(This report contains items about companies both in bankruptcy and not in bankruptcy. Updates with details on Bank of America claim in eighth paragraph of Qualteq item.)

Feb. 22 (Bloomberg) -- It can't be said that U.S. bankruptcy judges in Delaware will never turn away a Chapter 11 reorganization case. At the behest of Bank of America NA, U.S. Bankruptcy Judge Kevin J. Carey in Wilmington is sending the reorganization of Qualteq Inc. to Chicago.

Carey said in his 13-page opinion last week that “no factor weighs in favor of” keeping the case in Delaware. He said that changing venue to Chicago “is appropriate for the convenience of the parties.”

The bankruptcy judge wasn't swayed by testimony from the company's chief restructuring officer who argued that Delaware was a preferable court due to “predictability of process,” the “familiarity of the court with business issues” and the need to have the bankruptcy away from Chicago where lawsuits are pending.

Qualteq is a South Plainfield, New Jersey-based provider of production services for direct-marketing firms. Although it filed a reorganization plan in January, Carey said the explanatory disclosure statement won't be up for approval until March 27.

Carey cited a plethora of facts showing that Chicago was the more convenient forum. He said the case couldn't have been filed in Wilmington except for the company's incorporation in Delaware.

Carey mentioned the following facts supporting a change of venue: 77 percent of creditors are in Illinois, 77 percent of debt is owed to Illinois-based creditors, 76 percent of secured debt is owing to Illinois-based creditors, the books and records are mostly in Illinois, seven of nine plants are in Illinois, 82 percent of assets are in Illinois, the company's principals are in Illinois and are in bankruptcy themselves in Chicago, and pending lawsuits are in Illinois.

Carey noted that the creditors' committee opposed moving the case to Chicago, even though Illinois is more convenient for a majority of the members.

Bank of America says it has $43 million in judgments and liens against Qualteq's owners along with claims against the bankrupt companies for receiving fraudulently transferred assets.

The company's reorganization plan contemplates refinancing existing secured debt and promises unsecured creditors they would be paid in full with interest over 10 years. Current suppliers would be paid in full six months after the plan becomes effective. Other unsecured creditors won't begin to receive their payments until after current suppliers are fully paid. The plan allows existing shareholders to retain ownership.

Qualteq filed under Chapter 11 in August along with affiliates, blaming bankruptcy on negative publicity from court rulings against the founder of the company. According to court filings, several creditors obtained judgments against the founder, followed by “multiple other creditors” who “obtained multimillion dollar judgments against the founder and/or his wife.”

Qualteq and its affiliates provide services including database management, customized printing and plastic card production and personalization, according to court papers.

The company listed assets of as much as $50 million and debt of as much as $10 million.

The case is In re Qualteq Inc., d/b/a VCT New Jersey Inc., 11-12572, U.S. Bankruptcy Court, District of Delaware (Wilmington).

New Filing

Church Street Child Dental Provider in Chapter 11

Church Street Health Management LLC, a provider of management services for 67 dental practices in 22 states, filed for Chapter 11 protection on Feb. 20 in its Nashville hometown.

Bankruptcy resulted from a $24 million settlement in January 2010 with state and federal authorities, together with ensuing negative publicity and lawsuits. The company specializes in providing dental care to children whose medical expense are covered by government-sponsored programs.

Church Street intends to complete the sale of the business by the end of April. Unless a better offer turns up at a court- structured auction, the intended buyer is a group including first-lien lenders.

The company's finances are structured to comply with Islamic Shariah financing regulations, court papers show. There is about $131.5 million owing on first-lien obligations, plus $25.6 million on a second-lien obligation. There is an additional $152 million on three subordinated debts.

Federal and state authorities started investigations in 2007 into whether procedures charged to the government were medically necessary. The result was a settlement in January 2010 where the company agreed to pay $24 million over time without admitting culpability.

Church Street intends to file papers “in the next few days” to set up auction and sale procedures. If the bankruptcy court adopts the schedule, prospective buyers can conduct investigations until the week of April 2, followed by an auction the week of April 9 and a hearing to approve the sale during the same week.

