Biggest Losers in Lehman Bros Bankruptcy

It may surprise you but when Wall Street firm Lehman Bros went bankrupt in 2008, three of the biggest losers were municipalities in Florida.  They are Sarasota County, Port St. Lucie and St. Petersburg.  In fact, Sarasota County was the second biggest loser among all counties affected by Lehman Bros while Port St. Lucie was fifth and little St. Petersburg was in an unenviable sixth place.  They each lost $40 million, $18 million and $16 million respectively.  Just goes to show how far-reaching Wall Street firms’ influences can stretch and the dangers of cities getting involved in complex financial transactions just to earn a bit of extra income.

St. Petersburg fell victim to the Lehman collapse because they held Lehman Bros bonds or other securities.  Today two years on, the Floridian municipality is still feeling the pinch.  In total, dozens of counties and cities across the US have lost about $1.7 billion when Lehman Bros went bankrupt, in particular those in California and Florida, the two states that had the greatest exposure.

In many cases, the counties and cities got themselves into trouble because of a practice called ‘securities lending’.  This is a practice where the city acts as a bank and lends out its investments for a short period of time and makes a small profit in the process.  St. Petersburg has been practicing securities lending since 2001.

However in 2007, the bank handling the securities lending, Wanchovia Bank made significant deviations from the rules set up to govern these transactions.  These deviations put the city’s loans at greater risk than normal resulting in a loss to the city of more than $15 million.  When Lehman Bros folded, the city could not claim anything from the collateral it held because they had become almost worthless.

Did the St. Petersburg seek redress from the bank, Wanchovia?  Apparently it did contemplate initiating legal action early last year but the move somehow never took off the ground.  It was conveniently forgotten when one mayor, Rick Baker ended his term and another one, Bill Foster started his.

Another key personnel change is St. Petersburg’s long standing financial director, Jeff Spies.  He will be retiring in May but that doesn’t mean the city’s losses would be recouped by then.

What about soliciting help from the federal government?  At this point in time, it seems unlikely as the Obama administration and specifically, Timothy Geithner, the Treasury secretary has declined to use funds from the government’s Troubled Asset Relief Program, or TARP, to bail out municipalities.

Who are Coming Out of Bankruptcy

GM Bounces Back from Bankruptcy

Last year, General Motors was closing down plants, laying off workers and making massive production cuts while under bankruptcy protection.  Today, thanks to a $50 billion in federal aid, GM is back on its feet.  In July last year, GM formally emerged from bankruptcy.

GM has spent $1.4 billion in setting up more than 18 plants and giving jobs to about 5,500 people since July last year.  These plants are located at Flint, Detroit-Hamtramck and a battery plant in Brownstown Township.

Recently, the auto maker recalled about 1,200 of its hourly workers who were laid off to fill positions in its Lordstown plant in Ohio and started a third production shift there.  The plant is currently producing the 2011 Chevrolet Cruze that is due to hit the market in the third quarter of this year.

These positions to be filled at Lordstown are currently being offered to 5,000 to 6,000 laid off workers, members of the Union of Auto Workers (UAW).  If this source of workers is insufficient, GM will start hiring other lower paid union workers.  The first to be brought back would be about 300 workers from the Lordstown area.  It is also possible other jobs could be filled by UAW members laid off from plants in Pontiac, Orion Township and Detroit-Hamtramck.  This is a minor step in the right direction.  GM needs more sales and the economy to improve before it can hire lower paid workers in large numbers.

The collective bargaining agreement UAW has with auto makers like GM stipulates that newly hired workers are to be paid $14 an hour plus benefits.

Accuride Set to Emerge from Bankruptcy

After only about 5 months, Accuride Corporation is set to come out of Chapter 11 bankruptcy protection.  Accuride filed for bankruptcy in October last year and in the process had proposed a restructuring plan to the court.  This plan was recently confirmed by the Bankruptcy Court of Delaware and put into effect sometime around February 26, 2010.

Accuride’s reorganization plan included amending its present credit agreement by modifying certain financial covenants and pushing back its expiry to the end of June, 2013.  The entire company will effectively be revamped and the current notes of the company will be cancelled and replaced with 98% of the common stock of the company.  Current noteholders will receive a rights offering of new senior unsecured convertible notes worth $140 million in total in the new company.  These new notes carry the option of being convertible into 60% of the common stock of the reorganized company.

