turnarounds Inside workouts News for People Tracking Distressed Businesses

JULY/AUGUST 2011 VOLUME 25, NUMBER 7 Latest Reports: L.A. Dodgers in Bankruptcy • Bankruptcy Ball Game: L.A. Team’s Filing Could Play Out Like Bad Reality Show Dodgers Owner Versus Major by Julie Schaeffer League Baseball The Los Angeles Dodgers, one of the most exalted franchises in all of sports, has filed • Red Flags that Signal for Chapter 11 in what may be the bottom of the franchise’s recent descent and will most Trouble in Bankruptcy certainly play out like a reality show gone bad. Documents “It’s our national pastime; it’s the Dodgers; its history is incredible; it’s the team from • Municipal Bankruptcy Brooklyn that moved to Los Angeles; it’s the team that broke the color barrier with Jackie Robinson,” says Jonathan Henes, a corporate bankruptcy partner at Kirkland & Ellis. Process the Inverse of “And what’s important is protecting this storied franchise. But we may be distracted Chapter 11 for a while due to peripheral issues that have nothing to do with baseball, such as the owner’s high-profile divorce proceedings and publicly filed allegations by Major League Research Report: continued on page 2 Who’s Who in Caribe Red Flags Media, Inc. Inadequate Plan Documents Can Stir Up Trouble Special Report: by Dave Buzzell In the June issue of Turnarounds & Workouts, Stephanie Wickouski, Partner with Canadian Bankruptcy Bryan Cave LLP in New York, cautioned that judges are starting to look askance at some Law Firms releases from liability in plan documents, either because they are too broad with respect to the persons getting released or the scope of conduct being released. Consequently, court approval of plans may be withheld, to the frustration of bankruptcy professionals Worth Reading: and their clients. Broadly written releases are not the only problem surfacing in bankruptcy filings and Going for Broke: How restructuring plan documents, however. According to Wickouski, there are several other Robert Campeau Bankrupted the Retail Industry, Jolted the continued on page 2 Junk Bond Market, and Brought the Booming 80s to a Crashing Tips for Practitioners in Chapter 9 Halt Getting In Is Hard; Getting Out Is Easy by Julie Schaeffer Special Report: Most industry professionals will argue that municipal bankruptcies are likely to be rare even in today’s economic environment – but when they do occur, they’re nothing Outstanding Investment like the Chapter 11s with which practitioners are typically most familiar. Banking Firms – 2011 “It’s mostly likely that Chapter 9 is not a solution to budget-driven municipal financial problems, but in those cases where municipal bankruptcies do occur, it’s important to note that, in many ways, the process of a Chapter 9 is the inverse of the process in Chapter 11,” says Bill Brandt, President and CEO of Development Specialists, Inc. “With Chapter 11, it’s relatively easy to get in, but the trick is getting out successfully. With Chapter 9, the trick is to get in successfully…but once you’re in, the odds of coming out are far greater continued on page 2 2 Turnarounds & Workouts July/August 2011

