In connection with a contentious restructuring, Judge Drain of the Bankruptcy Court for the Southern District of New York, ruled recently that certain lenders to Momentive Performance Materials Inc. (Case No. 14-22503) had no enforceable claim to a so-called “make-whole” premium.   
A “make-whole” premium is an obligation payable to a lender in excess of principal and accrued interest by a borrower in the event the borrower repays the loan prior to its maturity date.  This type of premium is meant to compensate the lender for the interest it would have earned had the loan remained outstanding until its original maturity date.  Because filing for bankruptcy typically automatically accelerates loan obligations, this type of prepayment premium is often at issue in chapter 11 cases.
In the Momentive case, senior noteholders were seeking over $200 million in make-whole premiums pursuant to the indenture governing the notes.  According to the lenders, the indenture provided for payment of such a premium in the event of any redemption of the notes before October 2015.  The lenders argued that the automatic acceleration of the notes that occurred upon the filing of Momentive’s chapter 11 case constituted the redemption under the indenture and triggered the make-whole obligation.  Momentive’s bankruptcy plan provided for payment in full of the notes, but did not provide for payment of the make-whole premium to the noteholders.  Because the plan did not provide for payment of the make-whole premium, the noteholders opposed the plan.

Absolute Priority
(posted 6 days 17 hours ago)

Wedbush analyst Michael Pachter and team lowered their price target on RadioShack (RSH) to $0. They explain why:

In May, RadioShack announced that it was unable to successfully negotiate consent from its lenders under the 2018 Credit Agreement and Term Loan to close up to 1,100 stores. The terms offered by lenders were not acceptable to the company. RadioShack’s operational decisions are now being vetted by creditors and equity investors are no longer relevant to management decisions—the creditors clearly are in control of the ship and, in our view, the ship is sinking. The credit agreement allows the closure of 200 stores per year or 600 over the life of the agreement. We believe a bankruptcy reorganization is imminent… Bankruptcy Beat
(posted 6 days 18 hours ago)

A federal appeals court recently overturned two of multiple fraud counts against the former chief executive of a bankrupt Indiana investment firm after prosecutors didn’t back up the charges with evidence.
Timothy Durham, the former chief executive of Indiana’s Fair Finance Co., in 2012 was convicted and sentenced to 50 years in prison for his role in a fraud that cheated some 5,000 investors out of more than $200 million.
The U.S. Court of Appeals for the Seventh Circuit on Thursday ruled that federal prosecutors’ failure to provide key evidence to back up two counts of wire fraud against Mr. Durham, while “clearly an oversight,” nevertheless warranted dropping the charges (h/t Indianapolis Star).
Specifically, Mr. Durham’s attorneys had argued that prosecutors didn’t provide evidence that a transfer of $250,000 and another of $50,000 constituted wire fraud. The appeals court agreed, citing the single-page printouts that showed that the transfers were made, but didn’t show how they were allegedly used to further the fraud.
“The government apparently intended to introduce additional evidence regarding the circumstances of these transfers but neglected to do so,” the court found. “Without the additional documentary evidence, the jury had no evidence about how the money was used.” Bankruptcy Beat
(posted 6 days 18 hours ago)

In 90 Second Lesson: If I file a chapter 7 bankruptcy, are the assets of my single-member LLC safe from the Trustee?, the editorial staff of Commercial Bankruptcy Alternatives discusses how the assets of a single-member LLC are not, practically speaking, insulated from claims against the member in his or her chapter 7 bankruptcy case.
Read the full article here or visit for more information.

(posted 6 days 19 hours ago)

Many people who are considering filing bankruptcy are interested in knowing how long the fact that they file bankruptcy will stay on a credit report. The answer is that proof of bankruptcy filing can last up to 10 years on a credit report. However, this fact should not dissuade one from filing for bankruptcy if+ Read More
The post Bankruptcy And Your Credit Report appeared first on David M. Siegel.

