It's been widely publicized that the credit crunch and the declining economy have turned a majority of bankruptcy proceedings into fast-track sales and liquidations. But as the cases of Eclipse Aviation Corp., Motor Coach International Inc. and Buffets Inc. show, these tough conditions also are wreaking havoc on the back ends of even seemingly successful Chapter 11 cases.
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Earlier this week, it was revealed that Eclipse's buyout at the hands
of EclipseJet Aviation Inc. had collapsed. Despite Eclipse winning
court approval to sell its assets to EclipseJet for more than $198
million on Jan. 20, the company was never able to close the deal
because EclipseJet, an affiliate of majority Eclipse shareholder Etirc
Aviation Sarl, couldn't get the necessary acquisition financing from an
unidentified Russian bank. This threatened Eclipse with the complete
collapse of its case, as the company as recently as Wednesday noted in
documents that it would not oppose a motion by bondholders to convert
its proceedings to a Chapter 7 liquidation. This may not be the end for
Eclipse, however, given that a group has just been formed by aerospace
executive Phil Friedman to buy the company out of Chapter 7. But it
certainly isn't what the maker of small business jets had in mind when
it filed for Chapter 11.
Buffets, meanwhile, has taken a few steps backward in the hopes of moving forward. The owner of a steak buffet restaurant chain was preparing to seek confirmation of its reorganization plan on Feb. 3, but after it couldn't lock down an exit financing commitment in time, it had to go back to the kitchen to alter the recipe for the plan. Buffets turned to Credit Suisse Securities USA LLC for a $120 million first-lien exit loan. That financing, however, required Buffets to alter its plan so dramatically that it is now slated to seek approval of a modified disclosure statement on March 11 (meaning it will once again have to solicit votes from creditors before getting back to discussing confirmation).
The situation facing Motor Coach, however, may be much more dire. The Schaumburg, Ill.-based busmaker seemed to be on the verge of exiting bankruptcy last month. Despite facing heated opposition from unsecured creditors, the company was able to push a reorganization plan through bankruptcy court on Jan. 28 that handed majority control of the debtor over to third-lien lenders led by Franklin Mutual Advisors LLC. Yet even though Franklin and Motor Coach signed a lockup agreement before the debtor's Chapter 11 filing on Sept. 15 and Franklin had supported Motor Coach's efforts throughout the case, the company's plans could unravel as soon as Feb. 28.
Documents filed with the U.S. Bankruptcy Court for the District of Delaware in Wilmington show that Motor Coach must have its exit financing completed by then or Franklin has the right to walk away from the deal. But even though records indicated that Motor Coach is ready to seal a deal on two exit loans, Franklin has refused to extend the deadline and has made certain demands, hindering the process. Motor Coach and second-lien lender Bank of New York Mellon Corp. have since sued Franklin to force it to honor the lockup, without which Motor Coach's reorganization plan would be blown up. On Friday, the company was in court hoping to extend the Feb. 28 deadline from the lockup agreement, blocking Franklin from abandoning its obligations before the two suits are heard in court.
If nothing else, the three cases show that even court approval can't make a bankruptcy transaction a reality -- especially in this unforgiving credit market. - Ben Fidler
