Commercial Bankruptcies: Should Extensions Be Allowed?

The exclusivity period gives existing management the exclusive right to come up with a reorganization plan. This exclusivity period primarily benefits management and some equityholders but does little for creditors. The question is why management should have an exclusivity period when it is often management that landed the company in bankruptcy in the first place.

If the exclusivity period were dumped, various creditor classes and shareholders could propose reorganization plans. That in turn might speed up proceedings and even boost the potential price of assets as if they were up for sale rather than let assets wallow in bankruptcy proceedings for extended periods of time. Also, if more groups had the right to propose reorganization plans, management might be spurred to move faster and come up with solutions that would benefit creditors and even encourage management to keep their companies out of bankruptcy in the first place. Getting rid of the exclusivity period, or at least not allowing extensions, might also allow market forces to prompt a better solution for the assets of a bankrupt company.

Affiliated Media Inc. received approval from the U.S. Bankruptcy Court for its reorganization plan, which calls for eliminating most of its $930 million in debt, leaving it owing about $165 million. The newspaper company, which will end up 89%-controlled by its lenders, anticipates emerging from bankruptcy protection in the next several weeks.

Celebrity Resorts LLC, along with 35 affiliates, has filed Chapter 11 in the U.S. Bankruptcy Court in Orlando, Fl.  The Orlando time-share company reported $12 million in unsecured debt outstanding as well as more than $22 million in secured debt.

Centaur LLC, Indianapolis, In., filed Chapter 11, hoping to reorganize its finances. The firm said that it will continue operating normally and that it also intends to continue development of a location in Pennsylvania. Last fall, Centaur, with casino and horse-racing operations in Indiana and Colorado, missed a $13.4 million payment on more than $400 million of debt. The firm listed assets and liabilities of between $500 million and $1 billion each. For more information contact the U.S. Bankruptcy Court in Wilmington, De., under case number 10-10799, at 302-252-2560

Nortel Networks Corp., Brampton, Ontario-based manufacturer of telecommunications equipment, received approval from the U.S. and Canadian bankruptcy courts to sell its Carrier VoIP and Applications Solutions assets to GENBAND for $282 million, subject to possible adjustments.

Penton Media Inc., a privately-held Manhattan, N.Y. publisher of trade magazines, received approval from the U.S. Bankruptcy Court for its reorganization plan and should emerge from bankruptcy protection shortly. According to its reorganization plan, $270 million in long-term debt will be erased from its balance sheet and a senior secured credit line will be extended through 2014. Also, equity owners will invest at least $38.9 million in the firm. Penton filed Chapter 11 a month ago with a prepackaged plan.

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