April 14, 2000
Senate Hearing Scrutinizes New Retirement Waiver Rule in S.
625
An obscure provision tucked away in S. 625 came under sharp attack
yesterday during a Senate Labor Committee hearing on protecting
retirement assets in bankruptcy. The provision (§303(c) of S. 625)
permits a waiver of the longstanding rule against alienation of pension
and retiree benefits, so that creditors could reach these assets.
Witnesses and a bipartisan group of Senators alleged that the waivers
would be included in the small print of credit card applications or
similar loan agreements, perhaps causing the unwitting depletion of
retirement plan assets post-bankruptcy. Committee Chairman James
Jeffords (R-Vt.) was joined by Sens. Edward Kennedy (D-Mass.), Paul
Wellstone (D-Minn.) and Tom Harkin (D-Iowa) in attacking the provision,
which they charged was included in the manager’s amendment to S.
625 without any discussion or debate. Wellstone reaffirmed his efforts
to fight the overall bankruptcy bill due to provisions such as this,
which advantage what he called “predatory” creditors over
debtors. Committee member Jeff Sessions (R-Ala.), a supporter of S. 625,
stated that he did not support the current language in §303(c), but
does support a “floating cap” on the amount of
“abundant” benefits that could be protected from the reach
of creditors. Such a cap could be pegged to the age and/or current
income of the debtor, while still providing that some assets could be
available to pay pre-petition debts. In support, Sessions cited a number
of examples of wealthy debtors who avoided repayment to creditors while
transferring vast sums to protected retirement accounts. He compared
this abuse to homestead exemption abuse. Sessions sponsored an
amendment, included in the Senate bill, to cap the homestead exemption
at $100,000 of equity. But Prof. Bruce Markell, a bankruptcy
professor at the University of Nevada-Las Vegas, testified against a
cap, stating that current fraudulent transfer laws should be adequate to
address such fraud cases.
Meanwhile, talks continue on the negotiations over the shape of
a compromise bankruptcy bill. A formal conference has not yet
started, but House and Senate staff continue to discuss options on the
merits of the bill. Senate negotiators maintained §303(c) in their
“pre-conference” offer to their House counterparts last
Friday. If the House objects to the waiver provision, the Senate may
offer a floating cap. Senate Majority Leader Trent Lott (R-Miss.) and
Minority Leader Tom Daschle (D-S.D.) have identified the
“electronic signatures” legislation (S. 761), now in
conference, as the vehicle to attach the agreed-upon bankruptcy
language. But this bill, a priority of the growing “e-
commerce” community, has its own controversial aspects and
difficult conference issues.
United Artists Reveals It Is Discussing Recapitalization
Blaming rivals for flooding the market with pricey new movie
screens, United Artists Theater Co. posted disappointing 1999 results
yesterday, and said it is talking with lenders about recapitalizing the
company, according to Reuters. The recapitalization plan would enable UA
to avoid filing for bankruptcy, said CEO Kurt Hall, although he admitted
that ending some theater lease agreements could result in court battles.
Analysts and industry observers had predicted that the company would
file by the Saturday due date of a $12.5 million interest payment that
many believed the company would not be able to make. UA said it did try
to make the payment, but was blocked Wednesday by the company's senior
secured lenders, a consortium of banks led by Bank of America. 'Everyone
knew it was coming,' said Bishop Cheen, an analyst with First Union
Securities. 'UA's always been among the most vulnerable. They had too
many old screens and too much debt.' For the fiscal year ended Dec. 31,
UA said its operating losses widened to $53.8 million, from $2.3 million
in 1998. Net losses reached $127.3 million, compared with $98 million a
year earlier. Revenues fell 5 percent to $631.4 million, mostly due to a
decline in admissions. While other companies have added several hundred
screens in each of the past two years, most with expensive stadium
seating and premium sound systems, UA has remained at about 2,000
screens. 'This overspending and aggressive building by our competitors
outside of their key market positions has resulted in lower revenue per
screen, reduced operating margins, higher financial leverage and very
low returns on invested capital for the industry in general,' said Hall.
Founded in 1926, United Artists ranks as the No. 6 U.S. circuit.
Health Care Agency Director Supports Tobacco Settlement
Initiative
E. Thomas (Tom) Uram, who served as Orange County, Calif.'s Health
Care Agency director for more than a decade, has endorsed the proposed
November countywide ballot measure to reinvest the majority of the
county's national tobacco settlement dollars into health care programs,
according to a newswire report. 'County government has never fully
honored its commitments to the private health care sector and non-profit
community organizations who have provided health care services to
hundreds of thousands of Orange County citizens over the past 25 years,'
Uram said. 'There is no question in my mind that these lawsuit dollars
from the tobacco industry are health care dollars, no doubt at all.'
