Hypo Alpe-Adria to open new chapter for Europe bank debt bail-in

Fri May 30, 2014 11:16am EDT

* Potential HAA sub debt bail-in seen as aggressive

* Bail-in cost to outweigh any financial gain

* Legislation to be used as threat for discounted buy-back

By Helene Durand

LONDON, May 30 (IFR) - A dangerous precedent could be set by Austria if its government goes ahead with a potential bail-in of Hypo Alpe-Adria's guaranteed subordinated debt, market participants said this week.

This small Austrian lender could be another test case for European authorities. Bail-in of bank subordinated debt has become commonplace over the last two years, but no country has retroactively removed a guarantee before.

"The cost benefit of going down that route would be poor," said one analyst. "The money Austria gained would only make a small contribution to the wind-down of the bank but the damage it could have on other guarantees could be far-reaching and substantial."

Some debt bankers said that imposing haircuts on guaranteed debt would set a dangerous precedent, especially for countries like Austria and Germany where those guarantees are such a fundamental part of the funding arrangements for a large number of financial institutions.

But it appears that a legislative proposal could be put in front of Parliament very soon which would remove the deficiency guarantee previously given by the Austrian state of Carinthia on that debt.

According to Barclays research, there is 50.5bn of outstanding legacy bank debt guaranteed by sub-sovereigns in Austria, combined with 18.6bn of other guarantee commitments of Austrian regions. The latter is mainly used for the support of bank loans to public and private enterprises, with Carinthia being the biggest sub-sovereign guarantee provider.

Barclays analysts added that any challenge to the validity of the underlying guarantees could lead to doubts regarding the solvency of the whole sector.

Way back in 2010, authorities in Ireland used subordinated debt to help resolve failing banks. The Netherlands followed suit last year. But these were not guaranteed.

On May 23, Moody's downgraded HAA's guaranteed subordinated debt to Ba3 from Baa3, saying it thought the prospect for the government to successfully pursue legislation to bypass the statutory deficiency guarantee was reasonable.

The agency also downgraded the bank's senior guaranteed debt to Ba1, saying that while it was at a lower risk of loss, any bail-in of the subordinated debt would set an important precedent.

"Given the amount of sub-sovereign guaranteed debt there is in Europe, this sounds like a really stupid idea to me," a senior DCM banker said.

A BASKET CASE

However, not everyone agrees that retroactive removal of the guarantee would have such widespread effects.

"It's a fairly isolated and peculiar case," said another senior FIG DCM banker. "The worst case of Austria bailing-in senior guaranteed debt has been avoided, which would have had a broad-based impact. While this would not be a pretty situation, this legacy subordinated debt is an exceptional case, it is not something you would see today."

Not only is the size of what would be impacted small, at just 900m, but the guarantee was from a sub-sovereign, not from the Austrian federal government.

Some argue that Austria could potentially use the threat of introducing the legislation as a stick to make bondholders participate in a deeply discounted bond buy-back.

If this is the case, it already appears to have had an impact. Although illiquid, the bonds have dropped to a cash price of high 50s/low 60s, according to bankers, having been trading as high as 80 just a few weeks ago. (Reporting by Helene Durand, editing by Alex Chambers, Julian Baker)

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CORRECTED-Swiss, Austrian groups leading offers for Hediard -source

Fri May 30, 2014 12:06pm EDT

(Corrects Do & Co to Ledunfly in graph 6 and Ledunfly to Do & Co in graph 7.)

PARIS May 30 (Reuters) - Swiss fund Ledunfly and Austria's Do & Co Restaurants & Catering AG are best placed among groups working on offers to buy Hediard, the French chain of luxury food shops that filed for insolvency in October, a source close to the matter said.

The Paris commercial court is set to review offers to buy Hediard on June 4, including one from French restaurant group Le Duff, owner of La Brioche Doree food chain.

"Ledunfly and Do & Co are really in the race and can still improve their offers. Duff's offer is more limited," the source told Reuters on Friday.

Candidates have until midnight to make their final offers.

Le Duff and Ledunfly could not be immediately reached for comment while Do & Co had no immediate comment.

Ledunfly is offering 2 million euros ($2.72 million) to buy loss-making Hediard and keep its staff of 134 while it would also inject a further 15 million euros to help the group expand, the source said.

Do & Co is offering 15 million euros and would keep about 100 people. It plans to invest a further 6 million in Hediard's flagship store on the chic La Madeleine square in Paris, opposite rival luxury food group Fauchon.

So far, Russian tycoon Sergei Pugachev, who bought Hediard in 2007, has not made any offer. He could still submit a plan by midnight that would allow the company to keep operating.

"It's possible but unlikely," the source said.

Hediard, which is present in 30 countries, opened in Paris in 1854 as a small shop specialising in exotic foods.

It operates five stores in Paris, including La Madeleine flagship store, and has 250 selling points worldwide, of which 70 are in France.

The Luxadvor group, controlled by Pugachev, bought the chain in 2007 in a deal designed to help it expand abroad, but Hediard has lost money for the past six years.

Hediard posted a net loss of 6 million euros on revenue of 17.5 million in the 2013/14 financial year ended March 31.

($1 = 0.7345 Euros) (Reporting by Pascale Denis, Dominique Vidalon; Additional reporting by Alice Baghdjian in Zurich, Georgina Prodhan in Vienna; Editing by Jean-Michel Belot and Erica Billingham)

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Minority creditors of Brazil's Oleo e Gas sue Deutsche Bank

SAO PAULO Fri May 30, 2014 9:26pm EDT

SAO PAULO May 30 (Reuters) - Minority bondholders of bankrupt Brazilian oil company Oleo e Gas Participações SA filed suit in New York state court on Friday against Deutsche Bank AG, which is the trustee for $3.6 billion of principal of defaulted notes.

The bonds were issued by an Austrian subsidiary of Oleo e Gas, a company formerly known as OGX that filed for Latin America's largest-ever bankruptcy in October.

The minority bondholder plaintiffs allege that Deutsche Bank and affiliates "have made or will make grossly disproportionate distributions" to majority bondholders, according to a statement from the plaintiff's firm, Brown Rudnick LLP on Friday.

The plaintiffs believe majority bondholders will receive recovery at a rate 3.5 times over those of minority bondholders, in violation of Deutsche Bank's duty as trustee to "ensure that all holders of the notes are treated equally," the statement said.

Plaintiffs include Capital Ventures International of the Cayman Islands, GLG Partners LP of London, Brennus Asset Management and VR Global Partners L.P. (Reporting by Caroline Stauffer; Editing by Lisa Shumaker)

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Anadarko's $5.15 bln cleanup agreement clears first court hurdle

By Nick Brown

NEW YORK Wed May 28, 2014 3:19pm EDT

NEW YORK May 28 (Reuters) - Anadarko Petroleum Corp's agreement to pay $5.15 billion to clean up nuclear fuel and other pollution moved one step closer to reality on Wednesday, receiving a bankruptcy judge's rubber stamp.

The agreement reached in April, touted by the U.S. Department of Justice as the largest-ever environmental cleanup recovery, resolved a lawsuit against Anadarko and its Kerr-McGee unit from creditors of Tronox Inc, the paint materials maker that was once a subsidiary of Kerr-McGee.

The lawsuit, which was joined by the DOJ, alleged that Tronox's 2009 bankruptcy was caused by the environmental liabilities it took on when Kerr-McGee spun it off in 2005. It said the spinoff was a scheme by Kerr-McGee to get the liabilities off its books and make itself a more attractive takeover target for Anadarko, which acquired it in 2006.

Judge Allan Gropper, in U.S. Bankruptcy Court in New York, presided over Tronox's bankruptcy and the Anadarko lawsuit. He approved the settlement at a hearing on Wednesday over the objections of some smaller claimholders who said the deal did not go far enough.

"Everybody wins," Gropper said. "I can see only a benefit from the settlement."

The deal will not be official until it gets the approval of a federal district court judge. A lawyer for the Tronox creditors told Reuters he expects that to happen "within the next few months." The deal is not expected to face much resistance.

Despite the hefty price tag, the settlement is a win for Anadarko shareholders because Gropper had initially estimated that the company's liability could be as high as $14.17 billion.

The money will fund a wide array of projects across some 2,000 U.S. sites, including $1.1 billion to address contamination from Kerr-McGee's decades-old jet and rocket fuel manufacturing plant in Henderson, Nevada, where ammonium perchlorate, a primary fuel component, penetrated soil and then groundwater. The Navajo Nation will get about $1 billion to address radioactive contamination from Kerr-McGee's old uranium mining operation.

