Manchester files plan of reorganization; senior secured lenders to receive 100% of new stock

By Caroline Salls

Pittsburgh, April 18 - Manchester, Inc. filed its plan of reorganization and related disclosure statement Thursday with the U.S. Bankruptcy Court for the Northern District of Texas.

As previously reported, the plan is based on terms proposed by Palm Beach Multi-Strategy Fund LP.

The reorganization depends on the deposit of $3 million, which will be used to satisfy the claims of unsecured creditors and to fund the expenses that will be incurred by the company during the approval process and provision of DIP financing of up to $10 million to fund Manchester while it is in bankruptcy.

As part of the proposal, claims asserted by Manchester against Palm Beach in cases pending in the U.S. Bankruptcy Court and in the District Court, 101st Judicial District, Dallas County and the claims asserted by the fund against the current officers and directors of the company will be resolved.

Manchester and Palm Beach said on April 4 that they expect the plan to become effective in early to mid-June.

Treatment of creditors under the plan will include:

• Holders of $200,000 in priority tax claims, $1.46 million in administrative convenience claims of $10,000 or less and $3.74 million in priority non-tax claims will recover 100% in cash;

• Holders of $423,000 in M&I secured bank claims will have their claims reinstated;

• Holders of senior lender secured claims will receive 100% of the new common stock in the reorganized company for a 100% recovery;

• Holders of $21.93 million in general unsecured claims will recover 5.4% in plan cash and leftover cash after priority and administrative claims are paid in full, and these creditors will receive litigation trust funds after all expenses are paid in full and the company's senior lender is reimbursed for leftover cash, seed cash and $2.5 million in plan cash;

• Holders of senior lender unsecured claims will receive a share of any litigation trust funds remaining after payment of litigation trustee fees and expenses, senior lender reimbursement and payment to general unsecured creditors. As a result, the company estimates that these creditors will not receive any distribution under the plan;

• Holders of $2.84 million in Lancelot settlement claims will be treated either as secured claims or general unsecured claims, which will be decided by the court;

• Holders of parent common stock interests will receive a share of liquidation trust funds after payment of trust fees and expenses, senior lender reimbursement, payment in full to general unsecured and unsecured lender claims and an additional $500,000 reimbursement of plan cash; and

• Holders of subsidiary equity interests will retain their interests.

A hearing on approval of the disclosure statement is scheduled for April 30.

Manchester, a Dallas-based auto dealership that sells and finances used cars to buyers with limited credit histories or past credit problems, filed for bankruptcy on Feb. 7. Its Chapter 11 case number is 08-30703.

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