Uram, who served as interim chief executive officer for the county while
it struggled to emerge from its December 1994 bankruptcy, issued a
statement in support of the proposed initiative sponsored by the
Citizens Health Alliance to Reinvest the Tobacco Settlement (CHARTS). It
was during that bankruptcy, he said, that 'health care took a tremendous
hit in terms of reduced county funding—over $12 million,' losses
that have not been completely recouped. 'Our health care and community
partners were told at the time that our commitment to them was that when
the county's financial tide turned and we emerged from bankruptcy, we
would restore funding as quickly as possible.' The CHARTS initiative
would require the Board of Supervisors to allocate 80 percent of their
annual national tobacco settlement revenues to several unmet local
health needs, including providing medical transportation for seniors,
ensuring emergency rooms and trauma centers are open with physicians
available around the clock, funding for non-profit community clinics,
early screenings for cancer and diabetes, educating against tobacco,
alcohol and drugs, and caring for the mentally ill. The measure could be
placed on the county's November 2000 ballot.
Tamboril Cigar Files Chapter 11
Tamboril Cigar Co., Miami, filed a voluntary petition for chapter 11
in Miami for itself and two of its units, according to a Dow Jones
newswire report. Citing various factors, including deteriorating
economic conditions in the cigar and tobacco industry, the hand-rolled
cigar maker said yesterday that it intends to reorganize and remain a
going concern; the company expects to file a reorganization plan within
about 10 days.
Acme Steel Plans to Increase Prices in Wake of Bankruptcy
Acme Steel Co., Riverdale, Ill., announced it will increase
transaction prices $20 per ton for hot rolled carbon and alloy sheet and
strip steel products, effective with new orders promised for delivery
July 3 or later, according to a newswire report. Acme Metals Inc., a
producer of steel, steel strapping and strapping products, and welded
steel tubing, filed for chapter 11 on Sept. 28, 1998, along with its
subsidiaries under separate voluntary petitions. The company has been
operating as a debtor-in-possession.
SoftCare Announces Agreement to Acquire Credit Counseling
Software Developer
SoftCare EC.Com Inc., a North Vancouver, B.C., business-to-business
e-commerce company, announced yesterday it has completed an agreement to
acquire the U.S.-based software development company Financial Management
Group LLC (FMG), a credit counseling software developer, according to a
newswire report. FMG's proprietary software, Credisolv, is designed to
help credit counseling organizations streamline their operations,
simplify administrative tasks, generate cost savings and improve
productivity. 'Offering such a timely solution to thousands of small and
medium credit counseling agencies nationwide creates a valuable
alternative for these small and medium providers that individually do
not have the benefits of large economies of scale,' said FMG's Ross
Casabonne of the acquisition agreement. 'The U.S. credit counseling
industry with its myriad of administrative documents is perfectly
matched to the benefits of SoftCare's OpenEC(R) Business Relationship
Management Center for the transmission of documents and services over
the Internet,' added Martyn Armstrong, President and CEO of SoftCare
EC.Com. 'With our experience in transaction processing, we will have the
ability to streamline the processing of documents, reduce costs, and
increase efficiency.' Completion of the transaction is subject to final
regulatory approvals.
Egg Distributor's Order to Curb Fly Infestations May Force It into
Bankruptcy
Buckeye Egg, Newark, Ohio, the nation's fourth largest egg
distributor, was ordered yesterday to reduce fly infestations that
neighbors complained interfered with their everyday activities, the
Associated Press reported. The company, which operates several barns in
Ohio and ships to restaurants and groceries in 20 states, was ordered to
take steps to eliminate the problem within 90 days, although the judge
did not specify a penalty. Further, the judge prohibited construction
permits for new egg facilities until the steps are taken and ordered the
company to monitor fly populations. The company said that although it
plans to follow environmental laws, implementing all of the steps could
force it into bankruptcy. The action is part of a lawsuit the state
filed Dec. 1 that accused the company of dumping dead chickens in a
field, polluting creeks and causing infestations of flies and other
insects. Buckeye Egg has 15 million chickens that produce 2.4 billion
eggs a year, 4 percent of the nation's total production.
MicroAge Inc. Receives Commitment for $225 Million in
Post-petition Financing
MicroAge Inc. announced yesterday that in order to facilitate the
restructuring necessary to continue its transformation into a
business-to-business technology solutions provider, the company and
certain of its subsidiaries have filed voluntary chapter 11 petitions in
the U.S. Bankruptcy Court for the District of Arizona in Phoenix,
according to a newswire report. The Tempe, Ariz.-based Fortune 500
company, which provides information technology solutions, has received a
commitment from a group of financial institutions led by Citibank N.A.
for $225 million in debtor-in-possession financing, subject to court
approval. 'The actions we have taken today, as painful as they are, will
allow us to accelerate the transformation of the company to effectively
compete in the digital marketplace,' said Chairman and Chief Executive
Officer Jeffrey D. McKeever. 'Over the next several weeks and months,
MicroAge will make the changes necessary to meet the demands of the
dynamically changing computer industry…This reorganization will
allow us to focus on our strategic initiatives to become a leader in
e-commerce and will expand our ability to unleash exciting new
technologies.' McKeever said the company is in contact with a number of
its major vendors, and 'expect[s] them to support the company during
this process.'
