Bankruptcy filings in federal courts across the nation rose nearly 32 percent last year, according to data just released by the Administrative Office of U.S. Courts. The total number of bankruptcies filed rose to more than 1.4 million. Chapter 11 filings rose 50 percent, to 15,189; Chapter 7 filings rose 41 percent to just more than 1 million; and Chapter 13 filings rose 12 percent, to nearly 407,000. For more data and charts, visit the Administrative Office of the U.S. Courts Web site.

Swoozie’s Inc., the bankrupt Atlanta-based purveyor of paper products, party supplies and gifts, has found a stalking horse bidder which could purchase its assets at auction with a starting bid of $5.34 million.

The stalking horse, Newton, Mass.-based Hudson Capital Partners, is one of more than 40 strategic, going-concern and liquidation buyers—including Books-A-Million and Tiger Capital—that Swoozie’s courted in its search for a way out of its financial difficulties.

That’s according to recent filings in Swoozie’s Chapter 11 reorganization case in U.S. Bankruptcy Court for the Northern District of Georgia.

Swoozie’s, which lists debts between $10 million and $50 million and assets of less than $10 million, is represented by Dennis J. Connolly, Wendy R. Reiss, William S. Sugden and Sage M. Sigler at Alston & Bird. Hudson Capital is represented by J. Hayden Kepner Jr. at Scroggins & Williamson. 

Court documents show that Swoozie’s is slated to hold the auction on March 25. Time is of the essence, because U.S. Bankruptcy Judge C. Ray Mullins has approved up to $3.5 million in debtor-in-possession financing from Wells Fargo that matures on April 15. That loan is in default, according to court documents, if a sale hearing is not held by March 29.

Founded in 1999, Swoozie’s grew to 43 stores around the country, but got into trouble after it purchased 13 stationery-and-party-products stores known as Blue Tulip out of bankruptcy about a year ago. Swoozie’s predicted an additional $12.8 million in sales as a result of the acquisition—but actual sales came up more than $4 million short, according to bankruptcy filings. Then, a “seismic shift in the economy” and a delay in closing a $3.1 million loan from Wells Fargo, according to court documents, prompted the company to file for bankruptcy.

Court documents contemplate that other bidders may bump Hudson Capital out of the running in the proposed Section 363 sale. If that happens, an agency agreement provides for a $75,000 break-up fee.

Other lawyers involved in the deal include Darryl S. Laddin and Michael F. Holbein at Arnall Golden Gregory as counsel to the Official Committee of Unsecured Creditors; James S. Rankin Jr. at Parker, Hudson, Rainer & Dobbs for Wells Fargo; and Mark I Duedall at Hunton & Williams for interested parties Gordon Brothers Group and Gordon Brothers Retail Partners.

The case is In re: Swoozie’s Inc., No. 10-66316.

James P. Smith, who became the Middle District of Georgia's newest bankruptcy judge on Feb. 22, said he first got a lead on his current job at a Super Bowl party two years ago.

At that party, he ran into Robert F. Hershner Jr., a Middle District bankruptcy judge who told Smith he was planning to retire soon. When Hershner submitted his letter of resignation, the 11th U.S. Circuit Court of Appeals, which is responsible for vetting and appointing bankruptcy judges, announced an opening. Smith filed an application for the post and got the job last month.

Hershner and Smith share a legal legacy of sorts. The two had both practiced law with Macon lawyer Jerome L. Kaplan, although at different times. Hershner left Kaplan's firm in 1980 to go on the bankruptcy bench; Smith joined that firm, then known as Kaplan & Thomason, a year later, right after getting his law and M.B.A. degrees from the University of Georgia.

In 1985, the firm became the Macon office of Arnall Golden Gregory, where Smith said he spent 20 years handling business litigation and representing institutional creditors in bankruptcy matters. But in 2005, Arnall decided to close the office, and Smith, along with Kaplan and Ronald C. Thomason, joined former Arnall partner Ward Stone Jr., who'd left earlier to found his own firm, Stone & Baxter. At the smaller firm, Smith's practice became more focused on business debtors in Chapter 11 reorganizations.

Smith credits Kaplan with mentoring him and Hershner in their careers, calling his former colleague “the producer of bankruptcy judges.”

