Posts que contém a Tag Bankruptcy

Insol Registration Brochure English 17 June 2014

INSOL International Santiago One Day Seminar
Santiago, Chile, Thursday 20th November 2014
CPE/CLE Points: 7 hours

Venue: Hotel Plaza San Francisco, Alameda 816, Santiago, Chile
web site:

Registrations are now open! To download the registration brochure or to register on line see our web site at

Chile has recently enacted a new insolvency regulation which will become effective in October, 2014. This presents a unique opportunity to discuss the most recent developments related to insolvency in other jurisdictions. The seminar is being held in conjunction with Superintendency of Insolvency and Entrepreneurship in Chile.
The seminar will benefit from simultaneous translation in Spanish and English.

The educational program will be cover issues of importance to Chile and the wider Americas market, an outline of the educational program follows:

Cross-border insolvency
The trend towards the globalization of entrepreneurial activities has implied the need to generate a coordination procedure among insolvency procedures in different jurisdictions. Considering that three Latin-American countries (Mexico, Colombia and Chile) have adopted the Model Law on Cross-Border Insolvency, the panel purports to have a dialogue related to the tasks that the said incorporation have implied in their respective systems.

Secured creditors and insolvency proceedings
The reorganization efforts of the company and the respect to the legal position of secured creditors generate a tension within insolvency regulations. The panel aims to review the way in which different systems deal with the topic, offering diverse equilibriums among such two interests.

Consumer insolvency
Consumer over indebtedness has emerged as a problem that must be addressed by legal systems, considering that general insolvency mechanisms do not always consider the special features of the insolvency of individuals. The panel aims to review the logical basis that shall orient the regulation of this kind of procedures and the alternatives available in their respective jurisdictions.

Out-of-court agreements
The structure of judicial reorganization procedures may imply costs and delays that are not justified in case the debtor may reach an agreement with a relevant number of its creditors. Different insolvency systems consider such circumstance and regulate the terms and conditions for the validity of out-of-court agreements. The panel aims to discuss such formulas, paying special attention to the protection devices granted to creditors that have not been party to the agreement.

INSOL International would like to thank the following sponsors for their generous support of the INSOL Santiago Seminar.
Platinum Sponsor: Cleary Gottlieb Steen & Hamilton LLP Nelson Contador Abogados

Lunch Sponsor: Greenberg Traurig LLP

Cocktail Reception Sponsor: Deloitte

For further information and details of sponsorship opportunities please contact: Penny Robertson at

Valor Econômico (Cristine Prestes)

When the bankruptcy of Banco Santos was ordered by Justice on September 20, 2005, the expectation of receiving credit for the estate was almost nil. Exactly six years later, the scenario is quite different. Over $1 billion in assets has been recovered and two payments have been made among the creditors, amounting to $ 760.5 million.

Although the debt left by former banker Edemar Cid Ferreira still reach $ 2.5 billion, there is more money to be recovered.  It is in this climate that the second general meeting of creditors of the bank, scheduled for November 23, will occur.

The creditors’ meeting of Banco Santos will be held at the auditorium of the Public Attorney of São Paulo and the official press notice is to be published soon.  At the meeting agenda is a resolution of 1,944 unsecured creditors (no priority in the receipt) on the need for maintenance of the committee of creditors and, if so, the election of a new representative. The current representative, Jorge Queiroz, will leave the post he has held since the beginning of bankruptcy. Creditors will also have to define, at the meeting, which will be the 6 years’ retroactive payment of de Queiroz,  Court of Appeals approved but never defined until today,  and future earnings of the new representative to be elected.

After the meeting, creditors will be presented to the proposal for the creation of a “Receivables Investment Fund (FIDC)” comprised of most legal claims filed by the estate. The idea was conceived in 2009 and since then circulates between groups of creditors, but was never formally presented. Last week, the law firm of Rosman, Penalva, Souza Leon Franco Bar Association, which developed the idea in conjunction with Cadence, filed the proposal to the bankruptcy process.

By the proposed regulation, the Banco Santos FIDC would be comprised of all the legal claims of the estate – which includes both the cash already recovered and in the estate’s bank accounts as well as the claims filed by the estate that still depend on judicial decisions to be effectively collected. The shareholders of the fund would be the creditors, whose number of shares would be equivalent to the nominal value of their claims.

The creation of the FIDC, however, has some obstacles.  The first is its cost. Until now, the cost of recovery claims of the estate corresponds to about 2.6%. According to the regulation proposed by the FIDC, the creditors would pay  $ 2.8 million a year in management and administration fees, excluding the performance fee, which varies with the amount recovered and the recovery time. The other obstacle to the implementation of the FIDC is transferring the values ​​that the estate has in cash reserves. “These assets are not receivables,” says the public attorney Eronides dos Santos, who accompanies the bankruptcy process. “That’s impossible,” he says. Contacted by Valor Economico, the attorneys at Rosman, Penalva, Souza Leon Franco lawyers did not return until the close of this edition.

The FIDC is an alternative to supposedly ensure greater agility on the recovery of assets and liquidation of Banco Santos. Today the estate charges in court, in hundreds of cases, amounts owed by customers to the bank involving claims of reciprocity and operations involving non-financial companies of Edemar Cid Ferreira. The portfolio of lawsuits, however, is considered “junk”. In an assessment made by Directa of the $ 3.29 billion charged to borrowers in legal proceedings  and presented in May of last year,  it would be possible to raise only a maximum of $277 million.

Despite the fact that there are numerous processes for recovery stuck in court and with minimal chances of recovery, there are still expectations that the estate will recover substantial amounts. The São Paulo Court of Appeals (TJSP) will soon judge appeals filed against decisions made by bankruptcy judge that applied the principle of substantive consolidation of assets under the bankruptcy of Banco Santos to include some of the other companies controlled by Edemar Cid Ferreira.  If the substantial consolidation is confirmed, companies like Atalanta, Finsec and Cid Collection, will enter the assets of the bankrupt estate, to be auctioned, the real estate and other assets which belong to them. Atalanta, for example, is the owner of the mansion of former banker in the neighborhood of Morumbi. With five floors, an elevator, eight parking spaces and a heliport, the mansion is valued at $ 60 million. Atalanta also owns several other properties well located in the state’s capital.

Another area of ​​asset recovery is the international asset tracing over Edemar Cid Ferreira and firms open for him offshore that is still in progress . The estate was able to get a U.S. court decision to extend the bankruptcy of Banco Santos in that country, which allowed the search for information, documents and bank transfers by former banker abroad. With these initiatives, the estate can find assets that have not yet been located and increase the amount of assets recovered.

Fabio Rosas – Restructuring Committee
Jorge Queiroz – Council Chairman IBGT

Special thanks to:
Renata de Almeida Lutke

The Brazilian Bankruptcy Law of 2005 (“BBL”) establishes three major mechanisms that may apply to troubled businesses: (i) bankruptcy as forced liquidation, (ii) in-court reorganization, and (iii) out-of-court reorganization.

For the purpose of the present paper, we will analyze how the BBL treats the sale of business operations more specifically when such operations are subject to in-court reorganization and liquidation and to demonstrate that it provides legal uncontested title and safety to the buyer in addition to representing a good mechanism to both buyer and seller in the pursue of their interests.