Assets are on the books for $895 million, with debt totaling $303 million, a court filing shows.

The case is In re Church Street Health Management LLC, 12-01573, U.S. Bankruptcy Court, Middle District of Tennessee (Nashville).

Updates

HearUSA Projects $39.7 Million for Common Stockholders

HearUSA Inc. sold the assets in September and filed a liquidating Chapter 11 plan last week with $39.7 million in cash left for common shareholders. The explanatory disclosure statement estimates the distribution for each share at $1.02.

The business was purchased by Siemens Hearing Instruments Inc., the principal supplier and primary secured lender. When the results of the auction were disclosed, the stock quickly rose to about 90 cents a share, after trading in the vicinity of 40 cents during bankruptcy. Yesterday, the stock closed at 96 cents, up 1 cent in over-the-counter trading.

The disclosure statements includes a projection showing $53.8 million in available cash. Costs of the Chapter 11 case will consume about $6.6 million.

After paying $4.6 million to secured and unsecured creditors, $42 million will remain for the equity. After $2.33 million for preferred shareholders, $39.7 million will remain for common equity, the disclosure statement says.

No creditors are entitled to vote because all are paid in full. Ordinarily, equity holders would vote. To avoid the expense of vote solicitation, HearUSA intends to treat equity as voting “no” and approving the plan by use of the so-called cramdown process, where the liquidation can be approved by proving shareholders will receive more than they would if the case was converted to liquidation in Chapter 7 bankruptcy.

Before the sale, HearUSA operated 134 stores selling hearing aids in 10 states.

HearUSA said the Siemens acquisition was worth $129 million, plus the waiver of a distribution on the 6.4 million shares of HearUSA stock that Siemens owns. The waiver was worth another $6 million to $7 million, HearUSA said. The opening bid at auction was an offer of $80 million from William Demant Holdings A/S.

The Chapter 11 petition filed in May by the West Palm Beach, Florida-based company said assets were $65.6 million, against debt of $64.7 million.

The case is In re HearUSA Inc., 11-23341, U.S. Bankruptcy Court, Southern District of Florida (West Palm Beach).

Lehman Seeks Approval Today for Non-Cash Claim Reserve

Lehman Brothers Holdings Inc. intends to convince the bankruptcy judge at a hearing today that he should overrule objections and allow non-cash assets to stand in reserve for part of the distributions to be made when claim disputes are resolved.

Lehman says only five creditors objected while the official creditors' committee supports the proposal.

Lehman demonstrated that use of non-cash reserves for disputed claims will allow distributing an additional $2.8 billion in cash, raising the distribution in some creditor classes by as much as 4 percent.

Objectors contend the proposal amounts to a modification of the Chapter 11 plan. They also contend the non-cash reserve hasn't been identified, while the proposal discriminates between similarly situated creditors and shifts the risk to creditors with disputed claims.

The first distribution would be less than 2 percent to general unsecured creditors of the holding company unless the bankruptcy judge allows use of non-cash assets as reserves for disputed claims. For a Bloomberg story, click here.

Lehman enhanced the first distribution to creditors of the holding company by resolving disputes over the reserve for claims of indenture trustees for mortgage-backed securities. The trustee were making claims of $37 billion, contending that Lehman breached warranties by selling defective mortgages into the securitizations.

The five indenture trustees agreed that a $5 billion reserve for their claims will be adequate. The settlement doesn't determine the ultimate amount of the trustee's valid claims.

The Lehman holding company and the brokerage subsidiary began their bankruptcies in New York in September 2008. The broker is under control of a trustee appointed under the Securities Investor Protection Act. The Lehman parent confirmed a Chapter 11 plan on Dec. 6.

The Lehman holding company Chapter 11 case is In re Lehman Brothers Holdings Inc., 08-13555, while the liquidation proceeding under the Securities Investor Protection Act for the brokerage operation is Securities Investor Protection Corp. v. Lehman Brothers Inc., 08-01420, both in U.S. Bankruptcy Court, Southern District of New York (Manhattan).

