|
December 24, 2002
Holiday Season Looks Grim for Retailers
The holiday season is looking more grim for retailers, as merchants such
as J.C. Penney and Federated Department Stores reported on Monday that
even with heavy discounting, the late sales rush they were hoping for
failed to materialize, the Associated Press reported. With the critical
final weekend before Christmas less robust than expected, merchants are
under even more pressure to attract last-minute shoppers before
Christmas and bargain-hunters afterward to salvage the season. Last
year, post-Christmas buyers helped boost sales results. To read the full
article, point your browser to
href='http://www.washingtonpost.com/wp-dyn/articles/A32947-2002Dec24.html'>
color='#000080'>http://www.washingtonpost.com/wp-dyn/articles/A32947-2002Dec24.html.
Household Spending Posts Biggest Gain in Four Months
Household spending posted its biggest increase in four months in
November despite rising unemployment and the threat of war with Iraq,
the Wall Street Journal reported. But a softening in consumer
sentiment late this month is clouding the outlook. In November,
inflation-adjusted personal consumption rose 0.5 percent after a 0.2
percent rise in October, the Commerce Department said. Unadjusted for
inflation, it was also up 0.5 percent, compared with a 0.4 percent rise
in October, reported the Journal. Personal income increased 0.3
percent in November and disposable personal income, or income after
taxes, rose 0.4 percent. The savings rate -- personal savings as a share
of disposable income -- was 4.3 percent, near its highest level in
several years, reported the Journal. 'Combined with tax cuts and
virtually nonexistent inflation, real disposable income continues to
rise modestly, which is supporting consumer spending,' said Steven Wood,
chief economist at FinancialOxygen Inc., a financial-markets brokerage
company. To read the full article, point your browser to
href='http://online.wsj.com/article/0,,SB1040650058951468433,00.html?mod=home…'>
color='#000080'>http://online.wsj.com (subscription
required).
Bank of America, Citigroup Will Post Massive Charges
Two big banks announced hefty charges for the fourth quarter, with
Citigroup Inc. announcing a charge of $1.5 billion, in part for the
regulatory crackdown on Wall Street, and Bank of America Corp. setting
aside about $780 million for bad loans, the Wall Street Journal
reported. The charges cap a difficult year for U.S. financial
institutions in general, which have been buffeted by investigations of
Wall Street practices that hurt the average investor, and by souring
loans in the energy, retailing, cable and media, telecommunications and
airline industries, reported the Journal. Still in question is
whether and when Bank of America will have to record a charge for loans
it made to executives and directors at insurance and finance company
Conseco Inc., which filed for bankruptcy protection earlier this month.
Despite the woes, however, Citigroup and Bank of America overall have
performed well financially, reported the Journal. They have been
supported by revenue from old-fashioned consumer-banking activities,
such as providing mortgages, credit cards and checking accounts,
according to the online newspaper.
Neon Communications Exits Chapter 11 Bankruptcy Protection
Neon Communications Inc., which operates a fiber-optic network in a
dozen Northeast states, said it emerged from bankruptcy protection,
Bloomberg News reported. Last month, the U.S. Bankruptcy Court in
Delaware approved the company's reorganization plan to pay creditors,
the company said. Neon and its Neon Optica Inc. sought protection in
June after six years of mounting losses. Fiber-optic overcapacity and
falling prices made it difficult for the company to find financing. It
listed debt of $258.1 million in its chapter 11 petition. 'Neon emerges
as a financially stronger company. We are debt free, Ebitda positive and
we have new financing in place that we believe fully funds our business
plan,'' Chief Executive Officer Stephen Courter said in a statement,
reported Bloomberg.
KMART
Kmart's 3rd-Qtr Loss Widens to $383 Million as Sales Drop
Kmart Corp., the largest U.S. retailer to file for bankruptcy
protection, said its
third-quarter loss widened as sales declined, Bloomberg News reported.
Sales in the past two weeks also have fallen below company expectations.
The loss of $383 million, or 76 cents a share, in the quarter ended Oct.