Article 47 of the BBL defines that the purpose of the in-court reorganization is to make the overcoming of the economic and financial crisis of the debtor feasible, allowing the maintenance of the going concern, respective jobs and creditors’ interests, promoting the preservation of the business, its social-economic role and the stimulation of the economic development in the country.

In the BBL, it is possible to see direct or indirect references to the sale or assignment of the company under reorganization of assets.

Article 50 of the BBL, for example, provides a number of different mechanisms that can be used to reorganize a company, which includes the complete sale of the going concern, partial sale of the company’s assets, changes in shareholdings, among others; it expressly authorizes the partial or complete sale of a business operation of the debtor if the sale is provided for in the reorganization plan, duly approved by the company’s creditors.

In other words, the BBL gives the parties the possibility of making the reorganization plan feasible, leaving to the Court the duty of authorizing the “agreement” in a reorganization plan settled between debtor and creditors according to the applicable laws.

Such provision is also ratified by article 60 of the BBL, that establishes the sale of branches or operating units if provided under the reorganization plan, and article 66 establishes that after the in-court reorganization plea is filed by the debtor, it cannot sell or encumber assets or rights from its fixed assets in addition to the ones already provided in the reorganization plan, unless express plain and clear need is recognized by the Court.

In Brazil, the partial sale of assets – a manufacturing plant and operating units (jointly referred to as “general assets”) – is a common solution used by debtors during in-court reorganization in order to raise their capital needs to maintain their operations or pay some strategic creditors, such as employees , essential vendors , etc.

The sale details as well as which assets it shall be comprised of, are usually part of the reorganization plan, dully approved by the creditors. It includes:

(i) the procedures that can be adopted by the debtor to sell the asset(s), manufacturing plant(s) or business unit(s);

(ii) how the proceeds from the sale are going to be used by the debtor (which creditors will be paid, the percentage that will be distributed among creditors, the percentage that will be used by the debtor as working capital, etc);

(iii) the requirements to sell a manufacturing plant, business unit or the company’s control or ownership, etc.

It is also common under BBL that creditors help the company in arranging an interested buyer to one or more of the debtor’s establishments or operating units.

In some of the largest in-court reorganization proceedings in Brazil, the financial institutions, which most times hold collateral against the debtor, such as pledges, mortgages, fiduciary property of assets etc., do participate in the sale of a certain establishment or operating unit of the debtor over which they hold collateral.

The main reason for creditor’s involvement, besides the usual large sum of their credits, which makes them a strategic creditor with strong voting powers, is that any sale of assets or establishments that constitutes collateral to a creditor must be expressly approved by such creditor, as provided under article 50, paragraph 1 of the BBL.

The sales of the debtor’s general assets can be performed directly between the debtor and the buyer, under the Creditors Committee supervision or, if inexistent, the Judicial Administrator; it can also be sold through a public auction by the Court, or in any other form that is not forbidden by law, as long as it is dully provided under the reorganization plan. The sale, however, must be made at market value of the asset / establishment, with previous valuation by an expert appraiser, as agreed in advance by creditors and debtor.

It is worth to point out that, if an operating unit is sold through a public auction, the asset will be free from any encumbrance and the purchaser will not succeed the debtor in its obligations, including the tax liabilities, as provided under article 60, sole paragraph of the BBL.

Despite not expressly provided under the law, the Brazilian Courts have understood that there is also no succession over the labor claims. Such succession exemption is one of the strongest and most important aspects of the BBL, as it allows for the continuation of the business activity of the respective operating unit by the buyer free and clear of any burden, in observance to the legal principles of the maintenance of the going concern and jobs, as established in article 47 of the BBL.

However, if the sale occurs through a private agreement between the debtor as a seller and a third party buyer, the buyer may succeed in the labor and tax liabilities; at least the ones related to the specific operating unit acquired.

In any of those cases, though, the collateral that once was attached to the asset is no longer applicable.

It is important to emphasize that under BBL’s provisions of in-court reorganization, a sale of the debtor’s going concern business in its totality will not exempt the buyer from succession; BBL provides that only sales of part of the company’s assets, establishments or operating units shall be exempt of succession; it provides that only under liquidation (USC §363 sale equivalent) of the company, buyer is totally exempt of succession.

Nonetheless, a few debtors claim that the BBL does not define the meaning and the extent of what it called an “operating unit”. It can represent quite a risky adventure and even characterize misuse of the regulation, violating the principle of substance over form.

In fact, there have been a few cases in Brazil where debtors under in-court reorganization, according to the reorganization plan, constitute a new separate operating unit (NEWCO) to which it transfers its most important assets, or the majority of its operating business, leaving the original company under reorganization essentially “asset stripped” with only liabilities.

Afterward, the company’s shareholders sell that new operating unit (NEWCO) and, as a consequence, all or huge part of the Company’s assets, including its brand name, to a third party, using the sales proceeds free and clear as defined by NEWCO’s shareholders and leaving the ailing original Company and its creditors only with liabilities.

In such cases the third parties in effect actually purchase the entire company (despite trying to characterize it as an operating unit) without succession of any kind. Consequently, it may be considered a legal violation of BBL provisions and the acquiring party may be liable to the application of tax, labor and other succession rules.

Varig Case:
In the bankruptcy reorganization or Varig S/A – Viação Aérea Riograndense (“Varig”), which was the first large in-court reorganization handled under Brazil’s Bankruptcy Reform of 2005 (the BBL took effect on June 9, 2005 and Varig filed its bankruptcy reorganization request one week after, on June 17, 2005), Varig’s creditors approved its reorganization plan, which contemplated the sale of the company’s brand name, operating assets and business, pursuant to article 60 of the BBL.

Varig’s judicial reorganization plan provided for the constitution of a new subsidiary, a new operating unit (referred as Varig Productive Unit / “UPV” or “New Varig”) to which Varig would transfer its whole complex of intangible assets and rights as well as some moveable assets necessary for the operation of the newly created sub, such as flight authorizations certificates (hubs), contracts, etc.

An organizational design specifically structured to transfer practically all of Varig’s business to the sub “New Varig”, clearly a “legal engineering” asset stripping operation to avoid succession, with Varig being called “old Varig”(!!) – a rather odd and puzzling name for a supposedly viable company in a revival process under its bankruptcy reorganization plan, which claimed to bring it back to its feet as a more successful and financially solid company.

Consequently Varig’s (renamed as “Old Varig”) creditors, among them all its 12 thousand employees and tens of thousands of retirees, were left with an asset stripped debtor whose assets were worth dramatically less then its liabilities.

In other words, Varig (“Old Varig”) transferred to its newly created subsidiary “New Varig” all of its most important assets, including its trademark, remaining only with its real estate assets, current assets, radio stations and Flight Training Center, which will, in part, finance certain payments of the Old Varig’s creditors as established in the reorganization plan.

New Varig was then sold to Varig Logística S/A (“VarigLog” – which had its liquidation recently sentenced by a Sao Paulo Bankruptcy Court under BBL’s provisions), a former wholly owned subsidiary of the ailing Varig which was sold under its bankruptcy proceeding for a mere US$ 24 million to a local SPC specifically created for such purpose, controlled by a well known US Vulture Fund in another controversial transaction.

In addition, the payment of certain creditors was made in debentures issued by the New Varig. As it turned out, Variglog was free and clear of any liens and encumbrances, as well as no succession of labor and tax liabilities from Old Varig.

Following those transactions Variglog’s new owners sold New Varig to Gol Airlines for US$ 320 million making and astounding gain.

