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Former Clayton County Sheriff Victor Hill Files Chapter 7 Bankruptcy Petition
Former Clayton County Sheriff Victor Hill, whose term ended on December 31, 2008, filed a Chapter 7 bankruptcy petition on Tuesday. In re Victor Hill, Ch. 7 Case No. 08-86567-crm (filed Dec. 30, 2008) (download petition here).
Click here for Fox5 Atlanta report. From an AJC article:
Hill, who ends his single term at midnight Wednesday, filed suit Tuesday in U.S. District Court, claiming he does not have enough money to pay $1.7 million in damages for several lawsuits. This includes a judgment for $475,000 he owes to Mark Tuggle, the brother of Hill’s predecessor as sheriff. Tuggle won a lawsuit against Hill in U.S. District Court in October after a jury found Hill guilty of false arrest...
The bankruptcy is the cap to Hill’s tumultuous four-year term that began on his first day in office in 2005 when he fired 27 deputies. The deputies sued Hill for wrongful termination. They won their jobs back and settled for $7 million, which was paid by Clayton County.
The Clayton County Commission is also investigating Hill for alleged credit abuse. Commissioners allege Hill used a county credit card to pay for a trip to Las Vegas earlier this month. Hill said he was attending a conference. However, County Commission Chairman Eldrin Bell previously said he did not authorize the trip.
In August, Hill lost a bid for re-election to attorney Kem Kimbrough and put his Riverdale house on the market for $295,900. Kimbrough takes over as sheriff Thursday.
More on Clayton County, here, here and here. ]]>
Detroit Bankruptcy Judges Change Rules To Lure Automakers
The Bankruptcy Court for the Eastern District of Michigan entered an Administrative Order (click here to view) making the Court more attractive for "a very large, complex case of national significance." Yes, that means GM, Chrysler and/or Ford. The Order, signed by all Judges, provides:
It is hereby ordered that upon the filing of such a case, the case shall not be assigned by the Court's blind draw system under E.D. Mich. LBR 1073-1 (a)(l). Instead, after consulting with the other bankruptcy judges, the chief bankruptcy judge shall assign the case to a bankruptcy judge.
It is further ordered that the bankruptcy judge to whom the case is assigned shall have the authority to assign adversary proceedings and contested matters to other bankruptcy judges as necessary and appropriate to carry out the purposes of this order.
From Bloomberg:
The Sixth U.S. Judicial circuit, which includes Detroit, is “the backyard” of the United Auto Workers union as well as the circuit most protective of health care benefits promised to retirees, which makes it less likely to attract a bankrupt auto company that would likely seek to terminate those benefits, said Colleen Medill, an employee benefits law professor at the University of Nebraska. Still, the district’s judges are well versed in the auto industry, having handled bankruptcies of auto-parts makers including Collins & Aikman Corp., Intermet Corp. and Plastech Engineered Products Inc.
“There is no district in the country that has a greater stake in the outcome of a filing by one of the Big 3 than the Eastern District of Michigan,” said Chief Judge Steven Rhodes, referring to the formal name of his Detroit-based court. The court is reviewing staffing, security and technology functions so as to be ready to handle a case the size of an automaker.
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If You Are Reading This Blog On Microsoft Internet Explorer
... Stop. ]]>
Another Georgia Bank Seized: Duluth-Based Haven Trust Bank
From the Atlanta Business Chronicle, "Duluth-based Haven Trust Bank was seized by state and federal bank regulators late Friday, as the fifth failure in Georgia this year and the second in as many weeks. Winston-Salem, N.C.-based BB&T Corp. (NYSE: BBT) will assume all deposits from Haven Trust, which had total assets of $572 million and total deposits of $515 million as of Dec. 8. The deal bolsters the local deposit base of BB&T, the fourth largest bank in metro Atlanta."
Here is the FDIC Notice. This makes it the fifth Georgia bank seized by regulators.
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District Court: Bankruptcy Court Must Appoint Examiner If Requirements Of §1104(c)(2) Are Established
The District Court held that the language of 11 U.S.C. §1102 requires the appointment of an Examiner if certain facts are established. The Bankruptcy Court's Order denying the US Trustee's Motion to Appoint an Examiner was reversed.
Donald Walton, US Trustee v. Cornerstone Ministries Investments, Inc., 2008 WL 5169523 (N.D. Ga. Dec. 5, 2008) (click here for .pdf of order) (click here for discussion of Cornerstone Chapter 11 case).
Th US Trustee sought the appointment of an examiner pursuant to 11 U.S.C. 1104(c) ...
to conduct an investigation into and provide a public, transparent and objective report on: (1) the events and circumstances leading to [d]ebtor's shift in late 2004 from making loans only to churches and other non-profit organizations to making loans to for-profit developers, including related entities and/or entities with which it had other business relationships and/or shared common officers or directors; (2) the extent, if any, to which this shift in [d]ebtor's business plan was motivated or influenced by self-dealing on the part of its officers, directors, or professional advisers; and (3) whether and to what extent purchasers of the [i]nvestor [b]onds were notified of this shift in [d]ebtor's business plan and whether and to what extent they may have claims against broker-dealers or others arising from their purchase and/or retention of the [i]nvestor [b]onds.
The Bankruptcy Court denied the motion primarily on the grounds that the Official Committee of Unsecured Creditors was investigating many of the issues and the appointment of an Examiner would be duplicative. Click here for Bankruptcy Court Order. The US Trustee appealed.
The District Court reversed and ordered the appointment of an Examiner.
Section 1102 of the Bankruptcy Code provides as follows:
If the court does not order the appointment of a trustee under this section, then at any time before the confirmation of a plan, on request of a party in interest or the United States trustee, and after notice and a hearing, the court shall order the appointment of an examiner to conduct such an investigation of the debtor as is appropriate, including an investigation of any allegations of fraud, dishonesty, incompetence, misconduct, mismanagement, or irregularity in the management of the affairs of the debtor of or by current or former management of the debtor, if-
(1) such appointment is in the interests of creditors, any equity security holders, and other interests of the estate; or
(2) the debtor's fixed, liquidated, unsecured debts, other than debts for goods, services, or taxes, or owing to an insider, exceed $5,000,000.
The parties disputed whether § 1104(c)(2) is mandatory or discretionary. The US Trustee argued that the use of “shall” is mandatory, while Cornerstone argued that the statute permitted the bankruptcy judge to exercise discretion when a US Trustee requested an Examiner. The Court agreed with the US Trustee:
On its face, the statute appears to require the appointment of an examiner if certain requirements are met. The only appellate court to consider the question reached the same conclusion as this court, explaining that “[t]he provision plainly means that the bankruptcy court ‘shall’ order the appointment of an examiner when the total fixed, liquidated, unsecured debt exceeds $5 million, if the U.S. trustee requests one.” Morgenstern v. Revco D. S., Inc. (In re Revco, D. S., Inc.), 898 F.2d 498, 500-01 (6th Cir.1990). Furthermore, every district court and nearly every bankruptcy court that has confronted the question has also read the provision to be mandatory on its face...
