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November 8, 2002
SEC, BMA Renew Calls for Bankruptcy Netting Legislation
Officials from the Securities and Exchange Commission and the Bond
Market Association (BMA) renewed calls for Congress to pass a popular
provision of proposed bankruptcy legislation, which stalled last year as
part of a broader package, Dow Jones reported. At stake is a provision
on the 'netting' of claims when an institution becomes insolvent. The
changes, first proposed four years ago, would make it easier to sort out
claims against a firm in bankruptcy by consolidating outstanding
contracts. 'It's very important that this legislation come back soon,'
said Jeff Mooney, SEC senior special counsel, at a BMA conference on
operation issues. The SEC and the U.S. Treasury have been asking
Congress to act since the proposal was introduced. Mooney expressed hope
that a newly unified Congress might be able to make more progress on the
issue and separate it from some of the more controversial proposed
changes to bankruptcy law. BMA officials echoed the calls for quick
action on netting. 'BMA is a strong proponent of getting this
legislation enacted,' said BMA Vice President and General Counsel Eric
Foster.
Mirant Raises Prospect of Bankruptcy for First Time
In an amended 10-Q filing for the second quarter to the Securities and
Exchange Commission Thursday, Mirant Corp. mentioned the possibility of
having to seek bankruptcy or other protection from creditors if it's
'unable to refinance a substantial portion of our indebtedness,' Dow
Jones reported. In Thursday's filing, Mirant revised its second-quarter
loss to $220 million from $152 million, reduced its cumulative net
income for the past three years by $41 million and said it plans to
re-audit financial statements for 2000 and 2001 due to accounting
errors. Mirant spokesman James Peters told Dow Jones Newswires this is
the first time the company has raised the prospect of bankruptcy.
'Mirant is confident in its business prospects,' he said. 'However,
given the fact that we started a re-audit, it's prudent that Mirant
cautions its shareholders of risks associated with the re-audit
process.'
US Airways Gets Court OK of $500 Million DIP Loan Facility
US Airways Group Inc. on Thursday won final bankruptcy court approval of
a $500 million debtor-in-possession financing agreement with the
Retirement System of Alabama (RSA) after the carrier resolved the only
two objections to its new DIP loan, Dow Jones reported. U.S. Bankruptcy
Judge Stephen S. Mitchell said he would sign an order during a
hearing before the U.S. Bankruptcy Court in Alexandria, Va. The airline
filed a letter on Tuesday with the bankruptcy court, saying it believed
it resolved two objections to the DIP financing, subject to final review
by the parties. Massachusetts Port Authority and a group led by Goodrich
Corp. Commercial Wheels and Brakes Division had opposed terms of the
loan pact. As reported, the Retirement System, one of US Airways' top
creditors, has agreed to invest $240 million in exchange for an equity
stake in the reorganized airline. The proposal is subject to higher
offers that US Airways may obtain.
John K. Lyons, an attorney representing US Airways, said the carrier
used interim loans under the DIP pact for operating costs as well as to
pay off amounts borrowed under an earlier DIP agreement with a group of
banks led by Bank of America Corp. and Credit Suisse First Boston.
Amounts under that original pact have been paid in full, Lyons said. As
reported, Judge Mitchell in late September granted the airline interim
approval to borrow up to $300 million under the new DIP agreement. The
court originally gave US Airways interim authority to use $75 million
under the original pact. The terms of the new financing agreement with
RSA are substantially the same as terms of the original DIP loan.
Separately, Judge Mitchell approved US Airways to assume pre-petition
indemnification agreements with its officers and directors. The
agreement calls for the airline to assume similar agreements with three
employees hired post-petition. The Air Transportation Stabilization
Board conditionally agreed to guarantee $900 million of a $1 billion
loan for the company as long as it completed its restructuring plan and
met certain other conditions. The company also received a $200 million
investment proposal from private equity firm Texas Pacific Group, but
that proposal was replaced in late September with the pension fund's
$240 million offer.
