January 30, 2006
Enron Officials' Trial Begins Today
The outcome of the criminal trial of former Enron Corp. executives Kenneth L. Lay and Jeffrey K. Skilling, which opens today, will write the coda to four years of battle over whether government can effectively police corporate wrongdoing, the Washington Post reported today. When the firm collapsed, it exposed lies large and small in the financial reports of dozens of America's largest corporations. As shaken investors pulled back and share prices plunged, government began a massive crackdown that culminates in whether it can convince a jury that two men who were at the top of a company perpetrating massive fraud are guilty of a crime.
Meanwhile, jury selection is set to begin today, Reuters reported today. A pool of 100 potential jurors was to report to the U.S. courthouse in downtown Houston, where 12 jurors and four alternates would be chosen to hear the case. Lay, 63, and Skilling, 52, presided over Enron as it rose to become the seventh largest U.S. company, then plummeted into bankruptcy in a financial scandal that opened a window on broader U.S. corporate malfeasance. Combined, the two men face more than three dozen fraud and conspiracy charges that accuse them of lying to investors about the company's financial state while they enriched themselves by selling millions of dollars in stock.
In related news, Enron founder Ken Lay told CNN yesterday that he is "very optimistic" about his coming trial and "ready to go" despite a judge's denial last week of his attorneys' request for a change of venue. The attorneys sought the change because of vitriolic comments made by potential jurors on questionnaires. "We're going to have a long trial and a tough trial," he said, "but we're going to be fine."
Economy Grows at Slowest Pace in 3 Years
The economy slowed to a near crawl in the final quarter of 2005, a listless showing that was the worst in three years, the Associated Press reported Friday. However, growth was respectable for the year and is expected to perk up again soon. Gross domestic product clocked in at an annual rate of just 1.1 percent from October through December. That marked a loss of speed compared with the third's quarter's brisk 4.1 percent pace, the Commerce Department reported Friday. Belt tightening by consumers, businesses and the government figured into the fourth-quarter's slowdown. Even with the feeble finish, the economy logged growth of 3.5 percent for all of 2005—a year when the country coped with fallout from lofty energy prices and the devastating Gulf Coast hurricanes. Analysts called the GDP figure for all of 2005 solid, although it was down from 2004's 4.2 percent gain. Read more.
Blue Bird's Bankruptcy Deal OK'd
A federal bankruptcy judge has approved Blue Bird's chapter 11 filing, the Macon Telegraph reported Saturday. The approval brings the company out of bankruptcy just a day after the pre-packaged filing was docketed in Reno, Nev., on Thursday, said Mike McCurdy, director of human resources at Blue Bird's Fort Valley operation. The judge approved the plan following a hearing late Friday in Reno. The filing was part of a restructuring plan that Blue Bird CEO Jeffry Bust said will put the company back on sound footing. The company has been on temporary shutdown, which will continue at least through next week, McCurdy said. However, he said approval of the restructuring plan should get the plant in full operation shortly. With about 1,200 employees, Blue Bird is Peach County's largest private employer. The company, which manufactures school buses and motor coaches, also has facilities in Lafayette and Brantford, Ontario. According to the company's disclosure statement, total annual sales are about $700 million, with a market share of about 30 percent. About 85 percent of its business is school buses. Read more.
Commentary: Make 'Em Provide Pensions
The long-predicted ice age is settling in on America's private pension system, as companies large and small, profitable and unprofitable, announce the freezing of their traditional plans, the kind that once promised a lifetime income for retirees, an opinion piece in the Washington Post said yesterday. Freezes have been announced recently at firms ranging from International Business Machines Corp. to communications giants Verizon Communications Inc. and Sprint Nextel Corp. to athletic clothing maker Russell Corp. to textile firm Milliken & Co. to struggling Northwest Airlines Corp. They join a number of bankrupt steel and airline companies, including United Airlines and Bethlehem Steel Corp., that have turned, or are seeking to turn, their pension plans over to the Pension Benefit Guaranty Corp. Perhaps it is time to change the terms of the debate—something that will happen only if the nation's workers insist on it and do so at the ballot box. Read more.
