Archive for the ‘Restructuring’ Category

Understanding Bankruptcy as the World Collapses Around You (1)

Saturday, June 9th, 2012

We have seen the dire economic consequences of excessive consumer, corporate, financial, and sovereign leverage of the past 5 years. Our global economy has been a punching bag for corporate greed, political incompetency, and poor central bank planning. From shadow banking and derivatives (“weapons of mass destruction” according to Mr. Buffet) in the United States to Greece’s fraudulent attempt to the enter the Eurozone, world markets have been whipsawed every year since 2007. I cannot help but feel deep remorse after witnessing multiple occasions of the VIX above 40, sovereign CDS making multi-year highs, and political uprising. Five years later, we have yet to learn that leverage is the primary cause of our pain.

Despite an Icelandic bankruptcy, 2 Greek bailouts, a Portuguese bailout, and Irish bailout, and a U.S. bank bailout, 35% of U.S. homes underwater, and 20%+ unemployment rates in certain Western nations, student loans have emerged as yet another bubble, the U.S. consumer savings rate remains below 4%, European banks are levered 26x on average, and countries continue to borrow at astronomical rates. Are we doomed to repeat our mistakes? Sadly, the answer seems to be yes.

Every 2 generations (70-80 years), individuals tend to forget the pain that their forefathers felt in a deep economic contraction. The Great Depression certainly did its job. Maybe we need a constant painful reminder to reign in our tendency to express “irrational exuberance?” Luckily, for learning purposes, a global debt deleveraging cycle is the most painful type of contraction. Hopefully, our children and grandchildren can learn from our mistakes.


Until then, I have started this series to explain the BANKRUPTCY process, specifically the U.S. Ch. 11 process, as I continue to do my part to clean up the riff-raff, the banksters, the incompetent politicians, and the corrupt corporate bureaucrats holding back true capitalism.

  • Bankruptcy is governed by federal statute (11 U.S.C., Section 101):
    • For the equitable distribution among creditors and shareholders of a debtor’s estate in accordance with either the principle of absolute priorities or the vote of bankruptcy majorities of holders of claims
    • To provide a reasonable opportunity, under Chapter 11, to effect a reorganization of business
    • For the opportunity to make a “fresh start” through, among other things, the discharge of debts

  • The goals of bankruptcy are:
    • To afford the greatest possibility of resolution for the estate as a whole, while maintaining the balance of power as between all creditors and the debtor as of the petition date
  • Debtor’s rights and protections include:
    • Automatic stay: an automatic injunction to halt action by creditors
    • Exclusivity to formulate/propose plan of reorganization
    • Continued control and management of the Company
    • Assumption/rejection of executor contracts and unexpired leases
    • Asset sale decisions
    • Avoidance actions
    • Discharge of claims
  • Secured creditor’s rights and protections:
    • Secured to extent of value of collateral
    • Limitations on debtor’s ability to use proceeds/profits of collateral (“cash collateral”)
    • Entitled to “adequate protection” for use of collateral or diminution thereof
    • Entitled to relief from automatic stay for cause shown
    • Entitled to interest and reasonable legal fees when collateral value exceeds debt
    • Entitled to be paid in full in cash or to retain lien to the extent of its allowed claim and receive deferred cash payments totaling at least the allowed amount of such claim

  • Unsecured creditors’ rights and protections include:
    • Majority voting controls
    • Improved and mandated disclosure by debtor
    • Committee representation at debtor’s expense
    • Ability to challenge business judgment of debtor
    • Absolute priority rule generally ensures payment before distribution to existing equity security holders
    • Ability to examine/challenge validity and enforceability of liens and, if debtor refuses, to obtain authority to bring fraudulent conveyance, preference and other actions
    • May continue to exercise corporate governance subject to limitations
    • Valuation as the fulcrum and equalizer of debt and creditor powers
  • Equity may also seek committee representation under certain circumstances and thereby obtain leverage similar to that of creditors’ committee

~Xavier, Leverage Academy Instructor

(All similar entries are in LA’s “Bankruptcy” folder on the right of the blog.)

Lazard Operating Revenues Jump 67% Year over Year: Core Investment Banking Coming Back

Sunday, May 9th, 2010

Lazard, famed investment bank and legacy of Bruce Wasserstein recently reported earnings that blew investors away.  Operating revenues jumped 67% from one year earlier.  Lazard advises on mergers & acquisitions, restructurings, and to a lesser extent, capital raisings.  It operates from 40 cities across 25 countries throughout Europe, North America, Asia, Australia, and Central and South America, focusing on two business segments: Financial Advisory and Asset Management (explained below).

According to Bloomberg, “Lazard Ltd., the biggest non-bank merger adviser, rose in New York trading after posting adjusted earnings that beat analysts’ estimates on operating revenue that jumped 67 percent from a year earlier.

