turnarounds Inside workouts News for People Tracking Distressed Businesses

June 2012 Volume 26, Number 6 Latest Reports: Marco Polo! • Court Ruling Broadens Foreign Companies Qualify for Chapter 11 Says Court Foreign Company Qualifica- by Julie Schaeffer tion for Chapter 11 According to a recent court decision, having even very limited property in the United • Caribbean Petroleum States qualifies a company for Chapter 11 reorganization. That’s good news for foreign Disaster Triggers Court Battles companies, but bad news for creditors, who may find debtors protecting themselves with Chapter 11’s automatic worldwide stay. • Hotel Restructurings Pose Netherlands-based Marco Polo Seatrade B.V. (MPS) owns and operates six ocean- Unique Challenges going tanker ships. Its principal financing consisted of two facilities, both secured by mortgages on the ships: $90 million with Crédit Agricole as agent, and $118 million with Royal Bank of Scotland RBS as agent. In July 2011, MPS and three of its entities filed Research Report: for Chapter 11 in the U.S. Court for the Southern District of New York. In Who’s Who in continued on page 2 Brands, Inc. Caribbean Petroleum Salvage Job Restructuring Attorneys Prevail for Stakeholders Special Report: by Dave Buzzell Bankruptcy Tax This is the first of a two-part article. Specialists in the Nation’s In the early morning hours of October 23, 2009, eleven huge fuel storage tanks at an Major Law Firms oil refinery and depot in Bayamon, Puerto Rico, exploded into a fireball more than 100 feet high. The explosions incinerated much of the facility and shook the surrounding Worth Reading: area with a force equivalent to a 2.8 magnitude earthquake. The cause of the explosions remains the subject of ongoing federal and local investigations. Corporate Recovery: The Bayamon facility was not the only thing that was destroyed. Its owner, Caribbean Managing Companies in Petroleum Corporation, was, for all intents and purposes, also leveled. The disaster brought Distress continued on page 2 Special Report: Hotel Restructurings U.S. Turnaround and More Stakeholders, More Complexity Restructuring Firms with by Julie Schaeffer European Offices Florida-based Innkeepers USA Trust has emerged from Chapter 11 bankruptcy with the $1.02 billion sale of its 64 hotels to a joint venture between Cerberus Capital Management LP and Chatham Lodging – a transaction that its restructuring advisors say was relatively seamless given the complexity of hotel restructurings. “What’s unique about restructuring in the hotel space is that you often have three separate stakeholders,” explains Jeff Goldberg, a director at AlixPartners. “It’s common to have an owner and a hotel manager, and in many cases you also have a separate brand manager. The hotel manager and the brand manager have a big stake in what happens, but they aren’t really creditors, so that leads to an unusual dynamic.” continued on page 2 2 Turnarounds & Workouts June 2012