Smith's tenure as a bankruptcy judge really began on Monday, when he heard his first cases. Asked how things were going so far, he quipped, “Well, nobody's died yet.”

Bankrupt Mesa Air Group Inc. wants to keep Jones Day as its outside lawyers, according to an application Mesa filed with the U.S. Bankruptcy Court for the Southern District of New York.

Jones Day, according to the filing, represents Mesa in a wide range of pre-petition litigation against Delta Air Lines and United Airlines Inc. In the past year, the firm has billed Mesa nearly $1.7 million for its services.

The filing lists the primary Jones Day lawyers expected to work on the litigation, along with their hourly rates. Among them are four Atlanta lawyers: partners G. Lee Garrett Jr. ($675) and David M. Monde ($625); and associates Robert A. Schmoll ($400) and Jason Burnette ($325).

According to the filing, Jones Day represents the beleaguered airline in four separate legal actions in three states.

Three of those suits were initiated in 2008 in U.S. District Court for the Northern District of Georgia. In one, Mesa and its subsidiary, Freedom Airlines, sued Delta seeking to enjoin Delta's termination of a jet operation agreement. The court issued a preliminary injunction in favor of Mesa, which was upheld by the 11th U.S. Circuit Court of Appeals. The parties now are awaiting a trial date in the district court. In another suit, Mesa and Freedom allege that Delta wrongfully terminated another agreement and are seeking $40 million in damages. The third Georgia suit involves Delta's allegation that Mesa and Freedom breached a “most favored nation” contract provision. In that case, the file of which is sealed, the court has not ruled on Mesa's motion to dismiss.

Mesa also sued Delta in August in federal court in Arizona over the termination of an engine maintenance agreement and Delta's allegedly unauthorized retention of seven aircraft engines. Delta filed a mechanics' lien on the engines and a counterclaim seeking to foreclose on the liens, but the court found that Delta had forfeited its lien claims. Delta has filed a notice of appeal to the 9th U.S. Circuit Court of Appeals; Mesa has a pending motion for summary judgment.

And United, in October, sued Mesa over the parties' code-sharing agreement about the in-service dates for certain aircraft in federal court in Illinois. The suit is pending.

Mesa's bankruptcy court filing seeking to retain Jones Day in these and related actions notes that Mesa's success in restructuring turns on the outcome of these suits, because 96 percent of its passenger revenues for fiscal year 2009 were derived from code-share revenue guarantee agreements with Delta, United and US Airways. “Accordingly, preserving or defending these relationships, and related rights and claims, will be a critical component of the Debtors' overall restructuring in these cases,” the application notes.

Mesa and 10 subsidiaries petitioned for Chapter 11 reorganization on Jan. 5, citing assets of $975 million and liabilities of $869 million. The suit is In re: Mesa Air Group Inc., No. 10-10018.

Sea Launch Co., a bankrupt Boeing subsidiary that propels into space rockets carrying private payloads, on Dec. 3 landed court approval for $12.5 million in debtor-in-possession financing.

The company, represented by debtors' counsel Dennis J. Connolly and Matthew W. Levin at Alston & Bird and attorneys from Young Conaway Stargatt & Taylor in Wilmington, Del., filed an emergency motion for DIP financing with the U.S. Bankruptcy Court for the District of Delaware, claiming that it needed $5 million immediately to continue operations. Sea Launch, which is based in Long Beach, Calif., and has launched the “Rock,” “Roll” and “Rhythm” satellites for XM Satellite Radio as well as satellites serving entities including DirecTV and NATO, sought authority to borrow $25 million, but presented the court with a negotiated commitment for $12.5 million.

It's not easy to get DIP financing these days, and Connolly credited investment bank Jefferies & Co. with conducting a global search for the money. The lender, whose principal investors are financial entities and players in the space and telecommunications industries, is Houston-based Space Launch Services. It was represented by attorneys from Baker Botts and Edwards Angell Palmer & Dodge. Boeing, which is a guarantor on some of the loans, is represented by Richards, Layton & Finger.

Bankruptcy Judge Brendan L. Shannon approved the $12.5 million loan, writing that Sea Launch may use the money to fund operating expenses, working capital, transaction fees associated with the loan and professional fees and expenses—including legal fees—subject to court approval and not exceeding $350,000 per month in the aggregate.

