December 182006

December 18, 2006

Refco Reorganization Plan Approved

Refco Inc., the futures trader that went bankrupt after its top executive was accused of fraud, won approval of its bankruptcy plan and can begin distributing more than $4 billion to cover claims, Bloomberg News reported on Friday. U.S. Bankruptcy Judge Robert Drain in New York authorized the plan, which keeps Refco on schedule to conclude its bankruptcy proceeding this year and will ultimately lead to the company going out of business. Holders of Refco's $397 million 9 percent bonds maturing in 2012 will receive 83.42 cents on the dollar under the plan. Secured creditors, owed $642 million, will be fully repaid with interest, for a total of about $717 million. Unsecured creditors will share $554 million, according to court documents. Read more.

In related news, a consortium led by private equity find Cerberus Capital Management has won the bidding war for Austrian bank BAWAG P.S.K. with a $3.43 billion bid, setting the stage for a $200 million payday for creditors of Refco Inc., Bankruptcy Law360 reported on Friday. Cerberus finalized the deal with OeGB trade union, the Austrian trade union federation that currently owns the bank, on Thursday. OeGB agreed earlier this year to pay Refco’s creditors a portion of the proceeds of the sale to settle allegations about BAWAG’s role in the futures broker’s collapse. The amount of the payment was linked to the sale price. Read more . (Registration required.)

Airlines

Delta to File Reorganization Plan Soon

Delta Air Lines Inc., working to beat back an $8.4 billion hostile merger bid from US Airways Group Inc., is expected as soon as tomorrow to file a sweeping bankruptcy reorganization plan that values the company at $10 billion to $12 billion, the Wall Street Journal reported today. The range is down from the $12 billion to $14 billion range the airline was calculating a few weeks ago. Still, Delta hopes creditors would prefer a plan that values the airline at more than US Airways' offer, and that would lead to an airline with an estimated $10 billion in debt versus $22 billion under the merger scenario envisioned in the US Airways bid. Read more.  (Registration required.)

Bankruptcy Judge Approves Pay Cuts for Comair Workers

Delta Air Lines Inc.'s commuter carrier won a bankruptcy judge's approval to cut wages for flight attendants and mechanics and end contributions to their pension plans, Bloomberg News reported on Friday. U.S. Bankruptcy Judge Adlai Hardin Jr.  authorized Comair Holdings to impose hourly wage cuts of 7.5 percent for the cabin crews and 2 percent for the maintenance workers. Judge Hardin also approved an increase in contributions to workers' 401(k) plans costing $156,000 a year. The latest cuts will save Comair about $8.9 million in 2007, according to documents filed by its lawyers. Read more.

Commentary: Government Concerned about Proposed Airline Mergers

Members of Congress and the Justice Department have expressed their concern that the proposed mergers between US Airways and Delta Air Lines and a possible deal between United Airlines and Continental Airlines raise antitrust issues and they vowed to conduct thorough investigations, according to a Wall Street Journal editorial today. Today's airline industry has become very competitive because of the expansion of low-cost carriers such as Southwest, JetBlue and AirTran, whose combined market share currently approaches one-third of the domestic market. Any potential anticompetitive effects of a US Airways-Delta merger or a United-Continental merger would be quickly tempered by the responses of these low-cost carriers. Rather than attempt to combat airline mergers, government policy makers could have a much more beneficial impact on the welfare of air travelers by pursuing policies that increase competition on international and domestic routes. Read more.  (Registration required.)

Secured Lenders Support Adelphia’s Exit Plan

A group of lenders has decided to switch its vote to support bankrupt Adelphia Communications Corp.’s reorganization plan, Bankruptcy Law360 reported on Friday.The committee, made up of 48 non-agent secured lenders that hold $2.2 billion in debt, submitted an emergency request on Wednesday in the U.S. Bankruptcy Court for the Southern District of New York to change the lenders’ votes from “no” to “yes” after determining that the plan offers them a better recovery on their claims. The show of support removes an obstacle for Adelphia and nudges it closer to wrapping up its Chapter 11 case, which has dragged on for more than four years. On Dec. 7, the court started hearings to confirm the plan. Read more.  (Registration required.)

Air America Close to Finding a Buyer

Despite suffering the defection of a handful of its more than 80 affiliated stations and the likely departure of its most visible host, Al Franken, Air America could be close to a financial turnaround in finding a new buyer for the company, the New York Times reported today. While infighting has marred the search for new investors and managers, a possible solution surfaced on Friday when Douglas Kreeger, an initial investor and former chief executive who stabilized the network in its early months, said that there is “a signed letter of intent” for a new group to take over the network and that he is “likely” to be a part of it. The lead equity position would be taken by Terence F. Kelly, of Madison, Wis., also an Air America investor from the beginning and a former board chairman. Read more.

