Harbinger cannot 'leapfrog' LightSquared creditors -U.S. judge

By Nick Brown

NEW YORK Thu Oct 30, 2014 7:38pm EDT

NEW YORK Oct 30 (Reuters) - Hedge fund manager Phil Falcone's efforts to hold onto a piece of his LightSquared wireless venture took a hit on Thursday when a bankruptcy judge denied a request by his Harbinger Capital Partners to wipe out a lender group's $1.7 billion claim against a unit of the company.

Judge Shelley Chapman of U.S. Bankruptcy Court in Manhattan criticized the request as an attempt by Harbinger, which controls LightSquared, "to leapfrog up the capital structure over secured creditors."

LightSquared has been in Chapter 11 bankruptcy since 2012, when regulators barred it from using its wireless spectrum due to fears of interference with GPS systems. It has proposed a restructuring plan that would transfer control of the company to the lenders.

Harbinger, hoping to salvage some equity, submitted a competing plan in August, which would split LightSquared's so-called "Inc" and "LP" units and allow Harbinger to retain a stake in the Inc assets.

But Harbinger's plan was contingent on Chapman ruling that the lenders did not have any claim against the Inc assets.

Chapman's ruling would appear to sink Harbinger's plan, but its lawyer said it is not giving up. "We're considering amending the plan to comply with the court's decision," attorney David Friedman told Reuters.

The ruling is the latest wrinkle in what has become one of the messiest and most contentious bankruptcies in recent memory.

The case included a weeks-long trial earlier this year between LightSquared and Dish Network Corp Chairman Charles Ergen, LightSquared's single largest creditor. LightSquared accused Ergen of using underhanded tactics to infiltrate its capital structure and gain control of the company on Dish's behalf.

The sides ultimately reached a consensual restructuring under which Ergen would become LightSquared's primary lender after bankruptcy, but that deal fell apart over the summer amid objections by Harbinger.

With stakeholders divided on how to restructure, the company's future is uncertain, and a frustrated Judge Chapman has threatened to liquidate the company if sides don't make progress on a consensual deal. Months of mediation sessions with a separate bankruptcy judge have yet to yield a solution that has stuck.

Under LightSquared's proposed restructuring, which is still on the table but opposed by Harbinger, Ergen's $1 billion in loan debt would be repaid in the form of new debt and nonvoting shares. (Reporting by Nick Brown; Editing by Cynthia Osterman)

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UPDATE 3-Stockton, California, workers relieved as judge ruling secures pensions

Thu Oct 30, 2014 8:00pm EDT

(Adds comments from judge, background, costs)

By Robin Respaut

SACRAMENTO Oct 30 (Reuters) - Stockton, California, employees breathed a sigh of relief on Thursday as a judge ruled the city could exit bankruptcy, leaving benefits administered by public pension giant Calpers untouched.

The ruling, however, left investors and analysts confused about how pension funds stacked up in terms of their priority of treatment in a bankruptcy proceeding.

Public employees had worried about their pensions after U.S. Bankruptcy Judge Christopher Klein ruled earlier in October that the city's contract with the California Public Employees' Retirement System (Calpers), the largest public pension fund in the United States, could be rejected.

"I don't know if I'm going to dance or cry," said retired Stockton police officer Anthony Delgado.

The plan proposed by the city negotiated the reduction of more than $2 billion of debts. Holdout creditor Franklin Templeton was one of those taking a haircut from its collateral of golf courses and a park, as the judge ruled it would get just over $4 million from an original debt of $36 million.

"Bankruptcy is all about the impairment of contracts, that's what we do," Klein said. He added, however, that bankruptcy is an expensive option for cities. The city had spent almost $14 million on legal and other costs, according to its latest expense report in May.

"This is a very expensive case, and probably should be an object lesson why the Chapter 9 process is not lightly to be entered into," Klein said.

Stockton City Manager Kurt Wilson said: "It's a good day. Today really reinforces to the citizens of Stockton that we're going to be in a stable place."

The Stockton case was riddled with questions about whether public employee pensions should be cut along with debts held by bondholders. The city vehemently opposed the idea of cutting pensions, fearing it would be hit by a $1.6 billion termination fee from Calpers and that employees would lose their jobs.

Analysts said those questions about the status of different stakeholders remain to be conclusively answered.

Retirees made some concessions under the bankruptcy plan, such as losing their healthcare benefit, which amounted to $550 million. Bondholders were also forced to make concessions, reducing the amount of debt they would be repaid by the city.

"We need a black and white ruling on this matter," said David Tawil, a former bankruptcy attorney and president of New-York based hedge fund Maglan Capital, which invests in distressed situations.

