Business Bankruptcy News Bulletin Summary for Week of May 2

The items below are excerpted from the Business Bankruptcy News Bulletin. A full issue contains information on dozens of troubled companies, as well as informational and analysis highlights and an examination of business bankruptcy matters. More information on subscribing to the Bulletin at http://usbj.biz/.

A Brief Look at Stocks and Bonds in a Chapter 11 Reorganization

During bankruptcy, bondholders will stop receiving interest and principal payments, and stockholders will stop receiving dividends. When the bankruptcy is concluded, if you are a bondholder, you may receive: new stock in exchange for your bonds, new bonds or a combination of stocks and bonds. If you are a stockholder, the trustee may ask you to send back your stock in exchange for shares in the reorganized company. The new shares may be fewer in number and be worth less. The reorganization plan will spell out your rights as an investor and what you can expect to receive, if anything, from the company.

Bankrupt Companies

Appliance Direct, a Melbourne, Fl.-based retail chain, filed Chapter 11 with the intention of reorganizing its finances and continuing operations. The filing includes Appliance Now Inc., Appliance Direct Management Inc. and the eight retail locations that made separate filings in the U.S. Bankruptcy Court  in Orlando. For more information contact the court at 866-879-1286.

Blockbuster Inc. has seen a steering group of its debtor-in-possession lenders and others file an objection in the U.S. Bankruptcy Court to the video-rental firm’s request for approval of an amended and restated asset-purchase and sale agreement with Dish Network. Separately, Blockbuster won approval from the U.S. Bankruptcy Court to extend its exclusivity period for filing a reorganization plan until 8/29. The firm also now has until 10/18 to solicit acceptances for the plan.

Borders Group Inc. won approval from the U.S. Bankruptcy Court to pay out $6.6 million in bonuses to executives. The court determined that the bonuses, which are dependent on performance, are needed to keep key personnel on board. Bonuses of at least $7 million will be paid if executives can negotiate rent reductions of at least $10 million a year and management will get further bonuses if they are able to recover more than $95 million for the benefit of unsecured creditors. Meanwhile, the Ann Arbor, Mi.-based bookseller is trying to arrange another $50 million in financing as it continues to try to find a buyer and avoid having to liquidate.

Colonial BancGroup Inc.’s Chapter 11 exit plan is “premature”, according to the Federal Deposit Insurance Corp., which says that any plan must await a ruling of the U.S. Bankruptcy Court on the FDIC’s appeal of the court’s earlier ruling regarding Colonial’s failure to strengthen capital levels at its former Colonial Bank unit. According to the FDIC, Colonial’s main assets as specified in its reorganization plan are disputed. If the FDIC, as receiver in the case, succeeds in its appeal, Colonial will have to fix a $900 million deficit. And since it doesn’t have the financial wherewithal to do so, Colonial would likely have to convert its case to a Chapter 7 liquidation.

Lehman Brothers Holdings Inc. filed a joint Chapter 11 reorganization plan and disclosure statement in the U.S. Bankruptcy Court, in conjunction with certain affiliated debtors.

Scovill Fasteners Inc., a Clarksville, Ga. manufacturer of snap-closure buttons for the consumer and military markets, filed Chapter 11 under an agreement with creditors to sell nearly all of its assets to an affiliate of Global Equity Capital LLC. The sale of Scovill’s assets to the Global Equity affiliate, valued at $17 million in cash and expenses for assuming certain of Scovill’s contracts and liabilities, will be carried out through a court auction. Scovill’s filing, in the U.S. Bankruptcy Court in Gainesville, Ga., listed assets of between $10 million and $50 million and liabilities of between $100 million and $500 million.