Marco Polo, from page 1 Caribbean, from page 1 Hotels, from page 1 response, both Crédit Agricole and RBS the company’s operations to a standstill. New York middle-market debt filed motions seeking dismissal of MPS’s FTI Consulting was brought in as investor Apollo Investment Corp. bought Chapter 11. crisis manager and CRO, and in August Innkeepers, which had nearly 10,000 The U.S. Bankruptcy Code clearly 2010, Caribbean Petroleum had filed for rooms at the height of the market in June states that “only a person that resides Chapter 11 in Delaware. Now, about two 2007, for $1.5 billion and invested about or has a domicile, a place of business, years later, an orderly liquidation under $250 million in improvements. As the or property in the United States, or a a fully-consensual Chapter 11 plan is in economy slowed, however, Innkeepers, municipality, may be a debtor under this advanced stages. along with the entire lodging industry, title.” Caribbean Petroleum was integral to experienced declines in occupancy rates. However, foreign companies have, Puerto Rico’s economy. The company Ultimately, Innkeepers filed for Chapter in the past, successfully used Chapter owned a very large pipeline to receive 11 on July 19, 2010, blaming its problems 11. One example is the Dutch company shipments of petroleum at its dock. From on debt that had become unmanageable Almatis, which consisted of operating there, pipelines transported the fuel to more in the wake of the economic downturn. companies located in the Netherlands, than 40 storage tanks. The storage tanks A year after its filing, the hotel emerged the United States, and other non-U.S. were used to supply customers like the from bankruptcy with a tremendous jurisdictions, including Germany, India, Puerto Rico airport and the Puerto Rico outcome for secured creditors, unsecured and China. It successfully restructured Electric Power Authority. The company creditors, hotel managers, brand managers, under Chapter 11 in 2010. also had a network of owned and leased gas employees, and guests. The reason, says Filing in the United States is attractive stations around Puerto Rico, making it a Goldberg, is a solid understanding of the to foreign companies because of favorable closely integrated and profitable business. hotel restructuring business by all parties differences between bankruptcy laws in Cadwalader, Wickersham & Taft was involved in the deal. the United States and abroad, particularly hired as lead counsel for the debtor. One complicating factor in hotel in Europe. Zachary Smith was one of the principal restructurings, says Goldberg, is that Unlike the U.S. Bankruptcy Code, attorneys assigned to the case. It was they often encompass multiple properties. which emphasizes reorganization and immediately apparent to the Cadwalader Some restructurings are single-asset rehabilitation of financially distressed team, working closely with FTI, that deals in which an investor owns a single companies, European bankruptcy laws the company was facing more than just property. Others, however, are portfolio focus primarily on liquidation and the the dire consequences of the explosion. deals wherein an investor owns 30 to 50 protection of secured creditors’ rights. “It was a perfect storm,” Smith says. properties. “Generally you are looking at a process “Not only was the company essentially “When you think about the dynamic that is fairly value destructive,” says nonoperational, the secured debt owed that three stakeholders – owners, hotel James Roome, of European bankruptcy. to its primary lender – Banco Popular de managers, and brand managers – play in a Roome is managing partner of Bingham’s Puerto Rico – was in default. The bank single-entity restructuring, it’s easy to see London office and co-chair of the firm’s held a lien on substantially all of the how it gets even more complicated when global financial restructuring group. company’s assets. There was minimal you’re dealing with a larger portfolio,” says “In the United States, there is a Chapter cash flow, and it was impossible to find Goldberg. “You may have multiple hotel 11 process for the reorganization of any lender willing to commit sufficient managers and you’re probably representing companies that provides for an in-court capital to rehabilitate the company.” all of the major brands, such as Marriott, mechanism where management remains Given these insurmountable problems, Hilton, Hyatt, and Starwood. That’s where in control. In Europe, there has been it became clear that a Section 363 sale was the real complexity comes in.” a long tradition of treating insolvency the most prudent course of action. The That dynamic creates confusion when and corporate distress as a crime, and company urgently needed DIP financing. it comes to creditors. “The trade or consequently the incentives against Already “liened up,” it made the most traditional creditors you consider in a getting into that process are very strong.” sense to obtain the financing from one restructuring aren’t a big factor in a hotel Crédit Agricole and RBS argued that of its existing lenders. As a condition of restructuring because most of the supplies MPS’s bankruptcy did not belong in providing the financing, Banco Popular you’re getting are short-term trade credit,” a U.S. bankruptcy court, as there was required, and the parties agreed, upon an says Todd Brents, a managing director at insufficient basis for jurisdiction. expedited 363 sale and plan processes. AlixPartners. “However, the challenge is The creditors asserted that MPS was With the company pursuing a swift to figure out who they’re creditors of – the foreign and had no sufficient nexus with sale of substantially all of its assets, a owner or the hotel manager?” the United States. creditors’ committee was appointed, “Managers generally push for the They also alleged that MPS filed for represented by Morrison Foerster. Todd trade creditors to be considered the Chapter 11 only to take advantage of the Goren, a partner at the firm, handled responsibility of the owner,” adds automatic stay. MPS wanted, the creditors many of the day-to-day affairs in the Goldberg. “You get a lot of incoming argued, to wait for better times in the case. Goren was confronted with a calls from vendors, even before a filing to shipping industry under the protection of company so damaged that it was highly ask what’s going on. It’s very important, the automatic stay. uncertain that unsecured creditors would if Chapter 11 is filed, that any kind of Finally, Crédit Agricole and RBS receive anything, even though Caribbean cash collateral motion addresses the continued on page 4 continued on page 4 continued on page 4 June 2012 Turnarounds & Workouts 3 Research Report Who’s Who in , Inc. by Francoise C. Arsenault

