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October 9, 2002
Supreme Court Hears NextWave Appeal over Licenses
Supreme Court justices today focused their attention on why the FCC
revoked NextWave's spectrum licenses and how its rationale comported
with the nation's bankruptcy code, National Journal's Technology
Daily reported. Justices repeatedly asked whether the FCC
automatically revoked the licenses upon nonpayment. The Bankruptcy Code
stipulates that a government agency may not revoke licenses it has
issued when a company files for chapter 11 protection—if the sole
reason for doing so is nonpayment of fees. Justice Antonin Scalia noted
there may be some background regulatory reason for the FCC's decision,
but it 'seems the licenses were revoked solely because of nonpayment.'
Justice David Souter said that it 'seems at each point, the FCC was
making an economic decision,' but Clement argued that perception was
simply 'not true.' NextWave contends the FCC violated bankruptcy law by
automatically revoking the licenses for nonpayment. Justice Ruth Bader
Ginsberg noted the FCC gave NextWave a payment reprieve, but NextWave
attorney Donald Verrilli argued the delay does not make the revocation
of the licenses any less automatic. Without protection of the bankruptcy
law, any government agency could force a debtor to liquidate, because
they would take away a company's 'lifeline' and cripple its ability to
do business, argued Laurence Tribe, who represents the creditor
committee in the NextWave bankruptcy case. In this case, that lifeline
is access to the spectrum. If Congress intended for the FCC to have an
exception to bankruptcy law, lawmakers should have specified it,
Ginsberg said.
Bankruptcy Reform Bill Withers
The bankruptcy bar collectively breathed a sigh of relief on Tuesday
after an insolvency reform bill that had induced its ire unofficially
died in the Senate, thedeal.com reported. Since its introduction
in August, the ill-fated 'Employee Abuse Prevention Act' S.2798 had
undergone several changes in an effort to make it more palatable to
bankruptcy attorneys, financial lenders and other concerned parties.
Bill sponsor Sen. Richard J. Durbin (D-Ill.) apparently had dropped many
of its more controversial provisions, including a proposal to give the
bankruptcy court power to challenge asset securitization transactions, a
provision that would give retirees secured status over lenders and a
venue provision that would have limited chapter 11 filings in Delaware
and New York.
But the legislation still contained key reforms, such as measures
that would lengthen the reach-back period for the court to unwind
fraudulent transfers to four years, a provision allowing the bankruptcy
court to recover 'excessive' retention bonuses and severance packages to
insiders and company executives and the ability for employees who held a
portion of their pension plan in company stock to file claims. To read
the full article, point your browser to
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EOTT Initiates Restructuring Plan
EOTT Energy Partners L.P. commenced a restructuring plan through a
prenegotiated chapter 11 filing, which is supported by the company's
lenders, a majority of its bondholders and Enron Corp, Dow Jones
reported. In a press release on Wednesday, EOTT said the plan will
'significantly' reduce its debt, restructure its finances, and formalize
a complete legal separation from Enron. EOTT anticipates the
restructuring will be completed in early 2003. As part of the plan, EOTT
received a commitment from its lenders to provide debtor-in-possession
financing of $575 million. This financing represents an increase of
about $100 million over the company's current working capital facility.
The $400 million working capital facilities, including $325 million for
letters of credit, have a six-month term with commitments for an
additional 18 months post bankruptcy, subject to final covenant
negotiations.
Valentis Implements Corporate Restructuring
Valentis Inc. eliminated up to 45 jobs and reduced annual costs by about
$7 million in order to continue the development of its two lead
products, Dow Jones reported. On Sept. 30, Valentis said its working
capital was insufficient to fund its near-term cash needs, and it was
pursuing strategic alternatives, including selling or merging its
business, selling certain assets or seeking bankruptcy protection. The
company's independent auditors also raised doubts about Valentis's
ability to continue as a going-concern. For the year ended June 30,
Valentis reported a loss of $37.2 million, or $1.12 a share, on revenue
of $3.84 million. The company's fiscal 2002 operating expenses were
$38.3 million, including research and development costs of $23.7
million, and it ended the year with $19.1 million in cash, cash
equivalents and short-term investments.