The lawsuit had also blamed Kerr-McGee's use of coal tar creosote, which the Environmental Protection Agency has said is a probable cause of cancer.

Tronox, which shed the environmental liabilities through the bankruptcy, emerged from Chapter 11 in 2011.

The case is Tronox Inc et al. v. Kerr McGee Corp et al., U.S. Bankruptcy Court, Southern District of New York, No. 09-1198. (Reporting by Nick Brown; editing by Andrew Hay)

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Some Detroit retirees sent wrong bankruptcy ballots

DETROIT Wed May 28, 2014 5:44pm EDT

DETROIT May 28 (Reuters) - Some Detroit retirees were sent erroneous ballots this month for voting on the city's plan to deal with $18 billion of debt, including public pensions and exiting bankruptcy, attorneys disclosed in federal court on Wednesday.

About 2,000 of the ballots sent to members of the city's general retirement system contained errors, lawyers said.

Carole Neville, an attorney representing a court-appointed committee for Detroit retirees, said new ballots needed to go out to these retirees as soon as possible.

The news appeared to rattle Judge Steven Rhodes, who has set a brisk schedule for Detroit's municipal bankruptcy - the biggest in U.S. history - which was filed in July 2013. He demanded to know by Friday who was responsible for the ballot mess.

Thousands of Detroit creditors must vote and return their ballots by July 11.

It was unclear if the ballot mix-up and another problem that was discussed earlier in the court hearing would push back the start of a July 24 hearing to determine if Detroit's debt adjustment plan is fair and feasible.

Martha Kopacz, a senior managing director at Phoenix Management Services, who in April was selected by Rhodes as the court's expert witness to determine if the city's debt adjustment plan was feasible, needs another week or two to complete her work, her attorney told Rhodes at Wednesday's hearing.

Stephen Lerner, an attorney at Squire Sanders, sent the judge a letter last week that said Kopacz has not received sufficient documentation from the city to render an opinion on the plan's feasibility by June 24, a month before the scheduled hearing.

Rhodes set a telephone conference for Monday with lawyers for the city and Kopacz. (Reporting by Cherie Curry in Detroit, additional reporting by Karen Pierog in Chicago, editing by G Crosse)

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High-yield lite fuels fears

Thu May 29, 2014 6:13pm EDT

* Bond covenant quality erodes in hot market conditions

* Almost 20% of deals issued in Q1 were high-yield lite

* High-yield returns still too attractive to turn down

By Mariana Santibanez

NEW YORK, May 29 (IFR) - Junk-bond investors are passing up traditional protections in their race to buy new debt, and some participants worry the diminished safeguards are a sign of an overheated market.

One of the most troubling developments has been the rise of high-yield lite bonds that give issuers wide berth but leave bondholders facing especially heavy losses in case of default.

Combined with yields hovering near record lows for the asset class, the eagerness with which investors are dispensing with typical safety nets could mean trouble ahead.

"A low-rate environment is eroding covenant quality, which recently reached an alltime low and is showing few signs of improving," said Alexander Dill at Moody's Investors Service.

"It shows investors are willing to give up protections in search of yield."

Moody's said that, on a three-month rolling basis, covenant weakness in bonds rated B1 and lower reached the highest in April since the rating agency began tracking it in 2011.

More than 19% of issuance in the first quarter of 2014 has been high-yield lite, which is almost triple the figure in the same period three years earlier, it said.

High-yield lite bonds do not have debt incurrence or restricted payments covenants. The debt incurrence covenants restrict a company's ability to add more debt while restricted payments covenants limit what the issuer is allowed to do with cash or other assets generated.

Those structures give borrowers freedom to increase leverage or make acquisitions even if their businesses are struggling, which makes already risky structures riskier still.

Recent notable high-yield lite deals include April trades from natural gas giant Cheasapeake and debt-laden media company Clear Channel Communications.

Clear Channel refinanced 2016 maturities that many in the market had previously thought were headed for default - and did so with a 10% coupon high-yield lite deal.

"What we are seeing are capital structures getting pushed to the max, and terms becoming issuer-friendly," said Richard Zogheb, co-head of capital markets origination for the Americas at Citi.

LOW RETURNS

Overall, investors are embracing greater risk in exchange for relatively little yield.

Unlike the juicy double-digit coupons from Clear Channel, for example, returns on offer are close to record lows for the asset class.

The yield-to-worst on the Barclays high-yield index dropped to 5.03% on May 28, within spitting distance of the record low 4.95% marked on May 9, 2013.

Predictably, the combination of low-cost funding and reduced protection for bondholders has brought junk-bond borrowers to the market in droves - especially as the Fed was also trimming its asset-buying program.

Supply since the start of April is at nearly US$71.5bn, ahead of the US$67.9bn in the same period a year ago. Year-to-date volume, which was down some 20% from 2013 at the end of the first quarter, is now down just about 10%.

"As the Fed scaled back its bond purchases, issuers began to get more nervous that the market would turn negative," said Zogheb. "So they have been accelerating their deals."

Yet the diminished yields do not seem to be a problem for investors.

According to data from Bank of America Merrill Lynch, high-yield has returned around 4.38% this year, which is ahead of the equity markets which returned 3.88% year-to-date.

"Volatility is low, defaults are low and growth is steady," said Stephen Kotsen, a high-yield portfolio manager at Nomura Corporate Research and Asset Management.

And many market participants insist the market is not back to the boom and bust days of the leveraged buyout boom.

"You are not seeing challenged credits come to market like we saw in 2006/2007," Zogheb said.

SAFE PLAYS

Indeed, despite the erosion of investor protections, defaults do not seem to be on the rise - in part because investors have been willing to help issuers like Clear Channel push out maturities.

The US high yield par default rate was 13.7% in 2009 and 2.8% on a trailing twelve month basis through April 2014, according to Fitch Ratings.

Even so, Fitch has warned that the level of riskier debt in the market is significant.

It said US$403bn in notes rated B minus or lower are currently outstanding - way up from US$354bn at the end of 2009 and the even lower US$329bn at the close of 2011.

And leverage is on the rise too - another warning sign.

Aircraft component maker TransDigm, for example, last week managed to attract more than US$8bn in demand for a new deal to partly finance a dividend. Though it had covenants, the deal took leverage up to 7.4 times - well past the 6.0x level regulators have warned underwriters not to surpass.

"When companies could only get 5.5x leverage a year or so ago, some can now get a low 7x," Zogheb said. (Reporting by Mariana Santibanez; Editing by Natalie Harrison and Marc Carnegie)

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Anadarko's $5.15 bln cleanup agreement clears first court hurdle

By Nick Brown

NEW YORK Wed May 28, 2014 3:19pm EDT

NEW YORK May 28 (Reuters) - Anadarko Petroleum Corp's agreement to pay $5.15 billion to clean up nuclear fuel and other pollution moved one step closer to reality on Wednesday, receiving a bankruptcy judge's rubber stamp.

The agreement reached in April, touted by the U.S. Department of Justice as the largest-ever environmental cleanup recovery, resolved a lawsuit against Anadarko and its Kerr-McGee unit from creditors of Tronox Inc, the paint materials maker that was once a subsidiary of Kerr-McGee.

The lawsuit, which was joined by the DOJ, alleged that Tronox's 2009 bankruptcy was caused by the environmental liabilities it took on when Kerr-McGee spun it off in 2005. It said the spinoff was a scheme by Kerr-McGee to get the liabilities off its books and make itself a more attractive takeover target for Anadarko, which acquired it in 2006.

Judge Allan Gropper, in U.S. Bankruptcy Court in New York, presided over Tronox's bankruptcy and the Anadarko lawsuit. He approved the settlement at a hearing on Wednesday over the objections of some smaller claimholders who said the deal did not go far enough.

"Everybody wins," Gropper said. "I can see only a benefit from the settlement."

The deal will not be official until it gets the approval of a federal district court judge. A lawyer for the Tronox creditors told Reuters he expects that to happen "within the next few months." The deal is not expected to face much resistance.

Despite the hefty price tag, the settlement is a win for Anadarko shareholders because Gropper had initially estimated that the company's liability could be as high as $14.17 billion.

The money will fund a wide array of projects across some 2,000 U.S. sites, including $1.1 billion to address contamination from Kerr-McGee's decades-old jet and rocket fuel manufacturing plant in Henderson, Nevada, where ammonium perchlorate, a primary fuel component, penetrated soil and then groundwater. The Navajo Nation will get about $1 billion to address radioactive contamination from Kerr-McGee's old uranium mining operation.

