January 292003

FASB Releases New Rules

The Financial Accounting Standards Board (FASB) has released its new
rules on special-purpose entities, and its new interpretation could mean
downgrades for banks active in asset-backed commercial paper (ABCP)
securitizations, according to Thomson Media. The new rules could force
some banks to scale back or end their activities in the area altogether,
reported the online news portal. Banks with vast ABCP conduit assets
face the prospect of having to consolidate many of those assets back
onto their balance sheets by July 2003.

At the heart of FASB Interpretation No. 46 is a change in the
criteria businesses have long used to determine whether they can keep
SPEs off their balance sheet, reported Thomson Media. Until now, the
main measurement was whether or not a company owned the SPE's equity. If
it owned less than 3 percent, the SPE was off-balance. Going forward,
however, FASB has decided a more accurate determinant is who actually
has the control and decision-making authority over an SPE and its
holdings, and who ultimately possesses its risks and benefits. For banks
involved in ABCP securitizations, FASB's changes may mean they suddenly
have to absorb risks linked to these vehicles by moving these assets
onto their balance sheets, thereby causing the amount of leverage they
report to skyrocket, reported the news site.

'This will impact entities such as commercial banks and Yankee banks
[foreign banks doing business in the U.S.] which have used an
extraordinary amount of off-balance sheet financing, but thus far have
successfully managed not to have it consolidated on their balance
sheets,' said Anthony Sanders, a finance professor with Ohio State
University, reported the online news portal. With more of their leverage
and risks suddenly apparent to investors, he said, many of these banks
could be forced to wind down some of their securitization activities or
exit the business outright, reported Thomson Media.

Credit Card Issuers Lose More Money in Bankruptcies in
2002

Proprietary and general-purpose credit card issuers lost $18.19 billion
from consumer bankruptcy filings last year, up 15.1 percent over 2001,
according to The Nilson Report. Even though bankruptcy losses
reached an all-time high in 2002, they were less than they would have
been if consumers hadn't had such widespread access to debt
consolidation through home-equity loans, reported the newsletter. With
unemployment continuing to rise, more consumers will head to the
bankruptcy courts, sending bankruptcy losses upward, reported
Nilson. According to the newsletter, card issuers can expect
bankruptcies to cumulatively account for more than $60 billion in
charged-off loans through 2005.

Bankruptcy Prediction Systems Can Reduce Losses for U.S. Credit
Card Issuers

U.S. credit card issuers who adopt proven bankruptcy prediction systems
can expect to reduce their losses from cardholder bankruptcies by 9
percent to 12 percent over the first three years of implementation,
according to an article in The Nilson Report. The newsletter
reports that such figures show that intelligent use of scoring systems
could save the credit card industry up to $7 billion over the next three
years. Prediction modeling includes three types: credit-scoring models,
behavioral and transactional models and expert models, based on neural
networks, reported the newsletter.

According to Nilson, the most difficult problem for credit
grantors using these predictive systems is differentiating between
customers who are the most profitable from those most likely to file for
bankruptcy and contribute the charge-offs that are almost entirely
complete losses. These customers' accounts can often appear exactly the
same. However, accounts headed for bankruptcy display recognizable
patterns at least six months and up to 18 months before they decide to
file, reported the newsletter. Nilson said large-card issuers
should reevaluate their models at least every 12 months to reflect
changes taking place in the marketplace, to monitor the number of open
accounts each cardholder has with different credit grantors that affect
the offering of low introductory rates, and balance transfers.

Medinex Systems Gets Final Approval of DIP Financing

A bankruptcy court granted Celebration, Fla.-based Medinex Systems Inc.
final approval for its debtor-in-possession financing, according to a
Form 8-K filed with the Securities and Exchange Commission, Dow Jones
reported. The newswire reported that the U.S. Bankruptcy Court in Boise,
Idaho, also granted the company final approval of other requests,
including cash collateral use and payment of certain critical
pre-petition trade vendors and pre-petition employee wages, according to
the filing.

The health care technology company told the bankruptcy court that it
intends to submit a plan to liquidate through a sale of its assets in a
two-phase process, Dow Jones reported. The company said it would be
forced into chapter 7 liquidation in absence of the plan, according to
the newswire. Medinex filed for chapter 11 protection on Nov. 27,
listing $335,000 in assets and $2 million in liabilities as of Sept.
30.

WorldCom Gets Another Extension to File Data with Court

U.S. Bankruptcy Judge Arthur Gonzalez in Manhattan on Tuesday
extended the deadline for WorldCom Inc. to file some required financial
information that could help creditors estimate what type of recovery to
expect, Dow Jones Newswires reported. The information is now due March
31, according to the newswire. Judge Gonzalez has extended the deadline
twice, most recently through Jan. 31.