Hostess Brands, Inc. (Hostess) was The previous week, the bankruptcy judge as the Hostess CEO, President, and CRO. founded in 1930 in Kansas City and is had approved the company’s request to Perella Weinberg Partners LP is the today one of the largest wholesale bakers reject certain union contracts and to modify investment banker to Hostess. Joshua and distributors of fresh-baked bread and some of its retiree benefits. S. Scherer and Michael A. Kramer, sweet goods in the United States, with sales The Debtor partners, are working on the engagement. of approximately $2.5 billion in 2011. The Gregory F. Rayburn is the Chief KPMG LLP is providing tax company, which is headquartered in Irving, Executive Officer, President, and Chief compliance, tax consulting, and auditing Texas and privately held, sells an array of Restructuring Officer of Hostess Brands. services to Hostess. Kevin Kaufman, an popular products under the trademarked Steve Birgfeld is Senior Vice President of audit partner in the firm’s Kansas City brands Butternut, Ding Dongs, Dolly Information Technology. John O. Stewart office, directs the work. Madison, Drakes, Home Pride, , is Executive Vice President and the Chief Sitrick and Company is serving as Hostess, Merita, Nature’s Pride, , Financial Officer. the communications advisor to Hostess. and Wonder. Hostess operates 36 bakeries, Jones Day is serving as the bankruptcy The engagement is led by Anita-Marie 565 distribution centers, approximately counsel to Hostess. The Jones Day team Laurie, head of the firm’s West Coast 5,550 delivery routes, and 570 bakery includes Corinne Ball, Heather Lennox, restructuring practice. outlet stores throughout the United States. Lisa G. Laukitis, and Veerle Roovers, The Official Committee of Unsecured The company delivers its baked goods partners in the New York office, Ryan Creditors to supermarkets, convenience stores, T. Routh, a partner in the Cleveland The Committee includes the Bakery and mass marketers. Hostess, which was office, Todd S. Swatsler, a partner in & Confectionery Union & Industry acquired by the New York investment firm the Columbus office, Thomas F. Cullen, International Pension Fund; Central Ripplewood Holdings after emerging Jr. and Evan Miller, partners in the States, Southeast & Southwest Areas from its first bankruptcy in 2009, has Washington, D.C. office, and Robert W. Pension Fund; Interstate Brands approximately 18,500 employees. About 80 Hamilton, of counsel. Corporation-International Brotherhood percent of the employees belong to a dozen Stinson Morrison Hecker LLP is of Teamsters National Negotiating separate unions. acting as general corporate and conflicts Committee; NYS Teamsters Benefit Hostess and five of its subsidiaries filed counsel to Hostess. Working on the case Funds; Stationary Engineers Union, for Chapter 11 reorganization in the United are Paul F. Hoffmann, Mark A. Shaiken, Local 39; I.A.M. National Pension States Bankruptcy Court for the Southern David R. Tripp, Thomas R. Brous, James Fund; Caravan Ingredients Inc.; Bakery, District of New York on January 11, 2012. W. Allen, Douglas Y. Curran, Scott C. Confectionery, Tobacco Workers & In the Chapter 11 petition, Hostess officials Hecht, Sharon L. Stolte, and Stephen Grain Millers International Union; stated that the company could no longer J. Cosentino, partners in the Kansas and the New England Teamsters and remain competitive because of legacy City office, and Katie Sutcliffe Becker, Trucking Industry Pension Fund. pension and medical benefit obligations a partner in the Washington, D.C. office. Kramer Levin Naftalis & Frankel and restrictive work rules. Hostess had Venable LLP is special employee LLP is serving as counsel to the Committee. suspended payments for its union pensions benefits counsel to Hostess. Frederick Thomas Moers Mayer, Philip Bentley, in December 2011, and was struggling to W.H. Carter, of counsel, and Kenneth R. Kenneth H. Eckstein, P. Bradley O’Neill, remain current on a $700 million loan. As Hoffman, Robert G. Ames, and Lisa A. and Joshua K. Brody, partners with the of December 10, the company reported Tavares, partners, are working on the case. firm, are working on the case. assets of about $982 million and liabilities FTI Consulting is providing Hostess The law firm of Curtis, Mallet- of approximately $1.4 billion. Hostess with financial advisory services and Prevost, Colt & Mosle LLP is acting received court approval to access up to $75 reorganization staff. The FTI team includes as conflicts counsel to the Committee. million in DIP financing from a group of David Rush, a senior managing director Steven J. Reisman and Michael A. lenders led by Silver Point Finance, LLC serving as interim Treasurer for Hostess, Cohen, partners, direct the work. and Monarch Alternative Capital. J. Robert Medlin, a senior managing Blackstone Advisory Partners L.P. By a May 9 deadline, private equity director and engagement team lead, is the financial advisor to the Committee. firm KPS Capital Partners and at least one Charles W. Carroll, a senior managing Michael Genereaux, a senior managing other bidder had reportedly made offers in director, Walter L. Brown, a managing director, leads the engagement. the range of $500 million to $600 million director, and Lawrence Manning and The Trustee to purchase the company. On May 14, the Robert Molina, directors. The U.S. Trustee is Tracy Hope Davis. bankruptcy judge denied the company’s Kobi Partners LLC is acting as the The Judge motion to reject all of its Teamster labor restructuring advisor to Hostess. Gregory The judge is the Honorable Robert contracts covering about 7,500 employees. F. Rayburn, a managing partner, is serving D. Drain. ¤ 4 Turnarounds & Workouts June 2012

