Outlook 2012: Late 2011 big-debt bankruptcies close out slower year

By Caroline Salls

Pittsburgh, Dec. 30 - AMR Corp., MF Global Holdings Ltd., Dynegy Holdings LLC and Lee Enterprises, Inc. brought billions of dollars of debt into bankruptcy late in 2011, closing a relatively slow year out with a bang.

AMR listed $29.55 billion of debt when it filed for bankruptcy in November, Dynegy filed with $6.18 billion of debt, Lee reported $1.3 billion of debt in its December petition, and MF Global had $39.65 billion of debt when it filed on Halloween.

Following a period of fast and furious filings that began with Lehman Brothers' collapse in September 2008 and didn't let up until early-to-mid 2010, MSR Resort Golf Course LLC and Borders Group Inc. started 2011 off big when they filed Chapter 11 cases in January and February with $1.9 billion and $1.29 billion of debt, respectively.

However, new bankruptcy filings slowed significantly over the spring and summer of 2011.

Other 2011 bankruptcy filers belonging to the billion-dollar debt club were General Maritime Corp., with $1.41 billion of debt; Jefferson County, Ala., which had more than $1 billion of debt when it filed a Chapter 9 municipal bankruptcy case; NewPage Group, Inc., with $4.2 billion of debt; and Vitro, SAB de CV, which filed Chapter 15 bankruptcy with more than $1 billion of debt.

Solyndra LLC, PMI Group, Inc., Filene's Basement/Syms Corp., Los Angeles Dodgers, Perkins & Marie Callender's Inc. and Nebraska Book Co. also dominated the headlines with their bankruptcy filings in 2011.

Solyndra posted a hefty $749 million of debt when it filed, followed by PMI Group's more than $736 million and Nebraska Book's $563.97 million. Perkins & Marie reorganized its $440.82 million of debt and emerged from Chapter 11 at the end of November.

Emergence updates

Although much of 2011 was quiet on the bankruptcy-filing front, major names like Washington Mutual, Inc., Tribune Co. and Quigley Co., Inc. continued their fight to secure confirmation of a reorganization plan and emerge from bankruptcy.

Washington Mutual and Tribune both had recent versions of their plans of reorganization rejected by bankruptcy courts in 2011.

While Tribune filed a further amended plan to address court concerns, the company was still at odds with noteholders in late November on allocation and subordination issues.

A hearing on reconsideration of portions of the plan ruling was held on Dec. 13, with a ruling expected in the coming weeks.

Washington Mutual's prospects were brighter, as it reached a dispute settlement and filed a seventh amended plan in mid-December.

If the seventh plan is confirmed, the company said it hopes to emerge from bankruptcy by the end of February.

On Dec. 22, Washington Mutual told the court that its Dime warrant litigation mediation had failed.

Quigley was granted court approval in April 2011 to enter into a plan of reorganization support agreement with parent company Pfizer Inc. and an informal committee of tort victims, but no further progress had been reported since then.

The company did receive court approval in August to extend the term of its debtor-in-possession financing to Feb. 24 and to use up to $65 million of cash collateral.

Quigley said the use of the cash collateral and the DIP loan extension would give it continued access to financing while it continues to work with its official committee of unsecured creditors, parent Pfizer Inc. and the future asbestos claims representative toward confirmation of a consensual plan of reorganization.

Quigley was denied confirmation of its fourth amended plan in September 2004.

W.R. Grace & Co., which marked 10 years in bankruptcy on April 2, 2011, had its plan of reorganization confirmed on Jan. 31, 2011.

In October, Grace called the timing of its emergence from Chapter 11 bankruptcy "uncertain" but said it was preparing to consummate its plan of reorganization as soon as possible.

At that time, the company said the confirmation order must next be affirmed by the U.S. District Court for the District of Delaware. Oral arguments on affirmation and plan appeals were held in late June, according to court documents.

In a letter-of-credit facility extension motion filed in late December, Grace said it did not expect to emerge from bankruptcy and enter into exit financing by March 1.

After more than three years in bankruptcy, Lehman's plan was approved in December, clearing the way for it to begin paying out the estimated $65 billion it owes to creditors.

As previously reported, payouts are expected to being early in 2012, and the firm has requested its bankruptcy exit occur after Jan. 31.

Municipal headaches

On the bankruptcy filing front, the past year was a particularly rough one for municipalities.

With liquidity constraints tightening and debt payment resources disappearing, Harrisburg, Pa., Central Falls, R.I., and Jefferson County, Ala., joined Vallejo, Calif., in Chapter 9 bankruptcy.

Jefferson County had been dealing with well-publicized issues for years and finally carried $3.14 billion in sewer warrant debt into bankruptcy in November.

Major controversy surrounded Harrisburg's bankruptcy case, which was eventually dismissed when the court ruled that city council violated a Pennsylvania state law preventing third-class cities from filing for bankruptcy.

