United States: Top 10 Bankruptcies Of 2013

As in 2012, banking and financial services companies were conspicuously absent from the Top 10 List of public-company bankruptcy filings for 2013. Only one brokerage firm and a single bank holding company made the cut, further demonstrating that the chaff in the banking and financial services sectors has largely been winnowed in the aftermath of the 2008 financial crisis. Four of the Top 10 filings in 2013 involved publishing or advertising media companies still struggling to adapt to the rapid transformation from print to web- and phone-based forms of media. The remaining Top 10 filings were made by companies in the shipping, manufacturing, distilling, and entertainment industries. Each company gracing the Top 10 List for 2013 entered bankruptcy with assets valued at more than $1 billion. Seven of the 10 both filed for and emerged from bankruptcy in 2013.

Cengage Learning Inc. ("Cengage"), a textbook-publishing company based in Stamford, Connecticut, with 5,500 employees, grabbed the brass ring for the largest public-company bankruptcy filing of 2013. Cengage filed for chapter 11 protection on July 2, 2013, in New York with $7.5 billion in assets. The filing was part of a restructuring agreement with lenders that will eliminate approximately $4 billion of its $5.8 billion in debt, much of it incurred in connection with the 2007 acquisition of Cengage by a partnership led by private equity company Apax Partners LLP. One of the nation's largest publishers of textbooks and other educational content, Cengage also sought bankruptcy protection to support its long-term business strategy of transitioning from traditional print models to digital educational and research materials.

Plano, Texas-based Penson Worldwide, Inc. ("Penson"), a provider of financial clearing services and related products, traded into the No. 2 position on the Top 10 list for 2013 when it filed for chapter 11 protection in Delaware on January 11, 2013, with $6.2 billion in assets and plans to sell off its assets, including U.S. operating subsidiary Nexa Technologies, Inc. Once a major handler of securities trades for U.S. brokerages, Penson never recovered from the global financial crisis. The company stated that its bankruptcy filing was triggered by lower equity trading volume that, combined with historically low interest rates, led to a liquidity crisis. The Delaware bankruptcy court confirmed a liquidating chapter 11 plan for Penson on July 31, 2013.

Yellow Pages company Dex One Corporation ("Dex One") took the No. 3 spot on the Top 10 List for 2013 when it (re)turned the page into chapter 11 in Delaware on March 17, 2013, with $2.8 billion in assets. Dex One filed a prepackaged bankruptcy as part of a previously announced all-stock merger deal with rival SuperMedia LLC ("SuperMedia")— No. 9 on the 2013 Top 10 List. Dex One was created as the successor to directories-publishing giant R.H. Donnelley Corp., which emerged from chapter 11 protection in February 2010. Like the newspaper industry, the Yellow Pages business has not benefited from a broader advertising recovery, since more consumers and advertising dollars have migrated to the internet, accelerating the decline for the industry over the past few years. Now known as Dex Media, Inc., the merged companies exited from bankruptcy on April 30, 2013, as a marketing services company that helps local businesses reach potential customers. The merger brought together directory operations formerly part of Ameritech in Illinois, Qwest and Verizon, for the first time since the Bell System divestiture. Since merging, the two companies have continued to conduct business at the local market level under the SuperMedia and Dex One brands.

Athens-based Excel Maritime Carriers Ltd. ("Excel") steamed into the No. 4 berth on the Top 10 List for 2013 when it filed a prenegotiated chapter 11 case in New York on July 1, 2013, with $2.7 billion in assets to implement a restructuring with the help of a capital infusion of up to $50 million and the release of another $30 million in restricted cash. Excel owns and operates dry bulk carriers and provides worldwide seaborne transportation services for dry bulk cargoes, such as iron ore, coal, and grain, as well as bauxite, fertilizer, and steel products. The company owns a fleet of 39 vessels with a total stowage capacity of approximately 3.6 million dead-weight tonnage (DWT). Secured lenders were vastly under water at the time of the filing due to volatility and overall declines in charter rates.

