Alabama Governor fights to Save County from Bankruptcy

The impending bankruptcy of Alabama’s largest county, Jefferson County has prompted Governor Robert Bentley to intervene.  Recently, Governor Bentley pledged to try to do “everything possible” to help Jefferson County avoid bankruptcy by reaching a settlement with creditors over the $3.2 billion sewer debt the county owes.
Although Bentley earlier said that bankruptcy was an option for resolving Jefferson County’s sewer debt problem, he has since changed his view of how serious a bankruptcy by Jefferson County could be.  Besides Governor Bentley, Attorney General Luther Strange has also stepped in to help.
At first, Bentley met with County Commission President David Carrington and Commissioner Jimmie Stephens to discuss the matter.  Subsequently, Strange met with commissioners at a downtown Birmingham law firm.  As a result, Carrington recently announced a 30-day “standstill period” for county officials to discuss a potential settlement with creditors.
Bentley said, “Our goal is to do everything possible from a state standpoint to try to help Jefferson County avoid bankruptcy.  We may not be able to reach that goal, but that is our goal.”
At the same time, the governor confirmed that the state is not contributing any money toward a sewer-debt settlement.  County commissioners said they are prepared to vote for bankruptcy if progress is not made with creditors over the next 30 days.
State Finance Director David Perry, who acts on behalf of the governor in talks, said, “We will not do anything that is not in the best interests of both the state of Alabama and Jefferson County.  Ultimately, this is an issue for the Jefferson County Commission to decide.  But a bankruptcy filing by Jefferson County has statewide implications.  That’s why the governor is actively involved in trying to help the parties reach a solution that does not involve bankruptcy.”
Bentley said a settlement could involve holders of the county’s sewer debt getting less than 100 cents on the dollar back from their debt holdings.  Also, Bentley and Perry said the state might offer a way to enhance the credit-worthiness of the county’s sewer bonds.
Credit enhancements can come in a number of forms including letters of credit, lines of credit, revolving credit or bond insurance.  Another part of the resolution may be the creation of an independent public corporation that would own and/or operate what is now Jefferson County’s sewer system.  The resolution would probably also entail passing new legislation.
One thing that the state government is not going to do to repay the debt is raise taxes.  “We’re not interested in raising state taxes to solve this, and we’re not interested in raising local taxes to solve this issue,” Perry said.
Bentley is aware that bankruptcy by Jefferson County would hurt the state’s image and the credit ratings of the state and of cities and other counties also, which in turn would increase their costs of borrowing money for schools, roads or other needs.

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    GBS Holding Ltd files for Bankruptcy

    GBS Holding Ltd, the developer of the huge Roseland residential and commercial project in northwestern Chesterfield County in Virginia is fighting a second legal battle to get the development off the ground.  The company, which is the managing owner of about 900 acres in the 1,300-acre, mixed-used development, filed for Chapter 11 reorganization with the U.S. Bankruptcy Court in Richmond.
    GBS also guaranteed loans secured by Roseland Village, managing owner of a 342-acre high-density piece of the project, which filed for bankruptcy protection in late January to stop foreclosure proceedings.  The banks that went after Roseland Village have now turned their sights on GBS.  This action compelled GBS to make the bankruptcy filing on Friday of that entity.
    GBS plans to ask the bankruptcy judge to consolidate the two cases, so the borrower can more easily reorganize and proceed with the project.
    No homes have been built yet in Roseland, but a lot of pre-development activity is taking place, including road and master planning design.  Houses have been built in the adjacent Hallsley subdivision.George B. “Casey” Sowers III, manager of the family business developing Roseland and building houses in Hallsley, said the lending landscape hasn’t changed in the last couple of years, making financing difficult, but tools are available to get Roseland moving again.
    “One is to pay off the loans, which we can’t right now,” Sowers said. “Or we can give the land back to the bank and allow for a fire sale.  Or if you have enough equity, you can let the court protect it [the project] and let the development proceed.”
    Sowers said that GBS has bank loans of $23.3 million and assets of $57.9 million, so the intention is to proceed with the development and make the banks and everyone involved in the project whole again.
    Essex Bank in Tappahannock, Central Virginia Bank in Powhatan County, Franklin Federal Savings Bank in Henrico County and Paragon Commercial Bank in Raleigh, N.C., are listed as creditors in court records.  Banks are under pressure from regulators to call or not renew development loans, even those made to developers with large equity positions such as GBS.  As such, the banks are paying close attention to acquisition and development loans, in light of the ailing housing market.