As expected employees of the old Varig filed legal claims for their labor and indemnification rights against Variglog, taking the matter for Superior Court of Justice’s decision. Justice Ari Pargendler, who analyzed the claim, ruled that the sale of New Varig consisted of a sale of a Varig’s operating unit, not all of Varig, and consequently freed the buyer of succession of responsibilities for the liabilities of the debtor (Old Varig), including debts related to labor and tax claims.

The Brazilian Superior Court of Justice decision benefited the buyer (as well as Varig’s controlling shareholder Fundacao Ruben Berta) in detriment of its tens of thousands workers’ and retirees’ rights, for a significantly reduced preservation of the going concern.

Varig’s case raised a discussion between the Brazilian jurists and Courts as to whether the sale of the UPV characterized the sale of an operating unit or the effective transfer of the whole of Varig’s business – the discussion of the principle of substance over form.

The answer to these discussions, however, will depend on a formal definition of the meaning of the rather universal and obvious expression “operating unit” established by BBL. It is important to notice that legislations of most countries leave no doubt as to what is an “operating unit” – certainly distinct from the Varig’s ruling; more so considering the “legal engineering” implemented by Varig.

Other cases of sale of assets under bankruptcy reorganizations can be observed in the restructuring of various large Brazilian meat processing companies – an export intensive segment strongly affected by 2008 crisis – such as Agrenco do Brasil S/A and its subsidiaries (“Agrenco”), Frigorifico Quatro Marcos Ltda. (“Quatro Marcos”), Grupo Arantes, Frigorifico Estrela and Friforifico Independencia.

Informal, out-of-court, reorgs also took place, with the largest one being the multi-billion merger of giants Sadia and Perdigao.

Agrenco Case:
Under its approved reorganization plan the company sold one of its operating units to a third party – Marialva, and the money raised with such sale was used to pay labor creditors and one of its strategic creditors, Banco do Brasil.

Quaro Marcos Case:
The general plan structured by Quatro Marcos and its creditors regarding the sale of assets was quite interesting. Quatro Marcos entered into an Export Pre-payment Agreement (“EPP”) with Royal Bank of Scotland NV (“ABN NV”), giving, as collateral, the fiduciary property of certain receivables.

ABN NV, afterwards and before the filing of Quatro Marcos for its in-court reorganization, assigned its credits to third parties.

Such creditors constituted the majority of the credits of class II (credits with collateral), and their vote would be decisive to the success of the judicial reorganization.

Following large private discussions between Quatro Marcos and its creditors, as well as numerous Creditors’ General Meetings, Quatro Marcos’ controlling shareholders realized that the only way to make its bankruptcy reorganization feasible was by agreeing to pay the EPP creditors, otherwise they would never have any reorganization plan approved.

Quatro Marcos decided to sell one of its plants (operating unit) and with the money raised, paid the EPP creditors, which allowed for the approval of its judicial reorganization plan.

Grupo Arantes Case:
Grupo Arantes, once one of Brazil’s largest meat processors, with its COMI located in the State of Sao Paulo (Sao Jose do Rio Preto) and pre-petition annual sales of US$ 1 billion, with US$ 600 million of debt, filed for bankruptcy protection in January 2009; merger negotiations with a key player in the segment were interrupted.

Its plan also contemplated sales of assets but the bankruptcy proceedings raised many eyebrows as its controlling shareholders filed for bankruptcy protection right after a US$ 250 million local IPO, in a remote small town of difficult access located inside the Amazon Forest (so distant that can only be accessed by boat and 100 miles of dirt road, and which doesn’t have a resident judge), resulting in the imprisonment of its key controlling shareholders. Its reorganization plan still was finally approved in January 2010 but financial situation is still precarious.

Frigorifico Independencia Case:
With a total debt of US$ 2 billion, Independencia – Brazil’s third largest – filed for bankruptcy protection in February 2009, three months after Brazil’s Development Bank (BNDES) injected US$ 150 million in Independencia’s capital, which gave BNDES a 22% stake of its control. Reorganization plan confirmed by the court in December 2009 includes the sale of US$ 70 million in assets and contemplates the sale of the control of the company. The company also filed for Chapter 15 relief in the US Bankruptcy Court, Southern District of NY, granted in February 2010. Under the plan its offshore affiliate raised US$ 165 million in Notes issued in March 2010.

The Brazilian Federal Revenue Authorities, understand that in order for the sale to be exempt of taxes to the purchaser, the operating unit must have existed prior to debtor’s filing for bankruptcy reorganization. It does not recognize the succession rule when a production unit is set-up after the in-court reorganization is filed.

Another aspect that must be considered under the BBL is the difference between the sale of part of the assets (including establishments) and the sale of part of the Company’s shares. Differently from the sale of assets, the sale of the Company’s shares does not imply in the change of the tax or legal status of an establishment. In case of partial sale of assets, such as the sale of one of the debtor’s establishments to an unrelated party, on the other hand, there is no succession of liabilities.

The sale of shares also constitutes an important means of reorganization. In such cases, the debtor finds an investor to assume the control of the company, maintaining, however, all debtor’s prior liabilities.

Sementes Selecta Case:
That is what happened, for instance, in the in-court reorganization of Sementes Selecta Ltda (soybeans, byproducts and seeds) in its prepackaged transaction (“Selecta”). Selecta filed for bankruptcy reorganization due to the economic crisis of 2008. Right after filing for bankruptcy protection, Selecta informed its creditors that it already had a new investor interested in the business, the Argentine company Los Grobo, which invested US$ 50 million in new shares issued by Selecta. After the reorganization plan was approved by Creditors, Credit Suisse, a creditor of Selecta, made a US$ 30 million DIP finance to Selecta.


As established by article 75 of the BBL, the forced liquidation of a company aims at preserving and optimizing the productive use of its assets and productive resources, including intangible assets (USC §363 equivalent).

When the forced liquidation is decreed by the Court, a Judicial Administrator will be nominated (or maintained, in case of a forced liquidation decreed after unsuccessful in-court reorganization).

The Judicial Administrator will consolidate all debtor’s assets and documents, being also responsible to carry out the appraisal of such assets, separately or as a whole, requesting court permission to take the necessary measures for that purpose. All assets will be part of the bankrupt estate.

After assets have been identified by the Judicial Administrator, the consummation of the assets will be initiated. Section X of the BBL provides on how the sale of the assets will be handled.

Article 140 of the BBL establishes the forms by which the debtor’s assets can be sold and the order of preference for such sale, as follows:

(i) sale of the going concern, with the sale of its establishments as a whole;
(ii) sale of the going concern, with the sale of its branches and operating units separately;
(iii) the sale as a whole of the assets that form each of the debtor’s establishments and
(iv) the sale of assets separately considered.

The sale of the going concern as a whole is an innovation in the BBL. Brazil’s previous bankruptcy code did not provide for such possibility. It can be noticed that the forced liquidation, aims at maintaining the operations of the Company and of the jobs, for the benefit of the economy and social welfare.

This procedure is similar to a §363 sale under USC. One of the differences is that the stalking horse figure, or a stalking horse for DIP purposes, has not yet been used in Brazil.

Many experts feel that it is what should have been done by Varig to maximize the proceeds from the sale and avoid draconian losses imposed on tens of thousands employees and creditors with the highly controversial and ineffective procedure implemented by Varig.

