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Renegade trustee backtracks on sale

by Allison Collins | Published October 11, 2011 at 3:57 PM

Despite previously pushing for an auction of Renegade Holdings Inc., the company's Chapter 11 trustee now opposes a $16.1 million sale of the maker of tobacco products unless the deal is modified.

Judge William L. Stocks of the U.S. Bankruptcy Court for the Middle District of North Carolina in Winston-Salem is set on Wednesday, Oct. 12, to preside over a sale hearing, according to counsel to the trustee, John Northen of Northen Blue LLP.

Court papers show Renegade did not receive any other bids challenging the stalking-horse offer of CB Holdings LLC. Because of an increase in required cure payments for delinquent escrow deposits with certain states, only $1.27 million would be left to distribute to secured creditor Bank of the Carolinas, cover administrative costs and satisfy priority tax claims and unsecured claims, court documents show.

At the sale hearing, therefore, trustee Peter Tourtellot plans to recommend the court not approve the sale without changes to its terms.

The escrow deposits stem from the 1998 Master Settlement Agreement reached between tobacco companies and 46 states and the District of Columbia. The agreement requires cigarette makers to make annual payments based on the number of cigarettes they sold the previous year.

Renegade must cure any arrearage in the escrow deposits required under the applicable statues of the settling states in which the debtor has sold tobacco products.

Missouri has asserted a $5 million claim for delinquent escrow deposits, and Tennessee seeks roughly $3.33 million, both of which Renegade disputes, court papers show. Other states have asserted $8.38 million in additional claims.

If those amounts were finalized, the value of the sale would change to $17.98 million, leaving $1.27 million for other creditors.

Both Bank of the Carolinas and GE Capital filed limited objections to the sale on Oct. 7.

The lender, owed about $3.04 million, objected because it wouldn't be paid in full from the sale.

GE Capital, meanwhile, filed its objection as an interested party in the case. It is a creditor of bankrupt PTM Technologies Inc., which leased equipment to bankrupt Renegade affiliate Alternative Brands Inc.

PTM filed a motion to enter into a new lease agreement with Renegade on Oct. 4. ABI would assume and assign the lease in conjunction with the sale motion, according to court documents.

GE Capital filed its objection to ensure that it can object to PTM's motion, according to court documents.

Stocks on Aug. 19 approved Renegade's bidding procedures, court documents show. Tourtellot filed a bidding procedures motion on July 20.

Renegade, which manufactures and distributes tobacco products, filed for Chapter 11 protection on Jan. 28, 2009, with affiliates ABI and Renegade Tobacco Co. The debtors blamed its participation in the 1998 Master Settlement Agreement for its financial difficulties.

Tourtellot was appointed as trustee on Aug. 17, 2010, after the debtors filed a motion requesting he be appointed chief restructuring officer.

The Mocksville, N.C., debtors previously had a reorganization plan confirmed on April 23, 2010, but Stocks vacated his confirmation order on July 13, 2010.

Examiner Gene Tarr filed an adversary proceeding on behalf of the debtors on Sept. 23, 2010, that alleged Renegade's owner, Calvin Phelps, and his wife, Lisa Yamaoka, fraudulently transferred money from the company to buy real estate, Chinqua Penn Plantation and two corporate jets, and lease tobacco product manufacturing equipment.

The suit argued Phelps fraudulently transferred more than $8.1 million from the three debtors, causing them to accept 16 unsecured promissory notes at a time when they needed capital.

The transfers, the suit said, were made with intent to hinder, delay or defraud creditors, and to benefit insiders and affiliates. Most property purchased with the debtors' funds was titled in Phelps' name or the name of a Phelps entity, according to court documents.

The suit alleged Phelps "put his own self-interests above the interests of the debtors, squandered and wasted corporate assets and otherwise breached his fiduciary duties of loyalty and care to RHI, ABI and RTC."

Besides Northen, Emily Curto Weatherford, Stephanie Osborne-Rodgers and Vicki L. Parrott at Northen Blue are counsel to the trustee.

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Tags: bankruptcy | Chapter 11 | Renegade Holdings Inc.

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