Marco Polo, from page 2 the Netherlands, MPS argued, proceedings would de facto result in liquidation, which argued that the Netherlands’ courts was not in the interest of the company or were available to MPS and were a more its creditors. On the other hand, filing in appropriate venue for hearing the matter. the United States would maintain U.S. In response, MPS countered that it had employment, revenues, and taxes, since satisfied the requirements for jurisdiction MPS ships sailed to the United States. Calendar in the United States, as it had property and The official committee of unsecured a place of business in the Southern District creditors supported MPS on the same American Bankruptcy Institute of New York. grounds – emphasizing that “American Southeast Bankruptcy Workshop As to U.S. property, MPS cited case law bankruptcy is working for creditors.” July 14 – 17, 2012 in which courts have required only nominal The bankruptcy court agreed, with Judge The Ritz-Carlton Amelia Island amounts of property to be located in the James M. Peck dismissing the motions of Amelia Island, FL United States. That nominal property, MPS Crédit Agricole and RBS in October 2011. Contact: www.abiworld.org said, was nearly $1 million held in a New Peck did not think that the fact that MPS had an agent and mortgages in New York York bank, a $250,000 retainer with U.S. National Association of bankruptcy counsel, and mortgages on were sufficient as a basis for jurisdiction in Bankruptcy Trustees ships that were established and registered a U.S. bankruptcy court. However, he did 2012 Annual Convention in New York. note that $1 million held in a New York September 5 – 9, 2012 To assert a U.S. place of business, MPS bank and a $250,000 retainer with U.S. The Broadmoor companies pointed to the fact that they bankruptcy counsel met the requirements Colorado Springs, CO had an agent in New York through which for jurisdiction. Contact: www.nabt.com they conducted business (the operator of a “Judge Peck clarified that the size of shipping pool). the property held by the debtor in the American Bankruptcy Institute MPS contested the creditors’ argument United States was not relevant,” says Ruud 20th Annual Southwest Bankruptcy that they had only filed Chapter 11 to benefit Hermans, who heads De Brauw Blackstone Conference from the protection of the automatic stay, Westbroek’s corporate litigation practice in September 13 – 15, 2012 claiming that it truly wanted to reorganize. Amsterdam. “It only matters whether or not Four Seasons Las Vegas Finally, MPS countered the banks’ the property is located in the United States.” Las Vegas, NV argument that the Netherlands would be a Judge Peck then explained that a Chapter Contact: www.abiworld.org better venue by pointing out some of the National Conference of flaws of Dutch bankruptcy laws. By filing in continued on page 6 Bankruptcy Judges 86th Annual Conference October 24 – 27, 2012 Chapter 11 cases. The ensuing consequences Caribbean, from page 2 San Diego, CA of the explosions – community evacuations, Contact: www.ncbj.org Petroleum had at one time been Puerto environmental contamination, operational Rico’s leading petroleum importer, with disruptions, local and federal investigations, Turnaround Management a value in excess of $500 million. “When and a slew of tort claims among them – all Association we entered the case, it appeared that all added to the difficulties of the case. The 2012 Annual Convention of the debtor assets were subject to liens. EPA alone initially imposed penalties and November 1 – 3, 2012 It wasn’t clear that there were free assets cleanup costs that were well in excess of Westin Copley Place available to satisfy unsecured creditors,” the company’s liquidation value, making Boston, MA says Goren. the prospect of an orderly (much less Contact: www.turnaround.org Caribbean Petroleum presented several other challenges not normally found in continued on page 8 Beard Group 19th Annual Conference on Distressed Investing November 26, 2012 Hotels, from page 2 partnerships are structured as franchises, so you have a deal with a brand to operate under The Helmsley Park Lane Hotel trade creditors, because it’s typically its brand name, and brands are very careful New York, NY in everyone’s interest to keep the hotel to protect customer perception of their brand, Contact: (240) 629-3300 operating on a business-as-usual basis.” including how the property looks and even Turnaround Management Goldberg and Brents add that another how guests are treated,” says Brents. Association level of complexity can arise because of Goldberg and Brents say it’s important TMA Spring Conference the brand manager. For example, hotels that when restructuring a hotel to understand April 10 – 12, 2013 are undergoing restructurings have often what rights the managers have. “It’s fairly JW Marriott Chicago been in distress for some time, and capital typical for hotels to sign subordination Chicago, IL expenditures have been neglected. As a agreements so creditors can more or less Contact: www.turnaround.org result, the brand manager can require capital spending as part of a restructuring. “Hotel continued on page 8 ¤ June 2012 Turnarounds & Workouts 5 Special Report Bankruptcy Tax Specialists in the Nation’s Major Law Firms

Firm Bankruptcy Senior Bankruptcy Tax Partners Recent Representative Clients Tax Attyn.

Akin Gump Strauss Hauer & Feld 10 Howard Jacobson Dan Micciche Creditors’ committees in Washington Mutual, Nortel Networks, New York, NY Patrick Fenn Robin Schacter TOUSA, Dynegy, Kodak, Ambac, Quiznos, Evergreen Solar, St. (212) 872-1000 Stuart Leblang Thomas Weir Vincents, Catalyst Paper. Debtors in Inner City Broadcasting, American www.akingump.com Doug Killip Media, TerreStar, Trident, Edge Petroleum, and Foothills Resources.