Ford's Bondholders Confident of Turnaround

As Ford Motor Co. and its Ford Motor Credit financing arm raised $26 billion in debt in recent weeks, the company’s debt offerings, which included Ford Motor's $23 billion in loans and convertible bonds and a $3 billion high-yield bond issue by Ford Motor Credit, drew so many eager investors that the issuers increased the size of the deals and managed to borrow at lower interest rates than originally planned, the Wall Street Journal reported today. As bond investors feel confident the company has enough cash to start turning itself around while making good on the debt, a chapter 11 filing for Ford appears less likely. Shareholders continue to be skeptical, however, as Ford’s stock has tumbled 12 percent and the company's market value has fallen to about $13.3 billion from about $15.2 billion in just two weeks. In May 1999, Ford's market value was nearly $81 billion. Read more. (Registration required.)

Interstate Bakeries Creditors, Holders Agree to a New Board

Creditors and shareholders of Interstate Bakeries Corp. have agreed in principle to replace the company's existing board of directors with 'new blood' to lead the maker of Hostess Twinkies out of bankruptcy, the Wall Street Journal reported today. Interstate's bank lenders and the committees representing creditors and shareholders in the company's chapter 11 case have preliminarily agreed to the makeup of a new seven-member board. The new board will also include a new chief executive to replace outgoing interim chief executive Tony Alvarez of turnaround firm Alvarez & Marsal.Read more. (Registration required.)

Bankruptcy Court OKs Mirant Settlement

Wholesale energy marketer Mirant Corp. said that a bankruptcy court has approved the settlement reached between certain of its New York subsidiaries still in bankruptcy and local jurisdictions over disputed property taxes, the Associated Press reported on Friday. The settlement resolves a dispute over refunds sought by Mirant for property taxes paid for 1995 through 2003 and unpaid taxes assessed for 2003 through 2006. Those taxes were previously expensed by Mirant for financial reporting purposes. Under the settlement, the company will receive refunds totaling $163 million and will pay back taxes of about $115 million -- resulting in a net cash gain of $48 million. Read more.

TROUBLED COMPANIES IN THE NEWS

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Allied Healthcare International Inc., a Manhattan, N.Y. staffing company, reported a fourth quarter net loss of $131 million. Revenue declined 12%--to $74.5 million. For the year, Allied lost $124 million on a 16% revenue decline--to $295 million. Both the quarterly and fiscal results included impairment charges of $132 million.

AOL, the Dulles, Va. online firm, is cutting 450 positions at its headquarters as part of a restructuring. The company, which is switching its business model from fee-based subscriptions to an ad-based Web services firm, has already sold several Internet-access businesses and is looking to divest others. Over the summer, AOL warned that it might slash up to 5,000 jobs, or about a quarter of its payroll.

Max & Erma's Restaurants Inc., Columbus, Ohio, reported a fourth quarter net loss of $410,000, including an operating loss of $300,000. Sales were down 3%--to $39.2 million. For the year, it lost $580,000.  Its fiscal operating loss of $460,000 million included impairment charges of $845,000.  Fiscal sales slipped nearly 2%--to $180 million.

Multimedia Games Inc., an Austin, Texas provider of electronic bingo games and systems, reported its fourth quarter net income tumbled 96%--to $110,000. Revenue declined 12%--to $32.5 million. For the year, its net income fell 80%--to $3.5 million, while revenue slipped 5%--to $145 million.

Navistar International Corp., after saying it will again delay filing financial statements from the last two years, will be delisted from the New York Stock Exchange. The Warrenville, Il. maker of trucks hopes to finish its 2005 report after 2/1, and its 2006 report later, after the firm straightens out accounting problems related to warranties and product-development programs at suppliers. Navistar's filing problems, however, apparently don't reflect its operations, which, according to one analyst, are 'hitting the cover off the ball'. Navistar is the fourth-biggest manufacturer of trucks in the world.

Pier 1 Imports Inc., the Fort Worth, Texas-based specialty retailer of household goods, reported a third quarter net loss of $72.7 million, including an operating loss of $72.7 million.  Sales fell 12%--to $403 million.

Rentech Inc., a Denver, Colo. carbon-technology company, reported a fourth quarter net loss of nearly $8.5 million on sales of $26.8 million.  Its operating loss in the quarter reached $8.9 million. For the year, it lost $38.6 million on sales of $44.5 million. Its operating loss for the year was $39.9 million.

Web.com Inc., an Atlanta, Ga. provider of Web-hosting services, reported a third quarter net loss of $590,000 on revenue of $12.3 million. Its operating loss for the period was $480,000.

Winnebago Industries Inc., a Forest City, Iowa. manufacturer of motorhomes, reported its first quarter net income fell 46%--to $7.9 million. Revenue declined 13%--to $202 million.