L.A. Dodgers, from page 1 Red Flags, from page 1 Tips, from page 1 Baseball that he siphoned money from the “red flags” that bankruptcy professionals than for the average Chapter 11 debtor.” team for personal use. We’re going to see should recognize and avoid. “It’s not clear that there will be a lot issues pop up that have nothing to do with One red flag is a lack of remedial of Chapter 9s, but it’s important to know the actual team or the game of baseball, provisions. “Most plans I see suffer from what would happen in one, at least for but people will be watching to see how this,” says Wickouski. “The lack of an context in everything from negotiations they play out.” easy and straightforward default provision with the municipality, creditors, and labor According to a recent Forbes estimate, tends to be a widespread problem.” parties, to any workouts that may have to the Dodgers franchise is worth $800 As a result, when a debtor fails to make be done with or for a municipality,” says million, making it baseball’s third-most a payment under a plan, particularly if a Harold L. Kaplan, a partner with Foley valuable team. plan is self-administered, there’s no ready & Lardner LLP. That said, the Dodgers have accumulated answer for a creditor. “When the court There is a presumption, says Brandt, significant debt since 2004, when current is petitioned to enforce the plan, there’s that no business endeavor would file owner Frank McCourt acquired the team no remedy that’s practical or economic for bankruptcy if it were not already in in a controversial deal that was almost for an individual creditor to undertake,” extreme straits. As a result, when it comes entirely comprised of debt. Wickouski explains. to Chapter 11s, there is no argument about Although some estimates put the “Under many plans, there’s either no whether to enter an order of relief. But to team’s debt-to-value ratio at an alarming post-confirmation committee or the post- a great extent, the opposite holds true in 54%, according to court filings the confirmation committee is very limited in a Chapter 9, he says. Dodgers have between $500 million and its role. Often, the committee is comprised “In a Chapter 9, the front end of the $1 billion in assets and between $100 of some of the entities that were on the case is the whole shebang,” he says. “You million and $500 million in liabilities. pre-confirmation creditors’ committee. have to prove that you qualify and that “It’s not a debt crisis; it’s a liquidity They have much less engagement in a you’re worthy. With respect to both of crisis,” says Henes. “The value of the post-confirmation process if they are those issues, evidentiary trials over those team is greater than the value of the team’s not getting compensated for it, so in matters can often go on for months before debt, but there just wasn’t enough cash to essence they are just overseeing what a determination is reached as to whether make the June 30 payroll.” is already a done deal. As a result, it’s enough evidence exists such that an order To help save the team, McCourt very difficult to monitor and enforce a for relief should be entered.” arranged a future broadcast licensing plan post-confirmation, and most plans, To decide if an order of relief should deal with FOX Broadcasting Company when they’re written, don’t make it very be entered, says Brandt, a municipality that was reportedly worth $3 billion, easy to do that. I think that’s an endemic has to first meet two criteria: It has to be a but he was required to get the approval problem.” municipality as defined by the Bankruptcy of Major League Baseball (MLB), and Another red flag is the failure to Code, and it has to be statutorily capable MLB Commissioner Bud Selig refused properly consider the tax consequences of filing under its relevant state law. to approve the deal. of a structure of a plan. Wickouski notes “On more than a few occasions, some That, in turn, led McCourt to file that this is more commonly a problem municipalities or other governmental for Chapter 11. “I simply cannot allow in smaller cases. “In the larger cases entities have tried to file Chapter 9 the Commissioner to knowingly and everyone is pulling in their tax people petitions prior to complying with specific intentionally be in a position to expose – on both the debtor and creditor side. legislation in their states that must be the Dodgers to financial risk any longer,” On the creditor side, especially, they are adhered to before a bankruptcy action can he said in a statement. looking at things very closely from a tax be commenced,” he says. According to Ira Herman, a bankruptcy perspective.” On that topic, Brandt notes only a partner at Thompson & Knight, one goal However, in some of the smaller cases, few states allow governmental units the of the move was to buy time to reach a when a modification in the structure is unfettered ability to file Chapter 9. Fifteen new TV deal that will solve the near-term required, either prior to confirmation or states have statutory provisions that cash flow issues. The Dodgers received a after confirmation, it can be costly and specifically authorize filing (AL, AZ, AR, commitment for $150 million in financing time consuming to have a do-over caused CA, ID, KY, MN, MO, MT, NE, NY, OK, from Highbridge Principal Strategies, a by a structure having tax consequences SC, TX, and WA). Another nine authorize unit of JPMorgan Chase, to keep the club unforeseen by either the debtor or creditor. filing conditioned on a further act of the operating while in bankruptcy. Initially, “It is not a widespread problem in the state, an elected official, or state entity (CT, says Henes, that loan came with the sense that it happens in every case,” says FL, LA, MI, NJ, NC, OH, PA, and RI). condition that the team start the process of Wickouski, “but when it happens it can Three states grant limited authorization licensing future broadcast rights, and if a be very costly and significant.” (CO, OR, and IL, and two states prohibit deal wasn’t completed within 180 days, a A third red flag – and this is from filing (GA and IA, although IA has default would be considered to have taken the standpoint of a trade creditor – is a an exception to the prohibition.) “The place. “Essentially McCourt was trying to discharge or injunction provision that remaining 21 are either unclear or do not obtain the same deal in court that he had has language essentially waiving or have specific authorization,” says Brandt.

continued on page 4 continued on page 4 continued on page 4 July/August 2011 Turnarounds & Workouts 3 Research Report Who’s Who in Caribe Media, Inc. by Francoise C. Arsenault