Because “the meaning of statutory language, plain or not, depends on context,” the court must consider the text of § 1104(c) (2) in light of § 1104 as a whole... Such a contextual analysis only strengthens the court's conviction; the mandatory nature of § 1104(c)(2) is particularly clear when compared with the discretionary nature of § 1104(c)(1). Whereas § 1104(c)(1) predicates the appointment of an examiner on the court's determination that it is in the “interests of creditors, any equity security holders, and other interests of the estate,” § 1104(c)(2) only requires the debtor's fixed, liquidated, unsecured debts to exceed $5,000,000. “A provision for discretionary appointment, where the court is to consider the interests of parties in making its own determination whether an examiner is necessary, followed by a provision that only considers whether a dollar criterion has been satisfied, is conclusive that the second provision is compelling on the court.”...
Appellees insist that it is unnecessary to look beyond the plain meaning of the text to find discretion, as they argue that the phrase “as is appropriate” endows bankruptcy judges with complete discretion over the scope-and, by extension, the existence-of the examiner's investigation. As one court confronting an identical argument explained, however, “[t]his reasoning is both grammatically and contextually wrong. In the provision, ‘as is appropriate’ modifies ‘investigation.’ The statute allows the court to determine the scope, length, and conduct of the investigation, rather than the appointment itself.”...
Conclusion - On its face, the plain language of the statute requires a bankruptcy judge to appoint an examiner in certain situations. This case presents such a situation: the bankruptcy court has not appointed a trustee; a plan has not yet been confirmed; the United States trustee has requested the appointment of an examiner; and debtor's fixed, liquidated, unsecured debts equal roughly $143,000,000, far exceeding the $5,000,000 threshold. The court shares the bankruptcy court's and appellees' concerns for efficiency and preserving the bankruptcy estate. Nonetheless, the statute is clear, and, “[w]hile Congress may not have foreseen the problems that arise when discretion over an appointment of an examiner is missing, that is not sufficient grounds for refusing to give effect to the plain meaning of the statute.” For the foregoing reasons, the judgment of the bankruptcy court [1-3] is hereby REVERSED and the case is hereby REMANDED to the bankruptcy court with instructions to order the appointment of an examiner under 11 U.S.C. § 1104(c)(2)
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Retailer KB Toys, With Several Georgia Locations, Files Chapter 11 In Delaware After Drop In Sales
Update: KB Toys to close and quickly liquidate for the Christmas rush, according to a Court filing and this Wall Street Journal article:
The company plans to quickly start going-out-of-business sales at hundreds of its stores, "in order to take advantage of the last two weeks of the holiday selling season," KB Toys said in a filing with the U.S. Bankruptcy Court in Wilmington, Del.
From Bloomberg:
KB Toys Inc., the 86-year-old toy retailer, filed for bankruptcy three years after leaving court protection, blaming a cash crisis caused by a “sudden” drop in sales at its 277 stores... “The liquidity crisis is directly attributable to a sudden and sharp decline in consumer sales,” Controller Raymond Borst said in court documents filed in U.S. Bankruptcy Court in Wilmington, Delaware... The case is In re KB Toys Inc., 08-13269 U.S. Bankruptcy Court, District of Delaware (Wilmington).
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Atlanta And North Georgia Housing Market Hitting "Depression" Level?
Kevin Duffy of the Atlanta Journal discusses the North Georgia and Atlanta housing market. See Experts: North Georgia housing market in depression; Banks starting to turn against builders, lawmakers told at hearing.
The housing market is so bad that some banks and builders that had been business partners are now adversaries, and experts are using the dreaded “D” word. “In northeast Georgia we’re not in a housing recession, we’re in a housing depression,” Jim Williams, president of Southern Highlands Mortgage in Blairsville, told state lawmakers at a daylong hearing Wednesday. .. Likewise, Eugene James, head of the Atlanta division of the research company Metrostudy, said the 22 metro counties it covers “are in a housing depression right now.”
James said sales closings were down 44 percent for the third quarter, compared to the same period last year, and housing starts had plunged 67 percent. The metro area also has about 148,000 lots with infrastructure but no homes — a 117-month supply, he said...
Sen. Chip Pearson (R-Dawsonville), co-chairman of the meeting, was intrigued by a California rescue plan that Chuck Fuhr, Ryland Homes’ Atlanta division president, described. .. “Almost every small builder I know today has his bank knocking on the door, trying to collect his loan and put him out of business,” Fuhr said. If builders continue to fold, competition will lessen and home prices will escalate, he said.
Kurt Cannon, president of Rabun Builders and the Home Builders Association of Georgia, said at the hearing that worried bankers have turned on builders, even those with good credit, by calling in loans and threatening to sue.
The housing pain may get worse, Cagle said. “I don’t think we’ve found bottom yet,” he said. “Once we’ve reached there, I think we’re going to be there for an extended period of time.”
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Tribune Company Files Chapter 11 Bankruptcy Petition In Delaware
From the Wall Street Journal -
Tribune Co. filed for bankruptcy protection Monday, in a sign of worsening trouble for the newspaper industry. In recent days, as Chicago-based Tribune continued talks with lenders to restructure its debt, the newspaper-and-television concern hired investment bank Lazard Ltd. as its financial adviser and law firm Sidley Austin to advise the company on a possible trip through Chapter 11 bankruptcy, people familiar with the matter say.
Tribune owns eight major daily newspapers, including the Los Angeles Times, Chicago Tribune and Baltimore Sun, plus a string of local TV stations....
Even as its financial performance worsens, Tribune has some options. A sale of its Chicago Cubs baseball team is under way, and Tribune owns valuable stakes in businesses including the cable-TV channel Food Network.
See the petition here. ]]>
Early Registration Open For Southeastern Bankruptcy Law Institute
Join more than 500 attorneys from the Southeast and across the country for the SBLI's 35th Annual Seminar on Bankruptcy Law and Rules.
APRIL 23 – 25, 2009
The Economy at Sea: New Rules of Engagement
Featuring Consumer Toolbox and Breakout Sessions
LEADING EXPERTS – This nationally recognized seminar brings the nation's bankruptcy experts, including judges, professors and practicing attorneys together to help you and thereby your clients navigate the Bankruptcy Laws.
Faculty Bios
Program and Schedule.
Registration.
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Bankruptcy Court Pleadings Show How Michael Vick Spent Millions Of Dollars
Alan Judd at the Atlanta Journal has an article about Michael Vick's spending in the time leading up to his imprisonment, including millions of dollars transferred just before his incarceration. This information was contained in pleadings filed in his Bankruptcy case. Click here for the article.
Among the highlights from Alan's article:
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The day he went to jail, Michael Vick bought a $99,000 Mercedes. He cashed four checks that totaled $24,900. He gave $28,000 to the mother of his oldest child. He paid a public relations firm $23,000 and gave a friend $16,000. Altogether on Nov. 19, 2007, Vick spent $201,840. But for the former Atlanta Falcons quarterback, the day was most remarkable for how it ended: behind bars .. From Aug. 27, 2007, the day he pleaded guilty in a Richmond federal courthouse, until Nov. 19, the day he bought the new Mercedes before reporting to jail, Vick shelled out $3,627,291.