"At some point we will get to a municipal situation where a city will not be able to function without a compromise of its pension obligations," Tawil said. "This question has been punted on once again."

Calpers welcomed the judge's decision and the city's plan to exit bankruptcy, which it said "protects the pension promises made to its public employees".

A haircut to Calpers pensions would have been unprecedented in municipal bankruptcy, although pensions elsewhere are under pressure in such situations. The judge presiding over Detroit's exit from bankruptcy ruled that pensions could be impaired although cuts were eased by court-ordered mediation.

Klein said he made his decision after examining the alternative of going "back to square one and running up many more millions of dollars for the city."

"I've looked long and hard at the history of this case and the decisions that have been made and considered the alternative," Klein said in court. "This plan, I'm persuaded is the best that can be done in terms of restructuring the debts of the city of Stockton."

Credit ratings agency Standard & Poor's said Stockton's experience showed bankruptcy was unlikely to be an attractive route for other municipalities due to the high legal costs and the "negative campaign" that a city has to make to argue that it is unable to sustainably operate without defaulting. (Additional reporting by Tim Reid in Los Angeles, writing by Megan Davies; Editing by Bernard Orr)

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Bail-in of senior European bank debt not fully priced in

By Alice Gledhill

Fri Oct 31, 2014 4:27am EDT

LONDON, Oct 31 (IFR) - The European senior bank debt market is yet to fully factor in the risk of bail-in despite an approaching deadline that will see some countries introduce burden sharing measures into local laws as early as 2015.

The Bank Recovery and Resolution Directive (BRRD) adopted by the European Parliament in April requires that at least 8% of a bank's total liabilities must be bailed in before public funds can be tapped. That will ensure that unsecured bondholders, rather than taxpayers, foot the bill for failing banks.

Yet, European banks have seen their spreads plummet throughout the year, in some cases tightening by more than 100bp since January as seen in the case of Bankia's 3.5% 2019 euro senior bond.

"The market is not yet differentiating between the varying capital ratios across different institutions," said Laurent Frings, co-head of EMEA Credit Research at Aberdeen Asset Management.

"The French and Austrian banks have very little Tier 2 capital which is protecting the senior investors. This hasn't been priced in."

His view was echoed by Simon McGeary, head of the new products group at Citigroup. "I think it is priced in to some degree, but not completely yet. There was a bit of a move as far back as 2010, when people started to change their assumptions about governments stepping in to support banks in distress."

So far the market has been proven right. There has been a reluctance to bail-in senior debtholders as the cases of SNS and more recently Banco Espirito Santo showed, when subordinated debt was wiped out but senior left untouched.

But while some governments could struggle to introduce the BRRD before the January 2016 deadline, others, including the UK, Austria and Germany, have fast-tracked it and will implement the measures alongside other BRRD provisions from January next year.

Frings said the unpredictability of future legislative changes added a further dimension of risk.

"The market should be more circumspect as legislation can be brought in very quickly. There is almost too much confidence that senior debt is safe until January 2016."

That sense of security has not been helped by distortions in the market. The introduction of the TLTRO has seen issuance from European banks fall sharply.

Since the beginning of September 2014, 14.5bn-equivalent of senior debt has been issued by European banks, significantly less than the 27bn-equivalent issued over the same period in 2013.

Meanwhile, even though a recent Moody's report suggested that changes in spreads on bonds eligible for bail-in were evidence that markets are already pricing in the potential bail-in of European banks, not everyone agrees.

Bankers and investors felt the bail-in mechanism was just one of many factors driving spreads, not least the ECB's third covered bond purchase programme.

"The markets are starting to give thought to it, but covered bonds diverging could be down to a number of things such as anticipated ECB buying. The market is so compressed, it's hard to discern," said Citi's McGeary.

A seven-year covered bond issue priced this week for Credito Emiliano showed how far spreads have tightened. The deal came at 25bp over mid-swaps, making it the tightest pricing for a peripheral covered bond since the crisis.

LINE OF DEFENCE

How pricing of senior bank debt evolves will likely be down to the market's growing awareness of where that debt sits in the liability structure, and therefore how much of a line of defence lies before it.

The Moody's report emphasised that the extent of losses would depend both on the thickness of the debt tranche which bondholders inhabit, and the amount of more junior debt that would be bailed-in first.

"For a given loss in terms of banks assets, the more you have subordinated to you, the better off you are. By the same notion, the more people you have alongside you, the better off you are," said Colin Ellis, chief credit officer for EMEA at Moody's.