Caribe Media, Inc. (Caribe Media), assets and liabilities of $100 million to Klingbaum, partners in the New York based in San Juan, Puerto Rico, publishes $500 million. The company has stated that office, Ross M. Kwasteniet, a partner print and Internet yellow page directories it has no recognized unsecured liability in the Chicago office, and Nickolas A. in Puerto Rico and in the Dominican and the court has not appointed an Official Kacprowski and Mark E. McKane, Republic. Through its majority-owned Committee of Unsecured Creditors. partners in the San Francisco office. Axesa Servicios de Informacion operating Company officials provided a number Pachulski Stang Ziehl & Jones LLP is unit, Caribe Media prints and circulates of reasons for the default on its senior loan serving as bankruptcy co-counsel to Caribe approximately 3.2 million directories in November 2010 and ensuing bankruptcy Media. Laura Davis Jones, the managing in Puerto Rico each year and is the filing. The reasons included declining partner of the firm’s Delaware office, official publisher for the United States revenues from the sale of the company’s heads up the team. Michael R. Seidl and territory’s largest telephone company. The directories as a result of competition from Curtis A. Hehn, also partners in the firm’s company’s Caribe Servicios de Informacion online media, declining customer use Delaware office, are working on the case. Dominicana is the official directory of the yellow page directories in Puerto The law firm of Curtis, Mallet-Prevost, publisher of the Dominican Republic’s Rico, and the worldwide economic decline. Colt & Mosle LLP is bankruptcy conflicts largest telecommunications company However, Caribe Media was also under counsel to Caribe Media. Steven J. and publishes approximately 1.7 million intense pressure from an ad hoc committee Reisman, a partner and co-chair of the directories annually in that country. Caribe of secured lenders to file for reorganization firm’s restructuring and insolvency group, Media also offers several other directories, in order to preserve approximately $44.2 directs the work. Partner Michael A. an Export and Import Guide, and two million in claims arising from allegedly Cohen also is working on the case. magazines for tourists. The company improper and possibly fraudulent dividend Lazard Freres & Co. LLC is providing provides online telephone listings through payments. According to the secured Caribe Media with investment banking the web site www.SuperPagesDR.com. lenders, the dividend payments were made and financial advisory services. David S. Caribe Media, formerly known as to Local Insight Media Holdings and Welsh, Kurtz, a managing director with the firm, Caribe Information Investments, Inc., is Carson, Anderson & Stowe between May leads the engagement. indirectly owned by Local Insight Media 2009 and September 2010. Alvarez & Marsal North America, Holdings, Inc., which has a 50.4 percent Within a few days of the filing, the Caribe LLC is restructuring advisor to Caribe stake in the company. Local Insight Media Media secured lenders agreed to drop the Media and is providing the company with Holdings, based in Englewood, Colorado, pursuit of a fraudulent conveyance cause an interim Chief Restructuring Officer, filed for Chapter 11 protection in November of action for the $44.2 million in dividend President, and Chief Executive Officer. 2010. Local Insight Media Holdings is the payments. As part of the proposed Chapter Brubaker, a managing director, leads the fifth largest directory publisher and local 11 restructuring agreement, the ownership engagement. Also working on the case are search provider in the United States, with stakes of Welsh, Carson, Anderson & Stowe Richard Jenkins, a managing director in annual pro forma revenue in excess of $700 and Local Insight Media Holdings will be the Denver office, Julie M. Hertzberg, million. Local Insight Media Holdings is a reduced to zero and the senior secured a managing director in the Detroit office, portfolio company of the investment firm lenders will receive almost 100 percent of Michael Askew, a managing director in Welsh, Carson, Anderson & Stowe, which the remaining equity in the company. the Dallas office, and Renee Nymeyer, a has a 49.6 percent ownership stake in The Debtor senior director in the Dallas office. Caribe Media. Caribe Media, which was Marilyn B. Neal is the Executive Deloitte & Touche LLP is serving as once owned by Verizon, was acquired by Chairwoman of Local Insight Holdings, the independent auditor and accounting the investment firm in 2006. Inc. Scott Brubaker is serving as the services provider to Caribe Media. Steven On May 3, 2011, Caribe Media and CII interim Chief Executive Officer, President, Yaroch, a partner in the firm’s Denver Acquisition Holding Inc. filed for Chapter and Chief Restructuring Officer of Local office, is directing the work. 11 in the United States Bankruptcy Court Insight Media Holdings and Caribe Media. PricewaterhouseCoopers LLP for the District of Delaware, with the goal Christopher J. Batson is the Chief is providing Caribe Media with tax of restructuring approximately $184 million Financial Officer and Treasurer. John S. advisory and consulting services. Victor in secured debt. In its filing, Caribe Media Fischer is General Counsel and Secretary. Rodriguez, a partner in the firm’s San reported debt of $127 million to a group Kirkland & Ellis LLP is acting as Juan office, leads the engagement. of secured lenders led by administrative lead bankruptcy counsel to Caribe Media. The Trustee agent Cantor Fitzgerald Securities and Richard M. Cieri, a partner in the firm’s The U.S. Trustee is Roberta DeAngelis. $57 million in senior subordinated notes New York office, directs the work. The The Judge to an affiliate of Welsh, Carson, Anderson Kirkland & Ellis team also includes The judge is the Honorable Kevin & Stowe. In its petition, the company listed Christopher J. Marcus and Leonard Gross. ¤ 4 Turnarounds & Workouts July/August 2011