Refac Sells Its Product Development Business to Product Genesis
LLC
Refac sold its product development business and its international unit,
completing the disposal of all of its operating segments except
licensing, Dow Jones reported. In a press release on Tuesday, Refac said
it sold the product development business to Product Genesis LLC, a
product development and design firm for the technology and medical
device industry. Product Genesis said the deal, completed Sept. 20,
allows for a purchase price based on 2.5 percent of net revenue, with a
maximum of $300,000. Product Genesis also agreed to sublet 8,769 square
feet of office space from Nov. 1, 2002, to Nov. 15, 2009.
Refac sold its international business, excluding the stock of Refac
Consumer Products and certain patents, to RCP Products LLC for $50,000
plus a variable purchase price based on revenue with a cumulative total
of up to $575,000. Refac also said that U.S. bankruptcy court approved
an amendment of its agreement with World Kitchen Inc.'s OXO
International unit, under which Refac International will collect
$550,000 in royalties. Of the total, $10,000 is for past-due royalties,
$180,000 is for royalties for the six months ending Dec. 31, and
$360,000 is for all of 2003. Refac has been trying to liquidate its
assets since March to reposition the company for sale. Refac's assets
now consist of cash, securities, accounts receivable, notes receivable,
contract rights receivable, real estate leases and agreements related to
its licensing business.
Debt Problems Are Haunting Even Well-heeled Consumers
Worries have been mounting for a while about auto repossessions,
personal bankruptcies and mortgage foreclosures; each is at or near its
highest level in decades, the Wall Street Journal reported. Now,
after a mortgage-refinancing boom and a slew of 0 percent-financing
offers, there's evidence debt levels are becoming an issue for people at
all levels of the income spectrum. For many families, just making
monthly payments is starting to define their lifestyles. Overall
household debt has exploded to more than 100 percent of disposable
income (income after taxes), which is the highest percentage on record.
In other words, the average household earns in one year, after taxes,
about what it owes in overall long-term debt.
But wealthy families are piling on debt the fastest, largely because
of increased borrowing against the value of their homes. Debt for the
top-fifth of U.S. households hit 120 percent of disposable income in the
first quarter, up from 100 percent in 1995, according to Federal Reserve
Board calculations. The debt burden for the bottom four-fifths of
households also grew, but at a more modest rate. It rose to 80 percent
of disposable income this year, from 70 percent in 1995, according to
the Federal Reserve.
The news isn't all bleak, the Journal reported. Nationwide,
incomes are rising and interest rates are low, meaning many households,
especially the wealthiest, are able to manage their higher debt loads.
In addition, the Federal Reserve released a report Monday hinting that
the debt binge might finally be slowing a bit. The Fed said that
consumer borrowing rose at an annual rate of 2.9 percent in August, a
sharp slowdown from the 7 percent rate in July. In addition, because of
low rates, debt service as a percentage of disposable income is at a
manageable 14 percent. That's at the high end of the past 20 years, but
not off the charts. 'As long as interest rates remain low, this level of
debt is on the whole manageable to people,' says David Wyss, chief
economist at Standard & Poor's. To read the full article, point your
browser to
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Integrated Telecom Express to File for Chapter 11
Integrated Telecom Express Inc.'s board approved a voluntary chapter 11
bankruptcy filing to facilitate its plan to shut down operations,
maximize the amount of capital returned to shareholders and speed the
distribution of cash to holders, Dow Jones reported. In a press release
on Tuesday, the technology company said it will ask the Delaware
Bankruptcy Court to immediately approve its asset sale to Real
Communications Inc. In addition, Integrated Telecom expects its shares
to be delisted from the Nasdaq and to be eligible for listing on the
over-the-counter Bulletin Board. The company's board approved in April a
plan for complete liquidation and dissolution of the company.
Shareholders were to vote on the plan in mid-August.
Bond Trustee Seeks OK to Recover Against $22 Million US Air
Fund
The trustee for $71.1 million in US Airways Inc. revenue bonds wants
bankruptcy court permission to recover $22 million of bond proceeds that
haven't been distributed to the airline, Dow Jones reported. In a filing
with the U.S. Bankruptcy Court in Alexandria, Va., HSBC Bank USA asked
the court to lift the Bankruptcy Code's protective automatic stay
provisions so it can use the proceeds to pay down the bond debt. The
bonds were issued and sold by the Philadelphia Authority for Industrial
Development in July 2000 to help the US Airways Group Inc. unit finance
the design and construction of facilities at Philadelphia International
Airport. On Aug. 11, when US Airways filed for chapter 11, $22.2 million
was in the funds. HSBC said there is no scenario under which US Airways
would be entitled to use the money in the funds as long as it remains in
bankruptcy.