Through the continued support and cooperation of all parties, Accuride has largely been able to continue doing business throughout the bankruptcy period and now seems set to begin a new phase in their company history.

Hudson Valley Resort In Bankruptcy

Hudson Valley Resort and Spa filed for Chapter 11 bankruptcy in January. This came just as its largest mortgage holder, Kennedy Funding, completed its foreclosure suit against them. Hudson Valley’s owners, Everyday Logistics LLC were confronted with a foreclosure on its property in September 2009 but a receiver to manage the sale of the property was not appointed until January 7, 2010, the same day when Hudson Valley’s owners filed for bankruptcy. That move effectively stalled the foreclosure.

Kenny Funding is owed $9.8 million out of a total of $26 million in debts that Everyday Logistics owes. Altogether, the company owes more than $25 million on six mortgages. However, the Chapter 11 bankruptcy does not affect the running of Hudson Valley Resort and Spa.

Perhaps a telling reason for the resort’s financial problems stems from Everyday Logistics’ purchase of the 323 room hotel formerly known as the Granit Hotel along with its other properties such as its 18 hole golf course and 400 acres of land in 2006. The entire purchase price was $18.5 million. The market assessed value is $5.8 million. Eliot Spitzer and Michael Steinberg, partners who operate the resort, employ about 150 workers in their company, the largest private firm in the mountain town of Kerhonkson where the resort is located. Before their financial problems took its toll, Hudson Valley’s owners had planned to engage PGA pro golfer Vijay Singh to design its golf course, turn the resort into a Marriott-branded hotel and build 300 high end homes on its property.

According to bankruptcy lawyers, filing for bankruptcy is a way for both sides to renegotiate terms of the mortgage, which would be better than going ahead with foreclosure of the property. Foreclosure often benefits no one. The lending institution ends up with a loss-making resort, the resort may go out of business, in which case its employees would lose their jobs. As it stands, Hudson Valley Resort and Spa owes the Town of Rochester about $40,000 in unpaid taxes.

When Hudson Valley was still known as the Granit Hotel, it was owned by Henry Zabatta who himself had filed for bankruptcy in 1997 when he was unable to repay a $5 million mortgage the hotel owed. His view is that the current owners got themselves into this financial trouble because they over paid for the resort when they bought it. According to Zabatta, it is impossible to operate a hotel in that region with such a high debt.

Chapter 13 (Tampa Bankruptcy Attorney Explains……)

When Congress changed the bankruptcy law in 2005, their idea was to force more debtors into a Chapter 13 bankruptcy. A Chapter 13 bankruptcy is essentially a repayment plan, where purportedly the debtor is forced to repay some portion of their debts to their creditors. The law was passed at the behest of the banks and credit card companies who, as we all know now, were issuing credit to anyone with a pulse (and many who didn’t). What does a Chapter 13 mean? Will you lose all your assets? Will you get to keep your home? How about your car? These questions and more are answered in this short video.

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Bankruptcy in Well-known Corporations

Similar misfortunes have beset two of America’s most well-known conglomerates.

MGM Mirage, the famous owner of casinos, is said to be a likely candidate for bankruptcy by the end of the year if its latest quarterly results is anything to go by.  This comes amidst substantial fourth quarter losses in 2009.  Although the losses were less than that of earlier quarters, it did not prevent MGM shares from sliding to $10.83, a significant drop of 6.8% in value.

Speculation is rife that MGM Mirage will eventually file for bankruptcy because of its many outlets along the Las Vegas strip that have been suffering the pain of fewer bookings and visits.  Although the management of the company is optimistic business will pick up, analysts do not share the same view.  David Bain of Sterne Agee feels that weak pricing continues to hamper MGM’s recovery.  This sentiment is largely shared by other analysts like Alex Calderone of crisis management services company Conway McKenzie who says, “MGM won’t work its way through this situation by just cutting costs and earnings power, regardless of a rebound on the strip.”

On the other hand, bankruptcy predictions may be too premature at this point because MGM still maintains the backing of its bankers, not to mention having a large asset base.  Analysts believe the more likely plan of action would be for MGM to extend their maturities, change certain ammoritization schedules or make debt exchanges.  If these steps do not work, then MGM would probably sell some of their assets as a last resort.