L.A. Dodgers, from page 2 McCourt from control of the team,”says Henes. “In April, Commissioner Selig negotiated out of court, but MLB objected, announced that he was appointing a and Highbridge and the Dodgers agreed to representative to oversee all aspects of take that condition out,” Henes says. “The the Dodgers’ operations, and MLB was interim financing that was approved on investigating the Dodgers’ operations and June 28 had no conditions with respect to a finances. Then, MLB blocked the Dodgers’ licensing deal.” sale of its future broadcast rights to FOX. Calendar Another goal of the filing may have The writing was on the wall, so he filed both been to prevent MLB from taking over the to deal with the June 30th liquidity problem American Bankruptcy Institute marquee franchise. “You could also argue 18th Annual Northeast Bankruptcy that MLB was on its way to removing continued on page 6 Conference July 21-24, 2011 The Hyatt Regency Red Flags, from page 2 things that could be helpful, and I’m Newport, RI honestly surprised I don’t see it more.” Contact: www.abiworld.org discharging offset rights. As Wickouski In plans that provide for a repayment explains, “A trade creditor providing of debt to a creditor or one or two large The National Association of goods and services during a case could creditors, having a plan provision placing Bankruptcy Trustees have ordinary offset claims cut off by a default judgments in escrow, offers a 2011 Annual Conference confirmation. This waiver is often buried tangible remedy if there is a default. September 22-25, 2011 in the language. Typically one of the Otherwise, the creditor is compelled to The Ritz-Carlton responsibilities of the creditors’ committee return to the bankruptcy court and petition Amelia Island, FL is to check for that and make sure that the for enforcement of the plan. “One remedy Contact: www.nabt.org language protects the trade creditors.” that the debtor can provide in the plan is National Conference of However, says Wickouski, handling that to provide for a consent judgment in favor Bankruptcy Judges task might not happen. “Committees can of the creditor that the creditor may file in 85th Annual Conference be dominated by non-trade creditors that the event that a default occurs which is not October 12-15, 2011 could fail to look for that kind of waiver. cured. It provides a very easy remedy so Tampa, FL Some say that creditors’ committees are that the creditor doesn’t have to proceed Contact: www.ncbj.org dominated by trade creditors; trade creditors to petition the bankruptcy court or sue in will tell you that committees are dominated state court to enforce the plan. They have American Bankruptcy Institute by bondholders; bondholders will tell the confessed judgment they can file. I 7th Annual International Insolvency you just the opposite. The reality is that think that’s a remedy that is frequently & Restructuring Symposium everybody needs to look at this. I have overlooked.” October 21, 2011 seen plans go through where people have Wickouski observes that bankruptcy The Westin Dublin gotten sandbagged. It is important to look lawyers often complain that the Dublin, Ireland at the release language from the standpoint transactional documents are not written Contact: www.abiworld.org of an ongoing relationship, and its effect with consideration of what happens in on offsets. Sometimes if you have ongoing the event of a default. The problems in Turnaround Management litigation, the discharge language can chew the document only become apparent Association you up.” when a default occurs. “I find it ironic 2011 TMA Annual Convention Wickouski notes that the one remedy – that bankruptcy lawyers who are writing October 25-27, 2011 placing default judgments in escrow –– is plan documents often also overlook Hilton San Diego Bayfront rarely used any more, and that could be San Diego, CA a mistake by creditors. ”It’s one of those continued on page 8 Contact: www.turnaround.org Practising Law Institute Nuts and Bolts of Corporate Tips, from page 2 with its creditors will allow the municipality to regain its financial footing. Bankruptcy 2011 Seminar Even if a municipality can file for Second, if the municipality can’t meet November 17-18, 2011 Chapter 9, says Brandt, in order to obtain this first condition it then must demonstrate San Francisco, CA an order for relief, there’s a four-part test that, at the very least, it attempted to Contact: www.pli.edu that must be met to convince the bankruptcy negotiate with its creditors in good faith in Beard Group court that a Chapter 9 is called for under the an effort to obtain these consents but that 18th Annual Conference on circumstances. these negotiations resulted in an impasse. Distressed Investing First, and perhaps foremost, the Third, in the case where no negotiations November 28, 2011 municipality must demonstrate that it has have been held (meaning points number one The Helmsley Park Lane Hotel obtained the agreement of a majority of its and two are not at issue), the municipality New York, NY creditors to some type of impairment of the Contact: (240) 629-3300 creditors’ claims, such that this compromise continued on page 8 ¤ July/August 2011 Turnarounds & Workouts 5 Special Report

Canadian Bankruptcy Law Firms

Firm Attnys. Bankruptcy Senior Bankruptcy Partners Representative Clients/Cases Attnys.

Aird & Berlis 120 8 Harry Fogul Richard Epstein Toronto-Dominion Bank, Royal Bank of Canada, Bank of Nova (416) 863-1500 Robb English Sanj Mitra Scotia, Bank of Montreal, Canadian Imperial Bank of Commerce, www.airdberlis.com Steven Graff Sam Babe Wells Fargo, HSBC, Roynat / Air Canada, Nortel Networks, Canwest, Ivaco, Asset-Based Commercial Paper, Frontera Copper, Hemosol, Priszm Income Fund.

Blake, Cassels & Graydon 550 22 Bernard Boucher William Kaplan AbitibiBowater, Ableco Financial, Alvarez & Marsal, Aveos, (416) 863-2400 Kelly Bourassa Michael McGraw Caterpillar Financial, CIBC Asset Based Lending/Canwest, Cinram www.blakes.com Milly Chow Linc Rogers International, Deloitte, Groupe Dumoulin, Ernst & Young, Ford Motor Sebastian Guy Peter Rubin (Canada), Gateway Casinos, JPMorgan Chase, MatlinPatterson, Susan Grundy Steven Weisz MEGA Brands, Natl. Bank of Canada, New Pacific/Silvercorp, Quad Pamela Huff Graphics/Quebecor World, Signature Aluminum, and others.