Federal-Mogul CEO Sees Emergence From Bankruptcy in June
Federal-Mogul Corp. Chief Executive Officer Frank Macher told Dow Jones
Newswires Thursday the company hopes to emerge from bankruptcy court
protection as early as June. The company recently filed for an extension
that gives Federal-Mogul until March 3 to 'button up remaining issues
associated with the creditors' agreements,' Macher said. By that time,
the company should have a reorganization plan in place establishing how
much goes to each of the creditors and setting up the governance of the
company. Macher said it should take two to three months after that to
emerge from chapter 11 protection. Federal-Mogul filed for bankruptcy
court protection in October 2001 in an attempt to shield itself from
asbestos liability, which it took on in 1997 after acquiring T&N
PLC, a British parts maker.
Gilat Makes Progress on Debt Restructuring Plan
Gilat Satellite Networks Ltd. said its stay of action by its bondholders
and banks has been granted in the United States, based on the stay of
proceedings the company received in Israel on Oct. 16, Dow Jones
reported. In a press release on Thursday, Israel-based Gilat said the
stay allows for the completion of a detailed restructuring plan, which
the company said is moving forward as expected. The U.S. stay is
effective only for the 30-day duration of the Oct. 16 Israeli stay,
which may be further extended. Gilat owes $350 million to its
bondholders, and an additional $150 million to banks. The company
defaulted on a $7.4 million bond payment in October. Gilat emphasized
that the filings are technical requirements to bring its restructuring
plan to closure, and don't constitute a chapter 11 reorganization
filing. On Oct. 29, Gilat filed a case in the U.S. Bankruptcy Court in
Wilmington, Del., to prohibit collection efforts against its U.S.
assets. The petition wasn't filed under chapter 7 or chapter 11, but
under Bankruptcy Code §304, which allows the court to prohibit
actions against a company involved in a proceeding outside the United
States.
Halliburton Got Stay on Asbestos Suits Extended to December
11
Halliburton Co. attributed a 47 percent drop in third-quarter net income
from last year to lower revenue and profit margins as a result of
reduced gas drilling in the United States and Canada, Dow Jones
reported. The oilfield services and engineering company reported net
income of $94 million, or 22 cents a share, compared with $179 million,
or 42 cents a share, a year ago. In a conference call on Thursday,
Chairman and Chief Executive David Lesar said the company was on track
to reach an additional $220 million in non-core asset sales by year-end,
to meet its target of $500 million in asset sales for the full year.
In an asbestos update, Halliburton said it reached agreement on Thursday
with the creditors' committee in the Harbison-Walker Refractories Co.
bankruptcy to extend a stay on 200,000 lawsuits until Dec. 11. The stay
is part of the bankruptcy court's temporary restraining order, initiated
on Feb. 14. Company officers wouldn't speculate on whether a potential
global settlement of the lawsuits would exceed the $585 million
remaining in Halliburton's reserve set aside for asbestos claims.
Halliburton said it had incurred $78 million in restructuring charges
year-to-date and estimated an additional $12 million charge in the
fourth quarter. The restructuring is expected to save the company $200
million a year, starting next year.
Merlin Software Ends Operations Due to Lack of Financing
Merlin Software Technologies Inc. said it has been unable to raise
financing, so it has dismissed its employees and ended its operations,
Dow Jones reported. In a Form 8-K filed on Thursday with the Securities
and Exchange Commission, Merlin Software said all of its directors and
officers have resigned, but said some former directors and officers have
volunteered to try to arrange for an assignment under Canada's
bankruptcy laws to ensure an orderly wind-up of affairs. Merlin
Software, however, said it doesn't have enough funds for a trustee, a
necessary first step in such bankruptcy proceedings. Merlin Software
also said it received notice on Oct. 25 from Series B noteholders saying
that they consider the company to have committed a breach under the
terms of the notes. The noteholders gave the company 10 days to cure the
breach, after which they would pursue the remedies provided for in the
agreement. Merlin integrated technologies into affordable,
high-performance data storage/protection and security/loss prevention
solutions.
Trend Technologies Files for Chapter 11 Bankruptcy Protection
Trend Technologies Inc. sought chapter 11 bankruptcy protection from
creditors on Thursday with the U.S. Bankruptcy Court in Wilmington, Del,
Dow Jones reported. The San Jose, Calif.-based company listed assets and
liabilities of more than $100 million each in its chapter 11 petition.