The BBL of 2005 establishes that the company will be considered sold as a going concern business when the object of the sale is a group of assets needed to maintain a profitable operation, including the transfer of certain contracts.

Article 141, II of the BBL provides that the asset, establishment or operating unit sold will be free from any encumbrance, also establishing that there will be no succession of any debtor’s obligations, including the ones arising from taxes, labor relations and labor accidents, to the purchaser, except:

(i) when the purchaser is a shareholder/quota holder of the bankrupt Company or is a Company controlled directly or indirectly by the bankrupt Company;
(ii) by a relative, in straight line or related up to the 4th degree in family line of the bankrupt shareholder or
(iii) identified as an agent of the bankrupt Company with the purpose of defrauding the succession,

hypothesis under which the purchaser will still be responsible for the purchased company’s liabilities.

The sale of assets in a forced liquidation proceeding can be implemented by use of the following methods:

(i) public auction, with oral calls;
(ii) closed proposals and
(iii) trading session,

all of which shall be preceded by the publication of announcement of the liquidation in a widely circulated newspaper, 15 days in advance of the liquidation in case of movable assets and, 30 days of advance in case of immovable assets. The purchaser to claim the asset will be the one who gives the highest call.

The Court may also authorize other forms of judicial sale of the assets, through a justifiable request of the Judicial Administrator or the Creditors’ Committee and dully approved by the General Creditors Meeting.

The possibility of selling assets of the company under liquidation regardless the conclusion of the general creditors claims’ list is the most important change to the previous Brazil’s Bankruptcy Code (Decree Law 7.661 of 1945).

Under the previous law, the possibility of sale of a going concern business was an exception – the alternative mostly employed for going concern businesses seen as viable was the lease of its operating units; in general, the company and all its assets were basically sealed by the Court.

Under BBL of 2005, however, the maintenance of the going concern is the rule and the sealing a last resort, when nothing else can be done to maximize value.

The immediate sale of assets provided in the BBL increases the possibilities of raising higher sums of money for creditors’ payments, since in general, assets sold as going concern businesses have much greater value.

For instance, if a debtor detains a strong brand name and it is sold when it is still valuable, the purchaser will obviously be willing to pay more for it.

Mappin Case:
A good example is a large case in Brazil which started in 1999, before BBL’s Reform of 2005, when Mappin – a very large billion dollar department store, founded in 1913 – had its liquidation decreed. Back then, Decree Law 7.661/45 was still in force, and it did not provide for the sale of assets before the general creditors claims’ list was completed.

The sale of Mappin’s trademark (highly valuable and strong in 1999) was only made ten years later in December 2009, when it was finally sold through a public auction for a mere R$ 5 million reais (US$ 2 million) , imposing additional losses to creditors.

Had the trademark been sold in 1999, the bankruptcy estate would receive a much higher amount, since Mappin had been one of the most important and successful department stores in the country for almost a century.

Mappin’s liquidation proceedings are far from ending, despite the fact that it has been in place for over ten years, wasting enormous amount of time and money for many parties in interest including the Judiciary, consequently the whole Brazilian Society.

In whatever sales’ method employed, any creditor can present an objection in 48 hours. The Judge shall adjudicate them in 5 days.

One of the means of transferring the property of a specific asset, establishment or operating unit is through the Bankruptcy Court authorization – and after the Creditor’s Committee has been heard – of its immediate acquisition or adjudication by the creditors, separately or as a whole, by its market value and respected the classification and preference among creditors, as established in article 111 of the BBL.

Furthermore, article 113 provides that the perishable assets, the ones that are subject to considerable devaluation and the ones which conservation is risky or expensive may be sold, in advance, after its evaluation, through Court authorization, after the Creditors Committee and the debtor are heard.

Under forced liquidation, the sale or transfer of assets without the express consent or payment of all creditors and which ends up emptying its assets can be declared null and void; in this sense, it can be revoked by the Court, except if none of the creditors present an objection in 30 days after dully summoned.