While the European bail-in regime is playing on investors' minds, something bigger could be coming down in the form of the Total Loss Absorbing Capacity (TLAC). That would require banks to hold an additional safety buffer equivalent to 16% to 20% of their risk-weighted assets

While it is very much up in the air as to what is included, senior debt is far from being off the hook; being "bailinable", it could be used to fill some of the TLAC requirements. (Reporting By Alice Gledhill, Editing by Helene Durand, Julian Baker)

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Dow Jones asks court to deny GT Advanced, Apple's secrecy motion

Wed Oct 29, 2014 7:38am EDT

Oct 29 (Reuters) - Dow Jones & Co Inc, publisher of the Wall Street Journal, has asked a court to deny a request by Apple Inc and GT Advanced Technology Inc to keep under seal some documents relating to GT Advanced's bankruptcy.

Dow Jones, owned by News Corp, said keeping the documents under seal is an offense to constitutional principles of public access, according to the publisher's court filing late on Tuesday.

GT Advanced, which supplied sapphire material to Apple to make smartphone screens, filed for Chapter 11 protection earlier this month under mysterious circumstances.

GT refused to explain why it had imploded, citing confidentiality clauses in its Apple contracts.

The case is In re: GT Advanced Technologies Inc, U.S. Bankruptcy Court, District of New Hampshire, No: 14-11916. (Reporting by Tanya Agrawal in Bangalore; Editing by Savio D'Souza)

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UPDATE 1-Dow Jones asks court to deny GT Advanced, Apple's secrecy motion

Wed Oct 29, 2014 8:15am EDT

(Adds details from filing, background)

Oct 29 (Reuters) - Dow Jones & Co Inc, publisher of the Wall Street Journal, has asked a court to deny a request by Apple Inc and GT Advanced Technology Inc to keep under seal some documents relating to GT Advanced's bankruptcy.

Dow Jones, owned by News Corp, said keeping the documents under seal is an offense to constitutional principles of public access, according to the publisher's court filing on Tuesday.

GT Advanced, which supplied sapphire material to Apple to make smartphone screens, filed for Chapter 11 protection earlier this month and refused to explain why it had imploded, citing confidentiality clauses in its Apple contracts.

Few details have emerged since the bankruptcy filing, which wiped out most of GT's market value and triggered speculation over what may have soured its relationship with Apple.

Dow Jones said in Tuesday's filing that the companies' had not cited any authority to support their "brazen" request and asked the court to reject their "ransom" demands.

Under U.S. bankruptcy laws, there are narrow exceptions which allow documents to be sealed and Dow Jones said neither company had argued that certain documents in the case qualified for this extraordinary protection.

"To the contrary, GTAT has stated unequivocally that the sealed materials do not satisfy the statutory test," Dow Jones said in the filing.

GT Advanced and Apple were not immediately available for comment.

GT Advanced, which proceeded with its bankruptcy after striking an agreement with Apple, said earlier this week that the iPhone maker had threatened to seek damages of more than $1 billion against the company.

The case is In re: GT Advanced Technologies Inc, U.S. Bankruptcy Court, District of New Hampshire, No: 14-11916. (Reporting by Tanya Agrawal in Bangalore; Editing by Savio D'Souza)

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BRIEF-Vaahto Group Vapate Oy unit files for bankruptcy

Wed Oct 29, 2014 10:05am EDT

* Says Vapate Oy has sold all its unprofitable business related to pulp, paper and board industry solutions during years 2013 and 2014

* Board of directors of vapate oy has stated that liabilities of company are greater than its assets and company is no longer able to meet its obligations

* Loans of Vapate Oy mature in bankruptcy. Parent company has secured loans for financiers of company

* Negotiations with financiers have already begun on how to arrange securities of parent in such a way that group's continuing operations does not become endangered due to securities Source text for Eikon: Further company coverage: (gdynia.newsroom@thomsonreuters.com; +48 58 698 3920)

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BRIEF-The Fantastic Company unit Sicara files for insolvency

Thomson Reuters is the world's largest international multimedia news agency, providing investing news, world news, business news, technology news, headline news, small business news, news alerts, personal finance, stock market, and mutual funds information available on Reuters.com, video, mobile, and interactive television platforms. Thomson Reuters journalists are subject to an Editorial Handbook which requires fair presentation and disclosure of relevant interests.

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U.S. appeals court rules for GM in Spyker's Saab sale lawsuit

By Jonathan Stempel

Fri Oct 24, 2014 1:52pm EDT

Oct 24 (Reuters) - General Motors Co persuaded a federal appeals court to uphold the dismissal of a $3 billion lawsuit in which Spyker NV accused it of derailing a plan to sell the Swedish automaker Saab to a Chinese company.