The loss for the first three months of 2010 was $33.5 million, or 38 cents a share, compared with a loss of $53.5 million, or 77 cents, in the same period a year earlier, the Hamilton, Bermuda-based company said today in a statement. Adjusted earnings were 46 cents a share, beating the 18-cent average estimate of 12 analysts in a Bloomberg survey.

Lazard’s revenue from advising on mergers and acquisitions climbed from a year earlier even as companies completed a lower value of deals in the quarter. Excluding special charges, the firm’s compensation ratio fell to 60 percent of revenue, compared with 75 percent in the first quarter of 2009.

“The report should give investors a booster shot of confidence on two important fronts,” Oppenheimer & Co. analyst Chris Kotowski said in a note to investors. “First, that the rebound in M&A activity is happening, albeit in fits and starts. Second, that the company is developing discipline around its compensation and other costs.”

Lazard rose 57 cents, or 1.5 percent, to $38.78 at 4 p.m. in New York Stock Exchange composite trading. The shares gained 28 percent last year after falling 27 percent in 2008.

Revenue Increase

Operating revenue rose 67 percent from a year earlier to a first-quarter record of $456.9 million. Operating revenue from financial-advisory services climbed to $269.1 million as fees from advising on both mergers and restructuring jumped more than 50 percent.

Revenue from merger and acquisition and strategic advisory climbed 53 percent from a year earlier to $147.6 million. That’s down 13 percent from the fourth quarter of 2009.

Asset management revenue climbed 78 percent from a year earlier to $183.7 million. Assets under management increased 4 percent to $135 billion from Dec. 31, with net inflows of $3 billion in the quarter.

“Both financial advisory and asset management had their best first quarters ever,” Chief Financial Officer Michael Castellano said in an interview. “We’re continuing to gain global market share in the M&A business.”

Compensation costs climbed 35 percent from a year earlier to $275.5 million. The firm also recorded a one-time $87.1 million expense tied to staff reductions.

‘Right Manpower Complement’

“Over the last two years, in addition to aggressively hiring senior bankers, we’ve also right-sized the firm in both asset management and the financial-advisory business, to make sure we have the right skill sets for the new world,” Castellano said. “I think we’ve now got the right manpower complement to be able to drive growth in both of the businesses.”

Kenneth Jacobs was named chief executive officer in November after the death of Bruce Wasserstein, the preeminent Wall Street dealmaker who took Lazard public in 2005. Jacobs, who has worked at the firm for 22 years, had served as deputy chairman and CEO of North American businesses since 2002, shortly after Wasserstein arrived.

Lazard said last month that Castellano will retire on March 31, 2011. He will be replaced by Matthieu Bucaille, who served as deputy chief executive officer of Lazard Freres Banque in Paris.

Financial Advice

Lazard has been using its restructuring-advisory business to counter weakness in mergers and acquisitions. It was the second-ranked adviser in 2009 bankruptcy liquidations, according to Bloomberg data, and advised debtors or creditors in the top 10 Chapter 11 bankruptcies in 2009.

Companies worldwide completed $358.9 billion of deals in the first quarter, down 25 percent from the same period in 2009 and 52 percent from the first quarter of 2008, data compiled by Bloomberg show.

Lazard was the seventh-ranked financial adviser on announced deals and 12th-ranked on completed takeovers in the first quarter. The firm advised on completed deals totaling more than $33.9 billion, including Kraft Foods Inc.’s acquisition of Cadbury PLC.

Lazard employees own more than a quarter of the firm, excluding the estate of Wasserstein. Because the stakes owned by employees can be converted into common stock, the company reports earnings as though the stakes were fully exchanged instead of treating them as minority interest.

Evercore Partners Inc., the investment bank founded by former U.S. Deputy Treasury Secretary Roger Altman, reported earnings last week that beat analysts’ estimates as advisory revenue climbed from a year ago.

Lazard Business Breakdown

Financial Advisory

The Company offers corporate, partnership, institutional, government and individual clients across the globe an array of financial advisory services regarding mergers and acquisitions (M&A), and other strategic matters, restructurings, capital structure, capital raising and various other corporate finance matters. During the year ended December 31, 2009, the Financial Advisory segment accounted for approximately 65% of its consolidated net revenue. It has operations in United States, United Kingdom, France, Argentina, Australia, Belgium, Brazil, Chile, Dubai, Germany, Hong Kong, India, Italy, Japan, the Netherlands, Panama, Peru, Singapore, South Korea, Spain, Sweden, Switzerland, Uruguay and mainland China.