Harrisburg's council made the filing in October to deal with six incinerator bond guaranty lawsuits.

Jefferson County's sewer warrant trustee and liquidity banks have also sought dismissal of that case, arguing that the county is ineligible for Chapter 9 under Alabama law because it has outstanding warrants, not bonds.

Retail improvements

The restaurant and retail sectors saw their fair share of filings this year, although the new filings in these sectors in 2011 paled in comparison to the recession-driven numbers seen in 2009 and 2010.

The 2011 filers in the restaurants and retail categories included Deb Shops, Inc., Berkline/BenchCraft Holdings LLC, Friendly Ice Cream Corp., Ambassadors International, Inc., RoomStore, Inc., American Laser Centers LLC, Getty Petroleum Marketing Inc., Ultimate Electronics' parent, high-end furnishings retailer Robb & Stucky Ltd. LLLP, Real Mex Restaurants, Inc. and BP Clothing, LLC.

Real Mex topped the debt list for these sectors, reporting $250 million of debt when it filed in October.

The retail and restaurant sectors did begin to see some relief this year, although several were forced to liquidate and close their businesses as part of their bankruptcy proceedings.

Retailers and restaurant companies that emerged from bankruptcy in 2011 included Oriental Trading Co., Inc., Magic Brands, LLC, Anchor Blue Retail Group, Inc., Gottschalks Inc. and Joe's Sports & Outdoor.

Power outages

Solyndra was the top name in an energy sector that was also particularly hard hit during the year.

Other companies filing bankruptcy from the sector were Stirling Energy Systems, Inc., Evergreen Solar, Inc., AES Thames, LLC, Delta Petroleum Corp. and Southwest Georgia Ethanol.

However, the news wasn't all dim in the energy sector in the past year. Companies that exited bankruptcy included Caribbean Petroleum Corp., North American Petroleum Corp., USA, Otter Tail Ag Enterprises, LLC and Storm Cat Energy Corp.

Slow recovery

A number of financial and housing-related companies saw troubles that served as reminders of the slow pace of the economic recovery.

The biggest was William Lyons Homes, which carried a $606.61 million debt load into its pre-packaged bankruptcy case filed on Dec. 19.

Others in the financial and housing sectors that made bankruptcy filings in 2011 included JER/Jameson Mezz Borrower I, LLC, Security National Properties Funding III, LLC, hotel investment company M Waikiki LLC, Integra Bank Corp., Reid Park Properties LLC, Majestic Capital, Ltd., Maronda Homes, Inc., Barnes Bay Development Ltd., New Stream Secured Capital, Inc., PJ Finance Co., the Money Tree Inc. and Global General and Reinsurance Co. Ltd.

Barnes Bay's case was dismissed in December after the bankruptcy court denied confirmation of its reorganization plan and the U.S. Trustee claimed the company had no more money. Barnes Bay had $461.95 million of debt when it entered Chapter 11 in March 2011.

Also, JER/Jameson's case was dismissed in late December. The court said the case was filed in bad faith.

Despite continued sector weakness, numerous financial and housing companies that were forced into bankruptcy in the recession that began in 2008 emerged from reorganization proceedings in 2011.

Major names emerging from these sectors included Credit-Based Asset Servicing and Securitization and Taylor, Bean & Whitaker Mortgage Corp., which each listed more than $1 billion in debt in its 2010 bankruptcy filing, and Innkeepers USA Trust, with $1.6 billion of debt.

In addition, Orleans Homebuilders, Inc. had $498.8 million of debt when it entered bankruptcy.

Those emerging from these sectors also included Palm Harbor Homes, Loehmann's Capital Corp., Midwest Banc Holdings, Inc., Amcore Financial, Inc., Corus Bankshares, Inc., AmTrust Financial Corp., Advanta Corp., California Coastal Communities, Inc., Capmark Financial Group, Inc., Guaranty Financial Group, Inc., Colonial BancGroup Inc., Accredited Home Lenders Holding Co., Meruelo Maddux Properties, Fulton Homes Corp. and South Star Funding, LLC.

Additionally, real estate development and management companies that hit the bankruptcy scene in 2011 included Madison 92nd Street Associates, LLC, 155 East Tropicana, LLC, Indianapolis Downs, LLC, KB Home joint venture South Edge, LLC and MSR Resort Golf Course LLC.

Other filers

Also filing for bankruptcy in 2011 were Alexander Gallo Holdings, LLC, Trailer Bridge, Inc., SP Newsprint Holdings LLC, Open Range Communications Inc., CDC Corp., Graceway Pharmaceuticals, Hussey Copper Corp., ShengdaTech, Inc., Manistique Papers, Inc., Marco Polo Seatrade, BV, ArchBroook Laguna Holdings LLC, Omega Navigation Enterprises Inc., Allen Family Foods, Inc., Merit Group, Inc., Tembec USA LLC, Scovill Fasteners Inc., Bowe Bell + Howell, Vitro, SAB de CV and Clare Oaks.