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During his last weeks of freedom, though, Vick also spent $85,000 on a fish pond and $48,257 for landscaping. He bought a $31,000 Ford pickup and a $33,100 Chevrolet. Vick’s financial records suggest he was hemorrhaging money. In the weeks before he went to jail, he made 48 cash withdrawals for a total of $325,945. The largest was on Sept. 19, for about $67,000. Using three cashier’s checks, he withdrew an additional $90,000.
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Vick seems to have relied heavily on cash. In 2007, documents show, he used cashier’s checks to withdraw $908,500 from his bank accounts. During a two-year period, he wrote checks payable to “cash” totaling almost $1.1 million.
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Not long after joining the Falcons, Vick bought his first house: a $918,000 mini-mansion behind the gates that guard the Sugarloaf Country Club in Duluth. Two years later, in April 2005, he upgraded to a larger house in the same neighborhood, for almost $3.8 million. He bought four more houses, all in Virginia, and began building another.He bought a condominium in Miami Beach.He bought interests in two farms — one in Virginia, one in Rockdale County, east of Atlanta. He bought six Paso Fino horses, worth about $450,000. He bought two boats, one for $100,000, the other for $125,000. He bought cars: a Bentley, two Land Rovers, Cadillacs, an Infiniti sport utility vehicle and an Infiniti sedan, two Ford pickup trucks, a Dodge, a Chevrolet, the $99,000 Mercedes. And he bought as much as $450,000 in jewelry.
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WSB TV And Radio Financial Advisor Mike Kavanaugh Passes Away
Mike Kavanaugh, a financial advisor and radio show host on WSB, passed away of a heart attack. From WSB
WSB Radio) - News/Talk 750 WSB mourns the death of Money Matters Radio Talk Show host Mike Kavanagh. His passing was sudden and unexpected. He suffered a heart attack in his suburban Atlanta home Saturday. He was 57. Kavanagh is survived by his wife Grace, a daughter and granddaughter.
Mike Kavanagh was a veteran of two worlds - broadcasting and financial planning. In 2007, he celebrated 40 years in radio and TV work. Since 1987 he divided his life between broadcasting and financial planning...
Mike's mission was to convince consumers that investing is not difficult, that fear and greed will combine to be the worst enemies of your financial plan and the main goal of all financial planning is to create your own person "SWAN" plan -- which stood for "Sleep Well at Night".
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A Favorite Shop Of "Real Housewives Of Atlanta" Files Chapter 11 In Atlanta
Blue Genes, a retail fashion store at Lenox, has filed a Chapter 11 petition in the Northern District of Georgia. In re Blue Genes, Inc., Ch. 11 Case No. 08-84980 (filed December 3, 2008). Apparently, this is a favorite of a group of people known as the "Real Housewives of Atlanta which, according to news reports might be experiencing other financial difficulties (see "Real Housewife NeNe Evicted From Big Home").
Andy Peters at the Deal Watch Blog has an informative post on Blue Genes -
Blue Genes was founded in August 2001 by sisters Jennifer, Julie and Jane Arrendale... Blue Genes owes about $159,000 to 7 For All Mankind, which makes Seven Jeans. The store owes Karen Zambos Vintage Couture about $25,000. Designer Elise Overland is owed about $16,000. Blue Genes owes Alice & Olivia of New York about $12,000...
Blue Genes has been a featured spot on the Bravo show “The Real Housewives of Atlanta." [photo, right] One of the housewives, Kim Zolciak, held a birthday party for her daughter at Blue Genes, according to the NoControl television blog. The wives also frequently are shown shopping at the store.
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FDIC Seizes First Georgia Community Bank
From the Atlanta Business Chronicle, the Federal Deposit Insurance Corp. (FDIC) seized the assets of First Georgia Community Bank late today. See the FDIC Release by clicking here.
Zebulon, Ga.-based United Bank will assume all of the deposits of Jackson, Ga.-based First Georgia Community, according to announcements by the Federal Deposit Insurance Corp. and Georgia Department of Banking & Finance.
As of Nov. 7, First Georgia Community had $197.4 million in total deposits in four branches, while United Bank posted $553 million in deposits in third quarter 2008, according to FDIC data.
United Bank is acquiring the deposits for a 0.811 percent premium, and the FDIC expects the failure will cost its insurance fund $72 million.
United Bank also purchased $60.6 million in assets as part of the deal. The FDIC will hold the remainder of First Georgia Community’s assets, totaling $237.5 million, for later disposition.
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Pure Med Spa Files Chapter 11 Petitions In Northern District Of Georgia
Pure Med Spa has filed Chapter 11 bankruptcy petitions in the Northern District of Georgia. The filing entities are below. According to its website, Pure Med Spa "is a leading international provider of laser aesthetics, skin rejuvenation and anti-aging solutions such as Botox®, Restylane™ and Laser Hair Removal."
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08-85038-crm
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11
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GRF Medspa Broadway Plaza, LLC
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Filed: 12/04/2008
Entered: 12/04/2008
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Office: Atlanta
Asset: Yes
Fee: Paid
County: Fulton
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08-85039-crm
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11
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GRF Medspa Redmond Town Center Mall, LLC
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Filed: 12/04/2008
Entered: 12/04/2008
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Office: Atlanta
Asset: Yes
Fee: Paid
County: Fulton
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08-85040-crm
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11
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GRF Medspa Santa Ana, LLC
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Filed: 12/04/2008
Entered: 12/04/2008
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Office: Atlanta
Asset: Yes
Fee: Paid
County: Fulton
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08-85041-crm
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11
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GRF Medspa Santa Clara, LLC
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Filed: 12/04/2008
Entered: 12/04/2008
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Office: Atlanta
Asset: Yes
Fee: Paid
County: Fulton
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08-85042-crm
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11
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GRF Medspa Southcenter, LLC
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Filed: 12/04/2008
Entered: 12/04/2008
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Office: Atlanta
Asset: Yes
Fee: Paid
County: Fulton
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08-85043-crm
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11
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GRF Medspa Washington Square Mall, LLC
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Filed: 12/04/2008
Entered: 12/04/2008
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Office: Atlanta
Asset: Yes
Fee: Paid
County: Fulton
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08-85044-crm
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11
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GRF Medspa Village at Corte Madera, LLC
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Filed: 12/04/2008
Entered: 12/04/2008
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Office: Atlanta
Asset: Yes
Fee: Paid
County: Fulton
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Freddie Mac And Fannie Mae Four Loan Limit - Will It Chill Foreclosure Buying And Real Estate Market
From the AJC, many people believe that imposing a four loan limit on Freddie Mac and Fannie Mae mortgages will lead to fewer buyers of foreclosed properties and an extension of the recession. See Freddie Mac Bulletin.
