November 16, 2010 5:20 PM

The Bankruptcy Files: Retailers, Subprime Investors, and Foreign Banks

Posted by Brian Baxter

Before delving into another batch of fresh corporate bankruptcy filings, a quick note on what our former colleague Zach Lowe once termed the "madcap circus" of the Tribune Company's almost two-year-old bankruptcy case.

Tribune chairman Samuel Zell revealed on Tuesday that he would leave the media company he bought for a whopping $8 billion in 2007, once its Chapter 11 proceedings conclude. Tribune's unsecured creditors sued Zell and other lenders earlier this month over the ill-fated leveraged buyout, and are currently seeking more leeway to bring additional civil suits.

This week two of Tribune's largest creditors, hedge funds Oaktree Capital Management and Angelo Gordon & Company, filed a motion seeking to have Akin Gump Strauss Hauer & Feld removed as counsel to junior bondholder Aurelius Capital Management, according to Chicago Breaking Business.

Oaktree and Angelo Gordon claim that Akin Gump previously represented them in matters before the FCC on a proposed restructuring plan for Tribune and should therefore be disqualified from continuing in the case. In September, Aurelius tried a similar tactic, seeking to have Chadbourne & Parke removed as counsel to Tribune's creditors committee over alleged conflicts. Aurelius later withdrew its motion with prejudice.

A madcap circus, indeed.

Below are some recent noteworthy bankruptcy filings.

LOEHMANN'S HOLDINGS

Discount designer fashion retailer Loehmann's filed for bankruptcy in Manhattan on Monday. The Associated Press reports that the Bronx, N.Y.-based company, which is a unit of Dubai World's investment group Istithmar, was forced to seek Chapter 11 protection after its parent was unable to reach a debt extension deal with creditors.

Frank Oswald, a partner with New York bankruptcy boutique Togut, Segal & Segal, is advising Loehmann's on its Chapter 11 case. Cleary Gottlieb Steen & Hamilton bankruptcy partners Sean O'Neal and Richard Lincer are advising Istithmar along with associates Joel Moss, David Martinez, and Joseph Aacker. (Neither firm has yet submitted billing records to the court; Cleary has made a bundle on other recent bankruptcy assignments, including the Nortel case.)

The New York Times reports that under the terms of Loehmann's prepackaged bankruptcy plan, the debtor's secured lenders will emerge with 51 percent of the equity in a reorganized company, while Istithmar receives a 49 percent stake. Istithmar bought Loehmann's in May 2006 for $300 million. Karen Lapidus, an in-house lawyer formerly with Forbes, is Loehmann's general counsel.

CREDIT-BASED ASSET SERVICING AND SECURITIZATION LLC

Three years after undergoing a $3.8 billion restructuring in order to avoid a potential bankruptcy filing, Credit-Based Asset Servicing and Securitization (C-Bass) and seven affiliated entities have succumbed to Chapter 11, Bloomberg reports.

The New York-based subprime mortgage investor was crippled by its February 2007 acquisition of Fieldstone Investment Corporation, once one of the nation's largest subprime lenders. Fieldstone's mortgage unit filed for bankruptcy the following November. (Venable and Baltimore firm Shapiro Sher Guinot & Sandler are advising Fieldstone Mortgage in its Chapter 11 case.)

Hunton & Williams bankruptcy partner Peter Partee, Sr., counsel Richard Norton, and associates Robert Rich and Scott Bernstein are serving as lead debtor's counsel to C-Bass. The firm has not yet submitted billing statements with the court.

At the time of its bankruptcy filing, C-Bass was liquidating its investment portfolio and returning proceeds to investors and lenders, according to The Milwaukee Business Journal. Bloomberg reports that U.S. bankruptcy judge Allan Gropper told lawyers for C-Bass on Tuesday to resubmit a bid to use cash collateral on an interim basis.

Davis Polk & Wardwell insolvency partner Damian Schaible is representing JPMorgan Chase, agent bank for C-Bass lenders. Bloomberg reports Schaible proposed a new order late Tuesday setting a $100,000 limit on the use of cash by the debtor.

METROPOLITAN 885 THIRD AVENUE LEASEHOLD LLC

The owner of Manhattan's famed Lipstick Building filed for bankruptcy in New York on Tuesday, citing the downturn in commercial real estate, Reuters reports. The owner of the 34-story office tower, once home to Bernard Madoff's massive Ponzi scheme, entered Chapter 11 after defaulting on a $210 million mortgage held by the Royal Bank of Canada.

Blank Rome bankruptcy partners Marc Richards and Joel Shapiro and real estate partner Steven Shoumer are advising the management company for the Lipstick Building in its Chapter 11 case. Court records show that Blank Rome received $657,000 from the debtor prior to its bankruptcy filing, with an additional $100,000 retainer paid before the debtor entered Chapter 11 proceedings. Partners and counsel at the firm are billing between $350 and $855 per hour, while associates are ranging from $260 to $525.

In a 19-page affidavit by Jacob Abikzer, president of Metropolitan Real Estate Investors and a member of the Lipstick Building's management, Abikzer states that rising vacancy and lower lease renewal rates impaired the debtor's ability to make payments to RBC. As a result, the Canadian bank will take control of the Lipstick Building under a prepackaged plan of reorganization.

According to a list of the debtors' largest unsecured creditors, the owners of the Lipstick Building owe $18,273.70 to New York real estate and litigation firm Wachtel & Masyr.

AWAL BANK

One of the largest banks in Bahrain, Awal Bank filed for bankruptcy in New York late last month, a little more than a year after seeking Chapter 15 protection from U.S. creditors. Bahrain's central bank took over Awal in July 2009 after it defaulted on loans to foreign lenders. Several weeks later British law firm Charles Russell was named administrator for Awal. (The firm has an office in Bahrain's capital of Manama.)

Brown Rudnick bankruptcy litigation partners David Molton, Sunni Beville, and Robert Harris are representing Charles Russell partner Stewart Hey, one of the lawyers serving as external administrator for Awal. In an affidavit submitted to the bankruptcy court, Hey states that his mandate is to achieve maximum disbursements for Awal's creditors.

Quinn Emanuel Urquhart & Sullivan partners Daniel Brockett and Christine Chung are representing Awal in the U.S. Bahraini firm Haya Rashed Al Khalifa is also advising Awal. In June, a court in Bahrain ruled in favor of placing Awal under administration, and Bloomberg reports that the bank's default has triggered legal battles around the world.

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