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      WaMu Reschedules Bankruptcy Hearing

      Washington Mutual Inc. (WAMUQ) is seeking to come to an agreement with its shareholders by June 17 and has requested a rescheduled hearing on its reorganization plan to gain time to negotiate a settlement.
      Last month, WaMu creditors approved the outline of a settlement that would end their fight with shareholders who accused the creditors of using confidential information to trade in the company’s debt.  That settlement hasn’t yet been documented and signed.
      WaMu, based in Seattle, filed for bankruptcy on Sept. 26, 2008, the day after its banking unit was taken over by regulators and sold to JPMorgan Chase & Co. (JPM) for $1.9 billion.  Washington Mutual Bank was the biggest bank to fail in US history, with more than 2,200 branches and $188 billion in deposits.
      US Bankruptcy judge Mary Walrath has given shareholders permission to question hedge funds that hold WaMu notes under oath and collect documents about their WaMu trades.  Depositions of the hedge funds were scheduled to begin last month.
      Should the tentative deal among WaMu, the hedge funds and shareholders fall apart, WaMu would go ahead with its current reorganization plan on July 5. That plan would give shareholders nothing.  Under the settlement, shareholders would drop their investigation of the hedge funds in exchange for common equity in the new company and funding for a litigation trust that would try to raise money through lawsuits. According to WaMu, the trust would be funded initially with $5 million and later have access to as much as $25 million more.
      Judge Walrath said that if the settlement goes forward, at the July 5 hearing WaMu could either seek approval of a new disclosure statement for a new reorganization plan based on the deal, or set a schedule for approving the new plan.
      A new disclosure statement may require a new round of voting by creditors before Walrath can decide whether to approve the plan.
      In a separate ruling, Judge Walrath allowed a group of creditors that hold warrants they claim are valued at about $350 million to sue WaMu’s directors.
      The so-called Litigation Tracking Warrants are tied to a successful lawsuit WaMu inherited when it took over Dime Bancorp in 2002.  WaMu won the lawsuit, which related to the savings and loan crisis of the 1980s, against the US government.  A judge in the lawsuit awarded damages of at least $350 million.

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        Florida Stage files for Bankruptcy

        One of the most well-loved theaters in the state, Florida Stage has announced that it will file for Chapter 7 bankruptcy, citing factors including a $1.5 million debt and a downturn in contributions from victims of financial Ponzi scheme conman Bernard Madoff.
        The Stage’s 30 odd full-time employees were taken by surprise and left without work as the announcement came without warning.  The local cultural community was stunned at the closure of the famed, 24-year theater institution in Palm Beach County.
        The company, led by Producing Director Lou Tyrrell, built its reputation by presenting exclusively new and emerging works.  Since 1987, it staged more than 150 plays.
        Tyrrell said in a statement that he was “eternally sorrowful” at the closing.  The closure cited “a marked downturn” in subscription sales for the 2011-12 season.  Overall, the company’s subscription base had shrunk from a high of 7,000 to fewer than 2,000.
        It also cited “negligible” ticket sales for a summer musical production about Ella Fitzgerald “and a lack of response” to fund-raising efforts.  According to Marketing Director Michael Gepner, financial problems had dogged the company since 2008 and were exacerbated when the Madoff scandal hurt many contributors.
        The company moved last year from its longtime base in Manalapan to the Kravis Center’s Rinker Playhouse but the move didn’t do enough to turn around Florida Stage’s finances.
        Gepner said the board met during the weekend to make “what was a very difficult financial decision.  We couldn’t build a new audience, and we weren’t staffed enough to keep up with what needed to be done.”
        Staffers were told of the theater’s closing as some were taking down the lighting and sets for The Cha-Cha of a Camel Spider, which closed Sunday.  Gepner said he expected them to be “cleaning up for the next few days” before vacating the space for good.
        Rena Blades, director of the Palm Beach County Cultural Council, lamented “a terrible loss for the community.  To lose them just as the economy is beginning to recover is really tragic.”
        She’d heard that Florida Stage, like many companies, didn’t have enough money in its reserves to weather a bad economic stretch. This meant that “one bad year when they take a risk can lead to something as dire as losing them.  Nobody did anything wrong.  It was a great organization.  It was just undercapitalized.”
        The company’s tax statement for the fiscal year ending Sept. 30, 2009, showed contributions had decreased in the previous year, with investment income down from $11,802 to $6,272.