Real estate investors decry four-loan limit; New rule restricts number of loans backed by Fannie Mae, Freddie Mac, by D.L. Bennett (free reg. req'd).
The new policy, which limits to four the number of real estate loans by one person that will be backed by mortgage giants Freddie Mac and Fannie Mae, has spread to most local and national lenders. Experienced investors, frustrated and angry, complain the limits prevent them from buying bargain homes and possibly helping resolve the mortgage crisis... The new policy, which went into effect Dec. 1, was designed to keep small-time investors from getting in over their heads and losing numerous rental properties to multiple foreclosures. The previous 10-loan limit was easier to get around, investors say...
“The four-house rule is going to keep us in a recession longer,” said Tom Hutchens, a Dunwoody mortgage broker and real estate investor. “It’s going to keep qualified buyers out of the market.” ..
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avoid bankruptcy guide |
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Avoid_bankruptcy
Tips To Avoid Bankruptcy
>
Nobody likes to admit defeat and nobody likes to have something as heavy as a hanging around their neck. Some people never look for a way out, they just see the debt getting too high for the income to sustain so they figure that the only way out is bankruptcy. For people that think like that the options seem narrow but in reality they are not. You need to open up all of your options when you are trying to avoid and when you think you have no options you are very wrong. There are always options and ways to avoid if you just apply yourself and put some serious thinking into it. Remember that while may seem like an attractive short term solution it carries some very serious long term ramifications with it that you need to consider. Just ask someone that has been through a how much fun it was and after that conversation you will probably be looking for ways to avoid bankruptcy.
Get More Income Coming In
I know it sounds easy to say but there are many options you can explore that will help you bring in more income and help you avoid bankruptcy. Try a part time internet job like writing internet content or any number of other available internet jobs that are out there. You will probably spend some time wading through a bunch of scams first but once you find sources for job leads you can trust then go for it. Take a part time job with hours after your main job. Maybe you can take on extra
Reviewing "Strategic Alternatives For Distressed Businesses" by Jonathan Friedland
 As if he doesn't have enough to do as head of Levenfeld Perlstein's restructuring group and as executive editor of the must-read ABI Journal, Jonathan Friedland has undertaken the gargantuan task, never yet accomplished, of assembling in a single treatise, entitled Strategic Alternatives for Distressed Businesses, the varied state law approaches to the liquidation and disposition of distressed businesses (including so-called "assignments for the benefit of creditors" or "ABC's").
What motivated Jon to commit himself to this public service? Apparently, frustration! Now while most lawyers let out their frustrations on some hapless administrative assistant or airline gate agent, not so Jon, who writes:
This book was born out of frustration. Beginning several years ago, I noticed that more and more companies in need of a restructuring or sale could afford neither the time nor cost of a Chapter 11. My frustration came from the fact that I, like so many other lawyers who focus their practices on the representation of parties in Chapter 11 and out-of-court workouts, simply did not have the same rich resources of information at my fingertips with respect to nonbankruptcy alternatives for distressed business as I did with respect to bankruptcy.
The need for a book like this was brought home to me when, in several deals, we decided that we likely needed an Assignment for the Benefit of Creditors, and likely had the ability to do one in any of several different states. I needed to understand the pros and cons of each state's procedure. I found that more information resided in the heads of a few people here and there than in any book. I wanted a single volume that compiled relevant statutes from across jurisdictions. I looked and looked, but there simply was nothing like that. This book seeks to fill the void.
On this score, Jon is right. Many state bar and continuing education associations have developed outlines covering a particular state's law and practice regarding ABC's (such as this excellent one covering ABC's in Illinois). Bob Eisenbach also has neatly summarized in this blog post "the ABC option," with links to various excellent works (including Geoffrey Berman's 118 page practical guide, published by the ABI and now in its second edition, entitled General Assignments for the Benefit of Creditors: The ABC's of ABC's). None, however, point to any comprehensive 50 state review of strategic alternatives to bankruptcy.
Jon's role in this project is as principal author and editor-in-chief (or as he humbly calls it, "Chief Logistics Manager"). DSI's Geoffrey Berman also lends his considerable talents as executive editor to the project. 26 other restructuring professionals from around the country (including such household names as Will Kohn, Carl Lane, Patty Redmond, and Nancy Ross) also joined to contribute to the 1,211 page treatise, which divides into the following sections: ]]>
The first part of the book, which Jon calls "the forest," provides an overview of the bankruptcy and non-bankruptcy options available to distressed businesses, with separate chapters covering each of the following non-bankruptcy options: (i) compositions with creditors (14 pages), (ii) exchange offers (32 pages), (iii) ABC's (8 pages), (iv) real estate workouts (30 pages), and (v) federal court receiverships (12 pages).
- The second part of the book, which Jon calls "the trees," provides a 256 page "nuts and bolts guide" that focuses on one particular non-bankruptcy alternative in the following 14 states: CA, CO, CT, DE, FL, IL, IN, MI, MO, NY, OH, TN, UT, WI. This section adopts the unique approach of positing a hypothetical fact pattern for an insolvent company (with enough value to provide a recovery for unsecured creditors) and having each state's contributing author–in Jon's words–"choose the best liquidation procedure available under the relevant state's laws [and] answer a series of questions about how the procedure would work." There are 47 questions in total, including subparts. They alone are an invaluable guide for any practitioner contemplating the benefits and burdens of any non-bankruptcy alternative for a distressed business. Still, it's the answers provided by each contributing author's years of practical experience that make the book well worth its 12 cent per page price tag. As an added bonus to those of you who've read this far, you'll find all the questions posed at the end of this post.
- The third part of the book, in Jon's words, "presents the leaves [in an] attempt to compile all the statutes across the 50 states (as well as relevant federal statutes) that speak to ABC's and ABC-like procedures." This section also is extremely valuable for practitioners because, as we all know, the relevant state laws governing the liquidation and disposition of distressed businesses are not neatly bundled together in a single statutory scheme, but rather are scattered and buried across a broad regulatory and procedural landscape. Jon and the West Publishing editorial staff have done an excellent job culling from each state's corpus the particular statutes and procedures relevant to ABC's and ABC-like procedures.
- The fourth part of the book contains the following indices:
- a 40 page listing of all applicable federal and state laws with a cross reference to the section of the book where they are referenced;
- a nine page alphabetical listing of cases cited in the book; and
- an 11 page topical index, arranged alphabetically.
* * *
Summary and Conclusion: Clearly, every restructuring professional should have ready access to Jon's treatise. It is a giant leap forward, if not for mankind, then at least towards Jon's admirable goal of "filling the void." Still, Jon readily admits, there's much more to be done. In the works are additional chapters in the book's first section, including one covering state court receiverships and another providing investment bankers' perspectives on distressed businesses (i.e., those that presumably are not their own and otherwise lack access to TARP money). Jon also hopes that by publishing this first edition, he will motivate other professionals in the 36 states not included in the book's state-by-state practical guide to come forward and offer to contribute a chapter to the treatise. Anyone interested should email Jon immediately at jfriedland@lplegal.com. I guarantee he'll respond before you have a chance to entertain any second thoughts.