Allegheny Could Avoid Bankruptcy if Banks Cooperate
The arc from integrated utility with predictable revenue stream to
debt-ridden merchant energy firm fighting to stay afloat was a short one
for Allegheny Energy Inc., Dow Jones reported. Last week, Moody's
Investors Service stripped the Hagerstown, Md., company of its
investment grade, triggering bank covenants requiring that additional
collateral be posted to counterparties in its energy trading business.
In a press release on Tuesday, Allegheny said it declined to post an
additional $60 million in collateral for several trading counterparties,
putting it in technical default under its principal credit agreements
and those of its units, Allegheny Energy Supply Co. LLC and Allegheny
Generating Co. The company is negotiating with its senior lenders and
said it believes its underlying businesses remain fundamentally
sound.
Friede Goldman Asks for More Time to File Turnaround Plan
Friede Goldman Halter Inc. is asking a bankruptcy court for a 150-day
extension of its exclusive periods to file a reorganization plan and
solicit creditors for support, Dow Jones reported. Court papers said the
company is requesting up to Jan. 31 to file a plan and until March 31 to
lobby creditors for support. A hearing date in the U.S. Bankruptcy Court
in Biloxi, Miss., hasn't been scheduled. If the court were to turn down
the company's request, the exclusivity would end Oct. 31. 'These cases
have been and continue to be a substantial undertaking, and work still
must be done on the potential sale of assets or reorganization of the
offshore division,' court papers said. Like previous requests to extend
exclusivity, the current motion also places conditions on Friede Goldman
requiring that a plan or plans of reorganization cannot be filed without
the approval of the official committee of unsecured creditors.
WORLDCOM
WorldCom Can Pay Legal Fees for Certain Employees
WorldCom Inc., eager to carry on its business while it restructures
under bankruptcy protection, on Tuesday won the court's approval to pay
its current employees and certain officers for their legal bills arising
from shareholder and employee lawsuits, Dow Jones reported. The staffers
covered include employees targeted in suits involving property damage,
personal injury and employment disputes, as well as company officers
sued over negligence, securities or pension law violations. None of them
are involved in any criminal cases, according to the company's court
filing. In addition, WorldCom will hire lawyers for the
staffers—currently numbering eight—who have been called upon
by government investigators in connection with their probes of the
company's practices. WorldCom said 'the non-target witnesses need the
assistance of' legal counsel to guide them through the complex
investigative process.
Judge Arthur Gonzalez of the U.S. Bankruptcy Court in
Manhattan granted WorldCom's request for the legal payout in view of its
role in maintaining the company's 'ordinary course of business.' The
nation's second-largest long-distance carrier sought chapter 11
protection in July in the largest such case ever, and the filing
subsequently requires every major expenditure of the company to go
through the scrutiny of the bankruptcy court.
WorldCom Can Scrap AOL TW Ad Contract
Bankrupt telecommunications giant WorldCom Inc. can cancel an
advertising contract with Internet and media giant AOL Time Warner Inc.,
allowing WorldCom to save $182.25 million, a U.S. Bankruptcy Court judge
ruled on Tuesday, Reuters reported. But Judge Arthur Gonzalez
ruled the cancellation was effective Tuesday, allowing AOL Time Warner
to pursue a claim with bankruptcy court for $2 million in advertising
between Sept. 13, when WorldCom's original motion was filed, and
Tuesday's hearing. Cancellation of the deal, signed in June 2001 by a
WorldCom unit, will save the WorldCom $182.25 million as it requires
payment of $20.25 million a quarter through the end of 2004 to AOL Time
Warner, according to a bankruptcy court filing. AOL Time Warner did not
oppose ending the contract, but wanted it to become effective as of
today's ruling rather than Sept. 13.