The lawsuit had also blamed Kerr-McGee's use of coal tar creosote, which the Environmental Protection Agency has said is a probable cause of cancer.

Tronox, which shed the environmental liabilities through the bankruptcy, emerged from Chapter 11 in 2011.

The case is Tronox Inc et al. v. Kerr McGee Corp et al., U.S. Bankruptcy Court, Southern District of New York, No. 09-1198. (Reporting by Nick Brown; editing by Andrew Hay)

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Jacoby & Meyers Bankruptcy liquidation stays alive -U.S. judge

By Nick Brown

NEW YORK Wed May 28, 2014 1:07pm EDT

NEW YORK May 28 (Reuters) - The unusual case of defunct law firm Jacoby & Meyers Bankruptcy LLP will remain in New York, a judge ruled on Wednesday, rejecting the firm's efforts to dismiss litigation initiated by its creditors.

J&M Bankruptcy's liquidation is one of the odder bankruptcy filings this year. The firm, which itself specialized in helping clients through bankruptcy, was pushed into a Chapter 7 liquidation in March by creditors who said the firm had shuttered with little warning, leaving clients in the lurch.

The creditor group, led by legal data and education service LegalZoom.com, is trying to piece together a puzzle it believes could expose J&M Bankruptcy as a scheme to make off with the retention payments of their down-and-out clients.

Judge Shelley Chapman said in court on Wednesday that the morass of questions posed by the case, including the firm's relationship with Jacoby & Meyers, a well-known New York-based personal injury law firm, require bankruptcy court oversight.

"Time's a-wasting," Chapman said. "This is case that needs to exist."

In court papers, the creditor group pointed to uncertainty over the status of client files, which have proved difficult to locate despite the firm's statement that it transferred them to other lawyers.

J&M Bankruptcy previously operated as Chicago-based Macey Bankruptcy Law PC, which has been sued by clients and government regulators accusing it of defrauding clients. The firm reached a $2.1 million settlement in 2012 with the Illinois attorney general, then adopted the J&M name a day later through an agreement with Jacoby & Meyers.

Whether the deal was an official merger or just a licensing agreement - and why Jacoby & Meyers agreed to such a deal with a firm in legal trouble - remains unclear.

Mark Frankel, a lawyer for J&M Bankruptcy, declined to comment after Wednesday's hearing, and a spokesman for Jacoby & Meyers did not respond to requests for comment.

Fred Stevens, an attorney for the creditors, on Wednesday accused Macey of essentially changing its name to avoid bad press and continue to attract clients.

"We're really concerned about" the clients, Stevens said. He said the firm has not been paid for the work so far.

Frankel argued the case should be dismissed or moved to Chicago, where the J&M Bankruptcy was headquartered. He said an independent trustee has already been appointed to investigate the firm's closure and wind down operations.

But the trustee, Robert Handler, has been given a budget of only $25,000 for the work. Handler told the court it was not enough. Chapman agreed, saying "the size of the task" requires a court-appointed trustee with court oversight.

The case is In re Jacoby & Meyers Bankruptcy LLP, U.S. Bankruptcy Court, Southern District of New York, No. 14-10641. (Reporting by Nick Brown; Editing by Grant McCool)

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Some Detroit retirees sent wrong bankruptcy ballots

DETROIT Wed May 28, 2014 5:44pm EDT

DETROIT May 28 (Reuters) - Some Detroit retirees were sent erroneous ballots this month for voting on the city's plan to deal with $18 billion of debt, including public pensions and exiting bankruptcy, attorneys disclosed in federal court on Wednesday.

About 2,000 of the ballots sent to members of the city's general retirement system contained errors, lawyers said.

Carole Neville, an attorney representing a court-appointed committee for Detroit retirees, said new ballots needed to go out to these retirees as soon as possible.

The news appeared to rattle Judge Steven Rhodes, who has set a brisk schedule for Detroit's municipal bankruptcy - the biggest in U.S. history - which was filed in July 2013. He demanded to know by Friday who was responsible for the ballot mess.

Thousands of Detroit creditors must vote and return their ballots by July 11.

It was unclear if the ballot mix-up and another problem that was discussed earlier in the court hearing would push back the start of a July 24 hearing to determine if Detroit's debt adjustment plan is fair and feasible.

Martha Kopacz, a senior managing director at Phoenix Management Services, who in April was selected by Rhodes as the court's expert witness to determine if the city's debt adjustment plan was feasible, needs another week or two to complete her work, her attorney told Rhodes at Wednesday's hearing.

Stephen Lerner, an attorney at Squire Sanders, sent the judge a letter last week that said Kopacz has not received sufficient documentation from the city to render an opinion on the plan's feasibility by June 24, a month before the scheduled hearing.

Rhodes set a telephone conference for Monday with lawyers for the city and Kopacz. (Reporting by Cherie Curry in Detroit, additional reporting by Karen Pierog in Chicago, editing by G Crosse)

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Batista's OGX unveils terms of updated restructuring plan

By Guillermo Parra-Bernal

SAO PAULO Mon May 26, 2014 2:28pm EDT

SAO PAULO May 26 (Reuters) - Brazilian bankrupt oil firm Óleo e Gás Participações SA unveiled new rules under its restructuring plan for the remaining portion of a debtor-in-possession loan and a put option that would require controlling shareholder Eike Batista to inject $1 billion into the company.

In a document released over the weekend, the Rio de Janeiro-based company, formerly known as OGX Petróleo e Gás Participações SA, said creditors would have to approve an additional $90 million from a so-called DIP, debtor-in-possesion, loan in two portions.

It also included a clause informing creditors of a potential sale of Oléo e Gas's Colombia unit and changes to the so-called "Eike-put" option from the original plan released in February.

Oléo e Gás filed Latin America's largest-ever bankruptcy-protection petition in Rio de Janiero on Oct. 30 after its first oil wells produced less than expected and investors lost confidence in the company's ability to keep up with its debt payments and finance new oil-field development.

Under the new plan, creditors would have to agree to honor a decision made between Batista and the company over the validity of the put option and Batista's ability to pay it. The put option was questioned and investigated by Brazilian prosecutors.

The plan also changes terms of the DIP loan that would consist of a three-portion bond sale entirely subscribed by the creditors. The company has already obtained a first portion of $125 million in fresh financing, with the remaining $90 million to be released in two portions after the passage of the restructuring plan.

Oléo e Gás shares rose 6.25 percent to 0.17 reais in afternoon trading in Sao Paulo on Monday, on track for their biggest one-day jump in more than three months.

Almost two years ago, when the company was faced with growing investor discontent over its performance, Batista promised to invest $1 billion in the company if shares fell to a certain level. However, Batista failed to fulfill his promise when the shares touched that level.

Batista lost almost all of his estimated $30 billion fortune last year after shares of the listed oil, shipbuilding, mining and logistics companies of his Grupo EBX plunged. A final decision on the put option will be based on reports from independent legal advisors, the document showed. Efforts to find the name of the advisors were unsuccessful.

The company owes about $5.1 billion to investors such as bond fund Pacific Investment Management Co, suppliers such as oil services company Schlumberger NV, and to its sister company, Batista's shipbuilder OSX Brasil SA. OSX which gets nearly all its revenue from Oléo e Gás, filed for bankruptcy on Nov. 10.

Efforts to contact creditors and OSX for comment were unsuccessful. (Reporting by Guillermo Parra-Bernal; Editing by Jeb Blount and Diane Craft)

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Iceland says defunct banks could be made bankrupt unless creditors take haircut

Tue May 27, 2014 2:26pm EDT

* Claims against banks total $66 bln, assets $22 bln

* Paying out creditors would destabilise economy, krona

* Says creditors need to reduce expectations for payout

By Simon Johnson

STOCKHOLM, May 27 (Reuters) - Iceland's defunct banks could be put into bankruptcy if creditors do not agree to a haircut on debts owed by Kaupthing, Glitnir and Landsbanki, which collapsed in 2008 owing more than $75 billion, the finance minister warned on Tuesday.

Iceland slapped on capital controls after the financial meltdown, hampering much needed investment, but these cannot be removed until a deal to wind up the left-overs of the old banks - around 2,500 billion krona ($22 billion) in cash, shares and bonds - is reached with creditors.

"It should be obvious to everyone that winding up procedures can't take forever," Finance Minister Bjarni Benediktsson said in a telephone interview. "If they are unsuccessful, then we have to take it to the next step. That (bankruptcy) may well happen. One should not exclude that possibility if the winding up procedures that started in 2009 don't show any success."