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          Ford Avoids Bankruptcy

          The fate of Chrysler and GM did not befall the Ford Motor Company.  Instead of filing for bankruptcy, the company is looking forward to a brighter future.  And this despite the prospects for the global sales still being uncertain for the auto industry.  Ford, based in Dearborn, Michigan aims to produce eight million cars per year in the short term.
          Ford’s CEO Alan Mulally declared the company’s aggressive growth targets recently and is expected to announce that that Ford will sell 8 million cars a year by around 2015 from its current 5.3 million vehicles a year.  The numbers refer to the company’s world-wide sales.  In comparison, Toyota sales are about 8.42 million cars a year.
          During the latest economic recession, Ford did not have to place itself under the Chapter 11 bankruptcy protection.  Instead Ford positioned itself to aggressively grow in the Asia Pacific markets.  Now, Ford Fiesta and Ford Focus are positioned well for the global platform that demands small cars with better mileage per gallon (MPG).  Ford can now expect to massively attack markets like China and india.  The company especially plans to commercialize eight models in India by mid-decade and fifteen in China.
          Earlier this year, CEO Mulally announced at the Detroit Auto Show that the company plans to produce 2 million Ford Focus cars in 2012.  These models are planned to be produced in Valencia (Spain), Saarluis (Germany) in two U.S. plants, in China and Thailand.  The group, which had accumulated losses of 30 billion dollars between 2006 and 2008, came out of the red in 2009.
          GM and Chrysler, which are the top two hometown competitors had to receive considerable financial help from the U.S. government to survive and sought bankruptcy protection.  Ford adopted a different strategy.  It strengthened its position globally – particularly in South Easter Asia – borrowed $23 billion by mortgaging its assets and got rid of Volvo and Jaguar to focus on its core brand.
          In December of 2007 Ford told a group of 250 journalists about how it was going to bet on small cars. There was some skepticism then as some of the reporter colleagues thought the fuel efficiency targets were not aggressive enough.  It was also questionable whether the American consumers would buy small cars.
          On hindsight, it is clear that the strategy has paid off.  The new lineup of smaller and fuel-efficient models has indeed helped Ford to increase its sales, set new aggressive targets for global auto sales and helped the company to make $6.6 billion in profit in 2010.  The company also increased its market share.

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            Nevada Economic Forum Advisor Files for Bankrupcty

            John Restrepo, the chairman of the Nevada Economic Forum, has filed for bankruptcy in November.  The man whose job is to tell lawmakers just how much money they will have on hand to pay for government services could not stop his own financial downfall.
            A recent report indicates 11 out of every 1,000 Nevadans declared bankruptcy in 2010.  Although the number of bankruptcies and foreclosures have largely stopped rising, Restrepo warned that better days are not right around the corner.
            The bulk of Restrepo’s debt was in credit cards, something which is common among so many Americans in financial distress.
            On hindsight, one thing that the Nevada Economic Forum should have done was to meet more often.  The Forum only met once a year all this while – in May in odd-numbered years when the Legislature is in session, and in December in even-numbered years.
            The problem was, when the money was rolling in and housing prices were increasing by 150% every year, nobody wanted to believe anything would go wrong.
            Restrepo said he will survive bankruptcy and he suggests that anyone facing financial peril consult a bankruptcy attorney.  He advises people to find a reputable lawyer who has the experience necessary to handle bankruptcies well.
            Restrepo feels that a broader economic recovery will depend on how the job market improves.  He said, “Southern Nevada needs consumers to have confidence.  There is so much misunderstanding about the housing bubble burst.  It was so much more.  There was also massive unemployment and because employers had never seen a recession behave this way, they were slow to rehire.  We had 12.1% unemployment claimed in April but the actual figure is probably closer to 20%.  In the Great Depression 70 years ago, unemployment bottomed out at 25%.  In Las Vegas, people have given up looking or they’ve left town, but the recovery has been anemic because not enough jobs have been created to make a difference.”
            Restrepo is not very optimistic of the future.  “May 2011 looks a lot better than May 2010.  And May 2010 looked better than May 2009.  But we might not ever get back to looking like May of 2006,” he said, referring to the last boom year in Southern Nevada.
            For those contemplating bankruptcy, Restrepo says there are no quick fixes.   “Everybody’s situation is different,” he said. “The important thing is to do the right thing as well as you can.”
            If you wish to file for bankruptcy, call us for a free consultation at (813) 200-4133.