(posted 6 days 19 hours ago)

Robesonia, Pennsylvania-based Associated Wholesalers, Inc. (“AWI”) and ten associated debtors (collectively, the “Debtors”) filed Chapter 11 petition in the Bankruptcy Court for the District of Delaware.  A copy of the AWI petition is linked here: Voluntary Petition (Associated Wholesalers, Inc.).    AWI provides distribution and retail services to its member retailers, who in turn operate supermarkets.
The Debtors offer the declaration of Douglas A. Booth in support of their first day motions.  A copy of the Booth Declaration is found here:  Declaration of Douglas A. Booth.  Mr. Booth is the Chief Restructuring Officer of the Debtors.  According to the Booth Declaration, AWI acquired Di Giorgio Corporation (later renamed White Rose, Inc.) in June 2006 and have since faced significant economic changes.   Since approximately June 2014, Debtors have attempted to sell substantially all of their assets. As a result of this process, Debtors entered into an Asset Purchase Agreement with C&S Wholesale Grocers, Inc. (“C&S”) on September 9, 2014, who will serve as the stalking horse bidder through the Bankruptcy Court’s sale process.
The cases have been assigned to Bankruptcy Judge Kevin J. Carey for administration.  The lead case has been docketed as case no. 14-12093 (KJC).

(posted 6 days 19 hours ago)

On Tuesday, September 9, 2014, Trump Entertainment Resorts, Inc. (“TER”) and seven affiliated debtors (collectively, the “Debtors”)  filed for chapter 11 protection in Delaware.  A copy of TER’s petition is found here:  Voluntary Petition.  A list of the top 30 creditors was filed with this petition.  According to the petition, TER has between 1 and 49 creditors and it estimated assets between $100 and $500 million with liabilities estimated between $100 million and $500 million. As of the petition date, Debtors’ books and records reflected an account payable due and owning relating to trade debt of $13.5 million.
Debtors offered the declaration of Robert Griffin in support of the petitions and related first-day motions and applications.  A copy is found here:  Declaration of R. Griffin in Support of First Day Motion.  Mr. Griffin is TER’s Chief Executive Officer. Debtors own two casino hotels in Atlantic City, New Jersey:  the Trump Taj Mahal Casino Resort and the Trump Plaza Hotel and Casino. Debtors emerged from bankruptcy in 2010, but according to the Griffin Declaration they continued to face significant challenges due to the prolonged economic downturn and increased competition from with the Atlantic City market, and the lingering effects of Superstorm Sandy.

(posted 6 days 19 hours ago)

For those who wondered what happened to the rule proposal that the SEC issued in January 2011 requiring that investment managers report their say-on-pay votes at least annually, the staff is working on drafting final rules for the Commission’s consideration “in the near term,” according to Chair White.

(posted 6 days 20 hours ago)

A lack of formal training programs and insufficient financial and career incentives limit the availability of skilled risk managers.

(posted 6 days 20 hours ago)

On August 26, 2014, Judge Drain, of the Bankruptcy Court for the Southern District of New York, concluded the confirmation hearing in Momentive Performance Materials and issued several bench rulings on cramdown interest rates, the availability of a make-whole premium, third party releases, and the extent of the subordination of senior subordinated noteholders. This four-part Bankruptcy Blog series will examine Judge Drain’s rulings in detail, with Part I of this series providing you with a primer on cramdown in the secured creditor context. Part II of this series will examine Judge Drain’s cramdown decision in more detail. Part III will explore both the “make-whole” aspects of Judge Drain’s decision and third party releases, and Part Four will focus on the extent of the subordination of senior subordinated noteholders.
What You Need To Know: Cramdown
One aspect of Judge Drain’s decision may give debtors additional negotiating leverage in attempting to set terms for payment of secured claims under a plan. Judge Drain’s bench ruling suggests that the allowed claim of a secured creditor may be satisfied by a long-dated replacement note with a below-market interest rate. This decision has the potential to positively affect exit financing needs for debtors and may even increase distributions to unsecured creditors in cases in which the allowed claims of secured creditors are deemed to have been fully satisfied.

(posted 6 days 21 hours ago)