The Company advises clients on a range of strategic and financial issues. When it advises companies in the potential acquisition of another company, business or certain assets, its services include evaluating potential acquisition targets, providing valuation analyses, evaluating and proposing financial and strategic alternatives and rendering, if appropriate, fairness opinions. It also may advise as to the timing, structure, financing and pricing of a proposed acquisition and assist in negotiating and closing the acquisition. In addition, the Company may assist in executing an acquisition by acting as a dealer-manager in transactions structured as a tender or exchange offer. When the Company advises clients that are contemplating the sale of certain businesses, assets or their entire company, its services include advising on the appropriate sales process for the situation, valuation issues, assisting in preparing an offering circular or other appropriate sales materials and rendering, if appropriate, fairness opinions. It also identifies and contacts selected qualified acquirors, and assists in negotiating and closing the proposed sale. It also advises its clients regarding financial and strategic alternatives to a sale, including recapitalizations, spin-offs, carve-outs, split-offs and tracking stocks.

For companies in financial distress, the Company’s services may include reviewing and analyzing the business, operations, properties, financial condition and prospects of the company, evaluating debt capacity, assisting in the determination of an appropriate capital structure and evaluating and recommending financial and strategic alternatives, including providing advice on dividend policy. It may also provide financial advice and assistance in developing and seeking approval of a restructuring or reorganization plan, which may include a plan of reorganization under Chapter 11 of the United States Bankruptcy Code or other similar court administered processes in non-United States jurisdictions.

When the Company assists clients in raising private or public market financing, its services include originating and executing private placements of equity, debt and related securities, assisting clients in connection with securing, refinancing or restructuring bank loans, originating public underwritings of equity, debt and convertible securities and originating and executing private placements of partnership and similar interests in alternative investment funds, such as leveraged buyout, mezzanine or real estate focused funds. In addition, it may advise on capital structure and assist in long-range capital planning and rating agency relationships.

Asset Management

The Company’s Asset Management business provides investment management and advisory services to institutional clients, financial intermediaries, private clients and investment vehicles around the world. As of December 31, 2009, total assets under management (AUM) were $129.5 billion, of which approximately 82% was invested in equities, 14% in fixed income, 3% in alternative investments and 1% in private equity funds. During 2009, approximately 36% of its AUM was invested in international investment strategies, 46% was invested in global investment strategies and 18% was invested in United States investment strategies. As of December 31, 2009, approximately 89% of its AUM was managed on behalf of institutional clients, including corporations, labor unions, public pension funds, insurance companies and banks, and through sub-advisory relationships, mutual fund sponsors, broker-dealers and registered advisors, and approximately 11% of its AUM, as of December 31, 2009, was managed on behalf of individual client relationships, which are principally with family offices and high-net worth individuals.

The Company competes with Bank of America, Citigroup, Credit Suisse, Deutsche Bank AG, Goldman Sachs & Co., JPMorgan Chase, Mediobanca, Morgan Stanley, Rothschild, UBS, The Blackstone Group, Evercore Partners, Moelis & Co., Greenhill & Co., Alliance Bernstein, AMVESCAP, Brandes Investment Partners, Capital Management & Research, Fidelity, Lord Abbett, Aberdeen and Schroders.

Pali Capital Files for Bankruptcy – Bankruptcy Filings Attached

Friday, April 2nd, 2010

Pali Capital, a well known boutique investment bank and underwriter recently filed for bankruptcy after a failed merger attempt.  The firm was founded in 1995 by former MDs at Merrill Lynch.

According to Bloomberg, “Pali Holdings has filed for bankruptcy protection after failing to sell its boutique securities firm, Pali Capital.

Pali’s Chapter 11 petition, filed in federal Bankruptcy Court in Manhattan on Thursday, listed $716,300 in assets and $31.8 million in debts.”

More from Bloomberg:

“Pali Holdings filed the instant Chapter 11 bankruptcy case to obtain protection from its creditors while it continues to liquidate and wind down Pali Capital,” Gerald Burke, a director of Pali Holdings, said in an affidavit filed with the bankruptcy petition.

The privately held company was in talks to sell the brokerage business to ex-Bear Stearns Companies finance chief Samuel Molinaro and had told shareholders it might go out of business without a sale or cash infusion.

The parent company, based in New York, had an estimated loss of $18.3 million in 2009 and said in a Jan. 14 letter to shareholders obtained by Bloomberg News that it could run out of money by the end of February. The broker-dealer Pali Capital, with expertise in derivatives, fixed income, and investment banking, said Feb. 16 that it would begin to wind down operations.

According to the SF Chronicle “When a brokerage fails, the Securities Investor Protection Corp. names a trustee to protect assets and return customers’ cash and securities. When Lehman Brothers Holdings Inc. filed Chapter 11 in 2008, the SIPC appointed lawyer James Giddens as brokerage trustee. The bank’s North American brokerage business and associated real estate were then sold to London-based Barclays Plc for $1.54 billion.

The largest unsecured creditor named in the Pali Holdings filing was Panama-based Mandeville Holding Ventures Co.

Four CEOs

Pali Holdings has had four chief executive officers or co- CEOs in the past 17 months and its chairman stepped down in December. The firm focused on equity and fixed-income sales, trading and research for institutional clients such as money managers and hedge funds. The company had offices in London, San Francisco, Newport Beach, Chicago and five other U.S. locations, according to its Web site.