Bankruptcy would mean a fire-sale of assets and probably much lower recoveries for creditors, who have claims against the old banks totalling 7,530 billion Iceland krona ($66 billion), dwarfing Iceland's 2013 GDP of 1,786 billion krona.

Benediktsson said plans put forward so far by the old banks for paying creditors did not go far enough to reduce the risk of destabilising the economy and the krona.

But he would not be drawn on how much of a haircut, creditors - such as Bayerische Landesbank and Deutsche Bank Trust Company Americas - would need to take.

"It has been evident and it has been clear for years that assets in the estates will not and cannot all exit (through) the FX market without severe effects on the exchange rate in Iceland," Benediktsson said.

"There is no logical reason why the central bank or the government would allow that to happen."

Creditors, however, have complained Iceland has not said what kind of deal it wants.

Kaupthing and Glitnir put forward plans to pay creditors in late 2012, but say they have yet to receive a formal response from the central bank, which, along with the Finance Ministry has to okay any deal.

In May, the estate of Landsbanki agreed a deal with its creditors to extend repayment of around 226 billion krona in bonds issued when the government took over the bank.

Benediktsson said this would reduce repayments by state-owned Landsbankinn - which took over Landsbanki's assets - over the next few years, a key step in removing capital controls.

But the terms of the deal - including exemptions from capital controls - needed to be considered carefully.

"We do not want to give a precedent that others cannot enjoy," he said. "They have given us three months to answer. We will just have to see what the answer will be."

While Iceland will not risk financial stability for a quick fix to the problem of the old banks, Benediktsson said capital controls could be removed relatively quickly, if a comprehensive agreement with creditors is reached.

"I don't think we need to drag out the capital controls for years and years," he said. "It is about aligning the expectations and up to now expectations on their behalf are not aligned to our ideas." ($1 = 113.6450 Iceland Kronas) (Reporting by Simon Johnson)

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LightSquared, creditors head to judge-supervised mediation

By Nick Brown

NEW YORK Tue May 27, 2014 3:17pm EDT

NEW YORK May 27 (Reuters) - LightSquared and its creditors, including Dish Network Corp Chairman Charles Ergen, will go into court-ordered mediation to settle on a plan to restructure the bankrupt wireless venture, lawyers said on Tuesday.

Judge Shelley Chapman, who oversees LightSquared's bankruptcy in New York, had given sides until Tuesday to forge a consensual plan to get LightSquared out of Chapter 11, or else mediate under Judge Robert Drain, a Chapman colleague who presided over the 2012 bankruptcy of Hostess Brands.

At a hearing in Chapman's courtroom on Tuesday, Paul Basta, a lawyer for an independent committee supervising the LightSquared restructuring, said sides had made some progress on a new deal but needed help getting "across the finish line."

It sought bankruptcy protection in 2012 after U.S. regulators revoked its license to operate spectrum because of concerns about interference with global positioning systems (GPS).

LightSquared, owned by Phil Falcone's Harbinger Capital Partners, sued Ergen, its largest creditor, saying he used underhanded means to acquire his $1 billion debt stake and tried to set the stage for a takeover by Dish.

The wireless venture had hoped to restructure under a plan that would subordinate Ergen's debt, pushing it behind other creditor claims.

Chapman earlier this month rejected the plan as unfair to Ergen, ruling that only a portion of his debt should be subordinated. She ordered settlement talks and set Tuesday as a deadline to avoid mediation.

Basta on Tuesday said sides have discussed a global restructuring that would require new financing, but he gave no detail about the deal or where the financing would come from.

LightSquared is surviving in bankruptcy through a loan package that runs out on June 15, but a company lawyer on Tuesday said it has enough cash to last it through the end of June. It has asked lenders to extend the maturity and is waiting on their consent, the lawyer, Matthew Barr, said.

LightSquared may need more bankruptcy loans if mediation extends past June 30. (Reporting by Nick Brown; Editing by Steve Orlofsky)

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Overseas Shipholding says near deal to advance bankruptcy plan

By Tom Hals

WILMINGTON, Del. Fri May 23, 2014 4:40pm EDT

WILMINGTON, Del. May 23 (Reuters) - An attorney for Overseas Shipholding Group Inc, one of the world's largest publicly traded tanker holding companies, told a U.S. judge on Friday a deal was close with noteholders that would clear the way for creditors to vote on its bankruptcy exit plan.

Noteholders agreed to drop their objection to the company's $1.5 billion rights offering for a chance to participate in the stock sale, said Luke Barefoot, an attorney with Cleary Gottlieb Steen & Hamilton, which represents the company.

The rights offering is a key component to Overseas Shipholding's exit plan and would allow existing stock holders to buy newly issued stock in the company. The plan is also backed with $1.35 billion in financing from Jefferies Finance.

Barefoot told a U.S. Bankruptcy Court hearing in Wilmington, Delaware, that the parties had a few more details to work out. He said they would return to court on Tuesday and ask Judge Peter Walsh to issue orders clearing the way for the rights offering and approving the company's disclosure statement.

The document must be approved so it can be sent to creditors along with ballots to start voting on the bankruptcy exit plan.

Holders of notes due in 2024 were unhappy that the company planned to reinstate their $150 million in securities without making an added "change of control" payment the noteholders said was triggered by the bankruptcy plan.

If creditors approve the plan and Walsh approves it, Overseas Shipholding will emerge from bankruptcy under control of its current stockholders. That group includes affiliates of Cerberus Capital Management, Paulson & Co and Silver Point Capital, according to court filings.

The company's pink sheet shares rose more than 10 percent in Friday trading, to around $5.88 each. Bankruptcy usually renders a company's stock worthless, but Overseas Shipholding has rebounded in Chapter 11 thanks to a key deal with tax authorities.

The company filed for Chapter 11 as its operations were squeezed by new ships coming into the market just as an energy boom in the United States depressed demand for tankers.

In addition, Overseas Shipholding was unable to borrow money because it was investigating the accuracy of its financial statements and the possibility that it faced a large unexpected tax liability.

However, the company resolved its dispute with Internal Revenue Service to cut its tax liability to about $255 million from an original demand for $463 million.

The case is In re Overseas Shipholding Group Inc, U.S. Bankruptcy Court, District of Delaware, No. 12-20000. (Reporting by Tom Hals in Wilmington, Delaware; Editing by Lisa Shumaker)

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India's new bank insolvency law to increase yields

Sun May 25, 2014 11:28pm EDT

* Proposed rules make depositors senior to bondholders

* Analysts say subordination will affect cost of funding

* New framework may reduce yields for capital bonds

By Manju Dalal

SINGAPORE, May 23 (IFR) - India has proposed a framework for the bankruptcy of financial institutions that will align the country with international standards.

Analysts suggested, however, that the regulation will increase the cost of senior funding for Indian banks if it is implemented according to the draft submitted to the market for comments.

The proposals from a working group of the Reserve Bank of India call for depositors to have preference over senior creditors.

Analysts warned that giving depositors the upper hand over other creditors will have serious implications for bondholders, potentially leading to higher wholesale funding costs for Indian banks.

"Now that India's stand on depositor preference is very clear, we will have to review our support assumptions on debt instruments once the resolution regime comes into force," said Saswata Guha, a director at Fitch Ratings, India.

Nomura analysts expect the spreads on Indian bank senior bonds to move wider as a result of the new legislation.

"We may not see immediate widening of Indian bank's senior bonds spreads because of the Modi wave, but the impact will be gradually seen as we near the resolution implementation" said William Mak, Hong Kong-based analyst at Nomura.

Historically, no commercial bank in India has been allowed to become insolvent, though nine commercial banks were amalgamated and three went through compulsory mergers during the past decade.

The resolution regime would create a framework for an orderly wind down of an Indian financial institution.

The draft regulation also brought good news for bondholders, though.

The proposal calls for the expansion of India's existing deposit insurance agency into a Financial Resolution Authority, along the lines of the Federal Deposit Insurance Corp of the United States.

The framework under discussion will put the power to trigger writedown clauses of subordinated bonds in the hands of the new Financial Resolution Authority.

In most jurisdictions in the region, the decision to enact loss-absorption clauses on subordinated debt falls to the central bank, which can impose losses on bondholders as soon as the institution's capital falls below the minimum required.

However, the Financial Resolution Authority is expected to only get involved once the bank is already near insolvency. This means that by the time loss-absorption clauses are triggered, investors will already be potentially facing total loss on the subordinated debt anyway.

Any boost to appetite for subordinated debt will be welcome in India's local market, where banks have struggled to find investors for Basel III-compliant Additional Tier 1 and Tier 2 bonds. A tiny Rs2.8bn (US$45m) deal from Yes Bank remains India's only subordinated bond offering that qualifies as additional Tier 1 capital under the new Basel regime.