What else can be done? Here are some suggestions:
- Include a CD-ROM with relevant sample forms.
- Split the book, which already is about 3 inches thick and weighs nearly 4 pounds, into two volumes (one being the practice manual and the second being the selected statutes). Alternatively, and even better, make it an environmentally-friendly loose leaf binder that can be updated without having to "throw out the baby with the bathwater," as the old saying goes. West Publishing, however, seems to frown upon the loose leaf format, at least for bankruptcy-related books requiring annual updates.
- Provide a detailed table of contents that contains each chapter's subparts and subheadings.
- Include a comprehensive state-by-state index of relevant case law to match the excellent state-by-state index of relevant statutes and procedural rules.
- Add three more questions to make an even 50, such as:
- Is federal or state bailout or stimulus money available?
- Can a politician be paid to help? (Note: this question is not necessarily limited to Illinois businesses)
- What are the assignee's options when the business is a criminal enterprise?
Take a moment and order your copy now. Given West's liberal review and return policy, what's the risk? Plus, given the way things are going, it's likely the book will soon have several cracks in its spine.
Best wishes to all my readers for a healthy and happy 2009!
Steve Jakubowski
* * *
47 QUESTIONS THAT ADVISORS SHOULD ASK WHEN CONSIDERING STRATEGIC ALTERNATIVES FOR DISTRESSED BUSINESSES:
1. Name of the process?
2. Is the proceeding statutory or governed by case law?
3. What facts are required to establish jurisdiction for the procedure in the state?
4. Is the process available only to general business corporations, or may non-profits, insurance companies, railroads, financial institutions or other special entities liquidate using the process?
5. Is a court involved in the process and, if so, to what extent?
6. How is the liquidation process commenced?
7. How quickly can a liquidation and distribution of assets be completed?
8. Is there a minimum time period for creditors to filed claims in liquidation after a required notice?
9. What priority scheme, if any, provides for the distribution of assets?
10. Is a third party involved (e.g., as a receiver or assignee) and, if so:
a. What qualifications must that third party satisfy?
b. How is that third party selected?
c. Is there a process to direct the actions of the third party or to approve decisions made by the third party?
d. Who typically serves in the third party role?
e. What compensation may the third party receive, and by whom is the compensation paid?
f. What standard of care must the third party meet?
g. To whom does the third party owe a duty?
h. To what other risks is the third party exposed?
i. What protections are afforded to the third party by the governing law?
j. Does the third-party typically obtain insurance against potential liability or an indemnification from one or more parties involved in the process?
k. What powers does the third party have, such as:
i. To stay or otherwise defend lawsuits, foreclosures, eviction proceedings or other collection claims?
ii. To avoid preferential transfers, either voluntary or involuntary and to or for the benefit of insiders or otherwise?
iii. To avoid fraudulent transfers, either voluntary or involuntary and to or for the benefit of insiders or otherwise?
iv. To assert rights of existing or hypothetical secured or unsecured creditors?
11. Are the company’s assets insulated in any way from judgment liens, attachments, or other collection actions of a single creditor?
12. What filings with a court, government office, or other entity are required?
13. What notices must be published or posted to advise creditors of the process?
14. Is the consent of all or some portion of the creditors required to use the process?
15. Is the process available if no funds are likely to be distributed to unsecured creditors?
16. What type of professionals are likely to be retained during the process?
17. What other costs can be expected to be incurred as a part of the process?
18. How commonly is the process used?
19. What are the pros and cons of the procedure for each of the following parties:
a. Officers, directors, and controlling shareholders of the liquidating company.
i. Protections from lawsuits for breach of fiduciary duty?
ii. Likelihood of payment of trust fund taxes under the relevant priority scheme?
iii. Likelihood of avoidance of payments made to or for the benefit of insiders.
b. Secured creditors.
i. Ability to wipe out junior liens on the assets?
ii. Speed of liquidation of collateral and ability to have company finish work in process and otherwise achieve highest value for assets?
iii. Ability to recover preferential or fraudulent transfer made voluntarily or involuntarily by the company?
iv. Protection from lender liability claims by unsecured creditors or junior lienholders?
c. Unsecured creditors.
i. Speed of liquidation of assets and ability to have company finish work in process and otherwise achieve highest value for assets?
ii. Ability to recover preferential or fraudulent transfers made voluntarily or involuntarily by the company?
iii. Status under priority scheme, savings of attorneys fees in collection actions, and equality of distributions?
d. Judgment creditors.
i. Increased status under priority scheme?
ii. Possibility that any lien obtained via judgment or subsequent collection actions may be voided?
e. Employees.
i. Continued employment through the period of liquidation?
ii. Status under priority scheme for past wages and for those incurred during the liquidation process?
f. Guarantors.
i. Higher or lower recovery on guaranteed obligations?
ii. Ability to recover past transfers made by the company on guaranteed obligations? ]]>
The Tribune Company Free Falls Into Bankruptcy
 12/9/08 Update: Well, unlike Lehman, the more traditional complement of first day motions were filed late last night (docket here), including a critical vendor motion and a financing motion that authorizes it to continue selling its receivables through an amended securitization facility. Here's the 90 page supporting affidavit of Chandler Bigelow III, the Trib's CFO, in support of all the first day motions, including a brief explanation of the liquidity events that forced the entire enterprise into chapter 11 and a nice chart at the back showing the corporate relationship among the various filing and non-filing subsidiaries.
* * *
I followed Lehman's free fall into bankruptcy through a number of posts in the first week of Lehman's case (start here). Today, the Tribune Company performed its own spectacular free fall into chapter 11, taking not only itself down, but also another 111 subsidiaries (including The Chicago Tribune, WGN, The LA Times, KTLA. The Times Mirror, The Baltimore Sun, WPIX, and even forsalebyowner.com).
Like the Lehman chapter 11 filing, the Trib's filing was accompanied by none of the motions one would expect to see at the outset of the case (such as for approval of use of cash collateral and a DIP lending facility, payment of basic employee benefits for accrued and unpaid wages, maintenance of its cash management system and business forms, and assumption of various customer programs, all accompanied by an affidavit of a senior executive explaining the cause of the filing and the need for the requested relief).
My guess is that the senior secured lenders, led by JP Morgan Chase, as agent for a host of banks and hedge funds in an $8.571 billion senior credit facility (compared with stated total assets of $7.6 billion), are balking at management's business plan for the near- and long-term, and have been unable to reach agreement with management over the terms by which the Trib and its subsidiaries would have access to cash to fund operations during the case. Given the widespread recognition that DIP lending facilities simply have dried up, this standoff comes as no surprise. Until then, the Trib's operations will run on fumes supplied by the goodwill of its trade vendors and employees.