How Private Equity Could Rev Up the U.S. Economy
Two out of five private equity firms will disappear. The rest will feast off the financial wreckage
By Peter Carbonara and Jessica Silver-Greenberg
Business Week
Donald B. Marron, founder of the $3 billion private equity firm Lightyear Capital, has been eyeing financial wreckage for more than a year. In early 2008 Marron, the former chairman and chief executive of brokerage PaineWebber, sent teams of analysts to scout out more than 200 struggling U.S. financial firms. So far Marron has made only one deal, buying a stake in student lender Higher One last summer. But the 74-year-old art aficionado, whose starkly modern New York office brims with abstract paintings, says dealmaking will soon pick up dramatically. “We expect this trend to continue,” he says.
While some attention has been paid to the vultures now circling the troubled banking sector, private equity is beginning to venture out across the economy in search of deals big and small. Glen T. Matsumoto, a partner in Swedish buyout shop EQT Partners, is looking for more ways to spend the $1.5 billion his firm has amassed for infrastructure and energy plays, having picked up Michigan energy company Midland Cogeneration Venture in March. Brian A. Rich of Catalyst Investors, an upstart buyout shop with $300 million in assets, recently plowed $5.6 million into Mindbody, a California software company. He’s hoping to invest in more cash-starved technology and media outfits. “We think it’s a great time to put capital out,” says 48-year-old Rich, who ran Toronto Dominion’s (TD) U.S. merchant banking arm before starting Catalyst in 2000.
It’s been a rough two years for private equity firms, those freewheeling and much-vilified financiers who buy companies only to sell them later for a profit. The buyout boom that ended in 2007 wasn’t pretty; many of the deals made at the height of the frenzy have been disasters. Bankruptcy courts are littered with private equity blunders, including household names Chrysler, Tribune (TXA), and Linens ‘n Things. Such high-profile blowups heightened private equity’s reputation as a group of fast-buck artists who are better at destroying companies than running them.
But a strange thing has happened. While the experts were proclaiming—and maybe even celebrating—their death, private equity firms were quietly bulking up their war chests and readying themselves for a new wave of deals. By some measures they’re stronger than ever: Firms are sitting on a record $1 trillion with which to make new purchases, according to research firm Preqin. “They are showing up at the party with a wheelbarrow full of cash,” says Donna Hitscherich, a professor at Columbia Business School.
Slowly and deliberately, firms are mobilizing their forces to exploit huge opportunities being created by the recession. Some big buyout firms, filling the void created by the financial crisis, are acting like traditional investment banks, providing loans to troubled companies and even advising executives on mergers. Some firms are aggressively hiring and firing buyout specialists, turning the cold eye they usually train on companies onto themselves. Other firms are prowling bankruptcy courts in search of cheap assets or are capitalizing on government stimulus spending. “There is every reason to believe that private equity will have tremendous opportunity once we hit bottom,” says Colin Blaydon, director of the Center for Private Equity & Entrepreneurship at Dartmouth’s Tuck School of Business.
When private equity starts cranking up its dealmaking machine—and it will, eventually—the $1 trillion it has amassed could help revive the economy by pumping crucial capital into the markets. “Private equity will be an integral part of this country’s economic recovery,” says Gregg Slager, a senior partner at accounting firm Ernst & Young. Noted Stephen A. Schwarzman, founder of Blackstone Group (BX), in the private equity firm’s March annual report: “Getting the world economy moving again will take more than government intervention.”
Private equity’s surprising resurgence is a study in managing through a downturn. With markets and businesses blowing up all around them, buyout firms calmly made their case to big investors that they were still worthy stewards of capital. In 2008 they attracted $554 billion from pension funds, university endowments, and other big investors, down only modestly from the record $625 billion the previous year. Even this year’s seemingly small tally thus far of $49 billion still puts private equity on track to match 2004’s total of $206 billion, the sixth-highest ever.
Partly that’s because returns haven’t been as awful as feared. Private equity funds lost an estimated 20% in 2008. That was on a par with hedge funds and handily beat U.S. stocks (-37%), real estate (-38%), and commodities (-47%). Big investors think private equity will perform better in the future, too. U.S. corporate pensions are assuming their private equity holdings will return 10.1% a year over the next five years, compared with an estimated 7.8% for hedge funds, according to research firm Greenwich Associates.
The nation’s largest pension fund, California Public Employees’ Retirement System, even boosted its target for private equity holdings in its portfolio by four percentage points last year. “We’re strongly committed to private equity, which helps diversify the portfolios of long-term investors,” says CalPERS’ spokesman Clark McKinley. Robert Hunkeler, who manages the $13.1 billion in International Paper’s (IP) pension funds, says he’s keeping his stake in private equity at 5% despite recent losses.
The next few years will be dismal for many firms, no question. Buyout shops may be sitting on piles of cash for new purchases, but their portfolios also are stuffed with companies at risk of folding unless they can refinance their debt. Boston Consulting Group estimates that 20% to 40% of private equity firms will disappear altogether in the next few years.
But the wiliest players have inoculated themselves from the worst of the pain. During the boom years, firms used a number of slick tricks to extract money from companies right away and ease potential losses. First they loaded the companies they bought with debt and kept the proceeds for themselves. Then they collected ongoing management fees from those same companies.
Often they did both. Kohlberg Kravis Roberts, founded in 1976 by Henry R. Kravis and George R. Roberts, pulled off the biggest buyout ever in October 2007 when it joined with another big firm, TPG, to buy Texas utility TXU for $45 billion. (KKR also pulled off the largest transaction during the last buyout boom with its $31 billion bid for RJR Nabisco in 1989, the controversial deal immortalized in the book Barbarians at the Gate.) After picking up TXU, KKR and its private equity partners immediately collected $300 million from TXU for “certain services” associated with the deal, according to filings with the Securities & Exchange Commission. Plus, the firms are “entitled to receive an aggregate annual management fee of $35 million,” which “will increase 2% annually.” TPG and KKR declined to comment.
Private equity firms also exploited the remarkably easy lending environment during the boom, negotiating financing terms with unprecedented flexibility. Firms often had to put up minimal capital to close a deal. The maneuvers are paying off now.
Consider the tale of Chrysler. Cerberus Capital Management—named after the mythical three-headed dog that guards the gate of Hades—bought the troubled carmaker in May 2007 for $7.4 billion. Founder Stephen A. Feinberg, a secretive financier with blue-collar roots, has, with hard-nosed dealmaking, transformed Cerberus over the years from a scrappy vulture into a private equity stalwart. In the case of Chrysler, Cerberus contributed only $1.2 billion in cash. And even though Chrysler has filed for Chapter 11, Cerberus isn’t likely to lose all of that money; it may be able to offset some of its losses with Chrysler Financial, the carmaker’s lending arm, which isn’t part of the bankruptcy. Cerberus could merge the lender with another Cerberus investment, GMAC Financial. “It is a big hit,” says one Cerberus executive of the bankruptcy. “But it won’t break the company.”
To be sure, the days of larger-than-life dealmaking are over. Banks are no longer providing the loans that fuel the biggest buyouts. Small purchases will replace megabuyouts, and firms will likely focus their energies on sprucing up operations rather than extracting fees and engineering financial gains. “It’s back to the future,” says William E. Ford, chief executive of General Atlantic, a private equity firm with $13 billion in assets.
Some firms have even begun to deemphasize buyouts, quietly transforming themselves into diversified financial players that provide a wide array of money management, trading, and advisory services. Schwarzman, the 62-year-old head of Blackstone Group, is aggressively filling the void left by the Lehmans of the world. Schwarzman’s ambitions are as grand as his New York City apartment, a 35-room triplex once owned by John D. Rockefeller. At the firm’s start in 1985, Schwarzman and co-founder Peter G. Peterson shared a secretary and oversaw a grubstake of just $400,000. Today Schwarzman, infamous for a lavish birthday party he threw himself in 2007, sits atop more than $90 billion in assets and employs more than 1,340 people. Blackstone collected $410 million last year—not from its bread-and-butter buyout business but from advising other companies on mergers, acquisitions, and restructurings. Said Schwarzman in the firm’s annual report: “Our financial advisory group delivered record fees last year by meeting the demand for a trusted, independent adviser.”
Blackstone’s advisory clients range from troubled insurer AIG (AIG) to the Ukrainian government. In December Tim Coleman, who co-heads Blackstone’s reorganization and restructuring group, flew to Detroit to meet with Ford Motor’s (F) CEO, Alan Mullaly, and other top executives. Coleman’s recommendation: Rework the debt. After that initial meeting, Mullaly hired Blackstone and Goldman Sachs (GS) to dispense advice. The three companies spent the next few months brainstorming and hashing out strategies at Ford’s headquarters. “We worked ‘round the clock,” says Coleman. “There wasn’t room for anyone’s ego to get involved.” They brought their plan to bondholders in April, offering to exchange $1.8 billion in debt for $1.3 billion in equity. The investors agreed.
Like all tough-minded investors, private equity firms are busy looking for ways to profit from rivals’ pain—and even their own. College friends Rodger R. Krouse and Marc J. Leder are among the most aggressive. The two left Lehman Brothers (LEHMQ) in 1995 to forge their own firm, Sun Capital Partners, in Boca Raton, Fla. They had a tough time muscling into the clubby world of private equity, but since 2002 Sun Capital has bought more than 200 small and midsize companies and earned 20% a year. Among its holdings: restaurant chain Friendly Ice Cream and bagel chain Bruegger’s Enterprises. More than 10 of Sun Capital’s companies have filed for Chapter 11, including retailer Big 10 Tires, auto parts supplier Fluid Routing Solutions, and department store Mervyns. But Krouse and Leder, both 47, are capitalizing on the trouble by doling out high-interest, short-term loans to some of its bankruptcy victims. Sun Capital declined to comment.
Few private equity portfolios are as troubled as that of New York’s Apollo Management—but even its list of losers is presenting opportunities. The $45 billion Apollo owns bankrupt retailer Linens ‘n Things, along with struggling casino chain Harrah’s Entertainment and real estate firm Realogy. But Apollo recently raised $15 billion for new investments and plans to use a quarter of that stash to buy distressed debt, including the debt of some of its own holdings.
Junk bonds are familiar territory for Apollo founder Leon Black. The 57-year-old started Apollo in 1990 after leaving Drexel Burnham Lambert, the notorious investment bank that collapsed that year. Black’s interest in his own distressed debt is partly defensive and partly speculative. By buying back bonds aggressively, Black can try to prevent other vultures from picking up the debt and wresting control of his investments. He’s also likely betting that the bond prices will rise in value and that he’ll be able to sell them at a profit later. Apollo declined to comment.
Many private equity firms are taking a sharp pencil to their own books as well. Even as the giants are laying off staff and closing offices, they’re recruiting specialists in fields where they see opportunities. Apollo, for example, added former Morgan Stanley (MS) banker Neil Shear to its new commodities group. In a burst of recent hiring, Blackstone picked up infrastructure specialists Trent Vichie and Michael Dorrell from the New York branch of Australia’s Macquarie, among other recruits.
Carlyle Group, one of the largest and most secretive private equity firms, started preparing for a flood of bank deals last year. The 22-year-old firm, whose ranks have included such well-connected advisers as former President George H.W. Bush and former British Prime Minister John Major, has been expanding aggressively into real estate, venture capital, and other alternative assets—and has bagged some high-profile talent. Last year, Carlyle lured UBS (UBS) investment banker P. Olivier Sarkozy, half brother of the French President. Sarkozy has advised on a number of bank deals, including ABN Amro’s sale of LaSalle Bank to Bank of America (BAC) for $21 billion, part of a breakup of the Dutch bank.
At Carlyle, Sarkozy spends much of his day poring over balance sheets and scouring troubled mortgage portfolios. He has been traversing the U.S. for the past few months, visiting local banks in tiny towns and regional players in urban areas. Now Sarkozy, along with Blackstone, Centerbridge, and W.L. Ross, are in discussions with management at BankUnited (BKUNA), a struggling lender in South Florida. “Private equity will be a prime catalyst in the necessary recapitalization of banks, both here and globally,” says Sarkozy, 39. “The time is ripe.”
Perhaps the most combative arena for private equity these days is the bankruptcy courts. Buyout firms are swarming, making bids on busted businesses and in some cases entering into bidding wars. Lynn Tilton, the pugnacious founder of Patriarch Partners, spends much of her time in court fighting over cheap assets. The 49-year-old Tilton, known for her flamboyance in stiletto heels, recently lost a contentious 16-day auction for instant photography pioneer Polaroid to rivals Hilco Consumer Capital and Gordon Brothers Brands. She’s appealing the decision. On Apr. 20 Tilton bought Stila Cosmetics, filling out a portfolio of troubled brand names that include mapmaker Rand McNally. Stila had fallen behind on its debt payments, and lenders took control of the makeup manufacturer. They called Tilton on a Friday night to make a deal. She talked with management on Sunday and by the following weekend owned the company. “I haven’t seen anything like this in 35 years,” Tilton says of the opportunities before her. “This is like a candy store for us.”
The value in Patriarch’s distressed plays isn’t always obvious. Last summer Tilton bought a paper mill in Maine, since renamed Old Town Fuel & Fiber. But she didn’t buy it just to make pulp. A main attraction for Tilton is the mill’s $30 million grant from the Energy Dept. for a research program studying how to make biofuels from wood chips. Tilton wants to produce a biofuel called butanol at the plant, which can be used as aircraft fuel. That would create another potential opportunity, because Patriarch also owns a helicopter maker and an aircraft parts manufacturer.
Few investments look as appealing as those blessed by government dollars. As part of the $787 billion federal stimulus package signed into law in February, the government has earmarked $29 billion to patch crumbling roads, bridges, and schools. Thanks to Uncle Sam, the infrastructure investing trend is picking up. The states’ cash crisis is also sparking interest. “With states facing real economic trouble, you will see further pressure on them to hand over infrastructure to private firms,” says Ben Heap, co-head of infrastructure in UBS’s (UBS) private equity group. There were 127 infrastructure funds in 2008, up from 91 in 2006, according to research firm Probitas Partners.
When Sadek Wahba, investment chief at Morgan Stanley’s (MS) $4 billion infrastructure fund, goes shopping for deals, he follows two main principles. First, invest only in public necessities. Second, make sure the concerns of local citizens are heard—to minimize political problems later. In December, Morgan Stanley and a group of investors paid $1.15 billion for 36,000 parking meters in Chicago. Wahba is converting the old coin-operated devices to electronic pay machines. “These assets are a good hedge against inflation, because you are providing a basic service,” says 43-year-old Wahba.
But the best example of private equity’s shrewdness in the downturn may be its ability to spiff up its sullied image. In Pittsburgh, Robert B. Fay and his brother Pat feared selling their 62-year-old construction business, Joseph B. Fay Co., to private equity, worried that a buyer would dismember the company and lay off staff. The family’s lawyer called New York’s FdG Associates after reading that the $300 million buyout firm had experience working with family-run businesses. In all, the Fay brothers met with six private equity firms. FdG’s team wore casual khakis to its meeting to underscore its anti-Wall Street image, while rivals sent representatives in designer suits. The Fays identified with the FdG team instantly and agreed to sell to the firm in February. Says Bob Fay: “These guys came to us as partners, not vultures.”
with Tara Kalwarski in New York and David Welch in Detroit
Old Stakes, New Value
Amid the ongoing cash crunch, some university endowments, insurers, and other big investors are looking to sell their investments in private equity funds. An Apr. 13 piece on reports that Goldman Sachs recently launched a $5.5 billion fund to buy up those stakes on what’s known as the secondary market. “Things may be tougher than usual in the world of private equity but it just means more opportunities for Goldman,” the author writes.
To read the full article, go to
Carbonara is a senior writer for BusinessWeek. Silver-Greenberg is a reporter for