AMR's Needed Revenue Increase Depends on Workers, Company Says

AMR Corp., the parent of American Airlines Inc., told workers that alterations in union contracts are necessary for increased flexibility required to achieve the projected $2 billion annual revenue increase that underpins the business plan for emerging from bankruptcy reorganization.

The airline seeks to use a wider variety of aircraft and give some flights over to other airlines under code-sharing agreements. AMR told the unions it needs $1.25 billion in annual labor-cost savings. For the Bloomberg story, click here.

Beginning in June, AMR will trim capacity at New York City airports by 4.7 percent. The cuts, rising to 6.9 percent in July, are designed to avoid harming business customers. For the Bloomberg story, click here.

AMR, based at the airport midway between Dallas and Fort Worth, Texas, listed assets of $24.7 billion and debt totaling $29.6 billion in the Chapter 11 reorganization begun Nov. 29. American Airlines entered bankruptcy with 600 aircraft in the mainline fleet and another 300 with American Eagle, the feeder airline.

The case is In re AMR Corp., 11-15463, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

GenMar Committee Objects to Releasing Oaktree in Plan

The General Maritime Corp. creditors' committee filed papers yesterday contending that the company's proposed reorganization plan is “patently unconfirmable.” The hearing to approve the explanatory disclosure statement is set for Feb. 28.

GenMar owns 30 crude oil and petroleum product tankers. It filed a proposed Chapter 11 plan on Jan. 31 to implement an agreement worked out before the Nov. 17 bankruptcy filing with affiliates of Oaktree Capital Management LP, the leader of a group of lenders on three credits totaling more than $1 billion.

The committee's principal objection is to releases contained in the plan that would preclude creditors from suing third parties, such as Oaktree. The committee says the claims aren't covered by the lenders' liens and represent what may be unsecured creditors only hope for recovery.

The committee lays out an argument that bankruptcy law prohibits giving releases to third parties under the circumstances.

The Oaktree group is to invest $175 million while converting secured debt to equity. In addition, there is to be a $61.3 million rights offering where creditors can purchase new stock. The plan is designed to reduce debt for borrowed money by $600 million.

For details on the plan, click here for the Feb. 2 Bloomberg bankruptcy report. For other Bloomberg coverage of the committee's objection, click here.

The $300 million in 12 percent senior unsecured notes due 2017 traded yesterday for 1 cent on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

The petition listed assets of $1.72 billion and debt of $1.4 billion, including $1.3 billion on credit agreements.

The case is In re General Maritime Corp., 11-15285, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

NewPage Meets Unified Opposition to New Bonus Program

Paper maker NewPage Corp. will face unified opposition at a hearing tomorrow from the official creditors' committee, an ad hoc group of holders of secured notes, and the U.S. Trustee. They are all against bankruptcy court approval of a bonus program that could pay as much as $17.2 million to 15 top executives.

The bankruptcy court, with blessing from the committee, previously approved a short-term bonus program that would pay as much as $6 million for a year ended in June. NewPage proposed the new longer-term program in January.

NewPage characterized the new program as offering incentive bonuses because payments are keyed to meeting targets for cash flow, cost reductions, and improvements in worker safety. The U.S. Trustee and the committee nonetheless argue that the proposal is a disguised retention bonus program.

The committee says that the cash-flow target is so low that qualifying for the bonuses would simultaneously result in violating a covenant under the loan agreement financing the reorganization.

If approved, the new program would run until the end of 2012. The secured noteholders and the committee fault the program for providing no incentive for a prompt emergence from bankruptcy.

NewPage listed assets of $3.4 billion and debt totaling $4.2 billion. Liabilities included $232 million on a revolving credit plus $1.77 billion on 11.375 percent senior secured first-lien notes. Second-lien obligations include $802 million in 10 percent secured notes and $225 million in floating-rate notes.

In addition to $200 million in 12 percent senior unsecured notes, there is $498 million owing on two issues of floating- rate pay-in-kind notes. The company contends unsecured creditors are “hopelessly out of the money.”