Legal Strategy for Vioxx to Test Merck
Pharmaceutical giant Merck & Co. vowed to fight every claim filed by plaintiffs who say they were injured by the withdrawn painkiller Vioxx. Now, with 11 cases slated for trial in the next five months, the viability of the company's scorched-earth strategy is likely to become clear, the Washington Post reported Friday. More than 9,200 lawsuits involving 18,250 plaintiff groups have been filed against Merck, which pulled Vioxx off the market in September 2004. Merck took the action because of a study that showed the drug was associated with increased risk of heart attacks and strokes after 18 months of use. So far Merck's courtroom record is mixed—one win, one loss and one hung jury, all in cases involving relatively short-term use of the pain drug. Merck has ruled out the possibility of a mass settlement, at least in public, noting that the studies do not show increased risk until 18 months of use and many plaintiffs had other risk factors for cardiac problems. Even if the company changes its mind later on, its early aggressive strategy could help discourage marginal suits, and a winning streak could persuade other plaintiffs to settle for less. Read more.
U.S. Seeks Refco Bankruptcy Examiner
The federal government on Friday urged the appointment of a bankruptcy examiner for Refco Inc. to investigate alleged fraud or other misconduct at the futures and commodities broker, Reuters reported Friday. The U.S. Trustee filed its request with U.S. Bankruptcy Judge Robert Drain in Manhattan, after the judge earlier this month rejected the government's request to appoint an independent trustee to run Refco's business. The U.S. Trustee has asked Drain to reconsider that ruling. Refco filed for protection from creditors last Oct. 17, one week after accusing former Chief Executive Phillip Bennett of hiding $430 million of debt. Bennett later pleaded innocent to conspiracy, fraud and other charges. On Wednesday, Drain approved on an interim basis the hiring of Goldin Associates LLC as crisis manager for Refco. He said at the time it was in the best interests of Refco, its creditors and its equity securities-holders. Read more.
A bankruptcy court issued an order confirming Footstar’s reorganization plan, BankruptcyData.com reported today. The plan focuses post-emergence reorganization around the company’s Meldisco unit. According to the company, the Meldisco unit “is a major player in the discount footwear market with more than 2,300 locations...Meldisco products can be found nationwide in some of the largest retailers, including Kmart, Wal-Mart, and Rite-Aid.” The company will emerge with a $100 million exit loan provided by AmSouth Bank, Bank of America. CIT Group/Business Credit, GE Capital Corp. and National City Business Credit.
Adelphia Executive Pay Raises Approved
According to documents filed with the Securities and Exchange Commission, Adelphia approved a fiscal 2006 base salary increase, commencing effective as of April 2, 2006, for Joseph W. Bagan, senior vice president, southeast region; Vanessa A. Wittman, executive vice president and chief financial officer and Brad M. Sonnenberg, executive vice president, general counsel and secretary, BankruptcyData.com reported today. Mr. Bagan’s fiscal 2006 base salary will be $280,000, representing an increase of 3.7 percent over his base salary for 2005; and Ms. Wittman and Mr. Sonnenberg's fiscal 2006 base salaries will be $621,000 and $336,375 respectively, each
representing an increase of 3.5 percent over their base salaries for 2005.
Portland Diocese Bankruptcy Defended
Archbishop John Vlazny is defending his decision to seek bankruptcy protection for the Archdiocese of Portland, Ore., following a judge's ruling that individual parishes could potentially be sold to satisfy claims by clergy sex abuse victims, the Indianapolis Star reported Saturday. In a recent column in the archdiocesan newspaper, Vlazny said some have suggested he received bad legal advice and "foolishly" accepted it. But he said the archdiocesan finance council and consulters unanimously supported the bankruptcy filing. U.S. Bankruptcy Judge Elizabeth Perris ruled Dec. 30 that the archdiocese, not its parishes, owns church assets. Her decision means that parish and Catholic school real estate in the archdiocese could be considered in any tally of how much the claimants should be paid.
Judge Blocks Calpine's Bankruptcy Move
A federal judge ruled that the Federal Energy Regulatory Commission had authority over certain California power supply contracts that Calpine Corp. was trying to reject, dealing a setback to the utility, Reuters reported on Saturday. Judge Richard Casey of the U.S. District Court in Manhattan ruled that authority over the disputed contracts belonged with the commission, not the bankruptcy courts as San Jose, Calif.-based Calpine had sought.