INCENTIVE FOR IMPROVEMENT

India scores poorly on the global recovery scale for bad debt with only a 30%-40% rate of recovery, partly because of weak bankruptcy laws.

Strong regulation for bank insolvency could give financial institutions greater incentive to deal with stressed assets and help address some of those failures.

India is keen to implement the resolution regime before the end of 2015, following an internationally accepted timetable. Market participants, however, warn that many hurdles remain to such a move.

"India has different regulators and legislations for different types of financial institutions like banks versus co-operative banks versus insurance companies. The resolution regime will require an altogether separate legal framework that overrides existing laws and legal resolution frameworks. This might possibly come only after a parliamentary approval," said Atul Joshi, CEO of India Ratings and Research, the local arm of Fitch.

"The resolution proposals resemble a lot [that of] advanced economies which may not be exactly suitable for peculiar Indian operational environment. Besides, the tides are contrasting too with advanced economies nationalising their banking sector and India heading for privatising," he added.

The proposed resolution regime also highlights India's relatively weak depositor protection standards. India covers less than US$2,000 in deposits, compared to insured limits of US$250,000 per person per bank in the US and S$50,000 (US$39,965) in Singapore.

The Deposit Insurance and Credit Guarantee Corporation of India held Rs377.66bn as of September 30 2013, roughly 1.7% of insured deposits. The Corporation charges an insurance premium of Rs0.10 per Rs100 deposited. This premium, as well as the amount insured, were last revised over a decade ago.

The new Financial Resolution Authority will either be created out of the Deposit Insurance and Credit Guarantee Corporation or be established as a new agency to take over its functions.

The Reserve Bank of India is seeking public comments on the proposed resolution regime before the end of May. (Reporting By Manju Dalal; Editing by Steve Garton and Christopher Langner)

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Batista's OGX unveils terms of updated restructuring plan

By Guillermo Parra-Bernal

SAO PAULO Mon May 26, 2014 2:28pm EDT

SAO PAULO May 26 (Reuters) - Brazilian bankrupt oil firm Óleo e Gás Participações SA unveiled new rules under its restructuring plan for the remaining portion of a debtor-in-possession loan and a put option that would require controlling shareholder Eike Batista to inject $1 billion into the company.

In a document released over the weekend, the Rio de Janeiro-based company, formerly known as OGX Petróleo e Gás Participações SA, said creditors would have to approve an additional $90 million from a so-called DIP, debtor-in-possesion, loan in two portions.

It also included a clause informing creditors of a potential sale of Oléo e Gas's Colombia unit and changes to the so-called "Eike-put" option from the original plan released in February.

Oléo e Gás filed Latin America's largest-ever bankruptcy-protection petition in Rio de Janiero on Oct. 30 after its first oil wells produced less than expected and investors lost confidence in the company's ability to keep up with its debt payments and finance new oil-field development.

Under the new plan, creditors would have to agree to honor a decision made between Batista and the company over the validity of the put option and Batista's ability to pay it. The put option was questioned and investigated by Brazilian prosecutors.

The plan also changes terms of the DIP loan that would consist of a three-portion bond sale entirely subscribed by the creditors. The company has already obtained a first portion of $125 million in fresh financing, with the remaining $90 million to be released in two portions after the passage of the restructuring plan.

Oléo e Gás shares rose 6.25 percent to 0.17 reais in afternoon trading in Sao Paulo on Monday, on track for their biggest one-day jump in more than three months.

Almost two years ago, when the company was faced with growing investor discontent over its performance, Batista promised to invest $1 billion in the company if shares fell to a certain level. However, Batista failed to fulfill his promise when the shares touched that level.

Batista lost almost all of his estimated $30 billion fortune last year after shares of the listed oil, shipbuilding, mining and logistics companies of his Grupo EBX plunged. A final decision on the put option will be based on reports from independent legal advisors, the document showed. Efforts to find the name of the advisors were unsuccessful.

The company owes about $5.1 billion to investors such as bond fund Pacific Investment Management Co, suppliers such as oil services company Schlumberger NV, and to its sister company, Batista's shipbuilder OSX Brasil SA. OSX which gets nearly all its revenue from Oléo e Gás, filed for bankruptcy on Nov. 10.

Efforts to contact creditors and OSX for comment were unsuccessful. (Reporting by Guillermo Parra-Bernal; Editing by Jeb Blount and Diane Craft)

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Momentive's $570 mln bankruptcy loan package approved by judge

By Nick Brown

NEW YORK Fri May 23, 2014 1:03pm EDT

NEW YORK May 23 (Reuters) - A bankruptcy court judge on Friday approved a $570 million financing package to get Momentive Performance Materials through bankruptcy, over the objections of unsecured creditors who say the deal will threaten their recoveries.

Momentive, the maker of silicone and quartz products that is owned by private equity group Apollo Global Management LLC , filed for Chapter 11 protection in April with a prearranged restructuring that had the support of key stakeholders. The plan, which still needs court approval, includes a $600 million rights offering and $1.3 billion in exit loans from JPMorgan Chase & Co.

To get Momentive through Chapter 11, JPMorgan also arranged financing in the form of a $300 million loan and a $270 million credit facility.

The bulk of that package had already been approved by Judge Robert Drain of U.S. Bankruptcy Court in White Plains, New York, but unsecured creditors, including Aurelius Capital Management, objected this month to the approval of the rest.

The fight is less about the financing than being a precursor to a potentially contentious battle in the coming months over Momentive's restructuring.

Rather than taking issue with the size or necessity of the loan, the unsecured creditors objected to provisions of the deal they see as limiting their ability to challenge Momentive's bankruptcy exit plan.

The provisions are inappropriate in light of the high likelihood of a legal fight over the plan, specifically as to whether Aurelius and other subordinated debtholders are entitled to recovery, Kenneth Klee, a lawyer for the unsecured creditors, told the judge on Friday.

Klee's group balked at provisions that would pick up some of Apollo's professional fees and set a 90-day limit for the unsecured creditors to launch challenges to certain protections for Momentive's secured creditors.

Drain rejected the challenge on fees, but granted that the unsecured creditors should have the right to request his permission to extend the 90-day window if necessary.

According to David Stern, another lawyer for the unsecured creditors, Apollo's financial advisory firm, Moelis & Co, will make $150,000 a month in the case, plus a $1.5 million bonus if the restructuring is approved. Moelis Managing Director Bill Derrough, who testified on Friday, said he was not sure if the numbers were accurate.

Aurelius, an investment fund specializing in bankruptcy law, buys heavily distressed debt and sometimes litigates through bankruptcy to boost recoveries. (Editing by Jeffrey Benkoe)

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Overseas Shipholding says near deal to advance bankruptcy plan

By Tom Hals

WILMINGTON, Del. Fri May 23, 2014 4:40pm EDT

WILMINGTON, Del. May 23 (Reuters) - An attorney for Overseas Shipholding Group Inc, one of the world's largest publicly traded tanker holding companies, told a U.S. judge on Friday a deal was close with noteholders that would clear the way for creditors to vote on its bankruptcy exit plan.

Noteholders agreed to drop their objection to the company's $1.5 billion rights offering for a chance to participate in the stock sale, said Luke Barefoot, an attorney with Cleary Gottlieb Steen & Hamilton, which represents the company.

The rights offering is a key component to Overseas Shipholding's exit plan and would allow existing stock holders to buy newly issued stock in the company. The plan is also backed with $1.35 billion in financing from Jefferies Finance.

Barefoot told a U.S. Bankruptcy Court hearing in Wilmington, Delaware, that the parties had a few more details to work out. He said they would return to court on Tuesday and ask Judge Peter Walsh to issue orders clearing the way for the rights offering and approving the company's disclosure statement.

The document must be approved so it can be sent to creditors along with ballots to start voting on the bankruptcy exit plan.

Holders of notes due in 2024 were unhappy that the company planned to reinstate their $150 million in securities without making an added "change of control" payment the noteholders said was triggered by the bankruptcy plan.

If creditors approve the plan and Walsh approves it, Overseas Shipholding will emerge from bankruptcy under control of its current stockholders. That group includes affiliates of Cerberus Capital Management, Paulson & Co and Silver Point Capital, according to court filings.

The company's pink sheet shares rose more than 10 percent in Friday trading, to around $5.88 each. Bankruptcy usually renders a company's stock worthless, but Overseas Shipholding has rebounded in Chapter 11 thanks to a key deal with tax authorities.