Pali Holdings received $3 million of “emergency bridge financing” in November and has lost about $40 million in the past two years, according to the company’s letter, signed by directors Kevin Fisher and Burke.

Pursue Alternatives

Shareholders, including former Pali CEO Bradley Reifler, wrote in response that the company should pursue alternatives to a sale, such as a recapitalization. In their undated letter, signed by Reifler, Wolfgang Stolz and John Staddon and also obtained by Bloomberg News, the shareholders requested a special meeting be held to elect a new board.

Molinaro, the former Bear Stearns executive, was helping Braver Stern Securities Corp. negotiate the potential purchase of Pali Capital and was to become CEO of the combined firm, overseeing about 250 people, people familiar with the talks have said. Molinaro was Bear Stearns’s chief financial officer from 1996 until 2008, when JPMorgan Chase & Co. purchased the company to save it from bankruptcy.

Separately today, New York-based JPMorgan filed a $4.5 million lawsuit in New York State Supreme Court in Manhattan against Pali and Reifler, alleging a loan default.

“Pali was responsible” for the debt, Reifler said in a telephone interview. “When I left in October 2008, there was $66 million in cash, and the loan should have been paid from those funds.”

The case is In Re Pali Holdings Inc., 10-11727, U.S. Bankruptcy Court, Southern District of New York (Manhattan)”

According to ZeroHedge,

The reason for the bankruptcy was provided in the filed affidavit as follows: “Pali Capital experienced consistent pre-tax losses commencing with the second quarter of 2008 and continuing through and including the fourth quarter of 2009, caused by among other things, a substantial slowdown in sales and trading by Pali Capital’s primary institutional clients. These losses are projected to continue into at least the first quarter of 2010. As a result, it was difficult for Pali Capital to maintain adequate levels of excess regulatory net capital to support normal business operations, although Pali Capital is in compliance with its minimum regulatory net capital requirements through February 28, 2010.” So after 4 CEOs in 17 months all Pali is left with is a list of secured and unsecured creditors. And in probably not the wisest move for the privacy of said creditors, the firm has listed the home addresses of Kevin Fisher, Ari Nathan, Leon Brenner and some other rather high profile financiers.

List of largest secured creditors (and home addresses):

Pali Bankruptcy

Starwood to Raise $2.8 Billion to Invest in Distressed Real Estate Debt

Thursday, April 1st, 2010

Starwood, the commercial real estate investment firm started by Barry Sternlicht is raising approximately $2.8 billion purchase commercial real estate debt  during the biggest commercial real estate dislocation of the decade.   The Starwood Global Opportunity Fund VIII will target property and distressed debt.  Recently, Starwood’s second hospitality fund also raised $1 billion.  Sternlicht has been extremely bullish on specific deals in the market because of his close relationship with the FDIC.  He believes that most regional banks are essentially bankrupt, and this is the perfect opportunity to scoop up cheap real estate debt at 50 cents to the dollar.

According to Mr. Keehner of Bloomberg, “Starwood Capital Group LLC, the investment firm founded by Barry Sternlicht, finished raising capital for two funds totaling about $2.8 billion that will invest in real estate.

The Starwood Global Opportunity Fund VIII, which will target distressed debt and property, took in more than $1.8 billion, according to a person familiar with the effort. The Hospitality Fund II, which will invest in hotels, attracted almost $1 billion, said the person, who declined to be identified because the deal is private.

Starwood had previously raised about $10 billion of equity for 11 funds and other investments, according to documents from JPMorgan Chase & Co., which helped the firm find investors. Starwood is leading a plan to bring Extended Stay Hotels Inc. out of bankruptcy and purchased loans in October from failed Chicago-based lender Corus Bankshares Inc. as the real estate market reels from a 40 percent drop in commercial property values from its 2007 peak.

“Raising new capital in this environment speaks to the team at Starwood and the deals they’ve been able to get done,” said Dan Fasulo, managing director of New York research firm Real Capital Analytics Inc. “Barry and his team are one of the few that have been able to put money to work in the past few months.”

Starwood Global Opportunity Fund VII, which closed in 2005 with commitments of $1.48 billion, was up 3 percent as of January, according to the person. Starwood Capital Hospitality Fund I, which closed in 2005 with commitments of $900 million, was up 10 percent, the person said.

FDIC Loans

Starwood plans to invest much of the new opportunity fund’s capital in the U.S., targeting distressed borrowers, lenders and banks taken over by the Federal Deposit Insurance Corp.

“Everyone knows of somebody who’s in trouble with something in real estate today,” Sternlicht, 49, said on a Feb. 11 call with potential investors, a recording of which was obtained by Bloomberg News. “It’s a great opportunity for us.”