Meanwhile Tribune Co., the owners of The Chicago Tribune, has already filed for Chapter 11 bankruptcy protection but is busy laying out debt reorganization proposals that will satisfy its creditors.  On Thursday, US bankruptcy court judge Kevin Carey gave the newspaper publisher the exclusive rights till March 31 to formally file its reorganization plans.  This deadline has allowed Tribune Co. more time to find a satisfactory compromise in its long-drawn negotiations with its senior and junior creditors to whom it owes some $13 billion.

Some of its creditors in the Official Committee of Unsecured Creditors have applied to the court to bring a complaint about fraudulent conveyance against Tribune Co. which resulted in a motion by a group of bondholders calling for an independent inquiry to investigate this complaint.  Judge Carey set aside consideration of both applications until at least April 13.

Tampa Bankruptcy Attorney Darrin T Mish explains Chapter 7 Bankruptcy

Is Chapter 7 Bankruptcy right for you? Will it mean you lose your house? Forfeit your car? Turn over all your assets? It’s scary when you don’t know what to expect. In this short video, Tampa Bankruptcy Lawyer, Darrin T. Mish explains some of what you need to know before you file a Chapter 7 bankruptcy especially if you live in the Tampa Bay Area.

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Bankruptcy Judge Approved Morris Publishing Plan

Morris Publishing owns 13 newspapers including The Florida-Times Union of Jacksonville, The Augusta Chronicle and Savannah Morning News. But due to the advertisers slashing their budgets because of the economic downturn and the increasing popularity of online news, sales of its daily newspapers have fallen significantly. Furthermore, Morris was also burdened with accumulated debt from its acquisition of rival newspapers in the 1990s.

As a result, the company filed for bankruptcy protection on January 19th with $482.4 million in debts and only $175.5 million in total assets. But on Wednesday, less than a month later, US bankruptcy judge John S. Dalis approved of Morris Publishing’s debt restructuring proposal after no objections were heard from the creditors. This paves the way for the newspaper publisher to formally emerge from bankruptcy protection by March this year.

Under the proposed debt restructuring, none of the creditors will receive ownership of the company as Morris Publishing’s owners maintain full control of it. The main creditors will be paid off in full and unsecured bond holders will receive 36 cents to the dollar of the $278.5 million worth of bonds they hold. Wilmington Trust FSB was Morris Publishing’s administrative agent in this matter.

In order to raise funds, the company sold its majority stake in its billboard advertising business last October. This enabled it to repay $110 million of the $136 million it owes to banks, among which are Bank of New York, JP Morgan Chase Bank, Bank of America, SunTrust Bank, Wachovia Bank, First Tennessee Bank, Allied Irish Banks, Comerica Bank, Webster Bank, Sumitomo Mitsui Banking Corp. and Mizuho Corporate Bank.

To their credit, Morris Publishing has put in a lot of hard work to gain the agreement of nearly all of its creditors for an out of court settlement of its debts. Finally, it received the approval of 93% of its noteholders, which was just short of the 99% approval required by law.

Morris Publishing group started business in the 1940s after William S. Morris Jr. bought over The Augusta Chronicle, the newspaper he worked in as a bookkeeper since 1929. His son, William S. Morris III is the Chairman while his grandson, William S. Morris IV is the company’s CEO. The group of companies employs 1,847 full time staff and 335 part time ones.

Morris Publishing sells daily newspapers in Alaska, Arkansas, Florida, Georgia, Kansas, Minnesota, South Carolina and Texas in addition to more than 60 non-daily newspapers and magazines. Among its newspapers, The Florida Times-Union of Jacksonville is its largest newspaper. The newspaper with the second largest readership is The Augusta Chronicle, and the third is the Savannah Morning News.

Tampa Bankruptcy Attorney Explains 341 Hearing

A 341 Hearing or “Meeting of Creditors” is an obligatory meeting that the debtor must attend. It’s a source of much dread and consternation but need it be? Tampa Bankruptcy Lawyer, Darrin T. Mish explains what to expect at your Tampa 341 Hearing in this video. Should you worry? What should you bring with you? Will anyone else be there? These questions and more answered in this short video.

