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Chapter 11 Bankruptcy News

What mediation means for the archdiocese, insurers and victims

Summary of the Article

The Archdiocese of St. Paul and Minneapolis filed for Chapter 11 bankruptcy on Jan. 16, a step that allows the church to operate as usual while …

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Chancery Offices in St. Paul.Amanda Snyder / MPR News

The Archdiocese of St. Paul and Minneapolis filed for Chapter 11 bankruptcy on Jan. 16, a step that allows the church to operate as usual while reorganizing its operations and paying its creditors.

• The archdiocese has filed for bankruptcy: Now what?

Federal bankruptcy Judge Robert Kressel, who is overseeing the process, has ordered the archdiocese and its creditors into mediation, where the parties will attempt to negotiate a settlement to reorganize the archdiocese and compensate victims of clergy sexual abuses.

Compromise is critical to mediation, as parties try to work toward a settlement that most — or many — can live with.

If mediation is successful, the archdiocese and its creditors can avoid moving the process to a federal bankruptcy courtroom — where the process can be more contentious than negotiation.

“Litigation is war,” said Roger Haydock, professor at the William Mitchell School of Law in St. Paul. “It’s civil war, but it’s war. To that extent, you try to get a peace treaty.”

Mediation provides the opportunity for that peace treaty. Haydock says no party gets everything it wants in mediation, but it provides an opportunity to gain some control over the outcome.

How common is it?

Mediation has played a role in most, if not all, church Chapter 11 bankruptcy filings, with varying degrees of success. It didn’t resolve the Archdiocese of Milwaukee’s bankruptcy, which is entering its fifth year.

But mediation was key to making the Diocese of Helena, Mont.’s bankruptcy move forward smoothly.

• Earlier: Archdiocese weighs bankruptcy, but what would it mean?

Ford Elsaesser, the Helena diocese’s bankruptcy attorney, said the church and its creditors were basically under mediation even before the diocese filed for Chapter 11 reorganization protection.

“The financial condition of the Helena diocese was not good,” Elseasser said. “Everyone worked together to maximize what could be brought to the table, including settlements with the insurance carriers.”

How do insurers fit into the picture?

Insurance coverage is always a major factor in church bankruptcies. Carriers claim church officials voided their dioceses’ policies when they turned a blind eye toward clergy sexual abuse.

In mediation, though, the Twin Cities archdiocese and its insurers might determine that it’s better to compromise than fight it out in court, Elsaesser said.

An insurer could determine it has no legal obligation to provide coverage, but might decide to contribute money to a settlement, rather than spend money fighting a claim.

The archdiocese, for its part, could decide to settle for less insurance money than it figures it is owed, rather than risk getting little or nothing in court.

“It’s hopefully more productive to grind that out through the mediation process and come to an agreed number rather than rolling the dice in the courtroom,” Elsaesser said.

Who’s in charge?

Former federal Judge Arthur Boylan is serving as mediator in the Archdiocese of St. Paul and Minneapolis’ bankruptcy case.

Boylan has settled thousands of cases through mediation, including the 2011 labor dispute between the National Football League and its players’ union.

Judge Arthur BoylanSeth Wenig / AP

• Earlier: Judge who brokered NFL deal to mediate Southwest light rail fight

The NFL’s mediation required 26 sessions over the course of more than 100 days. Boylan’s successful mediation of the dispute ended that season’s lockout.

In this case, Boylan will work with the parties involved toward some sort of consensus. That requires a lot of listening, so Boylan can best understand the groups involved — and ensure they feel fairly treated.

Boylan’s role is to guide the process, as a neutral player, to an equitable solution.

What might get in the way?

“Egos are on the line, people’s reputations,” said Guy Burgess, co-director of the University of Colorado’s Conflict Information Consortium.

That makes Boylan’s job as a neutral party especially difficult.

“Some folks go into this to get all they possibly can get. Other folks might be more inclined to be conciliatory,” Burgess said. “So, there’s a lot of very difficult interpersonal issues that the mediator and the parties are likely to have to struggle with.”

Will the old alliances remain intact?

A bankruptcy filing tests the relationships of the parties involved and their ability to work together.

“Some relationships improve, where the parties find common ground. Others can deteriorate if the parties are or appear to be intransigent on critical issues or if … they’re perceived to to be hindering the resolution of the case,” said Howard Levine, who represented the Archdiocese of Portland, Ore., in its bankruptcy.

Bankruptcies can change relationships. For instance, groups that were pitted against each other before a bankruptcy — such as clergy abuse victims and the archdiocese — might find themselves allied against insurance companies on some issues in a mediation.

Even within the different groups involved in the bankruptcy, there could be internal divisions and squabbles.

“Among the 20 or so insurance companies, there’s probably 20 different opinions about what to do,” said Christopher Soper, a bankruptcy attorney and University of Minnesota law professor.