Andrews Kurth 25 Andrew Feiner (New York) FairPoint Communications (creditors’ committee), Cibro Terminals, Houston, TX Thomas Ford, Jr. (Houston) Inc., Six Flags Entertainment Corporation. (713) 220-4200 Thomas R. Popplewell (Dallas) www.andrewskurth.com

Bracewell & Giuliani 4 Lance Behnke James Reardon Mohegan Sun (creditors), Foxwoods (creditors), Beacon Power Houston, TX Elizabeth McGinley (asset purchaser), Marco Polo Seatrade (debtor), Omega Navigation (713) 223-2300 Enterprises, Inc. (debtor), Centro Properties Group (creditors). www.bgllp.com

Cadwalader, Wickersham & Taft 21 Linda Z. Swartz David S. Miller US Bank (Dynegy), Yucaipa (Inner City Media), Whippoorwill and Edge New York, NY Adam Blakemore Richard M. Nugent Asset (Trailer Bridge), noteholders (AES), LyondellBasell, Xerium, (212) 504-6000 Mark P. Howe Gary T. Silverstein Caribbean Petroleum, US Treasury (CIT, GM, Chrysler), Icahn Global www.cadwalader.com (Blockbuster), JPM (Centro Properties and Station Casinos).

Davis Polk & Wardwell 13 Samuel Dimon Rachel D. Kleinberg Cantor Fitzgerald in Sbarro, Citigroup in Eastman Kodak, J.P. Morgan New York, NY Kathleen L. Ferrell Neil Barr in Tribune, C-BASS and A&P, Lehman Brothers International (212) 450-4000 Michael Mollerus (Europe), NY Fed and U.S. Treasury in AIG. www.davispolk.com

Debevoise & Plimpton 10 Andrew N. Berg Vadim Mahmoudov American Airlines, Inc., Culligan Ltd., Sea Island Acquisition, LLC, New York, NY Gary M. Friedman Burt Rosen (Oaktree Capital Management, L.P., Avenue Capital Group, The (212) 909-6000 Peter A. Furci David H. Schnabel Anschutz Corporation and Starwood Capital Group), Oriental Trading www.debevoise.com Company, Syncora Holdings Ltd.

Gibson, Dunn & Crutcher 16 David Rosenauer Art Pasternak Bahrain-based Arcapita Bank in cross-border Chapter 11 filing, TBS New York, NY Paul Issler David Sinak International Limited, Ambassadors International, Wilmington Trust (212) 351-4000 Jeffrey Trinklein Dora Arash in connection with GM bankruptcy, new equity investors in connection www.gibsondunn.com with restructuring of Trident Resources, major creditor of Solyndra.

Kirkland & Ellis 20 Todd Maynes Steven Clemens A&P, MSR Resort Golf Course, Innkeepers USA Trust, Global Aviation, Chicago, IL Gregory Gallagher Thomas Evans Hawker Beechcraft, Local Insight Media, United Retail Group, (312) 862-2000 Tronox, Chemtura, Visteon, Corus Bankshares, Hawaiian Telcom www.kirkland.com Communications, Financial Guaranty Insurance Company.

Kramer Levin Naftalis & Frankel 7 Barry Herzog Maria T. Jones General Maritime Corporation (debtor), St. Vincents (debtor), New York, NY Howard J. Rothman American Airlines (bondholders), Dewey Leboeuf (banks), and (212) 715-9100 Capmark Financial Group (creditors’ committee). www.kramerlevin.com

Morrison & Foerster 9 Thomas A. Humphreys Stephen Feldman Official creditors’ committee – Ambac, official creditors’ committee – New York, NY Robert A.N. Cudd Rèmmelt Reigersmen FGIC, official creditors' committee – PMI, debtor’s counsel – ResCap. (212) 468-8000 www.mofo.com

Perkins Coie 35 Rich Peterson Daniel Zazove Creditors’ committee of Perpetua-Burr Oak Holdings of Illinois, et al, Seattle, WA Carl Crow Kenneth Crane Gas City, trustee for Longview Aluminum, Pasquinelli, Gino’s East (206) 359-8000 Bryan Smith Stephen Raher Home, Waldorf-Astoria Management (Hilton), The Harp Group, Intel, www.perkinscoie.com Boeing, CWCapital Asset Management, U.S. Bank, SNMP.

Sidley Austin 12 Suresh T. Advani Ivy H. Jones Ambac Assurance Corporation, Blackrock, Drawbridge, Dynegy New York, NY Laura M. Barzilai David C. Miller Holdings, LLC, Fortress, Meridian, Merisant, MI Developments, (212) 839-5300 Northstar, Pliant, RH Donnelley, Smurfit-Stone, Station Casinos, Inc. www.sidley.com (senior lenders), Tribune, WestLB AG.