Shannon also noted in his order that the debtors were unable to obtain unsecured credit, or secured credit at better terms, elsewhere.

That's not surprising, given Sea Launch's financial state. The company reported in its bankruptcy petition and other documents liabilities in excess of $1 billion and assets that were less than $500 million.

According to an affidavit filed early in the bankruptcy by Sea Launch's chief financial officer, the company owes Boeing more than $760.8 million; Boeing's most recent 10-Q, filed with the Securities and Exchange Commission in October, indicates that Boeing has recourse to $971 million in receivables from Sea Launch and its partners. Sea Launch also racked up an additional $119 million in cost overruns during its development phase, among other debts.

Another factor pushing the company to reorganize, according to the court file, is a failed launch, which took place in January 2007 when an accident destroyed a rocket and a Dutch telecommunications satellite before they even left the launch pad. That unsuccessful launch delayed other scheduled launches, costing the company money and customers.

The customer on the failed launch, Hughes Network Systems, demanded a refund of its advance payments and interest. This spring, a panel of arbitrators concluded that Sea Launch owed Hughes $52.3 million. Connolly said Hughes filed to confirm the arbitral award in superior court in California, but that action is stayed during the pendency of the bankruptcy litigation.

With debts looming, Sea Launch filed for Chapter 11 reorganization in June, and asked the court for DIP funding in November.

The commitment letter and the term sheet for Sea Launch's DIP facility, which are exhibits in the court file, show that this is a super priority priming secured term loan, meaning that its repayment takes precedence over Sea Launch's other secured debts. The interest rate is based on a minimum 3 percent London Interbank Offered Rate, or LIBOR, plus 300 basis points, and Sea Launch will pay a closing fee of 2 percent. If at some point the company elects to get credit from another lender instead of completing its commitment with Space Launch Services, it will pay a break-up fee of $250,000.

Connolly said his client expects to receive the remaining $7.5 million in DIP financing within the next 30 to 60 days. He said the search is on for more funding.

“This is a unique debtor,” he said. “There really isn't another provider quite like it in the world.”

Mentioning the specialized skill sets necessary to operate the business, not just from a scientific standpoint but from the perspective of dealing with multinational treaty obligations related to Sea Launch's peaceful use of rockets that possess weapons-potential technology, he added, “I think there will be interest among equity players because there's an amalgam of assets that isn't easily replaceable and has a value that will be of interest. The challenge is figuring out how to translate that into a financing structure.”

Sea Launch was founded in 1995 by Boeing Commercial Space and Communications, Norwegian investors and corporations owned by the governments of Russia and Ukraine. The company was designed as a private, low-cost alternative for launching satellites, most of which, at that time, were launched out of government facilities with long waiting lists.

To date, the company has completed about 30 launches, including one for Georgia-based Intelsat on Nov. 30. The launches either take place from a land-based launch pad at a space center in Kazakhstan or from the Odyssey, a huge, sea-based, floating launch pad at the equator (satellites launched at the equator get the biggest boost from Earth's rotation and travel the shortest route into orbit).

But the economy has changed since the company's founding in the go-go mid-1990s.

“The debtors are actively pursuing launch opportunities with numerous customers,” Brett A. Carman, Sea Launch's vice president and chief financial officer, said in an affidavit filed with the court. “However, the Debtors' operating results have been negatively impacted by the worldwide economic recession, a glut of available launch slots operated by competitors, and the Debtors' precarious finances.”

The developer who created Georgia shopping venues, including the Forum on Peachtree Parkway, has filed for bankruptcy protection in a multipronged Chapter 11 reorganization involving at least $177 million in debt.

Various entities of Fourth Quarter Properties, founded by Newnan-based real estate developer Stanley E. Thomas, are seeking reorganization in six different actions filed in the U.S. Bankruptcy Court for the Northern District of Georgia. Thomas, according to his attorney, has more than 200 operating companies around the country.

The actions, which likely will be consolidated, involve three different properties: an undeveloped 104-acre plot of land known as Prospect Park in Alpharetta near Georgia 400; The Rim, an 800-acre mixed-use development in San Antonio, Texas, which hosts a massive Bass Pro Shops Outdoor World, JCPenney, an IMAX theatre and a Maggiano’s Little Italy restaurant; and another property, which is not described in the filing, but is known as Village Pavilion.