What’s the benefit of attempting mediation?

The mediation process is private and confidential, unlike a case that goes before a judge.

That promise of privacy invites candor — and encourages the parties involved to consider making concessions they might not otherwise make in open court.

“In mediation, the parties themselves get to say how much they’re willing to give up — how much they’re willing take, if you would, on either side of the table — and come to some resolution,” said Christine Kubes, a construction attorney and mediator.

What about compensating victims?

Generally in a bankruptcy, there’s not much dispute about individual abuse claims.

After it’s determined how much money is available to compensate victims, a court-appointed adjudicator will decide how that money should be allocated to individual victims, based on the severity of abuse suffered. Settlements also typically include an apology to victims.

Insurers and parishes where sex abuse occurred will likely try to make sure that any settlement with victims doesn’t leave the door open to abuse lawsuits against individual parishes.

Insurers and parishes may be on the same page in seeking, through the bankruptcy court, some sort of legal protection against future abuse claims.

Culled From

first published: 2015-02-03 10:07:30

Categories
Chapter 11 Bankruptcy News

Chapter 11 Bankruptcy News: Hilo Hattie files for Ch. 11 bankruptcy a second time, owes more than $10M

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Summary of the Article

 

Hawaii fashion and gift retailer Hilo Hattie has filed for Chapter 11 bankruptcy reorganization for the second time in less than seven years, and owes …

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Chapter 11 Bankruptcy News

Chapter 11 Bankruptcy News: Saladworks Files for Chapter 11 Bankruptcy

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Saladworks | This produce heavy restaurant chain has filed for Chapter 11 bankruptcy

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CONSHOHOCKEN, PA – Saladworks has filed for Chapter 11 bankruptcy protection this week and announced that it is seeking a buyer in an effort to end litigation between its owners.

 

In documents filed with U.S. Bankruptcy Court in Delaware, Saladworks listed over $10 million owed to two companies controlled by Vernon Hill, the Commerce Bank founder who has owned a 30% stake in Saladworks since 2008.

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Categories
Chapter 11 Bankruptcy News

Chapter 11 Bankruptcy News: Saladworks LLC Files for Bankruptcy Protection Under Chapter 11

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Summary of the Article

 

Restaurant chain Saladworks LLC has filed for bankruptcy protection but has said that its customers do not have to worry. The company in a statement …

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Restaurant chain Saladworks LLC has filed for bankruptcy protection but has said that its customers do not have to worry. The company in a statement said that even though the company has filed for Chapter 11 bankruptcy protection, it would not affect the day to day operations of the franchised locations.

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Categories
Chapter 11 Bankruptcy News

Former Hertz CEO hired to take over top post at Caesars Entertainment effective July 1

Summary of the Article

… Caesars Entertainment and its Caesars Entertainment Operating Co. subsidiary, which filed for Chapter 11 bankruptcy protection three weeks ago, …

Article

LAS VEGAS — Caesars Entertainment Corp. chief executive Gary Loveman announced Wednesday he will hand the reigns of the casino-hotel empire to former Hertz rental car CEO Mark Frissora, effective July 1.

Loveman will remain chairman of Caesars Entertainment and its Caesars Entertainment Operating Co. subsidiary, which filed for Chapter 11 bankruptcy protection three weeks ago and has owned and operated most of Caesars’ 50 casino-hotel properties worldwide, the company said in a statement. Caesars’ properties include Caesars Palace, Paris Las Vegas, Bally’s, the Cromwell and the Linq on the Las Vegas Strip.

The departure was characterized as being Loveman’s decision. He said in the statement that the timing was right to transition to new management.

Loveman first suggested leaving last summer, saying he was getting tired, and he broached the possibility with the company’s board of directors, which searched for a replacement and found Frissora, said Caesars spokesman Gary Thompson.

Loveman has been CEO of Caesars since 1998, when it was known as Harrah’s Entertainment. He arrived at the company as a Harvard University business professor.

“It is a little bit odd that it’s not a casino company manager stepping in,” said Fitch Ratings analyst Alex Bumazhny, but he noted Loveman’s background as a university professor meant he wasn’t exactly “your stereotypical casino CEO” either.

Bumazhny said that a lot of what Loveman put into place, particularly growing the company’s Total Rewards program and increasing efficiencies, is already institutionalized and isn’t likely to be shaken by his departure.

Frissora was most recently chairman and CEO of Hertz Global Holdings Inc. before stepping down in September for personal reasons. Hertz has been reviewing its financial reports for the past three years and restating results.

Caesars’ announcement credited Frissora with expanding the company and leading the acquisition of another rental-car company Dollar Thrifty. Before joining Hertz in 2006, Frissora was chairman and CEO of automotive part manufacturer Tenneco.

The company’s statement pointed to Frissora’s experience with complex and highly leveraged companies, two descriptions that have been used to describe Caesars as well.