Under the chapter 1 1 plan originally proposed by Excel, secured lenders were to receive a restructured $771 million credit facility and 100 percent of the reorganized company's stock. Through a side agreement, 60 percent of that stock would be transferred to Ivory Shipping Co., which is controlled by Excel chairman Gabriel Panayotides, allowing him to retain control of Excel. Unsecured bondholders

initially challenged the fairness of the plan, which proposed a 3 percent recovery to bondholders while effectively allowing Panayotides to maintain control of the company. However, Excel and its bondholders agreed on the terms of a revised plan in late November, and a confirmation hearing was scheduled for January 27, 2014.

Madison, Wisconsin-based Anchor BanCorp Wisconsin Inc. ("Anchor BanCorp") vaulted into the No. 5 position on the Top 10 List for 2013 when it filed for chapter 11 protection in Wisconsin on August 12, 2013, with $2.4 billion in assets and $2.43 billion in debt. Anchor BanCorp filed a prepackaged chapter 11 case, the highlight of which is an agreement whereby investors infused $175 million of new capital into the company in exchange for 96.7 percent of new common stock in the reorganized company. Anchor BanCorp's sole preferred shareholder, the U.S. Department of the Treasury, received 3.3 percent of the new common stock in the restructured company. Anchor BanCorp owed $110 million in Troubled Asset Relief Program ("TARP") funds as of July 31, 2013, the fifth-largest outstanding TARP investment. The new capital infusion was the keystone of a chapter 11 plan that the bankruptcy court confirmed on August 30, 2013. The funding allowed Anchor BanCorp to recapitalize AnchorBank, its bank subsidiary and Wisconsin's third-largest depository, with 55 branches. AnchorBank did not file for bankruptcy.

Milton, Georgia-based lead-acid battery manufacturer Exide Technologies ("Exide") powered into the No. 6 spot on the Top 10 List for 2013 when it filed for chapter 11 protection for the second time in little more than a decade in Delaware on June 10, 2013, with $2.2 billion in assets. With nearly 10,000 employees, Exide manufactures and supplies lead-acid batteries for transportation and industrial applications worldwide under the Centra, DETA, Exide, Exide Extreme, Exide NASCAR Select, Orbital, Fulmen, and Tudor brand names, among others. Rising production costs, intense competition, and reduced access to credit drained the battery maker's earnings and liquidity in recent years. In addition, Exide was hurt by the global economic retraction and trouble with toxic substance regulators in connection with its battery-recycling facility in California. In 2002, Exide filed a chapter 11 case to deal with $2.5 billion in acquisition debt. Its confirmed chapter 11 plan in that case eliminated $1.3 billion in debt.

The No. 7 position on the Top 10 List for 2013 went to Warsaw-based (but Mount Laurel, New Jersey-headquartered) Central European Distribution Corp. ("CEDC"), one of the largest producers of vodka in the world as well as Central and Eastern Europe's largest integrated spirit beverages business. Headed by Russian billionaire Roustam Tariko, CEDC filed for chapter 11 protection in Delaware on April 7, 2013, with $2.1 billion in assets to manage heavy bond debt by means of a prepackaged restructuring plan aimed at cutting approximately $700 million in liabilities. The distiller lost nearly 50 percent of its market value in 2012 amid slumping sales, rising debt, and management transitions. On May 13, 2013, CEDC obtained confirmation of its prepackaged chapter 11 plan. Under the plan, Tariko received 100 percent of CEDC's newly issued stock in return for a new $277 million capital infusion. Confirmation of the plan created an alliance between CEDC and Russian Standard, the rival vodka maker also owned by Tariko.

No. 8 on the Top 10 List for 2013 was dog-eared by RDA Holding Co. ("RDA Holding"), a New York City-based company that, through its subsidiaries, produces, publishes, and sells print and digital magazines (including the iconic, 91-year-old pocket-sized publication, Reader's Digest, the highest-circulated paid magazine in the world), along with books, music, and videos, through various media channels. RDA Holding reopened its chapter 11 book when it filed for bankruptcy protection for the second time in four years in New York on February 17, 2013, with $1.6 billion in assets. Having emerged from an earlier bankruptcy in February 2010 with a healthier balance sheet and a smaller publication footprint, RDA Holding returned to chapter 11 in an effort to further pare down its debt. RDA Holding was also hurt by continuing changes in the print media industry that caused declines in its North American book and home entertainment businesses, as well as certain portions of its European business. RDA Holding reprised its exit from chapter 11 after obtaining confirmation of a plan on June 28, 2013, that ceded control of the company to bondholders in exchange for the cancellation of $231 million in debt.