30 compared with a restated loss of $249 million, or 50 cents, a year
earlier, the retailer said in a statement. Sales at stores open more
than a year dropped 7.6 percent, reported the newswire.
Poor holiday sales may increase store closings, prompt creditors and
suppliers to push the retailer into liquidation, or delay Kmart's plan
to emerge from bankruptcy next year, some analysts said. Same-store
sales in Kmart's November period, which ended the day before
Thanksgiving, declined 17 percent, and sales in the past two weeks have
been 'softer'' than anticipated, reported Bloomberg.
Kmart Finds 'Questionable' Vendor Allowances During
2001
A review by Kmart Corp.'s current management of the retailer's
historical practices for reporting vendor allowances has uncovered
'questionable' allowances for the first three quarters of its 2001
fiscal year, Dow Jones reported. According to Kmart's quarterly report
filed on Monday with the Securities and Exchange Commission (SEC), in
response to SEC inquiries, the retailer's management in the fall began
reviewing vendor allowances prior to the company adopting a new
accounting policy for those entries in the 2001 fourth quarter.
Regarding potential terms of the company's reorganization being
discussed with its creditor committees, Kmart said in the SEC filing
that creditors wouldn't receive full payment on their claims and the
company's common stock would be canceled, with stockholders receiving
'little or no consideration, ' reported the newswire. Kmart also said in
the filing that it likely will be required to begin making contributions
to its pension plan in 2005, or possibly earlier, after not being
required to make a contribution for the past eight years, reported Dow
Jones.
Global Crossing Won't Face U.S. Criminal Charges, People
Say
Global Crossing Ltd., the fiber-optic network operator that once had a
$38.9 billion market value, won't face U.S. criminal charges over its
accounting practices, according to people close to the investigation,
Bloomberg News reported. Prosecutors were investigating a former Global
Crossing official's claims that executives overstated revenue and
misreported costs. The U.S. attorney's office in Los Angeles, which also
explored document-shredding allegations, decided there's insufficient
evidence for criminal charges, the people said, reported the
newswire.
J.P. Morgan Judge Admits 'Disguised Loan' E-Mails
J.P. Morgan Chase & Co., suing to collect $1 billion from insurers
to cover losses related to Enron Corp., suffered a setback when a judge
said a bank e-mail referring to 'disguised loans' may be read to a jury,
Bloomberg News reported. 'If the jury accepts defendants' view of what
the e-mails are referring to, the term `disguised loan' is highly
relevant and precisely descriptive of what is involved,'' U.S. District
Judge Jed Rakoff wrote in a 10- page ruling.
Eleven insurance companies including Chubb Corp. and CAN Financial
Corp. have argued at trial that they only agreed to issue surety bonds
guaranteeing oil and gas trades involving the second biggest U.S. bank
and the now-bankrupt energy trader and were deceived because the
transactions turned out to be loans, Bloomberg reported. J.P. Morgan
Vice Chairman Donald Layton described the transactions as disguised
loans in one of the e-mails and in another discussed the consequences
should the bank's internal records about the loans be subpoenaed. J.P.
Morgan has said the insurers knew the true nature of the transactions
and went ahead with the surety bonds anyway, reported the newswire.
ENRON
Enron: May Have Accidentally Underpaid Cal-ISO $15 -$50
Million
Enron Corp. may have underpaid California's grid operator between $15
million and $50 million from July 2001 onward due to mistakes in reading
meters of direct access customers, according to a copy of an Enron
letter seen by Dow Jones Newswires. Computer Sciences Corp. which is
under contract with Enron to manage its metering data, informed Enron
last month that it made the errors, and that it may take 4-5 months to
determine the magnitude of the error, said the letter from an Enron
attorney to the California Independent System Operator, reported the
newswire. 'Enron Power Marketing, Inc. does not have reliable estimates
of the dollar value magnitude of the combinations of these errors, but
we believe it is quite likely to be material,' said the letter, dated
Monday. 'The range of speculation as to magnitude of the underpayment to
the ISO is between $15 million and $50 million.' Enron, which is looking
to exit the retail power market, won't seek the return of its collateral
posted at the Cal-ISO until the size of the error is known, said Enron
spokesman Mark Palmer, reported Dow Jones.