Cassels Brock & Blackwell 200 13 Joseph Bellissimo Alison Manzer CapitalSource Finance, Cisco Systems, Bank of Montreal, Government (416) 869-5300 Bill Burden Marc Mercier of Canada (General Motors and Chrysler restructurings), Government www.casselsbrock.com Deborah Grieve David Ward of England Pension Protection Fund (Nortel), Integrated Private Debt Bruce Leonard Fund, Return on Innovation Fund, Roynat, Warner Bros., and others.

Davies Ward Phillips & Vineberg 240 16 Jay Swartz Robin Schwill Nortel Networks, Shaw Communications, Canwest, Barzel Industries, (416) 863-0900 Denis Ferland Natasha MacParland Quebecor, Cooper-Standard Automotive Canada, Japan Airlines, Robert www.dwpv.com Alain Gaul Louis-Martin O’Neill Mander, Dura Automotive, Eddie Bauer, Circuit City/InterTAN Canada, Matthew Gottlieb Fiat S.p.A, Fraser Papers, E&Y, Alvarez & Marsal Canada, and others.

Dickinson Wright 25 3 Lisa Corne Eric Kay Creditors, debtors, and court-appointed officers in major insolvency (416) 777-0101 Dave Preger and restructuring cases, including CCAA proceedings from Oakwood www.dickinsonwright.com Petroleum through Curragh Mines and Olympia & York to Air Canada.

Fraser Milner Casgrain 521 45 David W. Mann B.A.R. (Quincy) BMO, RBC, ABN Amro Bank, KPMG, Deloitte, PWC, E&Y, HSBC, (416) 863-4511 R. Shayne Smith RSM Richter, Terrestar, Medican, Movie Gallery, Canwest, Intrawest, www.fmc-law.com Kukulowicz Brian W. Summers Semgroup, Jameson House Properties, Grant Forest Products, Nortel Roger P. Simard David LeGeyt Networks, Trident, Alvarez & Marsal, FTI, Quebecor, Ravelston, Philip M. Rimer Louis Dumont Investors of Portus Group, Solv-Ex, JED Oil, Bombay Furniture Alex L. MacFarlane Christopher J. Co, Vicwest Corporation, Conor Pacific Environmental, Shaw Ray C. Rutman Ramsay Communications. John R. Sandrelli Neil S. Rabinovitch Dan R. Dowdall Jane Dietrich Ryan Jacobs

Goodmans 200 17 Jay A. Carfagnini L. Joseph Latham Nortel Networks, Canwest Newspapers LLP, Postmedia, AbitibiBowater, (416) 979-2211 Robert J. Chadwick Joseph Pasquariello Cinram, Angiotech Pharmaceuticals, Masonite, Circuit City, Smurfit- www.goodmans.ca Gale Rubenstein Brendan O'Neill Stone, Compton Petroleum, Chemtura Corporation, Frontera Copper, Fred Myers Melaney Wagner Grant Forest Products, Catalyst Paper, Fraser Papers, White Birch Paper, Brian Empey SkyPower, Gateway Casinos, Government of Ontario, and others.

Gowling Lafleur Henderson 750+ 73 David F. W. Cohen John McLean Bank of Montreal, Canadian Imperial Bank of Commerce, HSBC, (416) 862-7525 Colin Brousson Clifton Prophet Circuit City, GE, Government of Quebec, Credit Suisse AG (Toronto www.gowlings.com Thomas Cumming Patrick Shea Branch), Quorum Oil and Gas Technology, NAV Canada (Skyservice Christopher Fournier Denis St-Onge Receivership), RBC Royal Bank, Biscayne Metal, bcIMC Construction Fund, Stanfield Mining Group, Timbercreek Asset Mgmt., and others.

McMillan 400 23 Lisa Brost Max Mendelsohn Canwest Communications Corporation, Nortel Networks, (416) 865-7000 Hilary Clarke Marc-André Morin AbitibiBowater, Grant Forest Products Inc., Trident Exploration, www.mcmillan.ca The Honourable Yoine Peter Reardon Barzel Industries, The Bank of Nova Scotia, American Iron & Metal Goldstein Waël Rostom Company, AT&T, Ernst & Young, HSBC, International Air Transport Andrew J.F. Kent Nicholas Scheib Association, JP Morgan, The Bank of New York, RPX Corporation in Adam Maerov Sheryl Seigel its capacity as a managing director of Norpax, Pricewaterhouse Cooper, Daniel V. MacDonald Éric Vallières Progressive Moulded Products, Royal Bank of Canada, and others.