Listed in the petition as its largest unsecured creditor was Deutsche
Bank Trust Co., as agent for the company's secured lenders, with a $206
million claim. Also filing for chapter 11 petitions are company
affiliates Trend Holdings Inc., Trend Plasco Inc., Trend L.P. New
Ventures Inc., Cam Fran Tool Inc., Trend Technologies Texas L.P., Cowden
Metal Finishing Inc. and Hitek Product Finishing Inc. According to court
papers, Trend Technologies has hired Crossroads LLC as its chief
restructuring officer. Trend Technologies largely processes plastics,
stamps metal and performs electromechanical assembly of electronic
enclosures in facilities around the world. The companies are represented
by Laura Davis Jones of the Wilmington office of Pachulski Stang
Ziehl Young & Jones P.C.
Highlands Insurance, Units File Chapter 11 Plan
Highlands Insurance Group Inc. and five subsidiaries filed a chapter 11
reorganization plan that outlines how its debts will be paid, Dow Jones
reported. Court papers said the plan calls for the development of a
liquidating trust that will become the owner of newly issued Highland
Insurance Group stock, making it the new owner of the company and its
units. A hearing on the plan hasn't been scheduled in the U.S.
Bankruptcy Court in Wilmington, Del. Under the plan, filed on Oct. 31,
priority clams and secured claims will be paid in full. Holders with
bank group claims, general unsecured claims and LMI interests will not
receive the full amount of their debts and are entitled to vote on the
plan. Shareholders will not receive any distribution under the plan and
aren't entitled to vote. Court papers said that on the plan's effective
date all interests in the company would be canceled. The company's stock
was traded on the New York Stock Exchange until Dec. 21, 2001. The stock
was delisted from the exchange and currently trades on the
over-the-counter Bulletin Board under the trading symbol HIGP. On the
effective date of the plan the company will issue new stock and transfer
all of their rights, title, and interest in to the liquidating trust,
the newswire reported. Lawrenceville, N.J.-based Highland Insurance
Group and five of its units filed for chapter 11 protection on Oct. 31,
listing assets of $1.64 billion and liabilities of $1.82 billion as of
June 30.
PPG Industries Says Asbestos Liability Fell by $24 Million in 3rd
Quarter
The liability for an asbestos settlement involving PPG Industries Inc.
was reduced by $24 million during the third quarter ended on Sept. 30,
Dow Jones reported. According to the filing, the reduction reflects the
decline in the fair value, from June 30 to Sept. 30, of its common
shares that are to be transferred to a trust that was set up as part of
the asbestos settlement. In May, PPG, along with insurers agreed to pay
$2.7 billion to resolve all asbestos-related personal-injury litigation
through the bankruptcy proceedings of Pittsburgh Corning Corp., in which
the company has a 50 percent stake. PPG was caught up in the litigation
primarily through its half ownership of Pittsburgh Corning, a
building-materials maker that manufactured pipe insulation containing
asbestos from 1962 to 1972. Pittsburgh Corning filed for chapter 11
protection from creditors in 2000, citing rising asbestos claims. The
agreement will funnel all current and future claims through a trust to
be set up under bankruptcy law. The trust will administer and pay all of
the claims.
Global Crossing's Loss Widens; Gets Nod for Three Units to
Subordinate
Global Crossing Ltd., the bankrupt phone company being probed for
possible accounting fraud, on Thursday posted a wider net loss in
September, but had a higher-than-expected cash balance, Reuters
reported. Global Crossing's consolidated net loss, which includes its
Asia Global Crossing subsidiary, increased to $157 million in September,
compared with a loss of $138 million in August. The September loss
included a $38 million restructuring charge to consolidate facilities
and reduce its workforce. The company, which in January filed for
chapter 11 bankruptcy protection, must file monthly financial statements
with the bankruptcy court. It plans to sell its assets to two Asian
investors for $250 million. Revenues totaled about $254 million,
essentially flat with revenues of $255 million in August. Excluding Asia
Global Crossing, year-to-date service revenue was $2.17 billion, which
exceeded its forecasts.
The company won court authorization on Wednesday to sign debt
subordination agreements with three of its nondebtor European
affiliates, Dow Jones reported. Following a hearing on Wednesday
afternoon, Judge Robert E. Gerber of the U.S. Bankruptcy Court in
Manhattan authorized Global Crossing to enter into the subordination
agreements, which will 'correct the appearance of balance sheet
insolvency' of the affiliates and keep them out of insolvency
proceedings. As a result of the write-down of asset values recently
announced by Global Crossing, the three affiliates may each be insolvent
on a balance sheet basis because of their intercompany obligations to
other Global Crossing affiliates, the company said in an Oct. 31
motion.