The company filed for Chapter 11 as its operations were squeezed by new ships coming into the market just as an energy boom in the United States depressed demand for tankers.

In addition, Overseas Shipholding was unable to borrow money because it was investigating the accuracy of its financial statements and the possibility that it faced a large unexpected tax liability.

However, the company resolved its dispute with Internal Revenue Service to cut its tax liability to about $255 million from an original demand for $463 million.

The case is In re Overseas Shipholding Group Inc, U.S. Bankruptcy Court, District of Delaware, No. 12-20000. (Reporting by Tom Hals in Wilmington, Delaware; Editing by Lisa Shumaker)

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India's new bank insolvency law to increase yields

Sun May 25, 2014 11:28pm EDT

* Proposed rules make depositors senior to bondholders

* Analysts say subordination will affect cost of funding

* New framework may reduce yields for capital bonds

By Manju Dalal

SINGAPORE, May 23 (IFR) - India has proposed a framework for the bankruptcy of financial institutions that will align the country with international standards.

Analysts suggested, however, that the regulation will increase the cost of senior funding for Indian banks if it is implemented according to the draft submitted to the market for comments.

The proposals from a working group of the Reserve Bank of India call for depositors to have preference over senior creditors.

Analysts warned that giving depositors the upper hand over other creditors will have serious implications for bondholders, potentially leading to higher wholesale funding costs for Indian banks.

"Now that India's stand on depositor preference is very clear, we will have to review our support assumptions on debt instruments once the resolution regime comes into force," said Saswata Guha, a director at Fitch Ratings, India.

Nomura analysts expect the spreads on Indian bank senior bonds to move wider as a result of the new legislation.

"We may not see immediate widening of Indian bank's senior bonds spreads because of the Modi wave, but the impact will be gradually seen as we near the resolution implementation" said William Mak, Hong Kong-based analyst at Nomura.

Historically, no commercial bank in India has been allowed to become insolvent, though nine commercial banks were amalgamated and three went through compulsory mergers during the past decade.

The resolution regime would create a framework for an orderly wind down of an Indian financial institution.

The draft regulation also brought good news for bondholders, though.

The proposal calls for the expansion of India's existing deposit insurance agency into a Financial Resolution Authority, along the lines of the Federal Deposit Insurance Corp of the United States.

The framework under discussion will put the power to trigger writedown clauses of subordinated bonds in the hands of the new Financial Resolution Authority.

In most jurisdictions in the region, the decision to enact loss-absorption clauses on subordinated debt falls to the central bank, which can impose losses on bondholders as soon as the institution's capital falls below the minimum required.

However, the Financial Resolution Authority is expected to only get involved once the bank is already near insolvency. This means that by the time loss-absorption clauses are triggered, investors will already be potentially facing total loss on the subordinated debt anyway.

Any boost to appetite for subordinated debt will be welcome in India's local market, where banks have struggled to find investors for Basel III-compliant Additional Tier 1 and Tier 2 bonds. A tiny Rs2.8bn (US$45m) deal from Yes Bank remains India's only subordinated bond offering that qualifies as additional Tier 1 capital under the new Basel regime.

INCENTIVE FOR IMPROVEMENT

India scores poorly on the global recovery scale for bad debt with only a 30%-40% rate of recovery, partly because of weak bankruptcy laws.

Strong regulation for bank insolvency could give financial institutions greater incentive to deal with stressed assets and help address some of those failures.

India is keen to implement the resolution regime before the end of 2015, following an internationally accepted timetable. Market participants, however, warn that many hurdles remain to such a move.

"India has different regulators and legislations for different types of financial institutions like banks versus co-operative banks versus insurance companies. The resolution regime will require an altogether separate legal framework that overrides existing laws and legal resolution frameworks. This might possibly come only after a parliamentary approval," said Atul Joshi, CEO of India Ratings and Research, the local arm of Fitch.

"The resolution proposals resemble a lot [that of] advanced economies which may not be exactly suitable for peculiar Indian operational environment. Besides, the tides are contrasting too with advanced economies nationalising their banking sector and India heading for privatising," he added.

The proposed resolution regime also highlights India's relatively weak depositor protection standards. India covers less than US$2,000 in deposits, compared to insured limits of US$250,000 per person per bank in the US and S$50,000 (US$39,965) in Singapore.

The Deposit Insurance and Credit Guarantee Corporation of India held Rs377.66bn as of September 30 2013, roughly 1.7% of insured deposits. The Corporation charges an insurance premium of Rs0.10 per Rs100 deposited. This premium, as well as the amount insured, were last revised over a decade ago.

The new Financial Resolution Authority will either be created out of the Deposit Insurance and Credit Guarantee Corporation or be established as a new agency to take over its functions.

The Reserve Bank of India is seeking public comments on the proposed resolution regime before the end of May. (Reporting By Manju Dalal; Editing by Steve Garton and Christopher Langner)

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Spanish court approves banks' takeover of Pescanova

MADRID Fri May 23, 2014 12:22pm EDT

MADRID May 23 (Reuters) - Spanish fishing company Pescanova came out of administration on Friday after a court approved a deal with creditors that leaves the company in the hands of its banks.

Pescanova - which filed for bankruptcy last year - will be controlled by creditors including Spanish banks Sabadell, Popular, Caixabank, BBVA, NCG Banco and Bankia.

Under the deal proposed by the banks, and accepted by the court, creditors will retain 1 billion euros ($1.36 billion) of debt and will inject 125 million euros of capital into the company, the frozen fish products of which are among Spain's best-known brands. ($1 = 0.7336 Euros) (Reporting by Emma Pinedo; Editing by Fiona Ortiz and David Goodman)

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Momentive's $570 mln bankruptcy loan package approved by judge

By Nick Brown

NEW YORK Fri May 23, 2014 1:03pm EDT

NEW YORK May 23 (Reuters) - A bankruptcy court judge on Friday approved a $570 million financing package to get Momentive Performance Materials through bankruptcy, over the objections of unsecured creditors who say the deal will threaten their recoveries.

Momentive, the maker of silicone and quartz products that is owned by private equity group Apollo Global Management LLC , filed for Chapter 11 protection in April with a prearranged restructuring that had the support of key stakeholders. The plan, which still needs court approval, includes a $600 million rights offering and $1.3 billion in exit loans from JPMorgan Chase & Co.

To get Momentive through Chapter 11, JPMorgan also arranged financing in the form of a $300 million loan and a $270 million credit facility.

The bulk of that package had already been approved by Judge Robert Drain of U.S. Bankruptcy Court in White Plains, New York, but unsecured creditors, including Aurelius Capital Management, objected this month to the approval of the rest.

The fight is less about the financing than being a precursor to a potentially contentious battle in the coming months over Momentive's restructuring.

Rather than taking issue with the size or necessity of the loan, the unsecured creditors objected to provisions of the deal they see as limiting their ability to challenge Momentive's bankruptcy exit plan.

The provisions are inappropriate in light of the high likelihood of a legal fight over the plan, specifically as to whether Aurelius and other subordinated debtholders are entitled to recovery, Kenneth Klee, a lawyer for the unsecured creditors, told the judge on Friday.

Klee's group balked at provisions that would pick up some of Apollo's professional fees and set a 90-day limit for the unsecured creditors to launch challenges to certain protections for Momentive's secured creditors.

Drain rejected the challenge on fees, but granted that the unsecured creditors should have the right to request his permission to extend the 90-day window if necessary.

According to David Stern, another lawyer for the unsecured creditors, Apollo's financial advisory firm, Moelis & Co, will make $150,000 a month in the case, plus a $1.5 million bonus if the restructuring is approved. Moelis Managing Director Bill Derrough, who testified on Friday, said he was not sure if the numbers were accurate.

Aurelius, an investment fund specializing in bankruptcy law, buys heavily distressed debt and sometimes litigates through bankruptcy to boost recoveries. (Editing by Jeffrey Benkoe)

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Overseas Shipholding says near deal to advance bankruptcy plan

By Tom Hals

WILMINGTON, Del. Fri May 23, 2014 4:40pm EDT

WILMINGTON, Del. May 23 (Reuters) - An attorney for Overseas Shipholding Group Inc, one of the world's largest publicly traded tanker holding companies, told a U.S. judge on Friday a deal was close with noteholders that would clear the way for creditors to vote on its bankruptcy exit plan.

Noteholders agreed to drop their objection to the company's $1.5 billion rights offering for a chance to participate in the stock sale, said Luke Barefoot, an attorney with Cleary Gottlieb Steen & Hamilton, which represents the company.