Osler, Hoskin & Harcourt 454 63 Sandra Abitan John MacDonald Alvarez & Marsal, Angiotech Pharmaceutical, Avenue Capital, Aveos (416) 362-2111 Robert Anderson Christa Nicholson Fleet Performance, Atomic Energy of Canada, Bank of America, Bank www.osler.com Rupert Chartrand Edward Sellers of Montreal, Blockbuster Canada, Canwest Global, Circuit City, Credit Jeremy Dacks Tracy Sandler Suisse, Davie Yards, Deloitte, Ernst & Young, FTI Consulting, GB Martin Desrosiers Marc Wasserman Merchant Partners, General Motors of Canada, Goldman Sachs Credit Steven Golick Partners, JP Morgan Chase, KPMG, Magna Entertainment, and others.

Torys 260 16 Tony DeMarinis Scott Bomhof Brookfield Asset Management Inc., Fairfax Financial Holdings (416) 865-0040 Michael Rotsztain David Bish Limited, Nortel Networks Inc., Google Inc., The Cadillac Fairview www.torys.com Corporation Limited, Goldman, Sachs & Co., Royal Bank of Canada, Credit Suisse, Canada Development Investment Corporation. ¤ 6 Turnarounds & Workouts July/August 2011

L.A. Dodgers, from page 4 and in an attempt to keep control.” The good news, says Henes, is that the approval of interim financing on June 28 is a win for both the Dodgers and MLB. “Both have the same key Worth Reading concern at this moment: making sure the franchise is going to continue Going for Broke: How Robert Campeau Bankrupted the operating in the ordinary course of Retail industry, Jolted the Junk Bond Market, and Brought business. A disruption would be a the Booming 80s to a Crashing Halt disaster for baseball.” Author: John Rothchild That certainly appears to be the case, according to Bruce Bennett, Publisher: Beard Books bankruptcy counsel from Dewey Softcover: 286 Pages & LeBoeuf. “The team is entering List price: $34.95 the bankruptcy case with enough committed financing to meet all Robert Campeau, one of 14 children born to a French Canadian mechanic and of its short-term expenses and to blacksmith, invested $5,000 in a modest house under construction in Ottawa in 1949, successfully reorganize,” he says. doing most of the carpentry work himself. Foreseeing the post-war suburb boom, and It remains unclear how the virtually creating the Ottawa skyline, he went on to build a successful, sprawling $200 bankruptcy will play out, however, million real estate corporation. with one major factor being whether Then, riding the tidal wave of leveraged buyouts of the late 1980s, he borrowed $11 McCourt is able to maintain control of billion from Wall Street to acquire Allied stores and Federated Department Stores, both his team. That’s because bankruptcies successful and relatively debt-free retail conglomerates, in hostile takeovers. Fortune often make professional teams in magazine called the Federated buy “the biggest, looniest deal ever.” Two years later, violation of league charters, which Allied, Federated, and Campeau Corporation were plunged into Chapter 11 receivership. can pave the way for ownership Campeau was many things: risk-taker extraordinaire, earnest, eccentric, endearing, cocky, removal. If that’s the case, the filing extravagant, persistent, impetuous, commanding, frenetic, and capricious. He shocked the gives McCourt temporary protection, conservative Canadian business community with his brazenness, flamboyance, and quirky but also gives MLB ammunition to ways. In 1980, he showed up at the home of the CEO of Royal Trustco, Canada’s largest displace him. trust company and real estate brokerage, at breakfast time. His English only passable, “There are complex legal issues Campeau told the astonished CEO that he was taking over Royal Trustco that very day. with sports franchises in federal Campeau was summarily thrown out and the major business players in Canada quickly bankruptcy,” says Henes. “The goal got together and bought up all the outstanding shares of Royal Trustco to thwart his plan. of bankruptcy is to allow companies Campeau was a total stranger to the U.S. investment banking world. His quest had to continue to operate in the ordinary begun with the intention of buying a U.S. bank or S&L. Reading about the hostile course of business, preserve jobs, and takeover of Macy’s, however, he abruptly ordered his Canadian financiers to look for maximize value. While MLB shares a retail company instead. Once in contact with Wall Street, he bemused them with his the first two goals, and certainly wants colorful and baffling ways of doing business. to maximize value, it also cares about Blinded or dazzled by his eccentricities, enticed by the prospect of colossal fees, and who owns the franchise and who is caught up in the times, investment bankers assembled the funds needed for Campeau’s part of the exclusive membership adventure into retailing. He drastically overbid for both companies. In the case of Federated, of Major League Baseball. So we Campeau paid over $8 billion for a company that had a market value of $3 billion, and could see McCourt arguing that under borrowed about $7 billion. Allied was worth about $2 billion, but he paid $4 billion. bankruptcy law the Dodgers should be Campeau never found the “synergy between real estate and retail” he promised the able to enter into certain deals without shocked and angry management and employees of the two companies. Saddled with MLB consent, and MLB arguing that enormous debt, Campeau’s complete ignorance of the retail industry, his ridiculously high all transactions need its consent. The expectations, and his broken promises, the companies went into a free fall. Casualties judge will have to decide which is right included upward of 10,000 employees laid off at Federated and Allied alone, junk-bond under federal bankruptcy law.” investors, brokerages stuck with bridge loans, other retailers forced to lower their prices The Los Angeles Dodgers filed as Allied and Federated unloaded inventory, and creditors with claims of over $8 billion. in the U.S. Bankruptcy Court in The first line of Going for Broke reads, “This is the story of a marvelous financial Delaware. The bankruptcy filing also calamity.” Read on and be amazed, amused, and saddened. ¤ covers LA Real Estate LLC, the owner of iconic Dodgers Stadium and three John Rothchild is a well-known journalist and writer. He has authored and co-authored other entities. The bankruptcy filing, over a dozen books. according to Reuters, shows some of the Dodgers’ largest unsecured This book may be ordered by calling 888-563-4573 or by visiting www.beardbooks.com. This book creditors as former star players Manny and other Beard books are also now available in digital format at a discounted price from Google Books at books.google.com. Ramirez and Andruw Jones. ¤ July/August 2011 Turnarounds & Workouts 7 Special Report

