AUTOMOTIVE

EZ Lube LLC, Express Lube Inc. filed for Chapter 11 protection in Delaware.  

Key Plastics files prepackaged Chapter 11 petition; secured $20M in DIP financing.  

Precision Parts International filed Chapter 11 petition; commences winding down operations.  

BROADCASTING

Equity Media Holdings, Corp. filed for Chapter 11; secured lender seeks conversion to Chapter 7  

ENERGY  

Extending credit to risky customers in the automotive industry has increasingly required active and careful management of the prospective sale and the account receivable to assure payment. The news of GM’s, Ford’s and Chrysler’s financial condition, and any likely affect of their bankruptcy on its suppliers, has changed the definition of “credit risk” to include otherwise traditionally “credit-worthy” customers that operate in financially-uncertain industries.

As the Seventh Circuit has recently made clear in Airadigm Communications, Inc. v. FCC, bankruptcy courts have the discretion under Bankruptcy Code §524 to approve a release contained in a Plan of Reorganization of a party which did not seek bankruptcy protection. Such a non-debtor release is more likely to be approved by the bankruptcy court where the creditors do not object to the confirmation of the Plan or vote to approve the Plan.

In the very early hours on September 20, 2008, the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court") entered an order (the "Sale Order") approving the sale of substantially all of the assets of Lehman Brothers Holdings, Inc. ("Lehman"), LB 745 LLC and Lehman Brothers, Inc. (collectively, the "Lehman Sellers") to Barclays Capital, Inc. free and clear of all liens claims, encumbrances and other interests.

As has been widely reported, on September 15, 2008, Lehman Brothers Holdings, Inc. ("Lehman") filed for protection under chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court"). Except for LB 745 LLC which is the Lehman entity that was formed to own Lehman's headquarters in New York, the other subsidiaries (the "Lehman Subsidiaries") of Lehman have not filed for bankruptcy protection as of the time of publication of this Alert.

Customers dealing with troubled automotive suppliers often decide to resource production to other suppliers rather than facilitate a true restructuring of the troubled supplier's business. Such resourcing, however, generally cannot be done overnight. Tier 1 suppliers or original equipment manufacturers ("OEMs") often take months to resource production. Because of the "just in time" production process, Tier 1 suppliers and OEMs often cannot afford to be without component parts or tooling for the period of time that it may take to resource.

The auto parts supply industry has been beset by financial problems for several decades. Original equipment manufacturers ("OEMs") typically have the right to immediately seize their tooling, which the supplier holds in order to make parts. This allows OEMs to quickly move the tooling to another supplier and avoid an assembly line shutdown if the supplier fails. The right to immediately reclaim tooling, however, may be restricted if the supplier files for bankruptcy.

In previous Alerts, we have addressed the complexities of claims in bankruptcy. Likewise, trading in claims and securities can present challenges. Difficulties have arisen in large Chapter 11 reorganizations as constituencies engaged in the Chapter 11 process, who are major players in the case, seek to trade in securities relating to that case. This Alert explores the impact that some trading activities may have on potential recoveries in the bankruptcy and the help (and impact) of the Internal Revenue Code.

On Friday, February 1, 2008, Plastech Engineered Products, Inc. and certain of its affiliated companies (collectively, “Plastech”) filed for protection under Chapter 11 of the Bankruptcy Code in Detroit, Michigan. None of Plastech's foreign incorporated affiliates are included in this bankruptcy petition and as such, any transaction with such affiliates should continue in the normal course.

If you hold a claim in bankruptcy by way of a transfer, you may need to be sure the transaction was accomplished by a sale and not merely by an assignment. Yet another decision highlights the growing complexity in bankruptcy claims as we discuss below.