Other Georgia properties operated by Thomas—Forum at Ashley Park and Newnan Crossing, both in Newnan, and the Forum on Peachtree Parkway—are not listed among the debtors.

James P. Smith at Stone & Baxter in Macon is handling five of the six cases. He said Wachovia holds a lien on the Alpharetta property, which has debt of about $60 million.

The Rim, he said, has filed four separate actions involving different debtors, each of which owns a portion of the shopping center and has its own tenants. “There are some common trade creditors, and there are five banks which hold a lien on all four properties, and all the filing entities are jointly obligated on a debt of about $116 million.”

In that debt, he said, Wachovia serves as the administrative agent for itself and four other banks: Compass Bank, PNC Bank, Carolina First Bank and Aliant Bank.

The sixth case, which involves the Village Pavilion property, is being handled by Jeffrey F. Montgomery and Jason C. Grech at Cushing, Morris, Armbruster & Montgomery. Grech declined to comment; Montgomery could not be reached by deadline.

According to the bankruptcy petition, Village Pavilion has between $1 million and $10 million in debt.

Smith said the debtors he represents decided to file for reorganization not because the shopping centers have been hit by the down economy but because they were unsuccessful in converting short-term loans, which had come due, into long-term loans. A foreclosure action was running, he said, and reorganization seemed the best option.

“The loans had all matured, and they were negotiating with the banks to renew them. They couldn’t pay the full $116 million in cash, but the properties have close to $700,000 in excess cash flow each month, so there’s plenty of money to amortize debt. But for whatever reason, they couldn’t make a deal,” he said. “We all know that banks are more reluctant to make loans these days. I’m not sure what the dynamics were on the bank side.”

The debtors have petitioned for consolidation, but for now, the cases are: Fourth Quarter Properties XLVII, No. 09-13959; Fourth Quarter Properties 118, No. 09-13960; Fourth Quarter Properties 140, No. 09-13961; Fourth Quarter Properties 161, No. 09-13962; Fourth Quarter Properties 162, No. 09-13963; and Fourth Quarter Properties V Inc., No. 09-13968.

Simmons Co., the mattress-maker which in late September announced plans to sell itself to investors, has just completed the next step in its efforts to bounce back from financial troubles stemming from $1 billion in debt. On Monday, the company filed for Chapter 11 bankruptcy reorganization.

On Tuesday, U.S. Bankruptcy Judge Mary F. Walrath of the District of Delaware signed an interim order authorizing Simmons to obtain up to $35 million in post-petition debtor-in-possession, or DIP, financing. Up to $15 million of that is accessible immediately and slated to be used for working capital and general corporate purposes pending entry of a final order.

Walrath also OK’d the debtors’ use of up to $40 million in cash collateral for continuation of the business, including payroll and general corporate obligations.

A final hearing is scheduled for Dec. 10.

Simmons is represented in the bankruptcy by attorneys from Richards, Layton & Finger in Wilmington, Del., and by attorneys from Weil, Gotshal & Manges in Houston. Lawyers from Simpson, Thacher & Bartlett in New York are representing the DIP agents and the pre-petition agents, which include Deutsche Bank Trust Company Americas and Deutsche Bank AG New York Branch.

In filing this prepackaged bankruptcy, Simmons plans to whittle its $1 billion in debt to $450 million, according to an earlier interview with the company’s general counsel, Kristen K. McGuffey. The mattress-maker intends to do that by selling itself for $760 million to affiliates of Ares Management, a Los Angeles-based investment management firm, and Teachers’ Private Capital, the private investment arm of the Ontario Teachers Pension Plan.

Though Simmons’ mattress sales were affected by the economic downturn, a report issued by Moody’s Investor Services and cited in the New York Times blames the company’s financial troubles more on how it was managed by the private equity firm that owns it, Thomas H. Lee Partners.

Moody’s compares the very different fates of Simmons and  another mattress company, Sealy, both of which were sold to private equity firms in 2004 for $1.1 billion and $1.5 billion, respectively, and both of which had roughly the same leverage.

According to Moody’s, Thomas H. Lee essentially used Simmons as a piggy bank, paying itself for its investment by getting the mattress maker to twice issue debt. Simmons raised $450 million, $375 million of which went to Thomas H. Lee, Moody’s reports.