SuperMedia LLC ("SuperMedia") (formerly Idearc Media LLC ("Idearc")), a marketing company based in Dallas that provides print, mobile, and internet advertising to small- and medium-sized businesses, snagged the No. 9 position on the Top 10 List for 2013. As discussed above, ninth-ranked SuperMedia, which emerged from the bankruptcy of Idearc in January 2010, filed a prepackaged chapter 11 case in Delaware on March 17, 2013, with $1.4 billion in assets for the purpose of consummating a merger with Yellow Pages company Dex One—No. 3 on 2013's Top 10 List. Since its merger with Dex One Corporation and exit from bankruptcy in April 2013, SuperMedia has operated as a subsidiary of Dex Media, Inc., the postmerger entity. Since merging, the two companies have continued to conduct business at the local market level under the SuperMedia and Dex One brands.

Atlantic City casino and resort owner Revel AC, Inc. ("Revel") folded into the final position on the Top 10 List for 2013 when it filed a prepackaged chapter 11 case in New Jersey on March 25, 2013, with $1.2 billion in assets. Built at a cost of $2.4 billion, Revel opened for business in April 2012 and began to falter almost immediately. Revel misread customer demand in the downtrodden New Jersey gambling mecca— consumers wanted inexpensive, fast, and simple options rather than over-the-top glamour. Revel exited bankruptcy on May 23, 2013, after the court confirmed a debt-for-equity-swap reorganization plan that pared more than $1.2 billion, or 80 percent, of $1.5 billion in debt from the company's balance sheet. Revel has 1,399 hotel rooms and a casino with more than 2,400 slot machines and 130 table games.

Other notable debtors (public and private) in 2013 included:

The City of Detroit, which became the largest U.S. city ever to seek bankruptcy protection when it filed a chapter 9 petition in Michigan on July 18, 2013. Detroit—which has lost 300,000 residents since 1995—is overwhelmed by as much as $18 billion in long-term liabilities, including $9.4 billion in special revenue bonds as well as debt related to the city's general fund and health-care benefits. Faced with a shrunken tax base, a 139-square-mile metropolitan area to maintain, and unsustainable health-care and pension costs, the city's expenditures have exceeded revenues in each of the last four years by an average of $100 million annually.

STX Pan Ocean Co. Ltd. ("STX"), a South Korean cargo-shipping company on behalf of which a chapter 15 petition was filed in New York on June 20, 2013, seeking recognition of the company's South Korean rehabilitation proceedings shortly after four STX vessels were detained in Washington, California, and Texas. The chapter 15 petition for STX, which suffered from a decrease in cargo traffic volume and ocean freight fares due to the global financial crisis, as well as an increased supply of ships from Chinese shipbuilders, listed $6.0 billion in assets and $4.4 billion in debt. The U.S. bankruptcy court entered an order recognizing STX's Korean reorganization as a "foreign main proceeding" on July 12, 2013.

Privately held Taiwanese (but Houston-headquartered) shipping company TMT USA Shipmanagement ("TMT"), which filed for chapter 11 protection in Texas on July 20, 2013, listing $1.5 billion in assets and $1.46 billion in debt, after the holders of $800 million in bank debt seized seven of its 17 vessels in ports from Antwerp to China. Owned by Taiwanese shipping magnate Nobu Su, TMT has suffered from the same drop in shipping rates that has plagued the entire industry since 2008.

Hoku Corp. ("Hoku"), a Pocatello, Idaho-based company that operates as a solar energy products and services company primarily in the U.S. Hoku filed a chapter 7 petition on July 2, 2013, in Idaho for the purpose of liquidating assets listed at $670 million. With Chinese backing, Hoku invested more than $600 million in a polysilicon plant in Pocatello that was never completed and has now been abandoned. Two failed auctions in the bankruptcy court yielded bids of no more than $5 million for the mothballed facility until the court sanctioned an $8.3 million offer for the plant on December 23, 2013, by a Washington State construction company.