Skadden, Arps, Slate, Meagher & Flom 39 Michael Beinus Moshe Kushman American Airlines unsecured cred. comm., Capital Trust, Centro New York, NY Kenneth Betts André LeDuc Properties, Paul Allen and Vulcan (principal shareholder of Charter (212) 735-3000 Katherine Bristor David Levy Communications), CIT Group, Delphi, Delta Petroleum (for Zell Credit skadden.com Stuart Finkelstein Maxwell Miller Opportunities Master Fund), Hartmarx, Interstate Bakeries, Jackson Cliff Gross David Rievman Hewitt, Mark IV Industries/Dayco Products, MGM.

Squire Sanders 10 Alan S. Doris Eliot L. Kaplan AmFin Financial (debtor), Coyotes Holdings (debtor), EuroFresh New York, NY James D. Gray (debtor), Fulton Homes (debtor), Mercedes Homes (debtor), Rubicon (212) 872-9800 US REIT (debtor), Station Casinos (debtor/special board committee www.squiresanders.com counsel), US Bank, Comerica Bank.

Weil, Gotshal & Manges 20 Larry Gelbfish Stuart Goldring AES Eastern Energy, AMR Corp., Aquilex (major shareholder), FGIC New York, NY Mark Hoenig William Horton (NY agency), LightSquared (major shareholder), Lehman Brothers (212) 310-8007 Martin Pollack Stanley Ramsay Holdings, Washington Mutual Liquidating Trust, Advanta Corp., AIG, www.weil.com Marc Silberberg Jared Rusman Blockbuster, BP Clothing (creditor), Dallas Stars, Deb Shops, General Robert Frastai Scott Sontag Motors, General Growth Properties, New York Racing Association. ¤ 6 Turnarounds & Workouts June 2012

Marco Polo, from page 4

11 case can be dismissed only if one of two conditions are met: (1) the interests of creditors and the debtor would be better served by such dismissal or suspension, or (2) a petition under section 1515 for Worth Reading recognition of a foreign proceeding has been granted and the purposes of Corporate Recovery: Managing Companies in Distress Chapter 15 would be best served by such Author: Stuart Slatter and David Lovett dismissal or suspension. Publisher: Beard Books With regard to the first condition, Peck Softcover: 352 pages noted that Crédit Agricole and RBS had List Price: $34.95 failed to demonstrate that the interests of all of MPS’s creditors would be better According to the authors, “turnaround management is everyday management.” served by dismissal of the Chapter 11. There are no miraculous remedies for bringing a company out of its troubles; no With regard to the second condition, Peck formulas to apply that will guarantee recovery. Management has to be alert and flexible noted that no foreign proceeding with to adapt to ever-changing business conditions both outside and within a company. respect to MPS was pending. Although turnaround management (or “crisis management” as the authors also call According to Hermans, MPS makes it) is often regarded as a specialized type of management or a gifted set of management clear that Chapter 11 is available to skills, the authors argue that any good manager should have the skills to be able to foreign companies. “Cases filed by move his or her company toward recovery. Managers often fail because they do not foreign companies will not easily be recognize or acknowledge the warning signs of a crisis, not because they lacked the dismissed by a U.S. bankruptcy court, at relevant management skills. least not the court in the Southern District Corporate Recovery does not teach managers how to become “crisis managers.” of New York, because a debtor lacks While the book does provide guidance on what management skills are required if a sufficient nexus with the United States company slips into a crisis, for the most part the authors take a broader view. Crisis or filed its case to defend itself from management involves applying traditional management techniques in an environment creditor enforcement actions without, at where the patient is seriously ill, both cash and time are in short supply, and rapid that point, a viable reorganization plan,” recovery is required. The authors suggest that these same skills are necessary when a he says. company has been acquired and is inevitably undergoing some changes, improvement That’s good or bad, depending on of short-time financial performance is sought, and a company is trying to head off a whom you are. “For banks and other crisis rather than pull itself out of one. creditors, the MPS case may lead to Slatter and Lovett give attention to both external and internal factors and their the somewhat startling conclusion that interrelationship. The reader is taken chapter by chapter through all of the stages debtors may effectively prevent, stop, of distress in a company, from early warning signs through pervasive problems to or at least delay enforcements and other moving onto solid ground and emerging from a turnaround. The book does not offer recourse actions against a debtor’s assets merely an academic analysis of the distinguishing factors of each stage. The authors by filing Chapter 11 cases in the United provide relevant, effective action for each stage of distress. Different stages require States, no matter where the debtor is different actions. Under circumstances of distress, the enthusiasm and morale that are domiciled, regardless of whether it has signs of a healthy company in normal times cannot fix the causes of the problems. any significant ties with the United Ordinary leadership skills such as setting a good example and inspiring loyalty will States,” says Hermans. not effect a turnaround. Fundamentally to a successful turnaround are the actions Hermans notes that, as Judge Peck’s taken by a company’s key decisionmakers. Only they are in a position to make the judgment has made clear, abstract forum crucial decisions that can bring an organization out of distress. non conveniens type arguments will not Corporate Recovery is an incomparable guide for managers of companies in work to get a Chapter 11 case off the distress. The book brings clarity to what is often a clouded, disturbing, and stressful table. situation, even for the most experienced decisionmakers. This book can help an “A creditor seeking dismissal of a organization’s decisionmakers ward off or minimize hazards to its well being. For ones Chapter 11 case filed by its non-U.S. who find themselves already in worrisome crisis situations, it can be an invaluable debtor will, if it truly believes that its handbook, no matter what stage of the crisis. interests are better served by proceedings in the debtor’s home jurisdiction or Slatter is founding member of the Society of Turnaround Professionals. He has elsewhere, actually have to commence worked with corporations on turnarounds and provides training for managers and such proceedings,” says Hermans. executives. Lovett has extensive experience in turnarounds, helping companies improve “If successful, the creditor can seek their operations and financial performance and restore or increase corporate value. ¤ recognition of such proceedings pursuant to Chapter 15 of the U.S. Bankruptcy This book may be ordered by calling 888-563-4573 or by visiting www.beardbooks.com. This Code and subsequently suspension or book and other Beard books are also now available in digital format at a discounted price from dismissal of the pending Chapter 11 case Google Books at books.google.com. based on 11 U.S.C. § 305(a).” ¤ June 2012 Turnarounds & Workouts 7 Special Report