The sale of Harrah’s Entertainment to two private equity firms in 2008 left the company saddled with debt, eventually leading to the bankruptcy of a division weighed down by the most debt — some $18.4 billion. In the company’s statement, Loveman said he would still oversee the restructuring of Caesars Entertainment Operating Co. The company has been brokering a plan with its creditors to shave $10 billion from the company’s debt while filing for bankruptcy protection.

Caesars Entertainment’s stock rose 1 cent to close Wednesday at $11.29.

Culled From

first published: 2015-02-03 23:36:35

Categories
Chapter 11 Bankruptcy News

The Examiners: Fees Don’t Drive Bankruptcy Decisions

Summary of the Article

It’s important to remember that Chapter 11 bankruptcy filings are reserved for those situations where the money has run out. Businesses don’t opt for …

Article

As I noted in a previous Examiners response, unnecessarily high professional fees can certainly hinder the Chapter 11 process, particularly for smaller and mid-sized businesses. But while this is an issue that should be addressed, I wouldn’t say that it’s causing the drop off in Chapter 11 filings. Fees aren’t a decision driver, and there are more relevant issues in play.

It’s important to remember that Chapter 11 bankruptcy filings are reserved for those situations where the money has run out. Businesses don’t opt for the Chapter 11 process just to retool their business model; they do so when the cash flow has left them no other choice.

Thus, with the capital markets flush, it should be of no real surprise that Chapter 11 bankruptcy filings have trended downward. Unfortunately, these robust markets allow some troubled companies to kick the can down the road. Of course, there will come a time in the capital-market lifecycle when those who have not addressed their systemic issues will run out of time. The next liquidity crunch will again force challenged businesses to pursue a Chapter 11 solution.

In addition, there are a number of mechanisms besides a Chapter 11 filing available for restructuring the operational capabilities and balance sheet of a company that has fallen on troubled times. In fact, these alternative restructuring paths can often be achieved more quickly and with more cost-effectiveness.

Even though professional fees aren’t currently stymieing in-court restructurings, as restructuring professionals, we should raise awareness of this chronic issue now, so future filers will be afforded the ability to emerge from the Chapter 11 process with as equal an opportunity for success as those who didn’t face such a disproportionate fee burden.

Marc Leder, co-chief executive officer of Sun Capital Partners Inc. of Boca Raton, Fla., has been engaged in leveraged buyouts, investment banking, and business operations for more than 25 years.

Culled From

first published: 2015-02-03 18:22:30

Categories
Chapter 11 Bankruptcy News

The Examiners: ABI Commission Recommendations Deserve Consideration

Summary of the Article

The myriad issues addressed in a Chapter 11 bankruptcy—asset sales, operational restructuring, litigation claims and capital structure, to name a …

Article

Have Chapter 11 restructurings become so expensive that professionals are essentially pricing themselves out of business? 

In addressing the Office of the U.S. Trustee’s new attorney fee guidelines, the American Bankruptcy Institute (ABI) Commission’s report recently proposed constructive changes regarding the retention and compensation of professionals. These recommendations are, in part, designed to incentivize professionals to provide services in a cost-effective manner. Additionally, the commission suggested the consideration of the value, relevance and viability of alternative fee arrangements, fixed fee arrangements and task-based fees in the compensation of professionals.

It is important to understand that leading a company and its associated stakeholders through the Chapter 11 process is a highly complex endeavor that requires dealing with multiple parties over an extended period of time, most of whom hold varying and often widely divergent interests. The amounts and nature of the claims at issue in the largest Chapter 11 filings are not only material but also controversial between and among the different constituencies throughout the capital structure. The myriad issues addressed in a Chapter 11 bankruptcy—asset sales, operational restructuring, litigation claims and capital structure, to name a few—require specialized expertise in a number of areas. The knowledge, experience and value that experienced bankruptcy professionals bring to a case should not be underestimated because the recovery of stakeholder value is directly linked to the strategies developed, negotiated and implemented by highly skilled restructuring professionals.

The commission’s recommendations deserve thoughtful consideration because they provide valuable suggestions to drive additional efficiencies on multiple fronts of the Chapter 11 process. This is especially true for small- to middle-market cases, which often have complex issues on par with the larger Chapter 11 filings but lack the funds to support a similar level of effort by the case professionals.

Chapter 11 can be an expensive process, but not unjustifiably so. Ultimately, a holistic approach to maximizing value for a cross section of stakeholders in the Chapter 11 process, which includes market-based fee arrangements for professionals (including alternative fee structures), will have the best chance of aligning the interests of all involved in the value preservation and value creation effort that is the hallmark of a successful restructuring.

Ralph S. Tuliano is chief executive of financial advisory firm Mesirow Financial Consulting LLC and a member of the American Bankruptcy Institute’s board of directors.

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first published: 2015-02-03 17:48:45