Enron Ruling Leaves Corporate Advisers Open to
Lawsuits
A ruling last week by a federal judge in Houston may well have
accomplished what a year's worth of reform by lawmakers and regulators
has failed to achieve: preventing
the circumstances that led to Enron's stunning collapse from happening
again, the New York Times reported. Judge Melinda M. Harmon ruled
that corporate advisers like Citigroup, J. P. Morgan Chase and Merrill
Lynch could be deemed primary participants in a fraud if they
constructed corporate transactions with the knowledge that such deals
would mislead investors about the company's finances. To read the full
article, point your browser to
href='http://www.nytimes.com/2002/12/23/business/23ENRO.html?ex=1041662258&am…'>
color='#000080'>http://www.nytimes.com/2002/12/23/business/23ENRO.html?ex=1041662258&ei
=1&en=ff3da9270db1dc0f.
US Airways Projects Pretax Income of $587 Million in 2009
US Airways Group Inc. projected its pretax income will increase to a
profit of $587 million in 2009 from a loss of $229 million in 2003,
according to the disclosure statement to the airline's reorganization
plan, Dow Jones reported. With a growth in operating costs of 26 percent
over that period, the filing said, the operating margin would increase
to 6.8 percent in 2009 from 0.6 percent in 2003.
Overall, cash and short-term investments are projected to increase to
$1.9 billion in 2009, compared with $1 billion in 2003, with debt
decreasing from $3.1 billion to $1.3 billion over that time. Included in
the airline's debt reduction would be the repayment of both the Air
Transportation Stabilization Board (ATB) loan by 2009 and the carrier's
debtor-in-possession financing in 2003, reported the newswire. The
reorganization plan is contingent on US Airways receiving a $1 billion
loan from the ATSB. The airline on Nov. 7 received final bankruptcy
court approval of a $500 million DIP loan agreement with the Retirement
Systems of Alabama.
Delaware Court Has Busiest Week Since Early October
Some of the largest and most well-known chapter 11 bankruptcy cases have
been filed in Chicago in recent weeks, but the U.S. Bankruptcy Court in
Wilmington, Del., is coming off its busiest week of filings in more than
two months, Dow Jones reported. Five corporate chapter 11 petitions were
filed in the Wilmington court from Dec. 16 to Friday, according to court
documents obtained by Dow Jones Newswires. Insilco Holding Corp.,
Ameripol Synpol Corp., Novo Broadband Inc., Focal Communications Corp.
and First ECA Inc. all filed chapter 11 petitions in Wilmington last
week.
The five corporate cases, which were filed along with 39 affiliate
cases, are the most to be filed in one week in Wilmington since five
cases were filed from Oct. 3 to Oct. 10, the largest of which was the
petition filed by CTC Communications Corp. 'Delaware will continue to be
a preferred jurisdiction for many debtors,' said G. Ray Warner,
scholar-in-residence for the American Bankruptcy Institute and a
professor at the University of Missouri-Kansas City School of Law. 'The
filings in other jurisdictions will not change that.' To read the full
article, point your browser to
href='http://online.wsj.com/article/0,4820,BT_CO_20021223_003949-search,00.ht…'>
color='#000080'>http://online.wsj.com (subscription
required).
Del. Court Rules in Vornado's Favor over Prime Group Stake
Vornado Realty Trust said the Delaware Chancery Court ruled on Thursday
in its favor over a long-running battle with former Prime Group Realty
Chairman Michael Reschke concerning a contested 34 percent stake in
Prime Group, Dow Jones reported. According to a filing on Monday with
the Securities and Exchange Commission, Vornado said the court granted
its motion for a summary judgment that Vornado's foreclosure auction of
the Prime Group stake was held in a commercially reasonable manner,
reported the newswire.
The court also determined that Vornado made the winning bid at the
auction and that Reschke's investment vehicle, Primestone Investment
Partners L.P., is liable for a deficiency on its loans of more than $49
million. In April, after months of litigation, Vornado foreclosed on the
Primestone stake, which consists of 7.9 million common shares of Prime
Group on a converted basis. Vornado foreclosed on the holdings after
Primestone defaulted on a $100 million loan in late 2001. After an
unsuccessful appeal by Primestone to stay in bankruptcy, Vornado bought
the stake for about $66 million at a foreclosure auction in April, Dow
Jones reported.