NewPage has 16 paper-making machines operating in seven plants in the U.S. and Nova Scotia. The Canadian affiliate filed for reorganization in Nova Scotia. The company reported a $229 million net loss in the first half of 2011 on revenue of $1.79 billion, following a $674 million net loss in 2010 on revenue of $3.6 billion.

The case is In re NewPage Corp., 11-12804, U.S. Bankruptcy Court, District of Delaware (Wilmington).

CDC Software Sale Set for March 16 Auction

CDC Corp., a China-based enterprise software developer also known as Chinadotcom, will hold an auction on March 16 to learn if anyone will top the bid of about $250 million for the company's 87 percent interest in CDC Software Corp.

Under sale procedures approved last week by the U.S. Bankruptcy Court in Atlanta, competing bids are due initially on March 9. A hearing to approve the sale will take place March 20.

The first bid at auction will be made by an affiliate of Vista Equity Holdings. CDC said the sale should be sufficient to pay all claims, including a $67 million judgment and $5 million owing to trade suppliers, plus professional fees.

When the sale was first announced Feb. 7, CDC doubled in price to close at $3.05. Yesterday, CDC fell 3 cents to $3.63 in over-the-counter trading.

CDC's petition listed assets at $377.4 million and debt of $250.2 million. For the first half of 2011, revenue of $158.9 million resulted in a $17.8 million operating loss and a $23.9 million net loss.

The case is In re CDC Corp., 11-79079, U.S. Bankruptcy Court, Northern District of Georgia (Atlanta).

Trailer Bridge Reports $1.4 Million January Net Loss

Trailer Bridge Inc. reported a $1.4 million net loss in January on revenue of $9 million. The U.S.-flagged ocean and truck freight carrier has a reorganization plan scheduled for approval at a March 16 confirmation hearing.

Reorganization expenses in the month were $827,000 while depreciation was $452,000 and interest was $393,000, according to the operating report filed in U.S. Bankruptcy Court in Jacksonville, Florida.

The plan calls for secured noteholders owed $86.3 million to receive a new secured note for $65 million plus some of the new stock, for a projected 75 percent recovery. For details on the revised plan, click here for the Feb. 15 Bloomberg bankruptcy report.

The Chapter 11 petition listed assets of $102.7 million against debt totaling $118.1 million. In addition to $82.5 million in 9.25 percent senior secured notes said in a court filing to be “significantly undersecured,” other liabilities include $10.3 million on a revolving credit and term loan where Wells Fargo NA serves as agent.

About $13.7 million is owing on government-guaranteed bonds issued under the Merchant Marine Act, which is to be rolled over or paid off through the plan.

Trailer Bridge has two 736-foot barges along with five 403- foot “triplestack box carriers.” It carries freight between Puerto Rico, the Dominican Republic and the U.S. mainland.

The case is In re Trailer Bridge Inc., 11-08348, U.S. Bankruptcy Court, Middle District of Florida (Jacksonville).

Black Diamond's Plan for GSC Group Is Confirmed

Black Diamond Capital Finance LLC won the signature of the bankruptcy judge on a Feb. 17 confirmation order approving the bankruptcy reorganization plan for GSC Group Inc. Unsecured creditors and preferred shareholders, the only groups entitled to vote, were almost unanimous in support.

Black Diamond's plan resulted from a settlement with GSC's Chapter 11 trustee. The settlement was approved in December. It gave Black Diamond an opening to confirm a Chapter 11 plan. Before then, Trustee James L. Garrity Jr. and Black Diamond had competing plans on file. For details on the settlement, click here for the Dec. 22 Bloomberg bankruptcy report.

GSC filed under Chapter 11 in August 2010 and held an auction at the end of October 2010. Although Black Diamond won the auction with a bid of $235 million, the company at the time never went ahead with the motion for approval of the sale. Appointed later, the trustee surveyed alternatives and ultimately decided that a sale to Black Diamond on modified terms was the preferable exit strategy. Garrity eventually sold the business to Black Diamond in July.

Originally named Greenwich Street Capital Partners Inc. when it was a subsidiary of Travelers Group Inc., GSC became independent in 1998 and at one time had $28 billion of assets under management. Market reverses, termination of some funds, and withdrawal of customers' investments reduced funds under management at the time of bankruptcy to $8.4 billion.