By contrast, Sealy’s private equity owner, Kohlberg Kravis Roberts, elected to pay itself back by taking the company public in 2006.

The difference: When the economic downturn softened mattress sales, Simmons had a far higher debt level than Sealy. Sealy was able to amend its credit agreements, Moody’s reports. Simmons, as bankruptcy documents attest, wasn’t so lucky.

The case is Simmons Co. 09-14037.

Six Flags Inc. has revamped its Chapter 11 bankruptcy reorganization plan in an effort to gain broader support from its creditors, according to a disclosure statement filed with the amusement park company's second amended joint plan of reorganization last week in U.S. Bankruptcy Court for the District of Delaware.

The reorganization initially was filed in June on behalf of 37 Six Flags entities. (The three Georgia properties in the Six Flags family—Six Flags Over Georgia, Six Flags Whitewater and American Adventures, are not listed among properties that are part of the reorganization.)

The Six Flags entities sought to restructure more than $2.7 billion in debt and preferred equity obligations racked up between 1998 and 2005. Those occurred under a prior management team that made large capital expenditures on new attractions and purchased additional theme parks right before the economic downturn reduced consumer spending, particularly on discretionary activities such as entertainment.

Six Flags, based in New York, is represented by attorneys from, primarily, the New York and Chicago offices of Paul, Hastings, Janofsky & Walker and the Wilmington, Del.-based Richards, Layton & Finger.

The company noted in its disclosure that the terms of its prior reorganization plan were affected by the poor economy, the limited availability of credit and “the unwillingness of some debt holders to negotiate a consensual plan with the debtors on terms that permitted a successful reorganization.”

Now, despite a challenging amusement park season hampered by bad weather in the Northeast, swine flu fears and continued consumer reluctance to spend money on discretionary entertainment, the credit markets have begun to stabilize, according to the disclosure, which added that those markets now offer financing opportunities that weren't available when the plan first was filed.

After “extensive discussions with a wide variety of creditor constituencies,” Six Flags believes it has found an “ultimate plan that will secure broad support, if not be entirely consensual,” the disclosure says.

That plan involves the company's securing an additional $950 million in new debt financing. Of that, $800 million is a senior secured credit facility including a $650 million term loan and a $150 million revolving loan facility. According to the disclosure, the rest of the money will come from a $150 million multi-draw term loan facility from Time Warner, a pre-existing creditor and the former owner of the Six Flags entities. Time Warner sold the parks to Premier Parks Inc. in 1998.

This move will allow secured and some unsecured creditors to be paid at 100 percent, according to the disclosure; the payoff for note holders, depending upon their status and the entity to which they extended credit, will range from zero up to 47 percent of the debt.

Also under the new plan, the holders of some unsecured claims will be able to convert that debt to new common stock to be issued by the reorganized company, and those creditors also will have a limited right to purchase pro rata shares of up to $450 million in new common stock from a planned rights offering.

These aspects represent an improvement over the original plan, which would have paid most note holders less than 10 percent. Also under the original plan, pre-petition creditors' claims against Six Flags and some of its subsidiaries would have been converted to 92 percent of the common stock issued by the reorganized company and claims against another Six Flags entity would have been discharged and exchanged for a new guaranty.

The new plan is subject to approval by creditors; a voting date has not yet been set. An informal committee of creditors, a steering committee of pre-petition debt holders and Time Warner all have said they'll support the plan, according to the disclosure statement.

The case is In re: Premier International Holdings Inc., No. 09-12019. Premier International Holdings is a wholly owned subsidiary of Six Flags Theme Parks Inc., but Six Flags requested in court documents that Premier be the lead debtor in the case.

Small-business bankruptcies are declining in Atlanta, falling 44 percent between the second and third quarters of this year, according to data from Equifax.

The Atlanta-Sandy Springs-Marietta area ranked fifth in the nation for the number of small-business bankruptcies in June; at the end of September, the area had fallen to 15th place. The city with the highest number of small-business bankruptcies is Los Angeles.

Savannah made the list of 15 metro areas with the fewest small-business bankruptcy filings.