The rights offering is a key component to Overseas Shipholding's exit plan and would allow existing stock holders to buy newly issued stock in the company. The plan is also backed with $1.35 billion in financing from Jefferies Finance.

Barefoot told a U.S. Bankruptcy Court hearing in Wilmington, Delaware, that the parties had a few more details to work out. He said they would return to court on Tuesday and ask Judge Peter Walsh to issue orders clearing the way for the rights offering and approving the company's disclosure statement.

The document must be approved so it can be sent to creditors along with ballots to start voting on the bankruptcy exit plan.

Holders of notes due in 2024 were unhappy that the company planned to reinstate their $150 million in securities without making an added "change of control" payment the noteholders said was triggered by the bankruptcy plan.

If creditors approve the plan and Walsh approves it, Overseas Shipholding will emerge from bankruptcy under control of its current stockholders. That group includes affiliates of Cerberus Capital Management, Paulson & Co and Silver Point Capital, according to court filings.

The company's pink sheet shares rose more than 10 percent in Friday trading, to around $5.88 each. Bankruptcy usually renders a company's stock worthless, but Overseas Shipholding has rebounded in Chapter 11 thanks to a key deal with tax authorities.

The company filed for Chapter 11 as its operations were squeezed by new ships coming into the market just as an energy boom in the United States depressed demand for tankers.

In addition, Overseas Shipholding was unable to borrow money because it was investigating the accuracy of its financial statements and the possibility that it faced a large unexpected tax liability.

However, the company resolved its dispute with Internal Revenue Service to cut its tax liability to about $255 million from an original demand for $463 million.

The case is In re Overseas Shipholding Group Inc, U.S. Bankruptcy Court, District of Delaware, No. 12-20000. (Reporting by Tom Hals in Wilmington, Delaware; Editing by Lisa Shumaker)

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Spanish court approves banks' takeover of Pescanova

MADRID Fri May 23, 2014 12:22pm EDT

MADRID May 23 (Reuters) - Spanish fishing company Pescanova came out of administration on Friday after a court approved a deal with creditors that leaves the company in the hands of its banks.

Pescanova - which filed for bankruptcy last year - will be controlled by creditors including Spanish banks Sabadell, Popular, Caixabank, BBVA, NCG Banco and Bankia.

Under the deal proposed by the banks, and accepted by the court, creditors will retain 1 billion euros ($1.36 billion) of debt and will inject 125 million euros of capital into the company, the frozen fish products of which are among Spain's best-known brands. ($1 = 0.7336 Euros) (Reporting by Emma Pinedo; Editing by Fiona Ortiz and David Goodman)

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Momentive's $570 mln bankruptcy loan package approved by judge

By Nick Brown

NEW YORK Fri May 23, 2014 1:03pm EDT

NEW YORK May 23 (Reuters) - A bankruptcy court judge on Friday approved a $570 million financing package to get Momentive Performance Materials through bankruptcy, over the objections of unsecured creditors who say the deal will threaten their recoveries.

Momentive, the maker of silicone and quartz products that is owned by private equity group Apollo Global Management LLC , filed for Chapter 11 protection in April with a prearranged restructuring that had the support of key stakeholders. The plan, which still needs court approval, includes a $600 million rights offering and $1.3 billion in exit loans from JPMorgan Chase & Co.

To get Momentive through Chapter 11, JPMorgan also arranged financing in the form of a $300 million loan and a $270 million credit facility.

The bulk of that package had already been approved by Judge Robert Drain of U.S. Bankruptcy Court in White Plains, New York, but unsecured creditors, including Aurelius Capital Management, objected this month to the approval of the rest.

The fight is less about the financing than being a precursor to a potentially contentious battle in the coming months over Momentive's restructuring.

Rather than taking issue with the size or necessity of the loan, the unsecured creditors objected to provisions of the deal they see as limiting their ability to challenge Momentive's bankruptcy exit plan.

The provisions are inappropriate in light of the high likelihood of a legal fight over the plan, specifically as to whether Aurelius and other subordinated debtholders are entitled to recovery, Kenneth Klee, a lawyer for the unsecured creditors, told the judge on Friday.

Klee's group balked at provisions that would pick up some of Apollo's professional fees and set a 90-day limit for the unsecured creditors to launch challenges to certain protections for Momentive's secured creditors.

Drain rejected the challenge on fees, but granted that the unsecured creditors should have the right to request his permission to extend the 90-day window if necessary.

According to David Stern, another lawyer for the unsecured creditors, Apollo's financial advisory firm, Moelis & Co, will make $150,000 a month in the case, plus a $1.5 million bonus if the restructuring is approved. Moelis Managing Director Bill Derrough, who testified on Friday, said he was not sure if the numbers were accurate.

Aurelius, an investment fund specializing in bankruptcy law, buys heavily distressed debt and sometimes litigates through bankruptcy to boost recoveries. (Editing by Jeffrey Benkoe)

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Overseas Shipholding says near deal to advance bankruptcy plan

By Tom Hals

WILMINGTON, Del. Fri May 23, 2014 4:40pm EDT

WILMINGTON, Del. May 23 (Reuters) - An attorney for Overseas Shipholding Group Inc, one of the world's largest publicly traded tanker holding companies, told a U.S. judge on Friday a deal was close with noteholders that would clear the way for creditors to vote on its bankruptcy exit plan.

Noteholders agreed to drop their objection to the company's $1.5 billion rights offering for a chance to participate in the stock sale, said Luke Barefoot, an attorney with Cleary Gottlieb Steen & Hamilton, which represents the company.

The rights offering is a key component to Overseas Shipholding's exit plan and would allow existing stock holders to buy newly issued stock in the company. The plan is also backed with $1.35 billion in financing from Jefferies Finance.

Barefoot told a U.S. Bankruptcy Court hearing in Wilmington, Delaware, that the parties had a few more details to work out. He said they would return to court on Tuesday and ask Judge Peter Walsh to issue orders clearing the way for the rights offering and approving the company's disclosure statement.

The document must be approved so it can be sent to creditors along with ballots to start voting on the bankruptcy exit plan.

Holders of notes due in 2024 were unhappy that the company planned to reinstate their $150 million in securities without making an added "change of control" payment the noteholders said was triggered by the bankruptcy plan.

If creditors approve the plan and Walsh approves it, Overseas Shipholding will emerge from bankruptcy under control of its current stockholders. That group includes affiliates of Cerberus Capital Management, Paulson & Co and Silver Point Capital, according to court filings.

The company's pink sheet shares rose more than 10 percent in Friday trading, to around $5.88 each. Bankruptcy usually renders a company's stock worthless, but Overseas Shipholding has rebounded in Chapter 11 thanks to a key deal with tax authorities.

The company filed for Chapter 11 as its operations were squeezed by new ships coming into the market just as an energy boom in the United States depressed demand for tankers.

In addition, Overseas Shipholding was unable to borrow money because it was investigating the accuracy of its financial statements and the possibility that it faced a large unexpected tax liability.

However, the company resolved its dispute with Internal Revenue Service to cut its tax liability to about $255 million from an original demand for $463 million.

The case is In re Overseas Shipholding Group Inc, U.S. Bankruptcy Court, District of Delaware, No. 12-20000. (Reporting by Tom Hals in Wilmington, Delaware; Editing by Lisa Shumaker)

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Bankruptcy of Texas power firm Energy Future to stay in Delaware

WILMINGTON, Del Thu May 22, 2014 4:14pm EDT

WILMINGTON, Del May 22 (Reuters) - The Chapter 11 bankruptcy of Texas's largest power company, Energy Future Holdings, will remain with a U.S. Bankruptcy Court in Wilmington, Delaware, the judge handling the case ruled on Thursday.

Energy Future filed one of the largest nonfinancial bankruptcies ever in April in Delaware, where the company's subsidiaries are incorporated. The company has $42 billion in debt.

U.S. Bankruptcy Judge Christopher Sontchi rejected arguments by a trustee for junior creditors that the case should be in Dallas, where the company is headquartered, because it would better serve employees and regulators. (Reporting by Tom Hals in Wilmington, Delaware)

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UPDATE 1-Bankruptcy of Texas power firm Energy Future to stay in Delaware

Thu May 22, 2014 5:03pm EDT

(Updates throughout after court ruling on venue)

By Tom Hals

WILMINGTON, Del May 22 (Reuters) - Texas's largest power company, Energy Future Holdings, overcame the first challenge to its huge bankruptcy on Thursday when a Delaware judge ruled the Chapter 11 case should stay in his court rather than be transferred to Dallas, as some creditors wanted.