U.S. Turnaround and Restructuring Firms With European Offices

Firm Senior Professionals Representative Clients AlixPartners Michael Baur David Lovett Drydocks World, Nuova Pansac, Bluewater Holdings, London Eugenio Berenga Luca Ramella Appliance Components Companies, Bard Holdings, Welcome Tel. 44 20 7098 7400 Don Featherstone Axel Schulte Financial services, Viking Moorings, Dinosol Supermercados, www.alixpartners.com Jan Kantowsky Stephen Taylor Piaggio Aero Industries, Government of Dubai’s Department of Finance, Bianchi Vending, Selcom Elettronica.

Alvarez & Marsal Europe Antonio M. Alvarez III Just Spee CEO for Lehman Brothers Holdings, Silent Night, and London Peter Briggs Shepard C. Spink Mosmart. Chairman & CEO of European Directories, SA. Tel. 44 20 7715 5200 Stefaan Vansteenkiste Walter Bickel CEO and CFO of Sport 2000. CRO for Wind Hellas. CFO for www.alvarezandmarsal.com Ann Cairns Adriano Bianchi Endemol. Chief restructuring advisor to European Gas, Ltd. Mike Corner-Jones Gerald Corbae Advisor to Seat Pagine Gialle. Plus a wide variety of advisory Malcolm McKenzie Thomas Kolaja and due diligence cases across Europe. Scott Pinfield

BDO Shay Bannon Dermot Power Lenders, banks, asset-based lenders, lawyers, accountants, London Mark Shaw private equity, HMRC, pension trustees, credit insurers, Tel. 44 (0)20 7486 5888 shareholders, turnaround directors, other stakeholders. www.bdo.co.uk

Deloitte Timothy Mahapatra David Stark Lenders, private equity, corporates, bondholders, trustees, London William Dawson government, and public sector. Tel. 44 20 7936 3000 www.deloitte.com

FTI Consulting Kevin Hewitt Stephan Happe €1.7bn turnover business with manufacturing and financial London Mark Dewar Paul Inglis services operations across Europe, leading UK recycling, Tel: +4 20 3077 0500 Phillip Feibusch David Morris waste management. and energy recovery company, global www.fticonsulting.com Aurelio Garcia-Miro Sergio Velez manufacturer and distributor of packaged goods, global Simon Granger hotels group, adviser to Chapter 11 trustee of global financial derivatives broker on all UK and intl. matters, UK pub group with 6,500 pubs and £3bn securitised debt, government asset management agency created in response to Irish financial crisis.

Grant Thornton Mark Byers James Earp Banks and financial institutions, bondholders, corporates, London Andrew Conquest Martin Ellis hedge funds, private equity houses. Tel. 44 20 7383 5100 Sean Croston Andrew Hosking www.grant-thornton.co.uk David Dunckley

Houlihan Lokey Howard & Joseph Swanson (UK) Charter Communications, CIT Group Inc., General Motors. Zukin (Europe) Peter Marshall (UK) From Europe: Truvo, Panrico, BorsodChem, KCA Deutag, London Ansgar Zwick (Germany) CMA CGM, Frans Bonhomme & AfriSam (South Africa) Pty Tel. 44 20 7839 3355 Limited. From the U.S.: Lehman Brothers, Capmark, Centro, www.hl.com Trico Marine.