Exide Technologies Wins Extension of Exclusive Plan Periods
Exide Technologies Inc. recently won a four-month extension of its
exclusive periods to file a plan of reorganization and solicit
acceptances, Dow Jones reported. The debtor company will use the time to
negotiate the terms of a plan with its lenders and its committee of
unsecured creditors. Exide Technologies said it's analyzing various
restructuring strategies. 'The objective of this chapter 11 case is the
resolution of the case through the negotiation, formulation,
development, confirmation and consummation of a consensual plan of
reorganization,' Exide Technologies said in its motion. 'The debtor is
taking the necessary steps to reach that goal.'
The order signed by Judge Kevin J. Carey of the U.S. Bankruptcy
Court in Wilmington extends the period during which Exide Technologies
has the exclusive right to file a plan through April 9, 2003. The order
also extends the time during which the company has the sole right to get
votes for the plan through June 9. Exide Technologies initially sought a
six-month extension of the exclusive periods but scaled back its request
after talks with its lenders and the creditor panel, reported the
newswire. Exide Technologies filed for chapter 11 bankruptcy protection
on April 14, listing assets of $2.07 billion and debts of $2.52 billion
in its petition.
Boston Catholic Archdiocese Still Mired in Financial Woes
Officials in Boston's embattled Roman Catholic Archdiocese have made
steps to both select church property to sell to settle claims of priest
sexual abuse and also marshal a legal strategy to get the cases
dismissed on First Amendment grounds, the Associated Press reported.
Church lawyers planned to file a motion on Monday arguing that the
Constitution's guarantee of freedom of religion precludes state action
in the abuse scandal.
Bishop Richard G. Lennon, apostolic administrator of the archdiocese,
said the motion was being filed to satisfy insurance companies'
requirements that the church avail itself of every significant defense
before contributing to the settlement of claims, reported the newswire.
If upheld by Superior Court Judge Constance Sweeney, more than 400
claims that could cost the church millions of dollars would be thrown
out. Meanwhile, Lennon said he was hopeful the church could settle the
lawsuits by selling some of its real estate holdings and by using
insurance money, reported the newswire.
Armstrong Files Detailed Reorganization Plan to Pay Creditors
Armstrong World Industries Inc., North America's largest vinyl-flooring
maker,
filed new details about its reorganization plan outlining payments to
creditors, putting the company closer to seeking votes to exit
bankruptcy, Bloomberg News reported. Under the plan, the company said it
would provide $2.1 billion to a trust created to settle individuals'
claims that exposure to asbestos in Armstrong products made them ill.
Unsecured creditors would get $1.1 billion, or about 67 percent of their
claims.
FAO Gets More Time from Lenders; to Close 70 Stores
FAO Inc., the owner of the FAO Schwarz toy chain, said it lenders gave
the company more time to negotiate new credit terms and that it will
close as many as 70 stores in an effort to reverse losses, Bloomberg
News reported. The company and lenders, led by Wells Fargo Retail
Finance LLC, reached an agreement that delays any action through Jan.
10, FAO said in a statement. The stores will be shut by the end of March
and as many as 55 of them will be Zany Brainy locations, the retailer
said. FAO said the extra time will allow it to work with lenders and
trade suppliers to improve its liquidity and chances for long-term
profitability. On Dec. 17, FAO said it might file for bankruptcy
protection unless lenders eased borrowing restrictions, reported
Bloomberg.
Comdisco Completes Sale of French Leasing Operation for $70
Million
Comdisco Holding Co., the technology-services business that emerged from
bankruptcy in August, completed the sale of its French leasing
operations to Belgium's Econocom Group for about $70 million, Bloomberg
News reported. The sale of the company's Comdisco France and Promodata
SNC units was first announced in October, Comdisco said in a press
release distributed by Business Wire. Rosemont, Ill.-based Comdisco
filed for chapter 11 protection in July 2001 after investing $3 billion
in startups that proved unprofitable or failed to repay loans. It's
selling assets over the next three years to pay creditors and expects to
liquidate, reported Bloomberg.