Bethlehem Steel Creditors Seek Control of Recovery Plan
Process

The Bethlehem Steel Corp. creditors' committee is fighting the bankrupt
steelmaker's request to retain sole control of its chapter 11
reorganization, reported Dow Jones Newswires. The panel, representing
Bethlehem Steel's bondholders and other unsecured creditors, asked a
federal judge to help clear the way for competing recovery plans,
according to the newswire. A victory for the creditors might hinder a
proposal this month by International Steel Group Inc. to acquire most of
Bethlehem's assets for $1.5 billion. Last week, Bethlehem asked U.S.
Bankruptcy Judge Burton R. Lifland in Manhattan to give it until
the end of September to negotiate a recovery plan without competition
from other proposals. The judge will consider the company's motion at a
hearing tomorrow.

Dice Inc. Announces Pact With Primary Noteholder

Dice Inc. entered a lock-up agreement that provides a restructuring plan
that would have the company file for chapter 11 bankruptcy protection
and emerge as a privately held company, reported Dow Jones. In a press
release Tuesday, the online recruiting company said it entered the deal
with Elliott Associates L.P. and Elliott International L.P., which
together hold 48 percent of its 7 percent convertible subordinated notes
due January 2005. The deal calls for Elliott to vote for a plan in which
Dice would exchange 95 percent of its common stock for all of the $69.4
million outstanding face amount of the notes, according to the newswire.
The pact also calls for the company to complete this transaction through
a prearranged bankruptcy filing, which Dice expects to make within the
next several weeks, Dow Jones reported.

Bankruptcy Deal Worked on for Malden Mills

A plan under which Lawrence, Mass.-based Malden Mills could pay its
debts and emerge from bankruptcy could be announced this week, according
to BostonChannel.com. Lawyers for the textile company, its lenders and
creditors were trying to hammer out details of an agreement on Monday
night, reported the online news portal. A bankruptcy court hearing in
Worcester, Mass., is scheduled for Tuesday. Malden Mills spokesman David
Costello said the company is attempting to get stakeholders on all sides
to sign off on the deal before the hearing, reported BostonChannel.com.
Malden Mills has 1,200 workers in Lawrence and Hudson, N.H., and makes
its Polartec fabric for use in sweaters and blankets, as well as
military gear.

U.S. Trustee Seeks Court OK to Retain Current Coram Healthcare
CEO

The U.S. Trustee assigned to the Coram Healthcare Corp. bankruptcy
proceedings wants court approval to retain the current chief executive,
despite objections from the company's equity committee, Dow Jones
reported. According to court papers obtained Tuesday by Dow Jones
Newswires, U.S. Trustee Arlin M. Adams wants to retain Coram Healthcare
President and CEO Daniel D. Crowley under a six-month contract, paying
the executive $80,000 a month, the newswire reported. Coram Healthcare
has been under chapter 11 bankruptcy protection since August 2000. A
hearing on the proposal has been scheduled for Feb. 28 in the U.S.
Bankruptcy Court in Wilmington, Del. Objections are due by Feb. 21, Dow
Jones reported.

FORMER POLAROID CORP

Former Polaroid Seeks More Time for Reorganization
Plan

The entity formerly known as Polaroid Corp. and its committee of
unsecured creditors are seeking to extend the exclusive periods in which
they can file a reorganization plan until March 20 and lobby for
creditor support until May 20, according to Dow Jones newswire. In court
papers obtained Tuesday by Dow Jones Newswires, the group said it needs
more time to work out differences in a previously filed plan. A hearing
on the issue is scheduled for Feb. 18 in the U.S. Bankruptcy Court in
Wilmington, Del., and objections are due by Feb. 11, reported the
newswire. The company and 20 affiliates filed for chapter 11 protection
on Oct. 12, 2001.

Questions Mount In Chapter 11 Case of Former
Polaroid

According to an article in the Wall Street Journal, questions are
now being asked about former Polaroid's chapter 11 bankruptcy filing and
the sale of substantially all of the company's assets to a unit of Bank
One Corp. last year. The article says an increasing number of people are
seeking answers after accusations surfaced that the debtor company never
should have filed chapter 11, and that it hid more than $1 billion in
assets. Earlier this month, a federal bankruptcy judge ruled to appoint
an examiner to investigate the firm's accounting and financial reporting
methods. To read the article, point your browser to
href='http://www.wsj.com/' target='window2'>http://www.wsj.com
(subscription required).

