Bankruptcy Headlines

Solus Floats Rival Proposal for LightSquared's Bankruptcy Exit

Solus Alternative Asset Management LP said its proposal to pump $2 billion into LightSquared is better than the plan the company has presented, which involves little new money and puts the company in the hands of investors including Centerbridge Partners LP and Fortress Investment Group LLC, Dow Jones Daily Bankruptcy Review reported today. The LightSquared proposal "unfairly discriminates" against other creditors in favor of Fortress, Centerbridge and an entity controlled by JPMorgan Chase & Co., Solus said in one of its two Wednesday filings. Solus wants its proposal to be heard on the same timetable as the LightSquared plan. Judge Shelley C. Chapman yesterday denied Solus's request to shorten the timetable for its plan, but did say that it can be discussed at a hearing next Wednesday.

Aereo's Assets Sold for $2 Million at Bankruptcy Auction

Aereo Inc., the online-TV service backed by Barry Diller that was found to violate copyright law, garnered less than $2 million for its assets at a bankruptcy auction, Bloomberg News reported yesterday. The New York-based company had said that it expected bidding of $4 million to $31.2 million. TiVo Inc., which makes digital video recorders, was the winning bidder for the online service’s trademark, customer list and certain other assets, Aereo said. RPX Corp., a patent risk-management company, bought Aereo’s patent portfolio, and information-technology consultant Alliance Technologies acquired some equipment.

Bondholders Wary of Caesars’ Bid for a Bankruptcy Examiner

The bankrupt main operating unit of Caesars Entertainment Corp. has asked that an outsider be summoned to probe alleged insider-led looting of the gambling operation, a request slated for court review next week, the Wall Street Journal reported today. The call for a probe of its own affairs was an unusual, perhaps unprecedented move by the Las Vegas casino operating unit, which was being pursued through the courts of two states by angry investors ever since it filed for chapter 11 protection Jan. 15. It provoked an even more unusual, perhaps unprecedented response by the trustee for bondholders owed $479 million. Forget about an examiner for now, and just let creditors with money riding on Caesars’ bankruptcy conduct their own investigations, said Wilmington Trust, trustee for investors in senior unsecured notes. Caesars “requested an examination of the challenged transactions, not to find out what they did or what they should do now to remedy their wrongs, but rather to forestall creditor investigations and access to documents,” lawyers for the bond trustee wrote.

Power Utility Seeks Liquidation of Atlantic City's Revel Casino

The electricity provider for Atlantic City's Revel Casino Hotel has asked a U.S. bankruptcy court to liquidate the casino, saying the latest deal to sell the shuttered property is unfair, Reuters reported yesterday. ACR Energy Partners — which built and operates an power plant for Revel because the casino could not raise the money itself — said a deal to sell the property to Florida developer Glenn Straub for just $82 million would leave the utility with nothing. ACR said that it was owed more than $12 million before Revel filed for bankruptcy in June, and the casino has racked up $20 million more in unpaid bills since then. Revel's handling of the case has saddled the casino with "tens of millions of dollars" of unnecessary costs and a bankruptcy loan that will leave unpaid claims from ACR and others, the utility said late on Wednesday in a motion to convert Revel's case to a chapter 7 liquidation.

Future of Puerto Rico Bankruptcy Bill Uncertain in Congress

A bill to give Puerto Rico's ailing public utilities a way to restructure debt under the U.S. Bankruptcy Code drew skepticism from congressional Republicans but support from Democrats, who said that it would relieve the island's problems, Reuters reported yesterday. The House Judiciary Subcommittee on Regulatory Reform, Commercial and Antitrust Law yesterday held a hearing on the bill, proposed by Puerto Rico's non-voting congressional delegate, Democrat Pedro Pierluisi. The legislation would allow the territory's government-owned corporations to file under chapter 9 of the bankruptcy code. Subcommittee Chairman Tom Marino of Pennsylvania and Representative Darrel Issa of California, both Republicans, said that they were undecided on whether to support the bill in its current form. "Is it wise to provide this (chapter 9), even prospectively, without a real plan presented from the Commonwealth of Puerto Rico going forward for how they're going to work their way out of an ongoing and systemic pattern?" Issa said at the hearing. But Democrats said the legislation would help Puerto Rico's utilities when they run out of options. "This legislation is a wise use of the law — a step we can take now to avoid a bailout or a financial crisis later," said Illinois Democratic Representative Luis Gutierrez, who sits on the Judiciary Committee itself but not the subcommittee. Read more.