Here's the Tribune Company's voluntary petition, and here's the docket in the Trib's main case, which as of 5:30pm EST has a single entry, that of the petition. Though the other 111 or so subsidiaries identified in the Trib's petition are listed as co-debtors, none of these entities have yet filed their respective individual petitions, thus potentially enabling three wily creditors of each subsidiary to really throw a wrench in the works by filing an involuntary petition against that subsidiary in a venue other than Delaware (where the parent Tribune Company filed its petition).
Most people in Chicago were appalled by last summer's dramatic changes to the layout of The Chicago Tribune. I wonder what's going to show up tomorrow.
]]>
Some Thoughts on a GM Bankruptcy: An NPR Interview
 Got a cold call today from NPR's Alex Blumberg, host of NPR's Planet Money, who interviewed me about the prospects and pitfalls of a GM bankruptcy. Here are links to the NPR post and the podcast. The interview begins a couple of minutes into the podcast.
Special thanks to Alex and NPR for the call and their plugging the blog! ]]>
Twin Picks of the Month - Part I: Davey's Required Bankruptcy Reading for December 2007
.jpg) Last year, I posted "twin picks of the month" (here and here) in honor of the birth of my twin boys, Davey and Zack. Well, they've just turned one, so it's time for another twin pick in their honor! In light of all the depressing news out there, I hope these pictures of Davey and Zach help put a smile on your face!
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Eric W. Anderson, ENJOINING ACTIONS AGAINST NONDEBTORS: WHAT IS THE PROPER STANDARD, 26-JAN Am. Bankr. Inst. J. 26
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Rick B. Antonoff, BANCREDIT AND THE APPLICATION OF BANKRUPTCY CODE SECTION 108 IN CHAPTER 15 CASES, 26-JAN Am. Bankr. Inst. J. 48
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Cory Aronovitz and Jon Topolewski, CASENOTE: THE EMERALD CASINO FIASCO, 40 J. Marshall L. Rev. 1305
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Geoffrey L. Berman and Catherine E. Vance, STATE LAW PREFERENCE ACTIONS: STILL ALIVE AFTER SHERWOOD PARTNERS V. LYCOS, 26-JAN Am. Bankr. Inst. J. 24
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Bert Black and Robert L. Whitener, DIRECTOR LIABILITY FOR BAD JUDGMENT AND BAD FAITH, 43-JUN Trial 26
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C.R. "Chip" Bowles Jr., THE FIRST SMALL STEP ON A LONG JOURNEY: THE FINAL REPORT ON THE CHAPTER 11 PROFESSIONAL FEE STUDY, 26-JAN Am. Bankr. Inst. J. 16
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Timothy T. Brock, HOW THE ASSAULT ON OFFSHORE HAVENS IN BEAR STERNS UNDERMINES THE NEW CHAPTER 15: PART 1, 26-JAN Am. Bankr. Inst. J. 34
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Karen Codry, I MAY BE PARANOID, BUT THEY'RE STILL OUT TO GET ME: NEGOTIATINGTHE INTERFACE OF E-DISCOVERY AND CONSUMER PRIVACY, 26-JAN Am. Bankr. Inst. J. 10
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Richard J. Corbi, DOES THE SEC HAVE STANDING AS A CREDITOR?, 26-JAN Am. Bankr. Inst. J. 32
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Frank B. Cross, THE SIGNIFICANCE OF STATUTORY INTERPRETIVE METHODOLOGIES, 82 Notre Dame L. Rev. 1971
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H. Slayton Dabney Jr. and Richelle Eisendrath, WHEN HEDGE FUNDS COMPETE, 26-JAN Am. Bankr. Inst. J. 22
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Ryan Preston Dahl, COLLECTIVE BARGAINING AGREEMENTS AND CHAPTER 9 BANKRUPTCY, 81 Am. Bankr. L.J. 295
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Michael D. Fielding, PRACTICAL POINTERS FOR YOUR PRACTICE: BANKRUPTCY, ESI AND THE ATTORNEY-CLIENT PRIVILEGE, 26-JAN Am. Bankr. Inst. J. 52
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Julia Patterson Forrester, STILL CRAZY AFTER ALL THESE YEARS: THE ABSOLUTE ASSIGNMENT OF RENTS IN MORTGAGE LOAN TRANSACTIONS, 59 Fla. L. Rev. 487
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Shelby D. Green, TO DISCLOSE OR NOT TO DISCLOSE? THAT IS THE QUESTION FOR THE CORPORATE FIDUCIARY WHO IS ALSO A PENSION PLAN FIDUCIARY UNDER ERISA: RESOLVING THE CONFLICT OF DUTY, 9 U. Pa. J. Lab. & Emp. L. 831
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Andrew Gold, Sidney Swinson, and Ivan Reich, IN THE ZONE: FIDUCIARY DUTIES AND THE SLIDE TOWARDS INSOLVENCY, 5 DePaul Bus. & Com. L.J. 667
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Diana L. Hayes, BANKRUPTCY LAW: AN EXERCISE IN STATUTORY INTERPRETATION--STAYING TRUE TO THE BROAD AIM OF THE CODE OR IGNORING PLAIN MEANING AND PURPOSE?, 59 Fla. L. Rev. 697
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Melissa B. Jacoby, INDIVIDUAL HEALTH INSURANCE MANDATES AND FINANCIAL DISTRESS: A F
EW NOTES FROM THE DEBTOR-CREDITOR RESEARCH AND DEBATES, 55 U. Kan. L. Rev. 1247
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Michael Korybut, TEACHING SELECTED ETHICAL ISSUES IN BANKRUPTCY, 51 St. Louis U. L.J. 1317
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Stuart Larsen, NINTH CIRCUIT BAP TEACHES CREDITORS SOMETHING NEW ABOUT SECTION 503(B)(9) PRIORITY CLAIMS, 26-JAN Am. Bankr. Inst. J. 50
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Margit Livingston, CORPORATE GOVERNANCE: THE INS AND OUTS FOR DS AND OS, 5 DePaul Bus. & Com. L.J. 639
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Hugh M. McDonald, Todd S. Fishman, and Laura Martin, LAFFERTY'S ORPHAN: THE ABANDONMENT OF DEEPENING INSOLVENCY, 26-JAN Am. Bankr. Inst. J. 1
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Richard E. Mikels and Adrienne K. Walker, IN RE IRIDIUM OPERATING LLC AND ITS IMPACT ON SPM CARVE-OUT ARRANGEMENTS, 26-JAN Am. Bankr. Inst. J. 38
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Seymour Moskowitz, DISCOVERING DISCOVERY: NON-PARTY ACCESS TO PRETRIAL INFORMATION IN THE FEDERAL COURTS 1938-2006, 78 U. Colo. L. Rev. 817
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Hon. Geraldine Mund, APPOINTED OR ANOINTED: JUDGES, CONGRESS, AND THE PASSAGE OF THE BANKRUPTCY ACT OF 1978 PART THREE: ON THE HILL, 81 Am. Bankr. L.J. 341
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Lisa A. Napoli, REAFFIRMATION AFTER THE BANKRUPTCY ABUSE PREVENTION AND CONSUMER PROTECTION ACT OF 2005: MANY QUESTIONS, SOME ANSWERS, 81 Am. Bankr. L.J. 259
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Dr. Thomas L. Porter and Dr. Airat Chanyshev, UNITED STATES: THE SUBPRIME MELTDOWN: UNDERSTANDING ACCOUNTING-RELATED ALLEGATIONS (PART II OF A NERA INSIGHT SERIES), Mondaq ID: 55304
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Frederick (Fritz) Reed, Lee McCorkle, William (Bill) Schorling, HERE AND NOW: TRENDS IN THE D&O WORLD, 5 DePaul Bus. & Com. L.J. 705