Huron Consulting Group John Mansell Works across industries including: automotive, printing, London chemical, biotech, manufacturing. Tel. 44 203 100 6941 www.huronconsultinggroup.com

KPMG Philip Davidson Angel Martin Torres Lenders, stakeholders, corporates, private equity, hedge funds, London Richard Fleming Klaas Wagenaar public sector. Tel. 44 20 7311 1000 Tammo Andersch www.kpmg.com

Zolfo Cooper Alastair Beveridge Gary Squires Corporates, clearing banks, investment banks, private equity, London Simon Appell Peter Saville hedge funds, asset based lenders, law firms, pensions trustees, Tel. 44 (0) 20 7332 5000 Simon Freakley Simon Longfield government and public sector. www.zolfocooper.eu Paul Hemming Anne-Marie Laing ¤ 8 Turnarounds & Workouts June 2012

Caribbean, from page 4 that Puerto Rico was where the explosions not dispositive; the court looked at occurred and, in the interest of justice what was in the best interests of the consensual) liquidation a remote possibility. and the convenience of the parties, the estate and creditors.” Cadwalader The Cadwalader team was tasked with case should be heard there. Cadwalader prevailed in its argument. addressing the enormous number of tort countered that moving jurisdiction to Puerto Many hurdles still remained before claims, most of which were filed in Puerto Rico would make it difficult to administer an expedited Section 363 sale could Rico, although Caribbean Petroleum filed the case in an orderly manner in light of commence and an agreement reached for bankruptcy in the District of Delaware. the facts of the case. “We argued that on the liquidation plan. Part 2 of “Tort litigation commenced the day after the this is really a restructuring at this point,” the article, which will appear in the explosion occurred,” says Smith. recounts Smith. “We explained to the court July/August issue of Turnarounds Cadwalader also had to fend off an that this case is likely going to involve a & Workouts, looks at Cadwalader’s effort to move the case from Delaware to complex and relatively expedited 363 sale battle with Caribbean Petroleum’s Puerto Rico. The Puerto Rico Treasury administered primarily by professionals network of gas station operators and Department (Departamento de Hacienda based in the Northeast. The fact that the Morrison & Foerster’s search for de Puerto Rico or “Hacienda”) argued explosions took place in Puerto Rico was assets for unsecured creditors. ¤

Hotels, from page 4 third of Innkeepers’ portfolio. Working may be whether real estate mortgage with trade creditors was also a challenge investment conduits (REMIC) effect a restructuring over the managers, but because they didn’t get paid in the ordinary certificate holders have standing that’s not always the case,” says Goldberg. course of business. They had to wait until to be heard in Chapter 11 cases. “So you have to go through the operating the end of the restructuring (at which time REMICs are essentially investment agreement and determine what rights a substantial majority of them got more vehicles that assemble mortgages managers have. Termination payments than 90 percent of what they were due). into pools and issue certificates might be available, for example.” “But it was a seamless transition from the representing an interest in these A hotel restructuring can involve a lot employee and guest side,” notes Brents. “All mortgages. of hand holding as well. “The restructuring employees remained in place and guests did Until Innkeepers, no bankruptcy professional’s relationship with the manager, not perceive that anything was amiss.” At court had directly addressed whether particularly when it’s an independent the time of its emergence from bankruptcy REMIC certificate holders have manager, is critical,” says Goldberg. “The in October 2011, Innkeepers was on track to standing to be heard in Chapter manager controls hotel-level information, meet its 2011 budget. 11 cases as parties in interest. In so when you’re trying to gather hotel Goldberg says he expects to see more hotel Innkeepers, however, the United contracts or get information about accounts restructurings. “If you look back at 2006 and States Bankruptcy Court for the payable, you need to work closely with the 2007, you’ll see those were peak years in Southern District of New York manager to do that, and many times that’s the commercial mortgage-backed security ruled that certificate holders in the difficult, as there are lots of unknowns for (CMBS) market. Most hotels were financed two REMICs that owned the largest the manager. They don’t know if they’ll lose in the floating rate CMBS market, which has of Innkeepers’ prepetition loans the management contract.” predominantly become a five-year market,” did not have standing to object to Many of these complexities were at he says. “As a result, for the past year or two Innkeepers’ entry into a plan sponsor play in the Innkeepers restructuring, say we’ve been seeing a wave of restructurings. stalking horse agreement. Goldberg and Brents. The hotels, which There’s been some amend and pretend, but It’s a big deal, says James were managed by an independent manager, these deals are reaching their CMBS natural Sprayregen, a restructuring partner at covered all major brands, which required life, so something has to happen.” Kirkland & Ellis LLP, and Innkeepers’ a $70 million renovation that affected a An issue to watch in these restructurings lead restructuring counsel, given the potential upcoming wave of maturity defaults in the $3.5 trillion In the Next Issue… commercial real estate market. He • Special Report: Canadian Bankruptcy Law Firms says the Innkeepers opinion may also extend to investors in other • Special Report: Outstanding Investment Bankers – 2012 asset-backed securities. “Time will dictate the appropriate scope of this • Research Report: Who’s Who in Residential Capital LLC groundbreaking decision,” he says. ¤

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