Wednesday, April 02, 2008

Lionel Set to Exit Bankruptcy

Following is an Associated press news article from 3/28/08.
Also see our post above on the same topic from the O Guage Railroad (OGR) Forum.

Lionel Set to Exit Bankruptcy
Associated Press 03.28.08, 2:45 PM ET

WASHINGTON - A bankruptcy judge has approved Lionel LLC's Chapter 11 reorganization plan, clearing the way for the iconic model-train maker to exit bankruptcy.

Judge Burton R. Lifland of the U.S. Bankruptcy Court in New York on Thursday confirmed Lionel's plan, which calls for private-equity firm Guggenheim Corporate Funding and the estate of the late Martin Davis, former chairman of Paramount Communications Inc., to pump $59 million of new cash into the reorganized company, Lionel Chief Executive Gerald Calabrese said.

"We're very happy; this has been a long hard pull," said Calabrese. "We expect to be out of bankruptcy by next week."

New York-based Guggenheim will contribute $37.1 million to the new Lionel, and the Davis estate - which is controlled by Davis' widow - will contribute $21.9 million.

Calabrese, a former Marvel Comics Group president, was named Lionel CEO in September 2004, just months before a jury awarded rival MTH Electric Trains $38.6 million in a trade-secrets dispute with Lionel, which forced the 107-year-old company into bankruptcy. An appeals court later overturned the verdict and ordered a new trial. Lionel and MTH settled their long-running fight late last year.

Although terms of the settlement were to remain confidential under a court order, recent filings revealed Lionel agreed to pay MTH $12 million in cash to settle the lawsuit and a separate spat involving patented smoke-puffing technology. Calabrese and MTH lawyer Alec Ostrow declined to comment on the settlement.

Lionel's Chapter 11 plan calls for the company to pay all its creditors in full with interest. Lionel will also obtain up to $40 million in loans to fund its exit from Chapter 11, pay off its creditors and fund its working capital needs in the future.

Guggenheim, which will now own 48.6 percent of the new Lionel, and the Davis estate, which will have 28.6 percent stake, are also loaning Lionel an additional $10 million in second-lien debt.

Calabrese will roll forward some $6 million he's owed by Lionel into deferred compensation and a 7.8 percent stake in the reorganized company. An additional 15 percent in the new Lionel will be doled out to company management, including Calabrese, under an option plan.

Rock star Neil Young, a former minority owner, is not - at present - part of the new ownership group.

The Davis estate owned 75 percent of the old Lionel and Young owned 20 percent. Those stakes have been wiped out under Lionel's reorganization plan.

Calabrese said he intends to meet with Young Friday in Northern California to define Young's ongoing role in the company.

"This is Neil's passion," Calabrese said. "We certainly want him involved, but, I want to be clear, it's up to him."