KMART

Kmart Receives Court Approval for $2 Billion Credit
Facility

Kmart Corp., the largest U.S. retailer to seek chapter 11 protection,
won a federal judge's approval to borrow $2 billion to help run the
company as it emerges from bankruptcy, Bloomberg News reported. The loan
from GE Commercial Finance, Fleet Retail Finance Inc. and Bank of
America N.A. is backed by Kmart's inventory, the newswire reported. The
new financing will replace $2 billion in borrowing that has helped
sustain Kmart while in bankruptcy. Kmart hopes to exit chapter 11 by the
end of April, according to Bloomberg. The new loan will help the
discount retailer pay expenses as it tries to reverse a 15-month decline
in sales at stores that have been open at least a year.

Kmart Objects to $10 Billion of Claims Filed in Its Chapter
11

Kmart Corp. objected to $10 billion of the $75 billion in claims that
were filed against the company and its affiliates in their year-old
chapter 11 bankruptcy cases, according to court papers obtained Tuesday
by Dow Jones Newswires. The discount retailer wants the court to
disallow or 'expunge' billions of dollars of claims it said are
unsupported, duplicative or actually equity interests, according to the
newswire. It also said that $576.9 million of claims incorrectly assert
secured, administrative or priority status and that they should be
reclassified as unsecured, according to a filing Friday with the U.S.
Bankruptcy Court in Chicago, Dow Jones reported. A hearing on the
objections is scheduled for Feb. 25 before U.S. Bankruptcy Judge
Susan Pierson Sonderby.

W.R. Grace Seeks to Block Creditor Plans for Company Through Aug.
1

W.R. Grace & Co. has asked a bankruptcy court to block creditors
from proposing reorganization plans for the company for another six
months, according to court documents obtained by Dow Jones Newswires.
The specialty chemicals and materials company filed for chapter 11
protection in April 2001 to deal with mounting asbestos-related claims.
The company can't develop a viable reorganization plan until the
magnitude of its liabilities is determined, the company said in a recent
filing with the U.S. Bankruptcy Court in Wilmington, Del., the newswire
reported. This is the fourth time Grace has asked for such an extension.
The action would extend the company's exclusivity through Aug. 1, from
Feb. 1. A hearing on the matter is scheduled for Feb. 24, reported Dow
Jones.

ADELPHIA

Adelphia Business Wins Court Approval for $10.7 Million Asset
Sale

Canonsburg, Pa.-based Adelphia Business Solutions Inc. won bankruptcy
court approval to sell $10.7 million in assets, according to Bloomberg
News. The company, a telecommunications services provider spun off from
Adelphia Communications Corp., is selling closed operations in Chicago,
Cincinnati, Dallas, Phoenix, San Antonio and several other cities,
according to court papers. The sale to Gateway Columbus LLC was approved
on Friday by a bankruptcy judge in New York and is slated to close this
month, Bloomberg reported. Adelphia Business said it will continue to
serve 35 markets that are 'solidly profitable,' the newswire reported.
Adelphia Business, which sells Internet and local and long-distance
telephone services, sought chapter 11 bankruptcy protection in
March.

Adelphia to Move Pennsylvania Headquarters to
Denver

Adelphia Communications Corp., the bankrupt cable-television company,
announced yesterday that it plans to move its corporate headquarters to
Denver from Coudersport, Pa., according to Bloomberg News. Adelphia will
keep 'a significant portion of its operations' in Coudersport, where it
employs about 1,400 people, the company said in a statement. The cable
operator said about 150 people will be based at the new Denver
headquarters, reported the newswire. The cable company said the move
requires the approval of the bankruptcy court, according to the
statement.

AMR, American Air Debt Ratings May Be Cut by Moody's

AMR Corp. and its Fort Worth, Texas-based American Airlines unit may get
lower ratings from Moody's Investors Service on about $13 billion in
debt as the company tries to stem losses that reached $3.5 billion in
2002, according to Bloomberg News. Moody's put AMR's B1 rating, which is
below investment grade, under review because of 'uncertain prospects'
for a financial recovery, the newswire reported. American's costs per
seat for each mile flown have remained 'resistant to meaningful
reductions,' and the carrier has been unable to raise prices, Moody's
said in a statement, Dow Jones reported. Standard & Poor's last week
said it also may cut AMR's and American's credit rating of BB-, already
three levels below investment grade.

Union Acceptance OKs Proposal on Service-transfer Deal

Bankrupt Union Acceptance Corp. said it agreed in principle to a
proposal with J.P. Morgan Chase & Co., acting through subsidiary
Systems & Services Technologies Inc., on a service transfer
transaction, Dow Jones reported. According to a Form 8-K filed Monday
with the Securities and Exchange Commission, MBIA Insurance Corp. said
it would accept J.P. Morgan's Systems & Services Technologies as a
successor servicer, according to the filing. Indianapolis-based Union
Acceptance, which filed for chapter 11 bankruptcy protection on Oct. 31,
provides prime automobile loans, mainly for used cars. It has lending
relationships with about 5,700 retail automobile dealers in 40
states.