Starwood, based in Greenwich, Connecticut, led a group in October that won part of a $4.5 billion portfolio of real estate assets that belonged to Corus before regulators took over the Chicago-based lender in September.

Starwood and its partners outbid their nearest competitor for the portfolio by more than $100 million, or 20 percent, people familiar with the sale said at the time. Sternlicht said on the call that Starwood is “spending a lot of time with the FDIC.”

Most regional banks in the U.S. are “effectively bankrupt,” Sternlicht said, providing an opportunity as $1.2 trillion of real-estate debt matures over the next four years.

Carlyle Hotel

Starwood Capital may also acquire distressed properties by taking positions in the debt, said Sternlicht, including the Carlyle Hotel on Manhattan’s Upper East Side. The firm bought mezzanine loans backed by the hotel for 50 cents on the dollar around January 2009, he said.

The Carlyle, owned by Rosewood Hotels and Resorts LLC, has seen cash flow drop since Starwood Capital bought the note, Sternlicht said.

“We’re just hoping they trigger a covenant,” Sternlicht said of the loan, which matures next March, adding that his firm could wind up owning the hotel for $400,000 per guest room, or about 30 percent of replacement cost. “We take over management; that would be a windfall.”

Sternlicht is also trying to take over ailing Las Vegas casino-owner Riviera Holdings Corp. four years after a bid he backed was shot down by shareholders.

Riviera Deal

Starwood Capital, along with “some friends,” bought control of Riviera’s first mortgage for about 50 cents on the dollar and is leading creditors negotiating a prepackaged bankruptcy, Sternlicht said. Riviera, which owns a Colorado casino in addition to the 55-year-old Las Vegas resort, defaulted on a $245 million loan in February 2009.

“We are now working to take the company through a pre- pack,” Sternlicht said. “It’s going very well. We lead the creditors’ committee there.”

Starwood Capital could own Riviera’s 26-acre resort for “about $5,000 a room, which is less than the cost of the furniture,” Sternlicht said on the call, without saying how much Riviera debt it held. “I’m thinking of it as a long-term parking lot. We’re just going to hold it and have very little invested in the deal.”

Starwood Capital is also working on a restructuring with “a multi-billionaire who has a large real estate portfolio,” Sternlicht said on the call. He didn’t name the person.

“Those are exciting opportunities when you have few competitors,” he said. “Most of our competitors are mortally wounded, especially the Street.”

Sternlicht founded Starwood Hotels & Resorts Worldwide Inc. in 1995 and was that company’s chairman and chief executive officer for almost a decade. Brands include the W, Sheraton and Westin.

He raised $810 million through an initial public offering of Starwood Property Trust Inc., a REIT. Shares have since dropped 3.5 percent.”

According to USA Today, “Starwood Hotels & Resorts opened it 1000th hotel  – the Sheraton Qiandao Lake Resort located on China’s Qiandao Lake.

“This hotel is emblematic of both our history and our bright future,” says Frits van Paasschen, CEO of Starwood, in a statement, adding Sheraton was the first international hotel to open in China in the early 1980s.

Starwood also says it plans to open 300 more hotels in the next three to four years.  “For the first time we have more hotels outside the U.S. than inside. And there is no more fertile ground to grow than in China where we plan to double our footprint to 100 hotels by 2012,” van Paasschen says.

In 2010, Starwood expects to open 80 to 100 more hotels, and about 70% of them will be outside the U.S.

In China, Starwood will open more than 20 hotels this year. In India, another growing market, Starwood has 26 hotels and plans to increase the total by 60% by the end of 2012.”

General Growth Properties Getting Multiple Bids, Pershing Square Capital Involved

Friday, March 12th, 2010


In our third article on General Growth Properties, one of the largest mall owners in the United States, Pershing Square Capital Management and Fairholme are working to increase Brookfield’s bid to purchase a stake and provide capital for the firm.  As mall attendance fell through the recession and it became difficult to pay back commercial real estate debt, it was feared that General Growth would go into bankruptcy and had to be restructured.  Recently, General Growth received a $10 billion all cash bid from Simon Properties, which it turned down because it felt the valuation was too low!

According to Mr. Taub of Bloomberg, General Growth Properties Inc.’s biggest debt and equity holders will offer to jointly invest $3.93 billion in the mall owner to help bring the company out of bankruptcy, according to a person familiar with the plan.

Fairholme Capital Management LLC, General Growth’s largest creditor, and Pershing Square Capital Management LP, the biggest shareholder, are working with Toronto-based Brookfield Asset Management Inc., said the person, who asked not to be identified because the talks are private. The proposed deal would add to Brookfield’s planned $2.63 billion investment and would pay unsecured creditors in full in cash, the person said.

The cash payment matches a provision of a competing bid by Simon Property Group Inc., which has offered to buy its biggest competitor for more than $10 billion and pay all unsecured creditors. Chicago-based General Growth rejected that bid as too low and said last month it would split itself into two companies to exit bankruptcy, with the investment from Brookfield.