Nationwide, commercial bankruptcies among the country's 25 million small businesses increased by 44 percent from the third quarter of 2008 to the third quarter of 2009. In the month of September alone, the most recent month for which complete data are available, total bankruptcy filings around the country rose 27 percent, from 7,386 in September 2008 to 9,361 in September 2009, according to the Equifax analysis.

Equifax, which analyzed Chapter 7, 11 and 13 filings to collect this data, defines a small business as a commercial entity with fewer than 100 employees.

New Vision Television is one of the first media companies to emerge from bankruptcy in an era that has seen many television, radio and newspaper conglomerates file for—and remain in—reorganization.

So say attorneys at Locke Lord Bissell & Liddell, who represented New Vision in its restructuring, and attorneys at Paul, Hastings, Janofsky & Walker, who represented UBS AG Stamford, the agent for the company’s primary creditors.

In a deal that moved extremely quickly—New Vision emerged from bankruptcy after only 80 days, and its plan was confirmed after only 59—the company, which owns or provides services to 14 network-affiliated and three non-affiliated television stations, was able to erase $400 million in debt by giving equity positions and representation on the board of directors to its first- and second-lien holders.

“The really interesting point of this whole transaction, at least in the media space, is, I think, New Vision is ahead of the curve,” said Locke Lord partner Neil H. Dickson, who’s been involved with the company since its inception and helped it acquire its first stations in 2006. “Just in my opinion, there could be some more of these transactions coming down the pike.”

The media outlets that have entered and remained in bankruptcy in the past two years include: Pappas Telecasting Inc., the largest privately held commercial broadcast operator in the country; Tribune Co., owner of the Chicago Tribune newspaper and a variety of television and radio assets; Young Broadcasting Inc., owner of 10 television stations; Ion Media Networks, owner of more than 50 television stations; and Freedom Communications, owner of The Orange County Register and more than 30 other dailies and several television stations.

“Because we were one of the first, we were able to move more quickly and the lenders were more … willing to work with us,” said Dickson, who worked on the deal with Atlanta partners Jeffrey A. Yost and Philip A. Cooper, as well as associates Alexis Summers and Vita E. Zeltser.

Dickson added that the company paid off its trade creditors in full and emerged with just $20 million in debt. “I’m not sure you’ll see that in future deals.”

Jesse H. “Jess” Austin III, the Paul Hastings partner who led the deal for UBS, said he’s worked on about eight similar bankruptcies just in the last year. “Broadcast properties really have been hammered, although not as badly as newspapers,” he said.

His client, he said, has been watching other media bankruptcies closely. “In all those other cases, they’ve been burning a lot of legal costs. It’s not cheap to go through bankruptcy, and if you’ve got a contested case, that is taking cash flow out of the bottom line,” he said. His clients, he added, “recognized that speed and certainty added value to the case.”

That didn’t mean his clients’ equity stake gave them the equivalent of 100 cents on the dollar in exchange for releasing claims for $400 million owed by New Vision. “They definitely took losses,” he said. “The midrange value of what the company was [worth] upon exit was about $112 million.”

Also, he said, the first-lien holders—whose identity he declined to reveal—put up $28 million in debtor-in-possession financing to provide working capital.

He said his client agreed to the deal because it seemed the best way to recover value on the assets especially given that ad revenue is projected to fall over the next 18 to 24 months. “You could sell [assets] right now, but you’d get pennies on the dollar and people aren’t willing to take that kind of loss right now,” he said.

Instead, the multiple lien holders—64 were in the bank group alone, and most of them are offshore hedge funds—agreed to a prearranged bankruptcy via a lockup agreement in which the parties effectively negotiated the term sheets for most of the operative documents prior to filing.

Austin said the deal was a complex one, with bankruptcy taking only about a quarter of the focus and the rest of the attorneys’ energy being spent on corporate, tax, finance and Federal Communications Commission matters.

The restructuring involved eight other lawyers from Paul Hastings’ Atlanta office, including partners Philip J. Marzetti, Frank Layson, Erik L. Belenky and Ted E. Smith III and associates J. Craig Lee, Elizabeth C. Arnett, Jeremy S. Corcoran and David J. Burch. It also involved lawyers from out-of-town offices at both Paul Hastings and Locke Lord; lawyers from Brown Rudnick also represented the second-lien holders in the transaction.