In addition, involuntary bankruptcy cases were filed by creditors against Inner City Media Corp., Desert Capital REIT, Inc., Zais Investment Grade Ltd. VII and South Edge, LLC during the year.

In and out

A handful of companies made quick work of their reorganization proceedings, both filing and emerging from bankruptcy in 2011, including Perkins & Marie, Jackson Hewitt Tax Service Inc., Harry & David Holdings, Inc. and Sbarro, Inc.

Jackson Hewitt had $444.85 million of debt when it filed bankruptcy in May 2011, Harry & David had $361 million, and Sbarro listed $486.56 million.

Others that filed and emerged in 2011 included Dallas Stars, LP, Linden Ponds, Inc. and Hingham Campus, LLC, Caribe Media, Inc., Local Insight Media Holdings, Inc., Raser Technologies, Inc., Satelites Mexicanos, SA de CV, Club Ventures Investments, LLC, Angiotech Pharmaceuticals, Inc., Summit Business Media, Appleseed's Intermediate Holdings LLC, Seahawk Drilling, Inc., Quincy Medical Center, Inc. and Constar International Inc.

Foreign focus

Outside of the U.S. court system, receivers were appointed for Xinhua Sports & Entertainment Ltd. in 2011, AB Bankas Snoras was placed in administration, Homburg Invest Inc., OPTI Canada Inc., Priszm Income Fund, Angiotech Pharmaceuticals, Inc. and Sterling Shoes Inc. made Companies' Creditors Arrangement Act filings in Canada and Max Bank A/S, Amagerbanken AB and Delphin Kreuzfahrten GmbH filed bankruptcy cases.

In addition, Saab Automobile filed for bankruptcy in Sweden in late December after General Motors threw up a roadblock to the automaker's investment deal.

Sector successes

The media sector was also hit hard by the recession but saw several companies clear bankruptcy in 2011.

Media and communications company exits included Local Insight Media Holdings, Inc., Thompson Publishing Holding Co., Inc. FairPoint Communications, Inc. and Sun-Times Media Group, Inc.

The entertainment, resort and transportation industries also saw some relief in 2011 as consumers indulged in more leisure-time activities.

Companies that were able to exit bankruptcy in these sectors in 2011 included Majestic Star Casino, RHI Entertainment, Inc., Island One, Inc., Mesa Air Group, Inc., New York City Off-Track Betting Corp., Station Casinos Inc., Tropicana Atlantic City Casino and Resort, Connector 2000 Association Inc., horse racing and gaming company Centaur LLC and Sun Country Airlines.

In addition, a handful of health care and pharmaceuticals companies got a clean bill of restructuring health in 2011, including InSight Health Services Holdings Corp., Molecular Insight Pharmaceuticals, Inc., Sumner Regional Health Systems and Inyx USA, Ltd.

Additional emergences

Other companies that emerged from bankruptcy in 2011 included MMFX Technologies Corp., InSight Health Services Holdings Corp., Molecular Insight Pharmaceuticals, Inc., Wolverine Tube, Inc., Workflow Management Inc., Schutt Sports, Inc., American Safety Razor Co., LLC, Global Capacity Holdco LLC, Leslie Controls, Inc., Chem Rx Corp., Sumner Regional Health Systems, Jones Stephens Corp., Champion Enterprises, Inc., Cynergy Data, LLC, FormTech Industries LLC, Fraser Papers Inc., General Motors Corp., Qimonda Richmond LLC/Qimonda North America Corp., Tronox Inc., Chesapeake Corp., Precision Parts International Services Corp., Cadence Innovation and MPC Corp.

Looking ahead

In addition to Lehman and Washington Mutual's hopes for an early 2012 emergence, several companies had their bankruptcy plans confirmed late in 2011.

Among those on track to exit soon are TMG Liquidation Co., formerly the Merit Group, Maronda Homes Inc., Broadstripe, LLC, Ultimate Escapes Holdings LLC, Southwest Georgia Ethanol LLC and Borders Group Inc.

Although a number of distressed companies announced that they were exploring debt restructuring options in recent months, very few mentioned the possibility of a bankruptcy filing.

One that did was Dune Energy, which is soliciting consents for a restructuring plan that includes an offer to exchange its 10½% senior secured notes due 2012 for common stock.

The company is also soliciting consents for a pre-packaged Chapter 11 plan as an alternative to the exchange offer.

Meanwhile, Aquilex Holdings LLC elected not to make an interest payment due Dec. 15 on its senior notes. The company said it expected to announce the terms of an out-of-court restructuring plan in late December.

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