Outstanding Investment Banking Firms – 2011

Firm Senior Professionals Outstanding Achievements

Blackstone Group Tim Coleman Flip Huffard Recent engagements include MBIA (Asian Art Museum debt New York, NY Stefan Feuerabendt Nicholas Leone restructuring), International Lease Finance Corp.(credit facility (212) 583-5000 Michael Genereux Arthur Newman amendment and extension), J.C. Flowers (HSH Nordbank investment), www.blackstone.com Martin Gidgeeon Steven Zelin Natural Products Group (prepack), ongoing roles in Lee Enterprises, Mohegan Sun, and Lehman.

Goldman Sachs - Americas Bruce H. Mendelsohn Recent selected engagements include Brookfield Properties in GGP, Restructuring Group Cinram (out of court restructuring), Evergreen Aviation (out of court New York, NY refinancing), LNR (out of court restructuring), and Ares (prepackaged (212) 902-1000 acquisition of Simmons Bedding). www.goldmansachs.com

Gordian Group Henry Owsley Dennis McGettigan Recent achievements include successfully advising Spansion in New York, NY Peter Kaufman David Herman one of the most complex and contentious bankruptcies in years (212) 486-3600 Patricia Caldwell and continuing role advising the regulator to Ambac. Additional www.gordiangroup.com assignments include BankUnited, Carlisle Apartments, CCS Medical, Lexington Precision, Madoff, Newark Group, Ramsey Industries, TLC Vision, and Schutt Sports.

Greenhill & Co. Robert F. Greenhill Jeffrey F. Buckalew Recent major engagements include Edge Oilfield Services, The New York, NY Scott L. Bok Timberland Corporation, Citigroup, AIG, Wesco Financial Corporation, (212) 389-1500 Bosque Power Company, Constar International, One Communications www.greenhill-co.com Corp., Medicity, IAC / InterActiveCorp., Planar Solutions, and others.

Houlihan Lokey Amit Patel David Hilty Recent engagements include Atlantic City Hilton, Blockbuster, Los Angeles, CA Andrew Miller Eric Siegert Capmark Financial, Centaur, Chemtura Corp, East West Partners, (800) 788-5300 Andrew Turnbull Eric Winthrop General Growth Properties, Great Atlantic & Pacific Tea Co., Green www.HL.com Brad Geer Matthew Niemann Valley Ranch Gaming, Majestic Star Casino, Oriental Trading Co., Chris DiMauro Tuck Hardie Trico Marine, Visteon Corp.

Jefferies & Company Steven Strom Tero Janne Selected engagements include Borders, Caribbean Petroleum, DBSD, New York, NY Frank Merola Robert White Extended Stay, Fairpoint Communications, Gateway Casinos, Insight (212) 284-2428 Richard Morgner Richard Klein Imaging, KV Pharma, Medical Staffing, Nortel, Pliant, Sea Launch, www.jefferies.com Leon Szlezinger Alex Rohan Tronox.

Miller Buckfire & Co. Henry S. Miller Stuart E. Erickson Selected engagements include Keystone Automotive, General Growth New York, NY Kenneth A. Buckfire Jeffrey Finger Properties, Penn National Gaming, Neff Rental, American Capital, The (212) 895-1800 Jason R. Anderson Harold A. Neu Palisades Center, Magna Entertainment Corp., The Reader’s Digest www.millerbuckfire.com John Bosacco John R. Orem Association, Aveos Fleet Performance, Simmons Bedding Co., Stallion James Doak David A. Shiffman Oilfieds Services, and others.

Rothschild Inc. Neil A. Augustine Stephen Antinelli Recent assignments include advising Nebraska Book Company, Sbarro, New York, NY Stephen Ledoux Bernard Douton Harry and David, Vitro, S.A., the Board of AIG, Blockbuster, RHI Tel: (212) 403-3500 David L. Resnick Daniel Gilligan Entertainment, Coach America, Fairpoint Communications, Tronox, www.rothschild.com Todd R. Snyder Homer Parkhill American Apparel, Deb Shops, Ad Hoc Committee of Policyholders in FGIC, and NY State Governor’s Office on labor negotiations.

