April 2, 2012 8:00 PM
The Bankruptcy Files: ‘Pink Slime,’ Sino-Forest, and Pinnacle Take the Plunge
Posted by Brian Baxter
No sooner had The Am Law Daily reported last week on a slew of large business bankruptcy filings by companies in the shipping sector than noted distressed investor Wilbur Ross, Jr., said publicly he’s considering investing his billions in the maritime industry.
Ross and other investors in distressed assets may want to have a closer look at three other embattled companies keeping Am Law 100 firms busy with bankruptcy filings of their own since late last week:
Owned by billionaire Ronald Burkle’s Yucaipa Companies, AFA Foods hasn’t been able to overcome the stigma of “pink slime,” a cheap meat product found in about 70 percent of ground beef sold in U.S. supermarkets and up to 25 percent of each hamburger patty sold stateside, according to recent news reports.
As public outrage over pink slime spread last month, some companies announced they would no longer include the meat filler in their products, which are bought by fast-food restaurant chain customers that have also been backing away from pink slime. While pink slime does have some defenders, on Monday, pink slime was in the news again, as Bloomberg reported that AFA Foods had filed for bankruptcy in Delaware, listing $219 million in assets against $197 million in liabilities.
Jones Day business restructuring partners Jeffrey Ellman and Tobias Keller and of counsel Brett Berlin are representing AFA in its Chapter 11 case. The King of Prussia, Pennsylvaniaâ€“based debtor has also retained Laura Davis Jones, name partner of national bankruptcy boutique Pachulski Stang Ziehl Jones, as Delaware counsel. Neither firm has yet filed billing statements with the bankruptcy court.
Other firms whose names appearing on a list of AFA creditors include Baker Hostetler, Barnes Thornburg, Jamestown, New York-based Buffamante Whipple Buttafaro, Philadelphia’s Bonner Kiernan Trebach Crociata, Houston’s Deason Law Group, Hogan Lovells, Kelly Hart Hallman, Conshocken, Pennslyvania-based Masterson Braunfeld, San Diego’s Klinedinst, Lewis and Roca, Seyfarth Shaw, Sidley Austin, and Washington, D.C.’s Olsson Frank Weeda Terman Matz.
After months of circling to try and avoid touching down in bankruptcy court, Memphis-based regional carrier Pinnacle Airlines filed for Chapter 11 in Manhattan on Sunday, listing more than $1.5 billion in assets against $1.4 billion in debts.
Pinnacle cited high fuel costs and ongoing integration problems as the primary reasons for its bankruptcy filing, according to The Associated Press. The airline’s bankruptcy comes about four months after AMR Corporation, the Fort Worthâ€“based parent of American Airlines, retained Weil, Gotshal Manges for its own Chapter 11 case. (Latham Watkins is advising rival US Airways as it mulls a potential bid for ARM, whose losses are continuing to mount in bankruptcy court.)
As lead counsel on its Chapter 11 filing, Pinnacle has retained seasoned Davis Polk Wardwell aviation insolvency lawyers Marshall Huebner and Damian Schaible, both of whom were responsible for leading Davis Polk team that reaped roughly $40 million in fees for helping Delta Air Lines emerge from bankruptcy in April 2007.
As it happens, Delta, which has key operating agreements with Pinnacle, is providing $74.3 million in debtor-in-possession financing for the bankrupt regional carrier. Pinnacle will restructure those agreements with Delta and end separate accords with United Airlines and US Airways during the bankruptcy process.
As a result of its own Delta history, Davis Polk is ceding some of its Pinnacle work to Akin Gump Strauss Hauer Feld financial restructuring partner Lisa Beckerman, who is leading a team from the firm serving as conflicts counsel to Pinnacle. Brian Hunt is Pinnacle’s general counsel. Neither Akin Gump nor Davis Polk has yet filed billing statements with the bankruptcy court.
Sino-Forest, a Chinese and Canadian forest products company being investigated for fraud for allegedly inflating its annual revenues, filed for bankruptcy in Canada on Friday. The Toronto Star reports that Sino-Forest stated it would begin looking for buyers after filing its request for bankruptcy protection with the Ontario Superior Court.
Sino-Forest also sued in that same court Muddy Waters Research, a short-seller that issued a scathing report last summer on the Mississauga, Ontario-based company by calling it a fraud for exaggerating the value of its holdings. The report by Muddy Waters and its founder, Carson Block, a former Jones Day lawyer in China who serves as an adjunct professor at the Chicago-Kent College of Law, cost hedge fund billionaire John Paulsonâ€”once Sino-Forest’s largest shareholderâ€”an estimated $500 million. (Block has publicly defended his work investigating Chinese companies.)
After losing more than two-thirds of their market value, the trading of Sino-Forest shares was suspended last summer, and New Zealand-born billionaire Richard Chandler bought into the ailing company and became its largest shareholder. Reuters reports that Chandler is now backing a restructuring plan for Sino-Forest.
Calgary-based Bennett Jones is advising Sino-Forest in its Canadian bankruptcy case, which will occur under the country’s Companies’ Creditors Arrangement Act. Fellow Canadian firm Osler, Hoskin Harcourt is representing Sino-Forrest’s board of directors, while Hogan Lovells is advising a group of bondholders, Bloomberg reports. Sino-Forest’s corporate secretary is Richard Kimel.
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