Airlines
U.S. Sees Profit on Airline Loan Guarantee Program
A government board created to help U.S. airlines financially in their
darkest moment—in the aftermath of the 2001 hijack attacks—could
pocket more than $300 million for taxpayers when its work ends this year,
Reuters reported yesterday. The Air Transportation Stabilization Board
(ATSB) was authorized by Congress to provide loan guarantees to struggling
airlines, a program that some lawmakers and the Bush administration
considered a wildly risky intervention in private industry. But airlines are
repairing their balance sheets, and the stabilization board looks set to
exit at a profit as another government agency, one insuring corporate
pension plans, finds itself an investor in at least two airlines. Dayton
said the expected profit includes equity sales and fees that were charged
above loan repayments. All of the money goes to the U.S. Treasury. Most big
airlines opted against loan guarantees because they were unwilling to give
the government a stake in their businesses as collateral, even if the
decision compounded their losses and increased the chances of bankruptcy.
Six airlines were eventually approved for $1.6 billion in guarantees out of the $10 billion authorized by Congress. Read more.
American Airlines Boss Attacks Chapter 11 Law
American Airlines boss Gerard Arpey has turned on his own government's bankruptcy protection law, which, he says, distorts competition and keeps ailing carriers in business, the U.K. Observer reported yesterday. His remarks, which echo longstanding criticism from BA, come at a time when American and BA are seeking to forge stronger ties. Speaking from American Airline's headquarters in Fort Worth, Texas, Arpey tore into the way rival U.S. airlines exploit chapter 11 bankruptcy protection, saying, “Under chapter 11, companies can legally renege on their commitments to repay money or meet the terms of their contracts, so they can produce immediate cost savings and create a cost structure that can be difficult to compete with. Chapter 11 is used to perpetuate capacity that has failed.” Read more.
United Airlines has a deal with defunct Independence Air to take over the 35 gates that Independence leased in Washington Dulles International Airport's Concourse A, which is used for short commuter flights, the Washington Post reported Friday. The $4.3 million agreement would further United's planned expansion in the Washington market, enabling the Elk Grove Township, Ill.-based carrier to feed more passengers from commuter flights onto longer-haul West Coast and international flights. The deal is subject to approval by the U.S. Bankruptcy Court in Delaware. UAL Corp. Chairman Glenn F. Tilton said last week that he plans to make United's East Coast hub at Dulles a major gateway to Europe, Latin America and South Africa. United also is lining up partners: It recently signed a code-sharing agreement with South African Airways, which operates a one-stop flight from Dulles to Johannesburg. Jeff Green, a United spokesman, confirmed the agreement, which Independence Air parent Flyi Inc. outlined in a bankruptcy court filing this week. Green declined comment on whether United would use the gates to expand regional jet service. Read more.
Bankruptcy Law May Affect Entrepreneurial Risk-taking
Unless you've been locked in a closet, you're aware that President Bush signed the well-publicized "Bankruptcy Abuse Prevention and Consumer Protection Act of 2005" on April 20, the Florida Herald Tribune reported Sunday. Because of BAPCPA, "business owners or would-be business owners would think twice before opening up a new venture or extending credit (to customers)," says Venice attorney Sherry L. Ellis, whose practice specializes in bankruptcy law representing debtors. What's more, small-business owners and individuals overburdened by debt seem to agree. In the U.S. Bankruptcy Court Middle District of Florida, which represents Southwest Florida, 18,800 bankruptcy cases were filed in October, while only 362 were filed in November after BAPCPA went into effect, Ellis notes. Since most small-business owners pay for their ventures with savings and personally guaranteed loans, it is hard to separate the business bankruptcies from the personal ones. But experts estimate that 10 to 20 percent of all bankruptcy filings are business-related. Read more.
International
U.K. Student Debts are Forcing Thousands into Bankruptcy
Thousands of graduates are declaring themselves bankrupt because they are unable to pay off their student debts, the U.K. Telegraph reported Saturday. According to the Student Loan Company, which handles the financing for the Government, 4,000 borrowers have taken the step since the loans were introduced, and many thousands more are insolvent and cannot pay off what they owe. In London alone, 70 students went bankrupt last year, compared with 30 the year before and just one in 1997. Around 800,000 students take out loans to pay for living expenses and tuition and by the end of their courses average around £12,000 in debt. Read more.