman Petrochemical Corp. on June 30 after months of extensive
negotiations. In addition, the deal would prevent future disputes
between the parties by clarifying certain disputed provisions of lease
and operating agreements relating to the calculation of the amounts to
be paid by Huntsman to Solutia and allow Solutia to assume the
agreements as amended by the settlement without having to pay cure
costs, Solutia said. Solutia has leased land to Huntsman at its
Chocolate Bayou,
size='3'>Texas, and
w:st='on'>
size='3'>Pensacola
w:st='on'>
size='3'>Fla.
for more than a decade, while Huntsman supplies Solutia with certain key
raw materials used in Solutia's own chemical manufacturing operations,
according to court documents.
href='http://bankruptcy.law360.com/Secure/ViewArticle.aspx?id=28873'>Read
more. (Registration required.)
name='9'>TROUBLED COMPANIES IN THE NEWS
1000’s of companies lose
money or experience some form of difficulty each quarter.
The business news articles
below are excerpts taken from the most recent Weekly Summary of Troubled
U.S. Companies and Other Business News published by Bastien Financial
Publications.
To begin receiving this
news, each morning, through Bastien Financial
Publication’s DAILY e-Summary, that
emails you information on over 70 such companies each morning, email
steve@creditnews.com your name, company name, address, phone and
fax. We’ll set you up within 24
hours.
The
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size='3'>Bassett Furniture Industries, Inc.,
the Bassett, Va. maker of home and office furniture with more than 125
outlet stores and which sells through another 800 department stores,
reported a second quarter net loss of $2.4 million, on a 14% sales
decline–to $75.4 million. The loss included $2 million in
restructuring and impairment charges.
size='3'>Braddock Financial Corp., Denver,
Co., is shutting down its Galena Street Fund, which primarily invests in
bonds that are backed by subprime mortgages. Braddock also suspended
redemptions until it can sell off assets.
size='3'>Champps Entertainment Inc., the
Littleton, Co. firm which owns, operates and franchises more than sixty
restaurants and which lost $7 million during its first nine months, is
being purchased by F & H Acquisition Corp., the holding company for
Fox & Hound Restaurant Group, in a transaction valued at $74.8
million. Champps had been seeking a buyer but pulled itself off
the market after it let a $75 million purchase offer by a
York
expire at the end of March.
size='3'>Corbis, a
w:st='on'>
size='3'>Seattle
w:st='on'>
size='3'>Wa
company that’s owned by Microsoft Corp.’s Bill Gates,
announced that it will reduce its payroll by 160 workers (17% of its
workforce) as it focuses on profitability.
size='3'>Dell Inc., the Round Rock, Tx.
computer company, said that it won’t be able to file financial
statements for 2007's second quarter, third quarter and full-year
results as well as numbers for the first quarter of fiscal 2008 as it
continues dealing with an internal probe into its accounting
practices.
size='3'>Leading Brands Inc., a
size='3'>Vancouver
w:st='on'>British
Columbia
distributes and bottles fruit juices and soft drinks, reported a first
quarter net loss of $185,000. Sales declined 22%–to $9.5
million. The loss compares with income of $264,000 for the same
period one year earlier.
size='3'>Netlist’s stock price sank 27%
after the
face='Times New Roman'
size='3'>Irvine
of memory technology warned that it will incur a big loss in the second
quarter, citing a tough market for manufacturers of memory
chips.
size='3'>Quaker Fabric Corp., the
size='3'>Fall River
supplier of furniture fabrics, announced that it will likely begin to
liquidate its business and assets. The firm had been unable to
meet requirements for committed borrowings under its current lending
facilities. At the same time, Quaker will try to negotiate the financing
needed to carry out the liquidation proceedings.
size='3'>RC2 Corp., which last month had to
recall 1.5 million of its Thomas & Friends railway toys on worries
about lead paint, was slapped with a federal class-action lawsuit that
seeks to force it to stop production and distribution of “all
metal toys”. RC2, Oak Brook, Il., said that the only toys
affected by the recall are some wooden products.