More Job Losses Seen in Shaken U.S. Power Market
Enron's swift collapse a year ago set off an avalanche that swept away
an estimated 20,000 jobs in the merchant U.S. energy business, a
staggering toll industry analysts warn is likely to continue to grow,
Reuters reported. 'In order to maintain earnings or improve earnings you
need to cut expenses, and salaries are a major component of what
utilities refer to as operating maintenance expense,' David Schanzer, an
analyst at Philadelphia, Pa.-based investment firm Janney Montgomery
Scott LLC, told Reuters. Schanzer said the deregulation of the power
market turned electricity into a commodity, taking an industry that was
marked by some stability and creating, 'a rather volatile industry in
all of its components including employment.' Schanzer said with the
demand for electricity waning with a sluggish economy, power supply
increasing and prices remaining remarkably low, there will continue to
be layoffs.
Kmart Seeks Court Approval to Sell Another Corporate Jet
Kmart Corp. is seeking a bankruptcy judge's approval to sell a corporate
jet for $3.5 million, according to court documents, Dow Jones reported.
Troy, Mich.-based Kmart had used the plane to transport executives,
namely divisional presidents, to and from stores in their respective
regions. The aircraft, a 1999 Beachjet 400A, 'is no longer essential to
(Kmart's) business operations,' according to the filing. Dominion
Aircraft Inc. has emerged as the highest of five bidders. About 18
parties expressed interest. Kmart filed for federal bankruptcy
protection in January after a tough holiday selling season and stiff
competition from several retailers including Wal-Mart Stores Inc. and
Target Corp. Kmart in recent weeks has reaffirmed its commitment to a
'fast-track' reorganization and said it plans to emerge from bankruptcy
next year. A hearing on the sale of the plane has been set for Nov. 19
in Chicago.
Truck School Loan Defaults Catch Insurers in Headlights
Wall Street securitizes trillions of dollars of payments on everything
from credit card balances to boat loans to doctor bills for plastic
surgery, but it may have met its match in truck school loans, Dow Jones
reported. A series of transactions valued at more than half a billion
dollars in which more than 90,000 truck school loans were bundled,
insured and sold off to investors has steered widely off course. And
that has set in motion a pileup of recriminations and sent a convoy of
lawyers down to Texas. Around 70 percent of the student loans, which
were securitized by Radnor, Pa.-based Student Finance Corp. (SFC), have
defaulted, the result of the subprime nature of the borrowers, a
weakening economy and what loan insurer Royal Indemnity Corporation
alleges amounted to a 'giant Ponzi scheme.' Royal Indemnity, which wrote
policies insuring students' interest and principal payments, is suing
SFC and a number of truck-driving schools, charging fraud. Royal is the
U.S. subsidiary of Royal & Sun Alliance, which announced a radical
restructuring plan on Thursday aimed at shoring up its capital position
and improving profits. The whole matter has been complicated by SFC's
decision to file for bankruptcy protection in Delaware on Monday.
NRG Considers Bankruptcy Filing
NRG Energy Inc., following months of financial triage, offered to
surrender full ownership of the company to creditors through a chapter
11 bankruptcy filing, the Wall Street Journal reported. A
bankruptcy filing by the unregulated power-generation subsidiary of Xcel
Energy Inc. would be the first in what is expected to be a string of
energy-company bankruptcies in coming months. NRG -- which owes about
$10 billion to its bank lenders and bondholders, and has missed a string
of debt payments since September -- presented the proposal to its
lenders and bondholders earlier this week. NRG is one of a slew of
energy firms pushed to the brink of failure by plunging power prices,
the collapse of the energy-trading business and questions about the
industry's accounting. It is among the most beleaguered of the
unregulated utility arms set up by energy companies in the wake of
deregulation to sell power into the wholesale market. PG&E Corp.'s
unregulated arm, National Energy Group Inc., is also in restructuring
talks.