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Simon’s Bid to Buy Bankrupt General Growth Rejected

The nation’s second largest mall operator, General Growth Properties Inc. applied for Chapter 11 bankruptcy in April 2009.  General Growth owns University Mall, located near the University of South Florida in Tampa.  Its aggressive expansion plan, which included buying over rival real estate investment trust Rouse Co., resulted in more debts than the company could handle.  Recently, the nation’s largest mall operator, Simon Property Group Inc. made a $10 billion takeover offer to General Growth Properties.

Simon Property Group owns Tyrone Square Mall in St. Petersburg and Gulf View Square Mall in Port Richey among other properties.  It has largely escaped the effects of the economic downturn due to its higher rentals and its lifestyle center mall concept where malls are designed as neighborhood-like communities.

Simon Property’s proposed acquisition of General Growth is its second major buyout in three months after last December’s $700 million purchase of more than 60 outlet shopping centers of Prime Outlet Acquisitions Co.  Simon Property’s strategy is to take advantage of the bad economy to acquire prime commercial real estate at depressed prices (some up to 40% less than their peak values).  What better catch than the nation’s second largest shopping mall owner?

Simon Property’s offer consists of a $9 billion cash payout and $1 billion in the form of other assets.  This would fully repay all of General Growth’s unsecured creditors, its trust preferred security holders, the credit facility lenders, the holders of its exchangeable senior notes and the holders of Rouse bonds to the tune of $7 billion.  The balance of $3 billion will be allotted to shareholders who will get $6 a share in cash and $3 a share in other assets.

But despite this impressive offer, General Growth has chosen to reject Simon Property’s offer although not outrightly.  In a letter from its CEO Adam Metz to the CEO of Simon Property David Simon that was made public last Tuesday, General Growth indicated it would consider being acquired as part of its commitment to continuing with the process of emerging from Chapter 11 bankruptcy through restructuring its debt.  In the same letter, Metz stated that Simon’s offer was “not sufficient to preempt the process we are undertaking to explore all avenues to emerge from Chapter 11 and maximize value for all the company’s stakeholders.”

Perhaps this is General Growth’s way of asking Simon Property to increase its bid.  In any case, Simon Property’s bid is subject to the bankruptcy court’s approval.

East West Resort Development Headed for Bankruptcy

With plummeting sales by up to 60%, real estate developer East West Resort Development V LP LLLP filed for bankruptcy protection last Tuesday. The company had conducted its business of building high end townhouses worth millions of dollars, luxury ski resorts and a Jack Nicklaus golf course near Lake Tahoe until it was severely affected by the commercial real estate crash. The final stroke of bad fortune was when it failed to find sources of funds to maintain its properties.

The bankruptcy of East West Resort Development was directly linked to Morgan Stanley’s fall. In 2007, Morgan Stanley acquired real estate investment trust company Crescent Real Estate Equities Co. for $6.5 billion. Crescent Real Estate Equities Co. has a subsidiary called Crescent Resort Development Inc. that in turn owns 93.4% of East West Resort Development.

Due to the economic downturn, Morgan Stanley found itself unable to repay its debts and therefore had to surrender East West Resort Development over to a joint venture of Barclays Capital and Goff Capital, owned by John Goff who sold Crescent to Morgan Stanley. This joint venture now possesses majority ownership of East West Resort Development and after lengthy negotiations will garner about $32.5 million to be injected into the developer to get it out of bankruptcy. Another similar real estate developer company owned by Harry Frampton III that develops ski resorts in Colorado, Utah and California will also invest into East West Resort Development.

Under proposed reorganization plans, all loans given to East West Resort Development will be reinstated and Barclays Capital will grant East West Resort Development a $10 million Debtor in Possession (DIP) loan to help it through the bankruptcy process.

East West Resort Development is a company whose business is in developing residential and commercial real estate in and around the North-at-Tahoe Resort, a residential and all year resort community at North Lake Tahoe, California. In its bankruptcy filing, the company stated that its properties lost massive value due to the economic recession over the last year and some were even valued below the amount of outstanding loan.

As at 31 December 2009, East West Resort Development had $256 million in assets. Its debts amounted to $61 million. In addition, it also had $189.4 million in bond obligations and guarantee liabilities.

The company owns the Old Greenwood 18-hole Jack Nicklaus golf course in Truckee, California and one of its affiliates owns the 5-star Ritz Carlton Highlands at Lake Tahoe.