UBS Investment Bank Steve D. Smith Jim McKnight Recent engagements include General Growth Properties ($27.5B) New York, NY Douglas P. Lane (company), Centro Properties Group ($17B)(company), Charter (212) 821-3000 Communications ($21B)(cross-over bondholders), Evergreen Solar, www.ubs.com ICO Global ($1.7B)(bondholders), Boston Generating ($1.1B) (acquirer), Young Broadcasting ($.85B)(company), Constellation Energy’s acquisition of Boston Gen assets, and others.

William Blair & Company Geoffrey Richards Brokered the sale of National Envelope under very contentious and Chicago, IL difficult circumstances, using the 363 process to creatively increase (312) 364-5436 value. Recognized by TMA as middle market deal of the year. In www.williamblair.com LECG, closed over 15 separate transactions in a little over a month. ¤ 8 Turnarounds & Workouts July/August 2011

Tips, from page 4 specifically laid out in Chapter 9 apply and Third, although you’re in the which do not. bankruptcy system, the judge’s must demonstrate that conducting such “Some of them are surprising,” says authority to drive the case under negotiations with its creditors was Kaplan. “For example, Chapter 9 has Chapter 9 is fairly circumscribed. implausible and impractical, and because been read to allow municipalities to try to “There are those who believe that of that fact, can be excused from trying. reject or renegotiate collective bargaining the judge’s role in a Chapter 9 is far Fourth, there exists a bit of a catch- agreements, but it’s under what is referred to closer to that of a special master or a all test, which Brandt calls the “event- as the Bildisco standards, under Section 365 mediator than a bankruptcy judge,” driven circumstance.” In other words, the of the Bankruptcy Code, which generally says Brandt. municipality must demonstrate that it was pertains to assuming or rejecting executory That said, the judge’s limited in direct and dire exposure to self-help by a contracts, rather than the more stringent ability to force action and lack of fee certain creditor or creditors (such as Idaho standards under Sections 1113 and 1114 review creates some bad news as well. County), or was on the cusp of having to of the Bankruptcy Code, which are First, the court can’t relieve the make a preferential payment to one or more not incorporated in Chapter 9.” civic officials of their offices or creditors. “In this last case, the bankruptcy On a practical procedural basis, there is duties and, similarly, lacks any power court must find that these emergency both good news and bad news for bankruptcy to impose a revenue increase on city conditions were, indeed, extant and that practitioners who are involved with these taxpayers. a filing as a result was unavoidable,” says cases, says Brandt. Second, because of these Brandt. The good news is threefold, says Brandt. limitations on authority, pushing the If an order for relief is eventually First, the U.S. trustee’s oversight of a various parties along to a consensual entered by the bankruptcy court, Kaplan Chapter 9 is basically relegated to minimal outcome and a successful plan is far notes that practitioners will need to be involvement, with its role in the case more of a political exercise than a aware of a number of unique situations being limited to virtually only the simple legal undertaking. with Chapter 9s. appointment of a creditors’ committee. Finally, no fee review means there For example, he says, a bankruptcy Second, there is essentially no fee review is no order from the bankruptcy court practitioner really has to look at the actual by either the court or the U.S. trustee with directing that the professionals be statute to determine which sections of the respect to professional fees incurred during paid, “which makes getting proper Bankruptcy Code, in addition to other ones, the conduct of the Chapter 9. remuneration for your services in these types of situations always a bit dicey,” says Brandt. ¤ Largest Chapter 11 Filings of May and June, 2011

Debtor Date District Assets Red Flags, from page 4 Nebraska Book Company June 27 Delaware $657,216,000 default provisions. When we’re Los Angeles Dodgers June 27 Delaware $500M to $1B putting a deal together, we’re all Jackson Hewitt Tax Service May 24 Delaware $315,990,000 optimistic. You have to go into it Perkins & Marie Callender’s June 13 Delaware $290,000,000 with the thought that it’s going to be Deb Shops June 26 Delaware $124,400,000 performed – that’s your expectation. But you also have to consider what Techdyne June 9 Arizona $100,000,070 happens if it does not, what your Pegasus Rural Broadband June 10 Delaware $100M to $500M remedies are. And conversely, if you Hingham Campus June 14 Texas, Northern $100M to $500M are the obligor, what rights you want Caribe Media May 3 Delaware $100M to $500M to have if there is a default or an act ALT Hotel May 5 Illinois, Northern $100M to $500M of default.” “Default provisions in a plan Wolf Mountain Resort May 9 California, Central $100M to $500M are just as important as they are in the original documents, Wickouski continues. “An escrowed confessed In the Next Issue… judgment, having a clear notice and • Special Report: Restructuring Depts. of National Accounting Firms grace period, and then a description of specific remedies that are available • Special Report: European Restructuring Practices of U.S. Law Firms if there is a nonpayment – these are • Research Report: Who’s Who in Perkins & Marie Callender’s, Inc. among the things that can help avoid problems in plan documents.” ¤

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