Panels Seek to Intervene in Adelphia Comm Suit Vs. Rigases
Committees representing unsecured creditors and shareholders in Adelphia
Communications Corp.'s chapter 11 case are seeking to intervene in the
company's suit against the Rigas family and other defendants, Dow Jones
reported. In a filing with the U.S. Bankruptcy Court in Manhattan, the
committees say they have an absolute right to intervene under federal
law. And regardless of legality, they say the court should allow them to
intervene because the suit involves legal or factual questions common to
their claims against the defendants. U.S. Bankruptcy Judge Robert E.
Gerber is scheduled to consider the committees' request at a hearing
on Oct. 16.
Steel Partners Cut US Diagnostic Stake to 11.9 Percent
A group including Steel Partners II L.P. lowered its stake in US
Diagnostic Inc. to 11.9 percent, Dow Jones reported. The group held 2.7
million shares of US Diagnostic common stock after selling 460,000
shares between Oct. 2 and Oct. 3 for less than 1 cent each. On Sept. 13,
US Diagnostic said it and certain of its nonoperating units filed for
chapter 11 bankruptcy protection. The company said that under its
proposed reorganization plan unsecured creditors would receive 100
percent of the equity in the reorganized company. Equity-holders of US
Diagnostic wouldn't receive any distribution in respect of their equity
interests. US Diagnostic provides outpatient radiology services.
Budget Group Wins Approval to Pay Key Employees
Budget Group Inc. on Tuesday won court approval to make up to $15.9
million in payments to employees it deems critical to its operations and
reorganization, Dow Jones reported. The order signed by Judge Mary F.
Walrath of the U.S. Bankruptcy Court in Wilmington allows the car rental
company to make payments to 64 employees—less than 1 percent of
its work force—including its chief executive and chief operating
officers. The company said it hopes the plan will encourage the
employees to stay with Budget Group while it pursues the proposed $507
million sale of substantially all of its assets to a unit of Cendant
Corp. Budget Group said the plan, created with the help of Buck
Consultants Inc., is designed to ensure it keeps the 'necessary
complement of employees required to maximize the value' of its
bankruptcy estate during its chapter 11 case. The debtor company said
that compensation levels for its key employees are well below prevailing
market levels.
American Tower Down 21 Percent on Tuesday; Denies Rumors of
Chapter 11
American Tower Corp. stock fell 21 percent on Tuesday on heavy volume,
as the company denied message-board rumors that it was filing for
chapter 11 bankruptcy protection. 'We have not filed chapter 11, nor do
we plan on filing chapter 11,' said Brad Singer, American Tower's chief
financial officer. American Tower's stock has been sliding sharply for
the past week. On Tuesday, several posts on the Yahoo message board for
American Tower asserted that the company was filing chapter 11. Singer
was unaware of the message-board posts, but said that American Tower had
been hit by negative rumors after the end of each of the past few
quarters. 'It's the nature of the beast in the telecom market right
now,' he said.
Mall Vacancies Stay Flat As Rents Post Slight Rise
Shopping-mall and strip-center vacancies were flat in the third quarter
at 6.7 percent, while rents actually rose slightly, according to a new
survey, as retailers continue to open stores even while their same-store
sales come under pressure, the Wall Street Journal reported. The
relatively strong performance of the retail sector—a sharp
contrast to offices and apartments, which have suffered from steep
vacancy increases and rent drops—is a reassurance for landlords
even as the once-strong consumer spending shows signs of slowing.
Greg Andrews, an analyst with Green Street Advisors Inc., a Newport
Beach, Calif., research firm, says the retail sector should remain
reasonably healthy in the near term and into the early part of next
year. No major bankruptcies are expected, he says, even if the Christmas
shopping season is weak. But over the longer term, he says, the mall
industry will face worrisome demographic trends—including an aging
population that is expected to spend less on consumer goods,
department-store anchors losing market share to discounters, and sagging
prices in apparel and other consumer goods, the Journal reported.
'If you were to buy a mall and own it for 10 years,' Mr. Andrews says,
'there are a lot of things you'd need to be concerned about.' Banc of
America's Mr. Schalop says another worry is that the current run of
new-store openings will finally outrun demand, leaving an overcapacity
of space that will, ultimately, be returned to landlords. 'For the long
term,' he says, 'it's not sustainable until sales turn around.'
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