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              GRIN Goes Bankrupt

              The founders of game studio GRIN have closed their operations after claiming that one of the contributing factors was the misconduct from Square Enix (SE).  GRIN, which closed in August of 2009, was developing a game called Fortress for Square Enix.  The game was a contracted Final Fantasy spin off which GRIN had been working on for 6 months.
              Founders Bo and Ulf Andersson claim development with Square Enix started out smoothly.  SE’s president Yoichi Wada had visited the studio and praised the ‘northern art style’ employed by GRIN.
              GRIN began working on the project, but after 6 months of development the costs had ballooned.  SE, who was supposed to pay $100 million for work on the game, did not keep its end of the bargain.  SE claimed that promised development progress had not been achieved.
              At the same time, Bo and Ulf Andersson claimed that SE made increasingly ridiculous demands, such as faxing the assets to them, including music files.  Furthermore, SE also told them they sent material to the wrong people, and asked it to be re-sent to their legal department, and that they grew displeased with the art style they originally praised.
              The Andersson’s worried if payment would ever be received, and did not know how to tell their employees they had no money for them. They also became suspicious that SE had no intentions to pay them at all.  Testing their theory , they sent SE a picture from their own game, Final Fantasy XII, to which SE replied, “it does not look like ‘Final Fantasy’”.  They decided not to pursue legal action because it would only put them more in debt.  GRIN closed down in August 2009, with $148 million in debt.
              According to the Anderssons, the business practices SE purportedly carried out were “almost criminal.” The claim that SE failed to recognize their own art as suitable Final Fantasy material speaks volumes of their attitude toward GRIN.
              But it seems that GRIN had more problems than just missing payment from SE.  With operating costs of $12 million per month, the 6 months of development on Fortress would only have cost them $77 million, not $148 million debt they had when they closed.  SE has so far not responded to the Anderssons’ claims.

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                Yellowstone Club Co-founder wins Dismissal in Bankruptcy

                Tim Blixseth, co-founder of the Yellowstone Club for millionaires, won dismissal of an involuntary bankruptcy petition filed by Montana in Las Vegas.  A lawyer for Montana said the state can re-file its petition.
                Tax officials from California, Montana and Idaho in April filed involuntary bankruptcy petitions against Blixseth.  Blixseth’s lawyer, Charles Axelrod, said that U.S. Bankruptcy Judge Bruce Markell in Las Vegas dismissed Montana’s petition, and that Blixseth paid $925,000 in back taxes owed to Idaho and $994,000 owed to California.
                The sums paid to Idaho and California represent a 15% discount and can be reclaimed under a “reservation of rights” claim.  Blixseth’s lawyer says his client is no longer a bankrupt.
                Rodney Jean, a lawyer representing Montana, said the state’s claims were dismissed based on technical arguments over the venue of where such petitions should be filed.  The ruling has “nothing to do with the substantive validity of the tax claim,” Jean said.
                Dan Bucks, Montana’s director of revenue, said in April that Blixseth owes the state about $56 million in back taxes, and that he transferred assets from various states to an entity in Nevada to avoid paying taxes.
                Blixseth and his former wife, Edra Blixseth, founded the Yellowstone Club, near Big Sky, Montana, in 2000 as a ski resort for millionaires looking for vacation homes.  Members paid a combined total of $205 million for 72 properties in 2005 alone.
                The couple took cash for their personal use from a $375 million loan arranged by Credit Suisse Group AG (CSGN) that year, according to a court ruling by U.S. Bankruptcy Judge Ralph B. Kirscher in Montana.
                Finances at the club deteriorated thereafter, and the club eventually went bankrupt, Kirscher found.Blixseth claimed the allegations in Montana are a personal attack on him by Governor Brian D. Schweitzer.  According to Blixseth, the governor is trying to help an investor in the Yellowstone Club who is opposing Blixseth in bankruptcy court in Montana.  He was ordered to pay $40 million to the club’s creditors under a September ruling by Kirscher.  Blixseth said he is appealing that judgment.

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                  Bankruptcy Bulletins

                  How Many Americans have filed or Contemplated Bankruptcy

                  Do you know how many Americans have either filed for bankruptcy or at least thought of doing so?  According to a recent survey, nearly 1 in 8 Americans, or 13% of the country have either filed or considered filing for bankruptcy.  The survey found that people between the ages of 35 and 54 are 50% more likely to have considered filing for bankruptcy than people ages 18-34 or 55 and older.

                  The group least likely to have considered filing for bankruptcy remains people of retirement age (65 and older) at 7%.