Xcel Energy Gets Equity Ratio Waiver from SEC
Xcel Energy Inc. received a temporary waiver from a Securities and
Exchange Commission requirement, under which its common equity must be
at least 30 percent of its total consolidated capitalization, including
short-term debt, Dow Jones reported. In a press release today, the
utility company said the waiver reduces the requirement to 24 percent
through March. Xcel said its total equity ratio stood at 31 percent on
June 30. Nevertheless, Xcel said its NRG Energy Inc. unit will write
down various projects during the third quarter that the company expects
will reduce its total equity ratio to below 30 percent. Xcel
representatives weren't immediately available to comment.
Berkshire, CSFB Lend CenterPoint $1.31 Billion
CenterPoint Energy Inc., which recently changed its name from Reliant
Energy Inc., will receive a three-year $1.31 billion loan from Buffett's
Berkshire Hathaway Inc. and Credit Suisse First Boston, a unit of the
Swiss lender, the Wall Street Journal reported. The loan, which
was announced today, carries a steep interest rate of 12.75 percent and
will be secured by utility mortgage bonds. The agreement is yet another
sign of the tough credit conditions facing U.S. energy firms. A report
earlier this week by Standard & Poor's showed that two dozen utility
and merchant energy concerns have a staggering $90 billion in short-term
debt that they will need to finance by the end of 2006. CenterPoint,
which owns power plants and operates regulated electric-distribution and
natural-gas systems in Texas, was under the gun to find at least $400
million in outside capital by next week in order to maintain a $4.7
billion credit facility. That facility was negotiated last month with a
syndicate of 30 banks and carries a much steeper interest rate than the
company's previous credit line. It also requires repayment of $1.2
billion by June 2003.
AT&T to Buy Velocita Assets
AT&T Corp. will pay $37 million for the assets of Velocita Corp., a
Falls Church, Va., telecommunications company in chapter 11 bankruptcy
protection, the Wall Street Journal reported. AT&T was the
only bidder at an auction held by the U.S. Bankruptcy Court in Newark,
N.J. AT&T will acquire Velocita's network of underground ducts,
fiber-optic lines and other equipment used in telecommunications
networks, paying creditors $2 million in cash and $35 million in
AT&T stock. Velocita was once heavily backed by San Jose,
Calif.-based Cisco Systems Inc., which bought $200 million in Velocita
preferred stock in May 2001. Cisco also provided $63 million in vendor
financing to Velocita before it filed for bankruptcy protection in May.
In its initial bankruptcy filing, Velocita said it had $483 million in
assets and debts of $827 million. Velocita and AT&T have worked
closely before. Velocita built its network along AT&T's right of way
and laid cable for AT&T. It was run by Robert Annunziata, a former
head of AT&T's Business Services.
Conseco Creditors Take Another Step Toward Restructuring
Conseco Inc. may be close to agreeing on a debt restructuring plan with
its creditors as a group representing holders of the financial company's
trust-preferred securities has been granted standing as an asset class,
Dow Jones reported. The law firm of Saul Ewing LLP has been retained to
represent the interests of the trust-preferred holders, whose investment
represents approximately $1.9 billion in Conseco debt. A lawyer familiar
with the situation said the company has formally recognized the creation
of a committee, the 'Ad Hoc Committee of Conseco Originated Trust
Preferreds,' to be know as the TOPRs group. He said recognition was
accompanied by a payment from Conseco to the law firm to cover expenses.
The lack of representation and organization among the trust-preferred
holders had been a stumbling block to a consensual restructuring among
competing claims to the troubled company's assets. Conseco has not
declared bankruptcy, although it is in default on it publicly owned
bonds. At the same time, it has received waivers on various covenants
from its bank lenders. Chanin Capital Partners is also being retained by
the committee to serve as its financial advisor.
Network Access Solutions Wins $13 Million Ruling Against
Lucent
Network Access Solutions Corp. said on Thursday that it won a $13
million judgment against Lucent Technologies Inc. in a Form 8-K filed
with the Securities and Exchange Commission, Dow Jones reported. The
award stems from an American Arbitration Association ruling on Oct. 18,
in which the association found that equipment marketed by Lucent failed
to conform to specifications. Under the ruling, Network Access was also
relieved of responsibility for claims Lucent made against it requesting
payment of $800,000 in notes with interest of $2.4 million. The Herndon,
Va.-based company, which provides broadband network solutions and
Internet service to business customers, filed for chapter 11 bankruptcy
protection on June 4. Network Access listed assets of $58.2 million and
debts of $84.9 million in its chapter 11 petition.
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