“They realized their original deal was weak compared to Simon’s,” David Fick, an analyst with Stifel Nicolaus & Co. in Baltimore, said of Brookfield. “They have to show an equivalent deal.”

Brookfield’s new plan is being considered by General Growth’s board. The proposal calls for Bruce Berkowitz’s Fairholme Capital and William Ackman’s Pershing Square to buy about 380 million new General Growth shares at $10 each, with 72 percent being purchased by Fairholme and the balance by Pershing Square, said the person familiar with the plan.

Share, Debt Offerings

Those investments would combine with 250 million shares Brookfield would buy, $1.5 billion in new debt Brookfield is raising, and a $250 million rights offering for a new company, General Growth Opportunities. Brookfield will backstop $125 million of that sale, and Fairholme and Pershing Square will backstop the rest, the person said. Combined, more than $8 billion would be raised.

Berkowitz is unable to discuss the plans until he files with the U.S. Securities & Exchange Commission, said Janice Aman, a spokeswoman for Fairholme with outside firm Mount & Nadler Inc. Ackman declined to comment.

David Keating, a General Growth spokesman, had no immediate comment. Denis Couture, Brookfield’s senior vice president for corporate affairs, declined to comment. Simon Property spokesman Les Morris said he had no immediate comment.

Largest Shareholder

Fairholme would be General Growth’s largest shareholder with more than 30 percent of the company’s stock, followed by Brookfield with about 30 percent, and Pershing Square with 17 percent or 18 percent, the person said. Ackman resigned from General Growth’s board on March 5 to make the offer, according to the person.

New York-based Pershing Square currently owns a 25 percent economic interest in Chicago-based General Growth, including 7.5 percent of its shares. Fairholme owns about $1.9 billion of General Growth debt, while Brookfield has about $500 million and Pershing Square owns about $434 million, according to the person.

Brookfield’s previous plan gave General Growth equity holders $15 a share, compared with about $9 a share under Simon’s offer. That version called for General Growth to raise as much as $5.8 billion by issuing shares and new debt and through the sale of properties.

Unsecured creditors objected to General Growth’s agreement with Brookfield, saying in a March 2 bankruptcy-court filing that the plan was too risky. Indianapolis-based Simon, in a separate filing, supported the creditors.

Market Risk

“While Simon has offered to pay unsecured creditors in full in cash, the consideration to be offered to unsecured creditors under the ‘recapitalization’ is entirely subject to market risk,” David C. Bryan, Eric M. Rosof and Emil A. Kleinhaus, Simon’s attorneys, wrote in the filing. “If General Growth does not raise enough money to pay unsecured creditors, they will be stuck with the equity securities of a highly leveraged company.”

U.S. Bankruptcy Judge Allan Gropper in Manhattan last week rejected a request by General Growth to extend control of its bankruptcy through Aug. 26, giving the company until July 15.

“I do think it is in everyone’s interest that we proceed with an aggressive timetable, one that gets us out of this case as soon as possible, so there is less risk to the creditors,” Gropper said at the March 3 hearing.

General Growth filed the largest real-estate bankruptcy in U.S. history in April after amassing $27 billion in debt making acquisitions. Under its plan with Brookfield, General Growth would split into a company owning shopping malls and another that would own buildings and land with redevelopment possibilities.

The new company, to be called General Growth Opportunities, would have holdings including six master-planned communities, New York’s South Street Seaport, and land in Hawaii, Utah and Princeton, New Jersey. The plan must be approved by the bankruptcy court.

General Growth rose 7 cents to $14.08 as of 4:15 p.m. in New York Stock Exchange composite trading. The company’s shares have gained 22 percent since the beginning of the year.

Six Flags in Bankruptcy!

Wednesday, March 10th, 2010

March 10, 2010

Six Flags filed bankruptcy at the end of 2008, at which time CFO Jeff Speed assured investors the bankruptcy would only take 4-5 months.  Over one year later, the company is still contending against its creditors.  The company operates 20 theme parks in the United States and has been a headache for its largest shareholder Daniel Snyder, owner of the Washington Redskins.

According to Bloomberg, “The New York-based owner of 20 theme parks filed a petition in U.S. Bankruptcy Court in Wilmington, Delaware, on June 13, listing assets of $3 billion and debt of $2.4 billion as of Dec. 31. Six Flags is seeking court approval of a prearranged reorganization plan to cut its debt by about $1.8 billion and to eliminate more than $300 million in preferred stock obligations, the company said in a statement.

Emerging from bankruptcy before the end of the year is an “aggressive” estimate, said Joseph Stauff, an analyst at CRT Capital Group LLC in Stamford, Connecticut.