                  The National Bankruptcy Research Center reports more than 1.5 million Americans filed for personal bankruptcy last year, a number that was the highest since 2005.  That year was when the latest major bankruptcy law reforms went into effect causing the unusual spike.

                  But even after the bankruptcy is completed, it can affect you for many years afterwards.  Personal bankruptcies are often the result of a major life event, such as loss of a job, a medical emergency, home foreclosure and so on.  The Bankruptcy code determines who is eligible to file for personal bankruptcy, which debts can be wiped out, which debts will remain, and what happens to personal property, including homes.

                  Idaho Woman Sentenced in Bankruptcy Case

                  Vicki Jean Fehrs, formerly from Mullan, Idaho, but now living in Oregon, was sentenced yesterday in U.S. District Court in Coeur d’Alene for contempt of court.  U.S. Attorney Wendy J. Olson announced that this amounted to a misdemeanor, for willfully disobeying a lawful order of a bankruptcy court.

                  Chief U.S. Magistrate Judge Candy W. Dale sentenced Fehrs to five years’ probation and ordered her to pay $ 47,927.95 in restitution.  Fehrs pleaded guilty to the charge.  Fehrs filed for Chapter 7 bankruptcy in 2005 in the U.S. Bankruptcy Court in Idaho.  But she did not reveal her pre-bankruptcy transfer of a Mullan property to her son.

                  After receiving a discharge in her bankruptcy case in 2006, Fehrs sold the property and kept the sale proceeds of $47,928, using some of the money to buy a home in Washington state.  Fehrs failed to disclose the sale proceeds to the trustee or creditors in her bankruptcy case.


                  Maietta Construction Company Exits Bankruptcy


                  Maietta Construction company had its reorganization plan approved by a bankruptcy judge who cleared the South Portland company to emerge from Chapter 11 bankruptcy protection.

                  The company confirmed that the reorganization plan was approved by a majority of the company’s creditors and post-bankruptcy financing has been obtained.

                  The bankruptcy became an issue in the special election for the District 7 state Senate race when it was revealed that the IRS had liens on property owned by Louis Maietta, one of the owners of the company, for unpaid payroll taxes.  Maietta was the Republican candidate for the Senate seat.  He lost last week to Cynthia Dill, a Democrat who had been state representative for Cape Elizabeth, which is part of the district along with South Portland and a section of eastern Scarborough.


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                    Pennsylvania Chapter 11 Bankruptcies Fall

                    The good news is that the number of Chapter 11 business bankruptcy filings in Pennsylvania fell close to pre-recession numbers in the first quarter since dramatic rises between late 2008 through the middle of last year.  But the bad news is that a second wave of filings could come if interest rates rise without being accompanied by significant economic improvement.
                    Business Chapter 11 filings in New Jersey and the Eastern District of Pennsylvania have been relatively steady despite the economic downturn because most major companies choose to file in Wilmington or New York.  The recession-related increase in filings in 2009 and 2010 in the 3rd Circuit, which includes eastern Pennsylvania, New Jersey and Delaware, came largely from Wilmington.  These are the regions where many companies choose to be incorporated because of the business-friendly court structure there.
                    The number of Chapter 11 business filings in the 3rd Circuit combined were only 114 in second-quarter 2008.  But after Lehman Brothers went under in September that year, followed by the stock market collapse, filings went up to 408 in the third quarter, 626 in the fourth quarter and 621 in first-quarter 2009.  They remained high for the rest of 2009 and the early portion of 2010 before dropping significantly to just 213 in first-quarter 2011.
                    Some industry players believe that borrowers were aided by loan agreements with few financial covenants, particularly commercial real estate loans.  That means that borrowers can struggle but without defaulting.
                    But many filings that occurred in the most recent wave were pre-packaged arrangements with lenders that allow borrowers to reorganize.  Fewer midsize and small companies are using bankruptcy protection, choosing instead to either restructure their debt or sell the company.  The reason for that is that smaller companies cannot afford the fixed costs associated with bankruptcy, unlike larger companies.
                    While the decline in business filings is viewed as a good sign for the economy, many pundits are predicting there will be another spike in filings when and if interest rates rise.  Many struggling businesses have been saved by “unrealistically low” interest rates that allow them to maintain reasonable levels of cash flow despite the prolonged economic slump.
                    But Interest rates could affect the liquidity of many companies that could yet go bankrupt unless they find favor with their lenders.  The Federal Reserve is trying desperately to keep interest rates low but it may not be possible in the long term.

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