The Impact of the Chrysler Bankruptcy
RGE Analyst Team | May 8, 2009
On April 30, Chrysler filed for Chapter 11 Bankruptcy protection from its current creditors.  As such, Chrysler will be able to operate as a going concern, while the company renegotiates its debt structure and other obligations.  The U.S. government has described Chrysler’s action as a ‘prepackaged surgical bankruptcy’, in which it hopes that the company will be able to exit the bankruptcy process within 30-60 days.  If Chrysler achieves this, then it will emerge with a new global partnership with the Italian based Fiat. Instead of cash, Fiat will provide the equivalent of billions of dollars in R&D related investments for a 35% stake in the new Chrysler.  However, many experts think that a quick trip into bankruptcy might be unrealistic.
In the administration’s view, cost cuts, implemented by Cerberus and the new management brought in by Bob Nardelli, who cut into Chrysler’s R&D budget and new product development, left Chrysler, the smallest of the Detroit automakers, with a very thin line up of new vehicles.  The Obama administration set partnering with Fiat as a precondition for any further government assistance.  Nevertheless, Chrysler was unable to avoid the bankruptcy process, because some creditors balked at the terms being offered in the proposed debt to equity swap by the government.
Fiat is vying to get a 35% stake in Chrysler, without paying anything for it.  What it brings to the table is billions of dollars in R&D that have positioned it well to produce new cars in the future.  Fiat exited the U.S. market decades ago.   The marriage between Fiat and Chrysler is based on harsh realities, as evidenced by continuing layoffs in Chrysler’s bloated U.S. and Canadian operations, but it seems to be a symbiotic relationship, aimed to help both car makers survive the new realities of an even more competitive landscape.  Moreover it is a reflection of the considerable overcapacities in the global auto sector which may require further consolidation both in several national and international markets.
The short term outcome of Chrysler’s bankruptcy filing may come to determine the path for General Motors, if not the entire U.S. auto industry. If bankruptcy proceedings for Chrysler go as the company and the U.S. government have planned, then Chrysler’s filing may very well turn out to be just a test case before the bankruptcy filing of GM itself.  GM has until the end of May to convince the government that it has a viable business plan to restructureoutside of an official bankruptcy filing for Chapter 11 reorganization.  If it fails to renegotiate its debt and convince its current creditors to undergo a debt for equity swap, as Chrysler failed to do, then GM will have no option but to file for Chapter 11 protection.  GM’s new CEO, Fritz Henderson has vowed to do whatever is reasonably necessary to prevent the automaker from going under including seeking loan packages from U.S., Canadian and European governments (especially Germany). However, GM can no longer afford its extensive European operations and is in the process of looking for bidders.
The significant role the auto sector plays in employment, exports and industrial production have heightened the political importance of responding to their vulnerabilities, which have been exacerbated by the credit crunch, prompting rescue packages including bridge loans, incentives to purchase domestic vehicles and increases in tariffs on imported cars and auto parts.  In the face of rising unemployment in other sectors, governments hope to avoid any disorderly bankruptcy proceedings.
Furthermore, the Chrysler-Fiat merger could set off a chain of consolidations within the auto sector which continues to have significant production overcapacities. Even emerging economies are likely to contribute slower auto demand growth in coming years. In Russia, automakers including Toyota have repeatedly shuttered production and domestic automakers are now increasing car loans in order to encourage purchases. Other countries like China also face the near-term challenge of consolidating its many automakers into several companies large enough to take advantage of economies of scale, increasing their share of the domestic market and possibly expand abroad.
Fiat is also trying to position itself to obtain an ownership stake in GM’s European affiliate Opel. The plan, which includes the other GM subsidiaries in Europe – Vauxhall in Britain and Saab in Sweden, would create a new global auto company with annual sales of up to 7 million cars and €80 billion ($106 billion) in revenues, which would secure Fiat a winning position in the post-crisis market.  The move however is likely to face political hurdles, as neither the German nor Italian governments would like to deal with the job losses (an estimated 8,000-9,000 jobs) likely from such a merger, particularly not in an election year (Germans vote this fall).
According to press reports, Berlin issued a list of conditions for Fiat, which includes stating where the headquarters would be located, where the taxes would be paid, the number of expected job losses and the future of Opel plants in Germany. GM though has the final say in assessing Fiat’s offer. Yet, the German economic minister suggested that Fiat needs German state credits in lieu of adequate financing, which might increase the German government leverage. However, supporting the formation of a global car maker with the German government’s credit guarantees may enrage other German carmakers such as the VW Group, BMW and Mercedes-Benz.
The pressure on domestic jobs has increased the political importance of responding to the automakers woes in many countries. In February, France raised protectionist fearsafter introducing state aid for the domestic car makers in return for an unwritten pledge to keep jobs and production at home. It posed a test for the EU’s single market rules and triggered an angry response from the Eastern European countries that would be hurt the most by the measure. Other countries like Argentina and Russia have increased restrictions on auto or parts imports in an attempt to support domestic industries. These might actually have the opposite effect; those in Russia hurt the business of used car sellers.
However, some government attempts to stoke auto demand may well erode future demand. So-called ‘cash for clunkers’ deals in which governments provide incentives for consumers to trade in their old cars for new (and often more fuel efficient) ones, have had the desired effect, boosting auto sales in countries like Germany and China for the types of cars targeted. These measures are helping to erode the inventory of manufacturers in a relatively orderly manner, but may be deferring the adjustment process that the automakers face. Moreover, rising unemployment is likely to weigh on consumption especially of large credit-dependent purchases like cars.
The bankruptcy also has significant repercussions on the corporate bond market. Chrysler’s bankruptcy filing was preceded by tough negotiations among creditors and the government to conclude an out of court restructuring in which lenders would receive 29 cents on the dollar in cash in exchange for wiping out about $6.9 billion of Chrysler’s debt. A group of about 20 secured creditors refused to sign off on the deal, arguing that their stake was worth more and demanding that their seniority rights be observed. However, recent empirical evidence shows that as default rates increase, recovery rates are falling fast in this cycle. Moody’s reported that in the past seven months, completed CDS auctions resulted in a recovery rate of 30 cents on the dollar for loans and about 15 cents on the dollar for bonds compared to 85 and 70 cents on the dollar, respectively, for all of 2008. The latest research by Edward Altman yields similar results stressing that distressed exchanges to avoid bankruptcy have surged since 2008 and that they usually yield significantly higher recovery rates to participating bondholders. In fact, S&P warns that due to loose covenants and missing early warning triggers, the losses even for secured creditors in this cycle might turn out to be substantial if a company cannot reorganize and liquidate.
Henry Hu from Texas University points to the ‘empty creditor’ phenomenon to explain why some lenders prefer to hold out and force a bankruptcy seemingly against the company’s and thus their own best interest. In short, creditors with enough credit default swaps may simultaneously have control rights and incentives to cause the debtor firm’s value to fall. And if bankruptcy occurs, the empty creditor may undermine proper reorganization, especially if his interests (or non-interests) are not fully disclosed to the bankruptcy court. See: Distressed Debt Investors Dictate The Terms: How Big An Issue Are ‘Empty Creditors’ With CDS Hedges? Another example is the case of the Kazakh bank BTA. Gillian Tett reports that Morgan Stanley in mid-April called for repayment of a loan thus forcing the already troubled lender into partial default. The fact that just after calling the loan, Morgan Stanley demanded ISDA to initiate a CDS settlement of contracts written on BTA, exposing Morgan Stanley to the ‘empty creditor’ criticism even if many details are missing. Dynamics of this kind make defaults more likely and need to be taken into account when forecasting the severity of the current corporate default cycle.
But are credit markets finally thawing? Indeed, corporate bond issuance has picked up substantially since December especially in the high-yield segment amid tighter spreads since the immediate Lehman aftermath. On a more cautious note, the IMF notes that given shortening credit lines and still tight bank lending standards (confirmed in the April Bank Loan Officer Survey), corporations are taking advantage of this window of opportunity to refinance themselves in the bond market despite substantially higher costs. An additional factor fueling this frontloaded corporate bond activity is the likely future crowding-out by sovereign and government guaranteed debt. While the high-yield segment has returned 17.4% YTD in 2009, the fate of Chrysler and GM shows that the default rate may not yet have reached its peak.
RGE Monitor

