Commercial Bankruptcies: Involuntary Bankruptcy Petition

The items below are excerpted from the Business Bankruptcy News Bulletin. A full issue contains information on dozens of troubled companies, as well as informational and analysis highlights. Please visit the insideARM bookstore for information on subscribing to the Bulletin.

Creditors begin an involuntary bankruptcy case by filing a petition and a summons with the clerk of the U.S. Bankruptcy Court. The debtor then has 20 days to file objections. If that happens, the case then goes to trial. If no objection is filed, the bankruptcy proceeds.  Creditors take a risk, however, filing such a petition because if the case does go to trial and if the court finds the petition was filed in bad faith, the court can then award monetary damages as well as attorney fees for the debtor.

CIT Group Inc., one of the nation’s largest providers of loans to the country’s small and medium-sized businesses, filed Chapter 11 Sunday. The filing, made in the U.S. Bankruptcy Court for the Southern District of New York, was made after a debt-exchange offer to bondholders failed. Bondholders opted for a prepackaged reorganization plan that would reduce CIT’s debt by $10 billion and which could result in the company emerging from bankruptcy protection by 12/31 if all goes well. The U.S. government, which injected $2.3 billion into the company last year in exchange for preferred shares, will likely get nothing, since common and preferred stock would be wiped out as a result of the filing. CIT listed assets and liabilities of $71 billion and $65 billion respectively in its filing, making it the fifth-largest bankruptcy filing in U.S. corporate history.

Freedom Communications Holdings Inc., the bankrupt owner of 30 daily newspapers and 8 television stations which filed its plan of reorganization on Saturday, reported the plan would give lenders, who hold $770 million in debt ,ownership of the company in exchange for reducing its debt to $325 million. The court must first approve Freedom’s disclosure statement before it can solicit votes.

Greektown Casino saw the confirmation hearings on its bankruptcy exit plan postponed a couple of days.  At dispute is how the bankrupt firm was valued.  Pre-petition lenders put the value at $540 million and would own the firm once it emerges from Chapter 11.  Bondholders however place the value at closer to $600 million.  The latter value would allow bondholders, who are owed $180 million, to get some payout.

Six Flags Inc., the New York amusement park firm which operates twenty parks throughout North America and which filed Chapter 11 in June under case number 09-12019, reported third quarter earnings declined 11%–to $210 million, on a 7% revenue decline–to $457 million.  The results reflect both a decline in attendance and per capita spending.  The company ended the quarter with unrestricted cash of $262 million to help pay administrative claims and other approved pre-petition claims.

Station Casinos Inc. in Las Vegas, Nv. has seen Boyd Gaming Corp. ask the U.S. Bankruptcy Court for permission to see its financial records. The move by Boyd is in response to Station’s recent request for additional time to file its reorganization plan. Last winter Boyd presented a nonbinding $950 million offer for part of Station but Station has pursued its own reorganization rather than a sale of the company.