Based in Florham Park, New Jersey, GSC listed assets of $119.8 million against debt totaling $313.6 million.

The case is In re GSC Group Inc., 10-14653, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Snokist Signs $42.5 Million Sale to Truitt Brothers

Snokist Growers, a farmers' cooperative from Yakima, Washington, filed for Chapter 11 reorganization in December and has an agreement to sell the business for $42.5 million to Truitt Brothers Inc.

Snokist is proposing that the bankruptcy court require other bids by March 14. The action would take place in the courtroom at a proposed hearing on March 16 for approval of the sale.

Truitt's offer includes $5.2 million cash plus assumption of liabilities. In addition, the buyer will pay as much as $3 million more depending on future profits. Snokist project having $12.5 million cash after the sale is completed, including cash already generated from the sale of inventory.

Snokist projects that the sale to Truitt “would likely pay all” creditors in full.

Del Monte Corp. also made an offer to buy the business. Since Del Monte wouldn't acquire the inventory and Snokist didn't have financing to sell the remaining finished product, the Truitt offer was “more favorable,” according to Alex Cereste, a turnaround manager not involved in the case.

Snokist's petition said assets were $69.1 million, including $41 million in finished product. The not-for-profit co-op blamed financial problems on a product recall and the subsequent loss of business from federal government agencies.

Snokist went into bankruptcy owing $26.5 million on a revolving credit with Rabo Agrifinance and KeyBank NA. There is a $9.5 million mortgage on the cannery that uses fruits and vegetables purchased from 140 members of the co-op and independent farmers.

Revenue in 2010 was $50 million, according to a court filing.

The case is In re Snokist Growers, 11-05868, U.S. Bankruptcy Court, Eastern District Washington (Spokane/Yakima).

Statistics

Liquidity Stress for Junk-Rated Companies Declines

The index of junk-rated companies with the weakest liquidity declined in mid-February to near record low levels, according to a report from Moody's Investors Service.

Moody's said that junk-rated companies with the weakest liquidity declined to 4 percent in mid-February from 4.1 percent in January. The record low was 3.9 percent in the months June through August 2011.

Moody's liquidity-stress index is a fraction of the 20.9 percent peak in March 2009.

Companies facing loan covenant violations are also fewer in number. Moody's covenant-stress index stood at 2.8 percent in mid-February, down from 2.9 percent in January. The record low was 1.8 percent in July and August 2011. The high was 17.3 percent in March 2009, Moody's said.

Moody's has been predicting that the junk-debt default rate, 1.8 percent at the end of 2011, will climb to 2.8 percent by the conclusion of 2012.

The liquidity-stress index is the percentage of junk-rated companies with the weakest liquidity.

Daily Podcast

Lehman Distribution, A&P, Delta Petroleum: Bankruptcy Audio

Where Lehman Brothers Holdings Inc. was predicting an eventual recovery of about 20 percent for general unsecured creditors of the holding company, the first distribution could be less than 2 percent, for reasons Bloomberg Law's Lee Pacchia and Bloomberg News bankruptcy columnist Bill Rochelle explain on their podcast. Supermarket operator Great Atlantic & Pacific Tea Co. was forced to eliminate a $40 million cash distribution to general unsecured creditors given the inability to raise $750 million in bank financing to kick in on emergence from bankruptcy reorganization. Delta Petroleum Corp., an independent oil and natural gas exploration and development company, contends a bonus program for executives doesn't include prohibited retention bonuses, even though the only requirement to receive a bonus is remaining with the company through March. The podcast ends by discussing a campaign by U.S. Bankruptcy Judge John K. Olson in Florida to stop what he called a “pervasive problem” resulting from bogus objections to claims. To listen, click here.

--With assistance from Steve Ludsin and Linda Sandler in New York, Mary Schlangenstein in Dallas, Joel Rosenblatt in San Francisco, and Dawn McCarty and Michael Bathon in Wilmington, Delaware. Editors: Glenn Holdcraft, Mary Romano