Lenders Appear To Be Driving Chrysler To Bankruptcy
Joann Muller April
DETROIT -Just hours after President Barack Obama told the nation he was hopeful Chrysler would become viable and that it might be able to avoid bankruptcy, talks between his automotive task force and lenders reportedly broke down, raising the likelihood of a Chapter 11 filing as early as Thursday.
The Wall Street Journal reported that talks broke down after the president’s task force was unable to persuade hedge funds and other lenders to accept a sweetened offer of $2.25 billion in cash in exchange for forgiving $6.9 billion in Chrysler debt. Treasury officials were unavailable for comment.
“As we get down to the wire, there will be much speculation but we will refrain from commenting,” said a Chrysler spokeswoman.
An expedited court process could be a test run of the government’s plan for General Motors, which has until the end of May to try to avoid bankruptcy, industry analysts say.
The plan would be for Chrysler’s best assets to be sold to a new company that would emerge quickly from bankruptcy proceedings, perhaps in a matter of days or weeks. The new Chrysler would be owned 55% by a retiree health care trust fund and 20% initially by Fiat, with the remainder held by the government and creditors. Eventually, if Chrysler met certain performance objectives, Fiat would get 35%. Then, years from now, once the taxpayer loans are paid off, Fiat would be entitled to take a controlling interest.
Such a bankruptcy for Chrysler would test the administration’s theory that a major carmaker could undergo a “quick rinse” in court, shedding unwanted liabilities, and emerge as a smaller but healthier company.
Yet David Cole, president of the Center for Automotive Research, cautions that the complexities of car making doesn’t lend itself to simplistic approaches. “If this industry goes down in a catastrophic collapse, it will be more expensive than a bridge loan, and with the state of the economy it will drive us into a depression,” he said. “The last thing this administration wants is to be known as the 21st-century Herbert Hoover administration. The risk is very, very real.”
The government’s intervention in the auto industry is unprecedented, with many of the rules being made up on the fly. Industry experts are hard-pressed to predict what will happen. “I think there will be a short bankruptcy to see if it works,” said Sean McAlinden, chief economist for the Center for Automotive Research. “If it doesn’t, they’ll need a new plan for GM.”
Although the government is clearly in command of the troubled industry for now, Obama said Wednesday night that he doesn’t want that to last forever. “I don’t think taxpayers should simply attach an umbilical cord between the U.S. Treasury and the auto companies so they are constantly getting subsidies.”
But he does believe it’s his role to push the automakers to make tough decisions and be competitive. “I’m not an auto engineer. I don’t know how to create an affordable, well-designed plug-in hybrid. But I do know if the Japanese can design an affordable plug-in hybrid, then doggone it, the American people ought to be able to do it, too.”
Long term, he thinks Detroit automakers will be very successful. “Those companies that emerge from this crisis, when you see pent-up demand coming back, they’re going to do really well, not just in the United States, but globally. I want to help them get there.”
During a Town Hall meeting near St. Louis earlier Wednesday, Obama addressed the Chrysler situation specifically.
“We don’t know yet whether the deal is going to get done,” he said. “I will tell you that the workers at Chrysler have made enormous sacrifices–enormous sacrifices–to try to keep the company going. One of the key questions now is: Are the bondholders, the lenders, the money people, are they willing to make sacrifices, as well? We don’t know yet, so there’s still a series of negotiations that are taking place.”
But Obama made clear what he hopes will result.
“We’re hoping that you can get a merger where the taxpayers will put in some money to sweeten the deal, but ultimately the goal is we get out of the business of building cars, and Chrysler goes and starts creating the cars that consumers want. And one of the potential advantages of a merger is new technologies where Chrysler starts making fuel-efficient, clean-energy cars that will meet the needs of the future market.”
He also promised that despite the expense to taxpayers, the government would protect health care and pensions for autoworkers, who helped get him elected. “My attitude is we got here not because our workers didn’t do a great job trying to build a great product; it was because management decisions betrayed workers.”