The 6th U.S. Circuit Court of Appeals in Cincinnati on Friday said Spyker failed to show GM intentionally interfered with the Dutch company's effort to sell Saab to Zhejiang Youngman Lotus Automobile Co, leading to Saab's bankruptcy.

GM had sold a majority of Saab to Spyker in 2010. As part of that sale, it licensed Saab to build vehicles using the Detroit-based automaker's intellectual property, and retained a right to end the license if Saab were sold without its consent.

Spyker said it was in sale talks with Youngman in December 2011 when a GM spokesman made statements suggesting that consent would not be provided, and that a sale might hurt GM. Youngman said it decided to back out "due to GM's position."

Writing for a three-judge 6th Circuit panel, Circuit Judge Eugene Siler said GM's statements were not malicious, and that it had "legitimate business concerns" about the sale, including over who would benefit from Saab's use of its technology.

Siler also called Spyker's claim "fatally flawed" because it assumed that GM misinterpreted the license agreement, meaning the spokesman's statements "would have at most amounted to a mistake."

A lawyer for Spyker had no immediate comment. GM spokesman Dave Roman did not immediately respond to requests for comment.

Friday's decision upheld a June 2013 ruling by U.S. District Judge Gershwin Drain in Flint, Michigan.

Saab's assets were bought out of bankruptcy in 2012 by China's National Electric Vehicle Sweden.

NEVS stopped building cars in May because of a lack of money, and in August won creditor protection in Sweden so it could seek new funds.

The case is Saab Automobile AB et al v. General Motors Co, 6th U.S. Circuit Court of Appeals, No. 13-1899. (Reporting by Jonathan Stempel in New York; editing by Matthew Lewis)

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UPDATE 1-U.S. appeals court rules for GM over Spyker's Saab sale

Fri Oct 24, 2014 4:12pm EDT

(Adds GM statement, closing share price)

By Jonathan Stempel

Oct 24 (Reuters) - General Motors Co persuaded a federal appeals court to uphold the dismissal of a $3 billion lawsuit in which Spyker NV accused it of derailing a plan to sell the Swedish automaker Saab to a Chinese company.

The 6th U.S. Circuit Court of Appeals in Cincinnati on Friday said Spyker failed to show GM intentionally interfered with the Dutch company's effort to sell Saab to Zhejiang Youngman Lotus Automobile Co, leading to Saab's bankruptcy.

GM had sold a majority of Saab to Spyker in 2010. As part of that sale, it licensed Saab to build vehicles using the Detroit-based automaker's intellectual property, and retained a right to end the license if Saab were sold without its consent.

Spyker said it was in sale talks with Youngman in December 2011 when a GM spokesman made statements suggesting that consent would not be provided, and that a sale might hurt GM. Youngman said it decided to back out "due to GM's position."

Writing for a three-judge 6th Circuit panel, Circuit Judge Eugene Siler said GM's statements were not malicious, and that it had "legitimate business concerns" about the sale, including who would benefit from Saab's use of its technology.

Siler also called Spyker's claim "fatally flawed" because it assumed that GM misinterpreted the license agreement, meaning the spokesman's statements "would have at most amounted to a mistake."

Friday's decision upheld a June 2013 ruling by U.S. District Judge Gershwin Drain in Flint, Michigan.

A lawyer for Spyker declined to comment immediately.

GM spokesman Alan Adler said in an emailed statement: "GM is very pleased that both the district court and now the Court of Appeals have determined that GM acted properly."

Saab's assets were bought out of bankruptcy in 2012 by China's National Electric Vehicle Sweden.

NEVS stopped building cars in May because of a lack of money, and in August won creditor protection in Sweden so it could seek new funds.

GM shares closed down 89 cents, or 2.9 percent, at $30.04 on Friday.

The case is Saab Automobile AB et al v. General Motors Co, 6th U.S. Circuit Court of Appeals, No. 13-1899. (Reporting by Jonathan Stempel in New York; Editing by Matthew Lewis and Richard Chang)

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BRIEF-The Fantastic Company unit Sicara files for insolvency

Thomson Reuters is the world's largest international multimedia news agency, providing investing news, world news, business news, technology news, headline news, small business news, news alerts, personal finance, stock market, and mutual funds information available on Reuters.com, video, mobile, and interactive television platforms. Thomson Reuters journalists are subject to an Editorial Handbook which requires fair presentation and disclosure of relevant interests.

NYSE and AMEX quotes delayed by at least 20 minutes. Nasdaq delayed by at least 15 minutes. For a complete list of exchanges and delays, please click here.

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