Under the proposed plan, senior secured lenders would receive about 90 percent of the stock in the reorganized company, while unsecured bondholders would get about 10 percent, CreditSights Inc. analysts Chris Snow and Frank Lee wrote in a report. Six Flags offered unsecured bondholders 85 percent in a recent debt-for-equity exchange, they said.

Six Flags’s largest shareholders include Chairman Daniel Snyder, owner of the National Football League’s Washington Redskins. He owned 5.4 percent of Six Flags, or 5.28 million shares, as of October 2007, according to data compiled by Bloomberg.

Snyder won a proxy fight in late 2005, ousted then-Chief Executive Officer Kieran Burke and appointed himself, now-CEO Mark Shapiro and director Dwight Schar to the board. Under Shapiro, the company has sought to clean up the parks and add family-focused attractions, such as Thomas the Tank Engine and Looney Tunes.”

According to Maureen Bavdeck of Reuters, “Warring creditors of Six Flags Inc (SIXFQ.OB) take their battle for the theme park operator before a bankruptcy judge on Monday, with the outcome likely hanging on how much debt the company can afford.

Holders of senior bonds will tout their plan, which leaves them in control of the company, as the best way to bring Six Flags out of bankruptcy with a manageable amount of debt.

Junior bondholders are likely to argue that the operator of 19 regional parks can borrow more and pay all creditors what they are owed. Their plan would leave them in control of the company.

The junior bondholders will also argue the senior bondholder’s plan cannot be confirmed because they voted to reject it.

The trial is scheduled to last two weeks, with potentially dozens of witnesses taking the stand and thousands of documents entered as exhibits with the aim of convincing Judge Christopher Sontchi of the company’s true value and each plan’s viability.

However, the hearings will go forward without Six Flags’ Chairman Dan Snyder, who will not testify, according to the company’s attorney.

Senior bondholders, known as SFO Noteholders, have drafted a plan that has been adopted by the company. Led by Avenue Capital Group, which invests in financially troubled companies, the plan will fund the exit from bankruptcy with some $830 million in debt. The SFO Noteholders would also invest $450 million in equity.

Under the SFO Noteholders’ plan, most secured claims would be paid in full. Junior bondholders, known SFI Noteholders, would get about 7.3 percent of the reorganized company’s equity and the rest would go to holders of SFO notes and management.

The Avenue Capital-led group has been arguing that is only one plan because the SFI Noteholders could not finance their plan. “This long-promised plan remains just that — an unfilled promise,” SFO Noteholders said in court papers of the alternative plan.

That changed on Friday, when the SFI Noteholders informed the court they had committed funding for their plan, which includes $1.17 billion of debt and $582 million of equity.

The SFI Noteholders proposed paying everyone senior of their own debt in full and taking control of the company.

With the committed financing, the SFI Noteholders will be able to argue the market has spoken about the value of the company. As a result, the outcome may hinge on more technical issues about the structure of the company’s plan, voting procedures and certain assets that attach to SFI bonds.

While the trial plays out in public, behind-the-scenes talks are likely to continue, although the burden is on the SFI Noteholders to craft an offer to win over Avenue Capital.

Six Flags might seem to be an unlikely target of such an expensive tussle. The company has largely been unprofitable for more than a decade.

However, some of the debt that sunk the company was incurred to build bigger and better attractions and roller coasters, which now will protect the company from potential competition.

In addition, a sluggish economic recovery has made the regional theme parks an affordable “stay-cation” alternative to long-distance holidays for cash-strapped American families.

The case is In re: Premier International Holdings Inc, U.S. Bankruptcy Court, District of Delaware, No. 09-12019.”

Dubai World Restructuring Underway

Monday, March 8th, 2010

Dubai shocked creditors when it decided to postpone interest and principal payments in November of 2009.  Since then, Moelis & Co. has been working with creditors to settle on repayment.  Some creditors still expect full repayment, while others would take a haircut for immediate cash. Certain assets have been “ring-fenced,” such as DP World’s port business, which may list in the UK.  By ring-fencing the asset, it will not be available for creditors.

Amran Abocar of Reuters writes: “Dubai World could put its plan to a creditor coordinating committee that includes HSBC and Standard Chartered in London this week but was being delayed by efforts to value the assets of its Nakheel unit, builder of Dubai’s palm-shaped islands, bankers said.

While some of the 97 creditors expect to see the option of full repayment on the table, others are willing to take a “haircut” in order to get some money back fast, bankers said.

“We are not willing to take a big haircut … in that case we would go back to the committee to see what our options are,” said one Gulf-based banker, who asked not to be named. “Full repayment should be an option, timing is less of an issue.”

Dubai World shocked global markets in November, when it requested a standstill on its debt repayments and said it would come up with a restructuring plan.

Dubai has said the plan would be “fair” but a plan could propose extending debt maturities and Dow Jones said creditors may get as little as 60 cents on the dollar.

[ad#ad1]

“There are those banks who want to have the money immediately and take a haircut and those who can wait for a longer time,” said one banker at an Asian lender which is among the creditors.