Forbes – April 30, 2009

Bankruptcy-related M&A has ‘only just begun’
By Brooke Masters in London and Julie MacIntosh in New York
Bankruptcy-related mergers and acquisitions have hit their highest level globally since August 2004, and are set to keep rising as more companies are forced into distressed sales, according to Thomson Reuters data and restructuring practitioners.
Thomson Reuters identified 34 announced deals in March alone, and 67 so far this year, where the target company was in bankruptcy or administration proceedings. The vast majority were in the US or Japan – reflecting the earlier onset of the recession in the US and more liberal bankruptcy rules in both countries, which allow companies to continue operating while they reorganise.
Among the highest-profile deals were those of Delphi , the US car parts maker that recently sold its brakes and suspension business to a Chinese buyer, and BearingPoint, the US technology consultancy that sold its government operations to Deloitte.
Practitioners around the world forecast that the number of transactions involving distressed companies must rise further.
“We’ve only just begun,” said Gregory Milmoe, a US restructuring partner at Skadden, the law firm. “Given the dearth of capital and the substantial increase in the number of companies that will be troubled, one would expect the M&A rate to increase dramatically.”
Richard Stables, global co-head of restructuring at Lazard, said: “People cannot borrow as much as they once could, so you’ve got to figure out how to fill the gap . . . That’s why you may think about selling part or even all of the business.”
Monthly totals for bankruptcy M&A peaked at 87 in July 2002 and slumped to seven in May 2007, just before the credit crunch hit. In the last downturn, a flurry of telecoms and technology company failures led to asset sales to strategic buyers as well as private equity buyers.
This time, industrial and retail companies have been the most prominent distressed sellers but private equity buyers have been few because debt has become far more expensive. Insolvencies traditionally peak a year to 18 months after the start of a recession, so more bankruptcy-related sales are forecast to emerge later this year, practitioners said.
Financial Times – Published: April 12 2009 18:47

Bankruptcy-Related M&A at Highest Levels Since 2004
Posted by Brian Baxter
Citing data compiled by Thomson Reuters, the Financial Times reports that bankruptcy-related M&A deals have hit their highest level globally since August 2004. With the economic downturn forcing more companies into sales of distressed assets, it seems likely the trend will continue.
“We’ve only just begun,” Skadden, Arps, Slate, Meagher & Flomrestructuring cochair J. Gregory Milmoe told the FT. “Given the dearth of capital and the substantial increase in the number of companies that will be troubled, one would expect the M&A rate to increase dramatically.”
A few weeks ago we posted on the rise in section 363 asset sales and liquidations occurring in bankruptcy, citing pending sales byBearingPoint and The Greenbrier Hotel.
“[Section 363s] are a capital markets-driven phenomenon; there’s less DIP financing to stay in the ordinary course of operations and support a standalone [bankruptcy] plan,” Willkie Farr & Gallagher business reorganization chair Marc Abrams told us. “And there are equally reduced levels of exit financing that would permit a company, once it comes up with a stand-alone plan, to emerge from bankruptcy.”
The FT points to the $350 million BearingPoint deal and the decision by bankruptcy auto parts manufacturer Delphi to sell its brakes business to a Chinese company for $100 million as evidence that bankruptcy-related M&A is on the rise.
Thomson Reuters identified 34 such deals in March alone and 67 so far this year. The bulk of those deals were in the U.S. and Japan, the FT reports, because of the length of time both countries have been in recession and more liberal bankruptcy rules that allow companies to operate while they restructure.
According to Thomson Reuters data, monthly totals for bankruptcy-related M&A peaked at 87 such deals in July 2002 and dwindled to a mere seven in May 2007, shortly before the onset of the global recession.
While many of the deals of the last downturn involved telecoms and tech start-ups being acquired by strategic and private equity buyers, this time around, the PE money has remained on the sidelines because debt has become more expensive.
Since insolvencies tend to peak 12 to 18 months after the beginning of a recession, Thomson Reuters data suggests that more bankruptcy-related M&A work will emerge later this year, the FT reports.

April 13, 2009 1:42 PM
The American Lawyer




Adelphia Communications

John Rigas, the 77 year-old founder of the country’s sixth largest cable television operator, was indicted Sept. 23 with his two sons and two other former executives of Adelphia on charges that included conspiracy, securities fraud and wire fraud. Rigas and his sons were arrested on July 24 in Manhattan. They have been free on $10 million bail each. The earlier criminal complaint charged the three with fraud for allegedly hiding $2.3 billion in liabilities from investors of the now bankrupt company.

Data de publicação: 14/03/2003
Fonte/Autor: Wall Street Journal