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Jean R. Robertson and Karen A. Visocan, CONSIDERATIONS FOR NONPROFIT HEALTH CARE FACILITY DIRECTORS AND OFFICERS BEFORE FILING, 26-JAN Am. Bankr. Inst. J. 20
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Faten Sabry and Thomas Schopflocher, UNITED STATES: THE SUBPRIME MELTDOWN: A PRIMER (PART I OF A NERA INSIGHT SERIES), Mondaq ID: 50464
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Luis Salazar, DON'T FEAR THE CONSUMER PRIVACY OMBUDSMAN, 26-JAN Am. Bankr. Inst. J. 42
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Dr. Israel Shaked, Paul D'Arezzo and David Plastino, LIQUIDITY AND CONTROL: VALUATION DISCOUNTS/PREMIUMS AND THE BANKRUPT FIRM, 26-JAN Am. Bankr. Inst. J. 54
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Sharif A. Shivji, Anton Smith, and Adrian Walters, THE CROSS-BORDER INSOLVENCY REGULATIONS 2006: AN EMERGING JURISPRUDENCE, 26-JAN Am. Bankr. Inst. J. 40
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Carmel Sileo, SECOND CIRCUIT EXPANDS AUDITORS' LIABILITY FOR SECURITIES FRAUD, 43-JUN Trial 15
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Stephen C. Stapleton, A NEW STANDARD FOR RULE 12(B)(6), 26-JAN Am. Bankr. Inst. J. 18
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David P. Stromes, THE EXTRATERRITORIAL REACH OF THE BANKRUPTCY CODE'S AUTOMATIC STAY: THEORY vs. PRACTICE, 33 Brook. J. Int'l L. 277
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Deborah L. Thorne, NO GOOD DEED GOES UNPUNISHED: PROVISIONAL LIENS ON DEPOSITS, PREFERENCE LIABILITY AND UCC SECTION 4-210, 26-JAN Am. Bankr. Inst. J. 36
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Stephen J. Ware, “MEDICAL-RELATED FINANCIAL DISTRESS” AND HEALTH CARE FINANCE: A REPLY TO PROFESSOR MELISSA JACOBY, 55 U. Kan. L. Rev. 1259
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Jay Lawrence Westbrook, AVOIDANCE OF PRE-BANKRUPTCY TRANSACTIONS IN MULTINATIONAL BANKRUPTCY CASES, 42 Tex. Int'l L.J. 899
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Bruce H. White and Bryan L. Elwood, ARE YOU SAILING IN SAFE HARBORS? AN OVERVIEW OF SAFE-HARBOR PROTECTIONS, 26-JAN Am. Bankr. Inst. J. 44
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Clifford J. White III and Thomas C. Kearns, BAPCPA UPDATE: DEBTOR AUDIT PROCEDURES AND THE REPORTING OF MATERIAL MISSTATEMENTS, 26-JAN Am. Bankr. Inst. J. 14
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Judge Peck Approves Barclays' Purchase of Lehman's Broker-Dealer Subsidiary
 9/22/08 Update: Here's the final complete Asset Purchase Agreement (including First Amendment and Clarification Letter). Also, this notice of appeal was filed by Bay Harbour Management and others. Here and here are the best news reports I've seen describing the surreal hearing.
* * *
Just after midnight early today, Judge Peck entered this order approving the sale of Lehman's broker-dealer subsidiary (LBI) to Barclays and overruling all objections to the sale (identified here). Note the reference in the order to a first amendment to the asset purchase agreement and to a subsequent letter agreement modifying the original asset purchase agreement. Neither of these amendments have yet been posted, but the net effect of them appears to have resulted in a $400 million reduction in the purchase price, according to this news report.
The "Purchased Assets" were sold free and clear of "Interests," including "those that purport to give any party a right or option to effect any forfeiture, modification or termination of the Debtors' interests in the Purchased Assets." Interests also presumably include the Lehman Europe Joint Administrators' demand (described here) for a return of the $8 billion in overnight funds swept by the Debtor in advance of the filing (though it's doubtful that any of those funds actually went into LBI and thus would be implicated by the sale).
The order also expressly released Barclays from any potential successor liability claims, including taxes, which means that the Debtors will be stuck paying the transfer taxes (to the glee of New York State, per this recent Supreme Court case). Counterparties to contracts being assumed will have until 10/3/08 to file an objection to the proposed cure amount.
The sweeping change in the economic and political landscape after the announcement of the government's bailout prompted Debtor's counsel to say in Court that "[t]his is a tragedy - maybe we missed the RTC by a week," to which Judge Peck responded, "[t]hat occurred to me, as well; Lehman Brothers became a victim, in effect the only true icon to fall in the tsunami that has befallen the credit markets." But, as Rod Stewart sang, no one's gonna help "a victim of a shotgun wedding."
* * *
The inset cartoon is from the Business Cartoon Collection of Shannon Burns, to whom special thanks is owed for granting me permission to post it here.
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Examining the Limited Objections to Lehman's Shotgun Wedding
.jpg) Lehman Brothers, Inc.'s sale to Barclays is a foregone certainty, but--as Judge Easterbrook reminds us here--the "devil is in the details" (origins of phrase here). Scores of objections (like this one filed by Goldman Sachs) were filed by parties objecting to the posted cure amounts of contracts and unexpired leases to be assumed and assigned at closing. Making such an objection was critical to those who disputed or were unsure of the cure amounts since the sale notice advises that failure of any contracting party to object to the assumption and assignment or to the posted cure amounts will be barred from later objecting to the assumption and assignment or to the cure amounts. Other contracting parties (like the Chicago Board of Options Exchange) additionally objected on the basis that generic references to contracts to be assumed didn't adequately specify the contracts subject to assumption, assignment, and cure. Otherwise, however, none of these parties had any conceptual objections to the proposed sale.
Other more interesting insights into the case are found in objections filed by parties concerned that non-debtor assets of various subsidiaries of the Debtor are included or implicated in the sale. One significant focus (as here and here) was Section 2.1 of the Asset Purchase Agreement, which broadly defined the "Purchased Assets" to include "all of the assets of [the Debtor] and its subsidiaries used in connection with the business. Several subsidiary creditors filed objections to the sale of assets that were in nondebtor subsidiaries and thus not "property of the debtor" that could be sold free and clear.