St. Louis-based Furniture Brands International, Inc. ("Furniture Brands"), one of the largest U.S. furniture manufacturers— its brands include Broyhill, Lane, Drexel Heritage, and Thomasville. The company filed for chapter 11 protection in Delaware on September 9, 2013, with $618 million in assets and a plan to sell all but its Lane business to investment firm Oaktree Capital Management for $166 million. Like other domestic furniture manufacturers, Furniture Brands has been hurt by the lingering effects of the recession and by foreign competition. The company had sales of approximately $1 billion in 2012, roughly half of what it generated a decade ago, and has not made a profit since 2006. After an auction, the

bankruptcy court approved the sale on November 22, 2013, but to a different purchaser, private equity firm KPS Capital Partners LP, for $280 million.

Oklahoma City-based independent oil and natural gas exploration and production company GMX Resources Inc. ("GMX"), which filed for chapter 11 protection on April 1, 2013, in Oklahoma with $542 million in assets. GMX was a victim of depressed natural gas commodity prices and needed capital expenditures for oil and gas operations. It has proposed a chapter 11 plan whereby new common stock would be exchanged for approximately $500 million in bond debt, ceding control of the company to creditors.

Global Aviation Holdings Inc. ("Global Aviation"), a Peachtree, Georgia-based company that, through its subsidiaries, World Airways and North American Airlines, provides customized, nonscheduled passenger and cargo air transport services worldwide (both military and civilian). Global Aviation reprised its role as chapter 11 debtor for the second time in less than a year when it filed for bankruptcy on November 12, 2013, in Delaware, listing between $500 million and $1 billion in assets. The company traced its most recent financial difficulties to decreased demand for military cargo and passenger services and the shutdown of the U.S. government in October 2013, which significantly delayed payments owed to the carrier for military flights.

Fairport, New York-based newspaper publisher GateHouse Media, Inc. ("GateHouse"), which filed for chapter 11 protection in Delaware on September 27, 2013, with $470 million in assets and a prenegotiated plan to restructure approximately $1.2 billion in debt. At the end of 2012, GateHouse owned and operated 406 publications located in 21 states, including daily and weekly newspapers, shoppers, and Yellow Pages directories, as well as locally focused websites and mobile sites. On November 6, 2013, the bankruptcy court confirmed GateHouse's chapter 11 plan, which canceled existing stock and ceded control of the company to creditors. The plan, however, awarded warrants to old shareholders to purchase shares in New Media Investment Group Inc., a new holding company that also includes Local Media Group, a chain of 33 local papers in seven states run by GateHouse.

Boca Raton, Florida-based FriendFinder Networks, Inc. (f.k.a. Penthouse Media Group) ("FriendFinder"), publisher of the late Bob Guccione's iconic Penthouse magazine and the operator of numerous adult-entertainment and dating websites, which filed for chapter 11 protection in Delaware on September 17, 2013, with $452 million in assets to consummate a deal with noteholders that would reduce debt by $300 million in exchange for ownership of the company. While social media sites like Facebook and LinkedIn have boomed in recent years, FriendFinder has not turned a net profit since at least 2008. FriendFinder obtained confirmation of its debt-for-equity-swap chapter 11 plan on December 16, 2013, and emerged from bankruptcy, now known as PMGI Holdings Inc., on December 20, 2013.

Privately held, Mexico City-based telecommunications company Maxcom Telecomunicaciones S.A.B. de C.V. ("Maxcom"), which, together with 14 affiliates, filed for chapter 11 protection in Delaware on July 23, 2013, with $400 million in assets and $402 million in debt. Maxcom proposed a prepackaged plan for recapitalization and debt restructuring involving a $45 million cash infusion and tender offer for all its shares from private equity firm Ventura Capital Privado, S.A. The bankruptcy court confirmed Maxcom's prepackaged chapter 11 plan on September 10, 2013.

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Mark G. Douglas
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