The company is pursuing a transaction in which its servicing platform
assets would be transferred to a third party, Dow Jones reported. The
third party would assume servicing responsibilities for its securitized
portfolio and hire servicing employees. Union Acceptance solicited
interest from various parties and said it believes this type of
transaction will be considered in its reorganization under chapter 11,
the filing said. MBIA Insurance is the surety provider of Union
Acceptance's outstanding securitizations and its remaining warehouse
portfolio, according to the newswire. Systems & Services
Technologies would purchase the servicing platform assets and hire most
servicing employees. Union Acceptance would keep its residual interest
in its securitized assets, the filing said. The company filed for
chapter 11 on Oct. 31, listing $243 million in assets and $115 million
in debts.

Farmland Wins Approval to Seek Value of Meat Unit

Farmland Industries Inc. was authorized by U.S. Bankruptcy Court Judge
Jerry W. Venters to hire an investment bank to determine the value of
the cooperative's profitable beef and pork business for possible sale,
Bloomberg News reported. Smithfield Foods Inc. is a potential buyer,
according to the newswire. The approval allows Goldsmith, Agio, Helms
& Lynner LLC of Minneapolis to help the largest U.S. farm
cooperative determine the market value of its 71 percent stake in
National Beef Packing Co. and its sole ownership in Farmland Foods Inc.,
its pork-processing business, according to Bloomberg. The cooperative,
owned by 600,000 farmers, filed for chapter 11 bankruptcy protection on
May 31, 2002, after a slide in fertilizer sales left it unable to make
payments on $1.5 billion in debt.

Hearing to Terminate Peregrine Exclusivity Continued

Judge Judith K. Fitzgerald of the U.S. Bankruptcy Court in
Wilmington, Del., yesterday continued a hearing to consider a motion to
terminate Peregrine Systems Inc.'s exclusive plan-filing and
vote-solicitation periods in an effort to get opposing parties to
negotiate, Dow Jones Newswires reported. Judge Fitzgerald wants San
Diego-based Peregrine and its committee of unsecured creditors to
negotiate the terms of a consensual plan of reorganization, according to
the newswire. The creditor panel had sought to terminate the debtor
company's exclusive periods to file its own already-formulated plan.
Peregrine filed a proposed plan and disclosure statement on Jan. 20. The
hearing to consider the termination motion will reconvene on Feb. 25,
reported Dow Jones. Peregrine Systems filed for chapter 11 bankruptcy
protection on Sept. 22, 2002, amid investigations into its accounting
practices.

Alterra Receives Financing for Bankruptcy Plan

Newton, Mass.-based Senior Housing Properties Trust has agreed to
provide $67.9 million to Wauwatosa-based Alterra Healthcare Corp. to
help finance Alterra's bankruptcy reorganization, according to The
Business Journal for Greater Milwaukee. Alterra, an operator of
assisted living facilities, filed for chapter 11 bankruptcy protection
on Jan. 22. Under a 15-year sale-leaseback transaction, Senior Housing
will buy 18 properties in 10 states with 894 living units for $61
million, the Journal reported. The company will lease back the
facilities to Alterra for approximately $7 million per year, plus a
percentage of rent to begin in 2004, according to the online
newspaper.

Senior Housing will also provide $6.9 million in first mortgage
financing on six properties in two states involving 202 living units,
reported the Journal. The maturity date is June 30, 2004, and the
8 percent interest will equal about $552,000 per year, Senior Housing
said, according to the online newspaper. The transactions are expected
to close in late February or early March 2003, before Alterra's plan of
reorganization is to be approved by the bankruptcy court.

US Airways Pilots Resisting Pension Cuts

The head of bankrupt US Airways pilots' union criticized the airline for
singling out the pilots' pension fund for possible termination and said
the carrier should instead look to cut costs in other employees' pension
funds,The Washington Post reported in its Wednesday editions.
William D. Pollock said in a recorded message that eliminating the
pilots' pension fund would 'take away the pilots' accrued benefits that
we have fought and paid for during our careers, while leaving the
pensions of other employee groups and management intact,' the report
said, according to the Post.

US Airways President and Chief Executive David N. Siegel said the
airline will distribute 'detailed information' to the pilots later this
week on its intention, the newspaper reported. Siegel said the
pension-fund liability has to be resolved for the airline to obtain a
$900 million federal loan guarantee and keep $200 million in interim
financing from its lead investor, the Retirement Systems of Alabama,
reported the Post.

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