Additionally, a Washington Post editorial today noted that there are two main objections to the bill: that it amounts to changing the rules under which investors agreed to buy Puerto Rico’s debt and that the island could scrape together the cash to pay its creditors if it were to reform the entities in question, especially the financially inefficient electric utility, which is owed hundreds of millions of dollars by the island government. Both points are valid, to an extent — just as it’s valid to point out that investors in Puerto Rican debt heretofore enjoyed an especially good deal because it paid tax-free interest. Puerto Rico must indeed reform its public sector, according to the editorial, but the structural crisis affecting its economy is such that even dramatic new efficiencies probably wouldn’t produce enough growth to pay its debts as currently structured. The editorial argues that, for the sake of its economic future, America’s best friend in the Caribbean needs the power to negotiate a new, more sustainable deal with its creditors, and Congress should grant it. Read the editorial.

A High-Income Debtor May File for Bankruptcy Under Chapter 7 of the Bankruptcy Code

By: Pamela Frederick

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

Notwithstanding a debtor’s high income and ability to pay creditors, in In re Snyder,[i] a bankruptcy court in New Mexico recently refused to dismiss the debtor’s chapter 7 bankruptcy case because the court found that the debtor did not act in bad faith when filing the case.[ii] The debtor, a 63-year-old doctor with an annual salary of $290,000, filed for bankruptcy under chapter 7 of the Bankruptcy Code in order to discharge a $170,000 debt.[iii] In response, the debtor’s sole creditor moved to dismiss the case, or alternatively, to convert the case to one under chapter 11, arguing that the debtor filed the case in bad faith.[iv] In support of its motion under section 707(a), the creditor argued that the debtor’s high income, ability to repay, failure to try to repay, failure to schedule his wife’s jewelry, use of his historical average expenses on his Schedule J, and the fact that the movant was the debtor’s only unsecured creditor were all indicia of the debtor’s bad faith.[v] The debtor responded that he did not file his chapter 7 case in bad faith, arguing that his age, lack of retirement savings, lack of a lavish lifestyle, and compliance with the Bankruptcy Code all indicated that he filed his petition in good faith.[vi] The court ultimately denied the creditor’s motion, concluding that despite the existence of unfavorable factors and the debtor’s high income, the debtor’s desire to save for retirement was “consistent with good faith.”[vii] Likewise, the court denied the creditor’s motion to convert because the evidence relied upon to support a conversion under section 706(b) was “identical” to the evidence in support of the motion to dismiss under section 707(a).[viii]

Abatements Enforceable as Forfeiture Provisions

By: Shantel M. Castro

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

Recently, in In re The Great Atlantic & Pacific Tea Company, Inc.,[i] the District Court for the Southern District of New York upheld a bankruptcy-court order enforcing an abatement provision in a lease.[ii] The case involved a twenty-year lease between a commercial landlord and a grocery store.[iii] Under the terms of the lease, the grocery store was to construct its own building on the leased premises, and the landlord would pay the grocery store a $1.9 million construction allowance within ninety days of the grocery store opening to the public.[iv] A provision in the lease stated that if the landlord failed to pay the construction allowance, the grocery store’s obligation to pay fixed rent and other charges would abate until the allowance was paid with interest.[v] The lease further provided that the grocery store would have title to the building until such time. [vi] A subsequent section of the lease entitled “Landlord default” detailed the remedies available to the grocery store in the event of a default by the landlord.[vii] After the grocery store opened, but just prior to the deadline for payment of the construction allowance, the grocery store filed for bankruptcy under chapter 11 of the Bankruptcy Code.[viii] The landlord’s financing for the construction allowance was conditioned on the grocery store assuming the lease.[ix] The lease was not assumed prior to the payment deadline for the construction allowance, therefore the landlord could not close on its financing.[x] Consequently, the landlord did not pay the construction allowance on time.[xi] Therefore, the grocery store withheld rent payments and property taxes due under the lease until the construction allowance was paid nine months later.[xii] The landlord commenced an adversary proceeding to collect the rent and filed a cure claim after the grocery store assumed the lease.[xiii] The bankruptcy court dismissed the adversary proceeding and denied the cure claim.[xiv] On appeal, the district court affirmed.[xv]