Mickey Mouse's objection, filed by Marty Bienenstock, is the most elegant and comprehensive of all from a bankruptcy perspective. It raises the same concerns about selling nondebtor assets, and adds a range of related intercompany issues, most significant of which is the concern that entry of the sale order will extinguish the rights in third parties to recover assets of nondebtor subsidiaries that shouldn't have been included in the sale. The relief requested thus "would be an illegal, sub rosa substantive consolidation," Mickey complains.
Finally, there's this lengthy and well-documented objection from the Joint Administrators of the Lehman European Group Administration Companies, who were appointed on the day of the bankruptcy filing by the English High Court of Justice pursuant to the English Insolvency Act of 1986. The Joint Administrators have hired a team of 200 PWC accountants and consultants, supported by a team of 100 lawyers, to manage these European related entities. The Joint Administrators say they support the sale, but have concerns about its impact on shared IT and administrative systems, books and records, confidentiality requirements. And then, of course, there is that matter of the Debtor's having swept $8 billion in funds last weekend from Lehman Europe and not returning the funds as the Debtor typically did every Monday morning, but couldn't this past Monday because of the intervening bankruptcy filing. Respectfully, the Joint Administrators ask, that money (and possibly more) should be returned to its rightful owner.
Have a good weekend all, and thanks for reading! ]]>
Lehman's Shotgun Wedding Set for Hearing Tomorrow
 In my last post, I reviewed the structure of Barclays' $5.7 billion offer to purchase Lehman's broker-dealer subsidiary. The press has universally misquoted the purchase price as being only $1.7 billion, but--according to the motion filed with Bankruptcy Court--this only represents the pure cash component of the deal and excludes the $1.5 billion in "cure" costs and $2.5 billion in estimated employee retention costs. Adding in these real costs brings the total consideration paid by Barclays to $5.7 billion.
Barclays' offer was conditioned upon the deal's closing no later than Tuesday, September 23. If you're planning this year's National Conference of Bankruptcy Judges, Barclays drop dead date couldn't have been timed better since the conference begins the next day and, coincidentally, Judge Peck is the featured speaker on two panels: one entitled, "Exit Strategies for the Subprime Mortgage Crisis"; the other entitled, "The Impact of the Subprime Meltdown: From a Ripple to a Tsunami." Those panels alone are worth the price of admission.
As for the sale dynamics, after an extended hearing into the evening yesterday, Judge Peck entered this order approving Lehman's motion to set bid procedures and set the hearing to approve the sale for tomorrow, September 19, at 4:00 p.m. "Qualified bidders" will have until the hearing to submit a bid that must, at a minimum, provide for:
- a $450 million DIP facility (comparable to this one [Order / Agreement] just approved on an interim basis, subject to a final hearing on October 2); and
- the replacement by no later than the opening of business on 9/22/08 of all bridge financing advanced to Lehman by the Federal Reserve Bank of New York (and, p.s., good luck finding about $50 billion owed to the Federal Reserve on two days' notice).
The approved sale procedures attached as an Exhibit to the Order further cement the deal in that they include a highly unusual "no-shop" / "no solicitation" provision, which most practitioners and judges would agree are generally forbidden in bankruptcy. The procedures also place Lehman in the impossible position of having to provide 48 hours notice of its intent to enter into a competing transaction, though there's less than 48 hours left until the sale hearing (not that it matters, since no one else is stepping forward).
Finally, the sale order provides that the hearing shall not be adjourned or canceled without the prior consent of the SEC, the CFTC, and the Federal Reserve Bank of NY. If nothing else, this provision at least guarantees that senior officials from these agencies won't be working non-stop for their 5th consecutive weekend.
So as Barclays enters the "major leagues," accompanied by England's national anthem "blaring over the loudspeakers," let us pay tribute to the hard working--soon jobless--people who made Lehman great and to the ordinary people who plowed their hard-earned savings into Lehman securities only to be left "holding the bag." May G-d bless them, and may G-d bless America.
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Rumor had it that former Weil Gotshal partner Marty Bienenstock (now with Dewey & LeBoeuf, NY) would be declared the winner of the Committee beauty pageant (described here), but lo and behold, as reported here, the prize went to Milbank, Tweed, Hadley & McCloy, which also represented the Creditors' Committee in Enron and Refco. Congratulations! ]]>
Barclays Submits Stalking Horse Bid for Lehman's Broker-Dealer Operations of About $5.7 Billion
 Meanwhile, back at the ranch, Lehman has just filed this motion to approve postpetition financing and this motion to approve bid procedures for "the sale of the Purchased Assets" (i.e., the Lehman Brothers, Inc. broker-dealer assets) to Barclays. Both motions will be presented at today's 11:00 a.m. scheduled hearing. Here's the hearing agenda. It's the first opportunity for counsel to explain the case to Judge Peck and a standing room only crowd. [Noon Update: The hearing was continued until 4 pm today, probably to allow the Committee to select counsel (and the Judge to digest the pleadings).]
According to the DIP financing motion, Barclays is offering to lend up to $450 million on a senior secured basis, collateralized by a first priority lien on Lehman's equity interests in Neuberger Berman Holdings LLC. This loan appears to be a bridge to a sale of Lehman Brothers, Inc. (LBI), Lehman's primary broker-dealer subsidiary, to Barclays for $1.7 billion cash and assumption of certain liabilities and contracts (the cure costs of which will add an additional approximately $1.5 billion to the purchase price). The $1.7 billion cash consideration is based on a payment of $250 million cash plus the appraised values of Lehman's NY headquarters at 745 Seventh Ave. and the Cranford and Piscataway NJ Data Centers, which will presumably bear the Barclays logo after closing.
Barclays also has agreed to offer employment to about 10,000 North American-based employees of LBI (or about 70% of the North American workforce) for 90 days, to pay their Christmas annual bonus, and to provide normal severance benefits for any worker terminated based on "reductions in force" or "job eliminations" (all at a projected cost of about $2.5 billion). Section 3.3 of the Agreement provides for a purchase price adjustment (which could favor either Lehman or Barclays depending on market results) of up to $500 million on the one-year anniversary of closing based on profits or losses realized in various assumed long or short "Positions" (the "Long Positions" alone have a book value today of about $70 billion). Lehman Commercial Paper, Inc., a more toxic division, is excluded from the deal.
Time is of the essence for the sale, the motion states (and so does Milbank's Luc Despins), and the proposed Purchase Agreement contemplates that prior to the sale hearing, LBI will consent to commencement of a case under the Securities Investor Protection Act of 1970 and appointment of a SIPA trustee, which itself will have to ask the consent of the SIPA Court for the sale.
The break-up fee is $100 million plus $25 million in reimbursable expenses. In addition, the motion proposes a "KERP" retention plan for about 208 employees, of whom 200 are designated as "key to the success of the business" and 8 as "critical to the success of the business." Though the motion doesn't identify who these employees are, my guess is that Dick Fuld (see Congressional invitation here) is not on that list.
The closing date for the sale is September 23 | |