“If one of the lenders doesn’t accept both options, they can go for a legal case. It’s in the interest of the bankers and the company there is some agreement.”

Despite those divisions, hopes of progress in the talks cut the cost of insuring Dubai’s debt against default and boosted Nakheel’s 2011 bond on Monday.

Dubai’s five-year credit default swaps (CDS) fell about 20 basis points to 488.7, their lowest level since Jan 28. They had risen as high as 654 basis points on February 15 after a report that Dubai World was mulling a two-part deal, including one that may repay lenders 60 percent of the outstanding debt over a period of seven years.

Dubai’s stock market index rose over 1 percent on Monday on hopes of progress in the debt negotiations.

“Investors are front-running a possible uptrend that could follow a Dubai World announcement,” says Mohammed Yasin, Shuaa Securities chief executive.

“This should continue for a while. Volumes are low, but it’s not that there’s no money around, just that it is waiting for an outcome (on Dubai World) to provide some clarity.”

RING-FENCING ASSETS

Dubai World has ringfenced key assets from its restructuring plan including ports operator DP World, which has said it may seek a secondary listing on the London Stock Exchange.

A report on Sunday said DP World may offer new shares to shareholders and Dubai World could sell part of its 77 percent stake as it bids to become part of the FTSE 100 share index.

The move would help boost DP World’s liquidity and raise the stock’s free float shares to 35 percent.

Bankers said Dubai World’s debt restructuring plan would not include a proposal to raise capital or contain any surprises like Abu Dhabi’s last-minute bailout in December, which allowed Dubai to repay Nakheel’s maturing Islamic bond.

“It’s more of a local issue than a global issue now because the news is out, people know they want to restructure,” said a European fund manager, who used to hold Dubai World debt. “Given that they paid out on Nakheel in December, creditors will be looking for full payment on the other bonds.”

But a source familiar with the matter said last month that the Nakheel bond maturing in May was unlikely to be repaid.

But Dubai’s debt crisis is still causing ripples around the region. Moody’s downgraded seven Abu Dhabi government-related entities late last week, due to the absence of an explicit, formal guarantee of government backing.

Abu Dhabi, the wealthiest emirate in the seven-member United Arab Emirates federation and home to most its oil, dismissed the downgrade, saying it had the money to meet its commitments to the firms, especially three which are wholly state-owned.

Major creditors to Dubai World also include Bank of Tokyo-Mitsubishi, a unit of Mitsubishi UFJ Financial Group, Lloyds and Royal Bank of Scotland, Emirates NBD and Abu Dhabi Commercial Bank.”

Restructuring Document: Objection by General Growth’s Unsecured Creditors to Exclusivity

Monday, March 1st, 2010

General Growth recently turned down a $10 billion cash offer to be taken over by Simon Properties, a competitor.  The interesting aspect of this transaction was the General Growth was filing bankruptcy last year and has now refused to sell itself completely.  Instead it has planned to split itself in two and take a minority investment from Brookfield Asset Management.  The creditor committee here is objecting to another 6 months of exclusivity for the debtors.

Objection by General Growth’s Unsecured Creditors to Exclusivity

General Growth Properties Splitting in Two

Wednesday, February 24th, 2010

Many currently think that the offers General Growth Properties has received are very steep, especially since the country’s largest mall owner went through a debt restructuring last year….As a result, the company is splitting itself in two and will raise capital to ease its transition as the economy recovers.

You can refer to our first General Growth Article HERE…

According to Bloomberg, “General Growth Properties Inc. plans to split in two to exit bankrupty and will receive $2.63 billion in capital from Brookfield Asset Management Inc., according to a person with knowledge of the company’s plans.

The plan would value the shopping-mall owner at a minimum of $15 a share, said the person, who asked not to be named because the negotiations are private.

Simon Property Group Inc., the largest U.S. mall owner, offered to buy General Growth for more than $10 billion in a bid that would give equity investors about $9 a share.”

~I.S.

GM Delays European Restructuring

Wednesday, December 23rd, 2009

opel_logo

GM’s European restructuring plan with Opel and Vauxhall will now be delayed until 1Q 2010.  Nick Reilly, CEO of GM Europe, released the news last week.  He admitted that “While it is indeed exciting to see that things are coming together, bear in mind this is going to be one of the largest, most complex industrial reorganizations in European manufacturing in years.”  Thousands of European employee pay packages will be affected by the restructuring.  Last month, GM canceled the sale of a majority in Opel and Vauxhall to a consortium of Russian lender Sberbank and Canadian auto parts manufacturers Magna International, Inc.

GM has indicated it wants some 2.7 billion euros (3.9 billion dollars) in state aid from the various EU countries where it has factories in order to turn the carmaker around. Opel employs around 50,000 people in Europe, half of whom are in Germany.

For more information, refer to GM’s website…