Judge Christopher Sontchi said Energy Future could have filed in several courts, and that it was clearly forum shopping, but he said that doing so was not "insidious".

"Given that it is a financial restructuring and given that the parties are in the Northeast, I think that favors Delaware," he said, accepting the company's main argument for filing in Wilmington.

The Dallas-based company has said it plans to restructure its $42 billion in debt, not its operations. It argued that most parties involved in the restructuring are hedge funds and other sophisticated investors that are based in New York, a two-hour train ride from Wilmington.

Seeking the transfer was Delaware-based Wilmington Savings Fund Society (WSFS), trustee for second-lien notes issued by the Energy Future unit that owns the generating business Luminant and TXU Retail.

"All the employees work and live in Texas, not in Delaware. All the assets are in Texas, none in Delaware. All the customers are in Texas, none in Delaware," Jeffrey Jonas, a partner in Brown Rudnick and an attorney for WSFS, told the court.

Sontchi rejected the focus on the location of employees and customers, noting that none of them objected to having the case in Wilmington.

Energy Future filed for bankruptcy in April in Wilmington. The company was burdened by debt stemming from its record 2007 leveraged buyout of TXU Corp, led by KKR & Co, TPG and the private equity arm of Goldman Sachs.

Energy Future has subsidiaries incorporated in Delaware, which allows it to file in the state's busy U.S. Bankruptcy Court. The court has handled many big bankruptcies with no real connection to the state, such as that of the Los Angeles Dodgers baseball team.

Cases can be transferred if the transfer is seen to be in the interest of justice and fairness to the parties involved.

Only two cases with at least $1 billion in assets have been moved out of Wilmington in the past 30 years: Harrahs Jazz Co, in 1995, and Hawaiian Telecom Communications Inc, in 2008, according to Lynn LoPucki, a professor at UCLA Law School.

Earlier on Thursday, an attorney for Energy Future said the company will delay seeking court approval of a restructuring support agreement from June 6 to June 30 after creditors said they need more time to study the deal.

The plan involves splitting off the Luminant and TXU subsidiary, and turning those businesses over to senior creditors in return for forgiving some of the $24 billion the creditors are owed.

The plan also proposes that a separate Energy Future subsidiary that owns Oncor, a power transmission business that is not bankrupt, would emerge from bankruptcy under the control of the subsidiary's junior unsecured creditors.

The case is In re Energy Future Holdings, U.S. Bankruptcy Court, District of Delaware, No. 14-10979 (Reporting by Tom Hals in Wilmington, Delaware; Editing by Jan Paschal and Peter Galloway)

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UPDATE 1-Michigan House passes bill package for bankrupt Detroit

Thu May 22, 2014 5:07pm EDT

(Recasts; adds background, details on bills, statement from Detroit emergency manager, House debate on bills)

May 22 (Reuters) - Detroit's plan to adjust its debts and exit bankruptcy as soon as this fall got a boost on Thursday when the Michigan House of Representatives approved a package of bills that includes state money to aid the city's retirees.

Under the so-called grand bargain in Detroit's debt adjustment plan, Michigan's nearly $195 million lump sum contribution, along with $466 million pledged over 20 years by philanthropic foundations and the Detroit Institute of Arts would be used to ease pension cuts for city retirees. The deal would also protect city art works from being sold to raise money to pay city creditors and includes commitments from two unions to raise money for retiree healthcare costs.

All of the contributions are contingent on each other and on members of Detroit's two retirement systems agreeing to accept minimal cuts to their pensions to help the cash-strapped city deal with $18 billion of debt and other obligations.

The legislation approved by the Republican-controlled House would allow Michigan to take the money out of its rainy day fund. The money would be paid back to the fund over time from Michigan's share of a national settlement with U.S. tobacco companies.

The bills also create a nine-member oversight panel that would stay active until Detroit meets certain financial thresholds and require the city hire a qualified chief financial officer and submit four-year financial plans. The 11 bills now head to the Republican-controlled Senate.

Kevyn Orr, Detroit's state-appointed emergency manager, said the House's action brought the city "a crucial step closer" to protecting pensions and exiting the biggest municipal bankruptcy in U.S. history.

"The state of Michigan's willingness to participate in a negotiated settlement that will limit financial impact to the city's two pension funds and protect the city-owned treasures at the Detroit Institute of Arts is a critical component to the city's proposed plan of adjustment," Orr said in a statement.

Ahead of the voting, some Republican and Democratic lawmakers said unless the state participates in the settlement, Michigan could be hit with big legal and social service costs in the wake of larger pension reductions.

But State Representative David Nathan, a Detroit Democrat, argued that the legislation "tramples on democracy."

"I do not trust this will work out for the betterment of my community," he said.

A special, bipartisan House committee initially approved the bills on Wednesday.

U.S. Bankruptcy Judge Steven Rhodes has set July 24 for the start of a hearing on Detroit's debt adjustment plan to determine if it is fair and feasible. (Reporting by Karen Pierog; Editing by Meredith Mazzilli and Eric Walsh)

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Michigan House panel OKs state money for Detroit bankruptcy plan

Wed May 21, 2014 12:26pm EDT

May 21 (Reuters) - A special Michigan House committee on Wednesday approved a nearly $195 million state contribution for a key element of Detroit's plan to adjust its $18 billion of debt and exit the biggest municipal bankruptcy in U.S. history.

Legislation appropriating the money from Michigan's rainy day fund was part of an 11-bill package the committee approved and sent to the full House for consideration. (Reporting By Karen Pierog; Editing by Chris Reese)

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Canada's Telus withdraws Mobilicity bid, newspaper says

TORONTO Wed May 21, 2014 12:09pm EDT

TORONTO May 21 (Reuters) - Canada's Telus Corp has withdrawn its bid to acquire struggling domestic wireless company Mobilicity, the Globe and Mail newspaper reported on Wednesday, citing a source it did not identify.

The Western Canada-focused telecom company has made several bids for the much-smaller company, formally known as Data & Audio-Visual Enterprises Wireless Inc, despite federal government opposition.

Telus, Mobilicity and court-appointed supervisors of the corporate restructuring weren't immediately available for comment.

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UPDATE 2-Michigan House panel OKs state money for Detroit bankruptcy plan

Wed May 21, 2014 3:23pm EDT

(Adds bill changes, possible vote timing, UAW and JPMorgan commitments; paragraphs 6, 9 and 12)

May 21 (Reuters) - A special Michigan House committee on Wednesday approved a nearly $195 million state contribution for a key element of Detroit's plan to adjust its $18 billion of debt and exit the biggest municipal bankruptcy in U.S. history.

Legislation appropriating the money from Michigan's rainy day fund was part of an 11-bill package the committee approved and sent to the full House for consideration.

The mostly unanimous votes on the bills by the five-member bipartisan Committee on Detroit's Recovery and Michigan's Future marked the first by state lawmakers after Governor Rick Snyder included money for Detroit in the proposed budget he unveiled in February.

The legislation, which also creates an oversight commission for Detroit, must still pass the Republican-controlled House and Senate.

"We still have plenty of work to do," said Republican State Representative John Walsh, who chaired the committee. "Just because it moved from this committee doesn't mean it's a done deal."

The committee made numerous changes to the bills before voting, including giving the Detroit City Council an appointment to the oversight commission and removing a requirement to offer new city employees 401k retirement savings plans instead of pensions. The House could take up the bills as soon as Thursday, according to a spokesman for House Speaker Jase Bolger.

Americans for Prosperity-Michigan, a conservative group backed by billionaire industrialists Charles and David Koch, is revving up a campaign against using state money to help Detroit.

Under Detroit's debt adjustment plan, Michigan's lump sum payment would be added to $466 million pledged over 20 years by philanthropic foundations and the Detroit Institute of Arts to ease pension cuts on city retirees and protect art works from being sold to raise money to pay city creditors.

Also on Wednesday, the United Auto Workers union agreed to participate in the so-called grand bargain by raising "material contributions" for retired Detroit worker healthcare costs without tapping its own funds, according to U.S. Bankruptcy Court mediators.

On Monday, mediators announced the Michigan Building and Construction Trades Council will also contribute to retiree healthcare.

All of the contributions are contingent on each other and require affirmative votes from members of Detroit's two retirement systems on the debt adjustment plan. U.S. Bankruptcy Judge Steven Rhodes has set July 24 for the start of a hearing on the plan to determine if it is fair and feasible.

Apart from the bankruptcy plan, JPMorgan Chase & Co on Wednesday announced a $100 million, five-year commitment to spur the city's economic recovery. (Reporting By Karen Pierog; Editing by Chris Reese and Tom Brown)

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