Russell Corporation Acquires DISCUS Brand
The U.S. Bankruptcy Court for the Western District of Virginia has
approved the sale of the worldwide rights to the DISCUS and DISCUS
Athletic brands from Tultex Corp. to Russell Corp., according to a
newswire report. Russell intends to use the DISCUS brands in both its
domestic and international operations. The transaction, valued at $2.75
million, will be completed before the end of April. The company had
announced in March that it had signed an agreement to acquire the
apparel operations of Haas Outdoors Inc. and will create the Mossy Oak
Apparel Co. to strengthen its position in the outdoor apparel market.
Russell Corp. is an international branded apparel company specializing
in activewear, casualwear and athletic uniforms.
Vencor Announces Amendment to Its Debtor-in-Posssesion
Financing
Vencor Inc., a Louisville, Ky., provider of long-term health care
services that primarily operates nursing centers and hospitals,
announced yesterday that it has agreed with its lenders to amend the
company's debtor-in-possession (DIP) financing primarily to revise a
financial covenant regarding the company's minimum net amount of
accounts receivable, according to a newswire report. The company, which
filed chapter 11 in the District of Delaware on Sept. 13, had not been
in compliance with this accounts receivable covenant as of Dec. 31. In
the amendment, the lenders waived all events of default regarding this
accounts receivable covenant that occurred prior to the date of the
amendment; as of Wednesday, the company had no outstanding borrowings
under the DIP financing.
Consulting Firm Predicts Most E-retailers Will Die Out by 2001
Forrester Research Inc., a reputable Cambridge, Mass., consulting
firm, predicted this week that most retailers that operate entirely on
the Internet will be out of business by next year, the Associated Press
reported. The firm said that intense competition combined with an
ongoing sell-off in dot-com stocks will result in a rapid increase in
buyouts and bankruptcies in the coming months, and said that the fallout
has already begun. 'There are just too many companies out there that
don't have what it takes to last, and they won't last,' said Seema
Williams, a Forrester analyst. The firm acknowledged that while the
online world remains vast in size, the marketplace has gotten too
crowded, and there are too many sites with similar products and content.
The largest and best-known sites are outpacing the others in growth of
customers and sales, and traditional chains like Wal-Mart and Sears are
increasing their own online presence. 'There are 30,000 e-tailers out
there, and probably 25,000 will have to go away,' said Mark Doll, a
consultant for startup companies at Ernst & Young. 'But that will
end up helping the biggest and best players who can ride the tide and
then will fare better because they'll have less competition in their
markets.' In its report released late Tuesday that was based on surveys
of 50 leading online retailers, Forrester said that most companies won't
be able to cope in the coming months as competition intensifies and
money evaporates just as merchants need to step up marketing for the
Christmas season. In addition, money from venture capitalists and
initial public offerings of stock has dried up, and dot-com shares have
been on a downward spiral. 'They don't have the funds available to them
12 to 18 months ago, and now they are trying to decide what to do to
stay alive,' said Ming Tsai, senior vice president at Mainspring Inc.,
an Internet strategic consulting firm in Cambridge, Mass. 'Some will be
forced to go out of business completely. Others will merge or be bought
up by someone who sees something worthwhile in their assets...like the
technology that runs its site.'
S&P Publishes Legal Criteria Guide for ABS, RMBS
In response to changes in the structured finance marketplace,
Standard & Poor's announced it has published an updated version of
its comprehensive legal criteria guide for rating residential
mortgage-backed securities (RMBS) and asset-backed securities (ABS)
transactions, according to a newswire report. The updated guide
incorporates criteria developed since the last publication two years ago
and clarifies criteria for traditional assets and structures. The
primary additions to the updated guide are new criteria for multiple-use
special-purpose entities (SPEs), new criteria for limited liability
companies (LLCs), revised recording requirements for residential
mortgage and home equity loan securitizations, and new criteria for new
asset transactions. 'Standard & Poor's hopes the updated publication
will continue to inspire robust dialogue about the legal criteria used
in the analysis of mortgage-backed and asset-backed structures,' said
Natalie Abrams, assistant general counsel. 'Standard & Poor's aim is
to encourage the development of new and innovative structures,
ultimately promoting the continued global market expansion of
securitization.'
Bankruptcy Judge Samuel L. Bufford Reappointed in Los Angeles
Chief Judge Procter Hug Jr. of the U.S. Court of Appeals for the
Ninth Circuit has announced the reappointment of Hon. Samuel L.
Bufford to the U.S. Bankruptcy Court for the Central District of
California effective March 23, the U.S. Courts for the Ninth Circuit
reported. Judge Bufford's 14-year term will expire in 2014. Previously,
Judge Bufford was associated with the law firm of Gendel, Raskoff,
Shapiro & Quittner in Los Angeles prior to his initial appointment
to the bench in 1985, and has also taught law at Ohio State University
College of Law in Columbus. He was an editor-in-chief of the American
Bankruptcy Law Journal and currently serves as an adjunct professor
of law at the University of Southern California Law Center. Judge
Bufford is a graduate of Wheaton College in Illinois, the University of
Texas, where he received his Ph.D. in Philosophy, and Michigan Law
School, where he was an associate editor of the law review.