Disney to Write Off Investment in United Air Leases
Walt Disney Co. will write off its $114 million investment in aircraft
leveraged
leases with UAL Corp.'s United Airlines, resulting in costs of $83
million, or 4 cents a share, in the quarter ending Dec. 31, Bloomberg
News reported. After United's recent bankruptcy filing, Disney believes
it probably won't recover this investment, the second-largest U.S. media
and entertainment company said in a statement.
Seven Seas Plans to Continue Operations
An involuntary chapter 7 bankruptcy petition was filed against Seven
Seas Petroleum Inc., Dow Jones reported. In a press release on Monday,
the oil and gas company said the petition was filed by the holders of a
majority of the company's $110 million of senior subordinated notes. The
company is in default under the notes because it missed a $6.9 million
interest payment due Nov. 15. Seven Seas 'will consider various
responses and alternatives prior to taking any action with respect to
the petition,' reported the newswire. The company's subsidiaries intend
to continue operations in the ordinary course, and proceed with the sale
of their 57.7 percent participating interest in the shallow Guaduas Oil
Field and related assets, Dow Jones reported.
Health Care Property/Centennial: Sent Default Notice Dec. 2
Health Care Property Investors Inc. said an ailing tenant, Centennial
Healthcare Corp., filed voluntary petitions for chapter 11 bankruptcy,
Dow Jones reported. Including amounts due for December, the company has
net rent and interest receivables of $4.3 million due from Centennial
and the third-party lease holders. Letters of credit provided by an
independent financial institution secure up to $4.4 million in rent and
loan payments due from Centennial.
In a press release on Monday, Health Care Property Investors also
reiterated information it filed with the Securities and Exchange
Commission on Dec. 2, when it sent default and lease-termination notices
to Centennial for nonpayment of rent and of interest and principal under
a secured loan. Health Care Property had been receiving payments of
$900,000 a month, or $11 million annually, from Centennial. As disclosed
in the SEC filing, Health Care Property expects monthly payments under
new leases will be one-half of the current required monthly payments
under the existing leases, but will increase over time, reported the
newswire.
Court OKs WorldCom Settlement with Electronic Data Systems
A bankruptcy court on Monday approved a settlement WorldCom Inc. reached
with Electronic Data Systems Corp. that resolves standing disputes
between the two firms, Dow Jones reported. The settlement 'is intended
to resolve all of the issues raised' in pending district court
arbitration, prior motions filed in bankruptcy court and all other
disputes between the two firms related to a global network outsourcing
agreement, WorldCom's motion from Dec. 13 said, reported the
newswire.
Under the outsourcing agreement, WorldCom unit MCI WorldCom
Communications Inc. paid Electronic Data Systems $100 million in cash on
the date the pact began in 1999. That pact said that Electronic Data
Systems would have to repay the $100 million network payment to MCI
WorldCom if Electronic Data Systems didn't purchase a set amount of
network services from MCI WorldCom. The settlement calls for Electronic
Data Systems to make more than $187 million in cash payments to MCI
WorldCom over the next 12 months, the motion said, reported Dow Jones.
Electronic Data Systems also agreed to waive a number of claims against
MCI WorldCom.
Encompass Services Gets Further Interim OK of DIP Loans
Encompass Services Corp. has again received interim bankruptcy-court
authorization to borrow under a $60 million debtor-in-possession
financing agreement, according to a court order Dow Jones Newswires
obtained recently. U.S. Bankruptcy Judge William Greendyke signed the
order on Wednesday and scheduled a final hearing on the matter for Jan.
8, 2003, before the U.S. Bankruptcy Court in Houston. The funding will
allow the Houston-based building-services provider to meet payroll and
other expenses, minimize disruption of its operations and retain
customer and supplier confidence, a prior interim order from Nov. 20
said, reported Dow Jones.
Thanks for visiting Today's Bankruptcy Headlines. New articles
are posted here each business day.
|
