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September 26, 2002
Bipartisan Senators Call for Quick Bankruptcy Action
With prospects for enactment of bankruptcy reform legislation
diminishing by the day, senators from both sides of the aisle joined
yesterday in urging the House to take quick action on a pending
conference report, CongressDaily reported. Senate Majority Leader
Tom Daschle (D-S.D.) and Majority Whip Harry Reid (D-Nev.) chastised
House GOP leaders for bowing to the 'fringe' elements of their party and
pledged to schedule the legislation for action in the Senate after the
House acts. House leaders have declined to bring the conference report
for a vote because of concerns on the part of anti-abortion Republicans
that the bill would single out clinic protesters for harsh treatment in
bankruptcy court.
Senate Judiciary ranking member Orrin Hatch (R-Utah) and Senate
Finance ranking member Charles Grassley (R-Iowa) joined Democrats in
urging quick action on the legislation, but steered clear of criticizing
House leaders' inaction, the newswire reported. Grassley suggested there
was no reason why the Senate could not take up the bill first. But he
said the bottom line is that both chambers need to pass the bankruptcy
legislation 'very quickly.' Sen. Thomas Carper (D-Del.), whose home
state serves as headquarters to a couple of major credit card companies
and who organized the event, added: 'It's important to act before we
leave. It's too close to be derailed now.'
Senate Committee Begins Review of Asbestos Compensation
Issues
Senate Judiciary Chairman Patrick Leahy (D-Vt.) called a full committee
hearing on asbestos litigation reform to begin 'a bipartisan dialogue,
resulting in a comprehensive review' of the way asbestos poisoning
victims are compensated. According to CongressDaily, Leahy made
it clear that he sympathized with the victims, whom he said were
'secretly poisoned' by segments of corporate America. Leahy said that he
believed that Congress could provide efficient means of compensating
victims and facilitate settlements without bankrupting more businesses,
but added that it would not be easy. 'It's going to require a commitment
from lawmakers in both parties to conduct a full open and honest debate
… to craft possible solutions, fair for the victims and their
families,' he stated. That has not been the case with past asbestos
legislation, which Leahy called 'thinly veiled attempts' by companies to
avoid accountability or to enforce a broader tort reform agenda, the
newswire reported. Sen. Mike DeWine (R-Ohio) asserted that 'only
Congress' could help to end the 'downward spiral' of massive asbestos
litigation lawsuits, which result in bankruptcies that drain resources
needed to help pay off sick victims. Asbestos litigation has caused
nearly 50 corporations to file for bankruptcy.
Senate Judiciary ranking member Orrin Hatch (R-Utah) noted that a
just-released RAND Institute for Civil Justice
href='http://www.rand.org/icj/'>study shows the number of asbestos
claims continues to rise, and that to date over 600,000 people have
filed claims, typically against dozens of defendants. In addition, more
than 6,000 companies have been named as defendants in asbestos
litigation. Hatch also cited RAND's finding that 'about two-thirds of
the claims are now filed by the unimpaired, while in the past they were
filed only by the manifestly ill.' Hatch said: 'Let me be clear, I do
not advocate denying deserving claimants timely and appropriate
compensation. But I do think that we have to make some choices here -
about prioritizing who is paid now, and who is paid later. If we don't,
there won't be a later, and true victims of asbestos exposure, as well
as the companies' employees and pensioners, will pay the price.'
Not all are optimistic about the Senate chances of crafting a
reasonable solution. Wednesday's Wall Street Journal
href='http://online.wsj.com/article/0,,SB1032920760831460393-search,00.html?c…'>editorialized
that the trial lawyers' influence impairs any chance at meaningful
reform. The lead witness at the hearing was Fred Baron, a politically
active and prominent member of the asbestos plaintiffs' bar. Links to
the testimony can be found at
href='http://judiciary.senate.gov/hearing.cfm?id=472'>http://judiciary.senate.gov/hearing.cfm?id=472
W.R. Grace Seeks Court OK to Settle Tax Dispute with IRS
W.R. Grace & Co. has sought bankruptcy court approval to enter into
a settlement agreement with the Internal Revenue Service over its
deduction of interest on loans secured by corporate-owned life insurance
policies, Dow Jones reported. Under the terms of the proposed
settlement, the government would allow 20 percent of the aggregate
amount of the deductions and Grace would owe federal income tax and
interest on the remaining 80 percent. Grace, a supplier of specialty
chemicals and building materials, filed for chapter 11 protection in
April 2001 following a sharp rise in asbestos claims. Grace said in
court papers that with the settlement the estimated federal income tax
and interest owed would be $104.2 million, as opposed to $128.2 million
without the settlement. In addition, the state tax effect would be an
estimated $20 million, the newswire reported.
Jones Day May Be Disqualified from Bankruptcy Case
The law firm of Jones, Day, Reavis & Pogue might be disqualified
from handling the Pillowtex Inc. bankruptcy, law.com reported. A
federal appeals court has ordered hearings on the question of whether
the firm suffers from a conflict of interest due to the nearly $1
million in fees it took in from Pillowtex Inc. in the 90-day period
leading up to its bankruptcy filing. A unanimous three-judge panel on
Monday ruled that U.S. District Judge Sue L. Robinson of the District of
Delaware was too quick to reject the U.S. Trustee's argument that Jones
Day may have received a 'preference' payment that could disqualify it
from serving as debtor's counsel. To read the full story, point your
browser to
href='http://www.law.com/jsp/article.jsp?id=1032128606231'>http://www.law.com/jsp/article.jsp?id=1032128606231
Stations Holding Wins Confirmation of Reorganization Plan
Stations Holding Inc. won confirmation Wednesday of a reorganization
plan that contemplates a $502 million merger with Gray Communications
Systems Inc., Dow Jones reported. The merger with Gray Communications
allows Stations Holding to fully repay its creditors and provide a
distribution to its preferred shareholders, a rarity in chapter 11
cases. Judge Mary F. Walrath of the U.S. Bankruptcy Court in Wilmington
confirmed the plan at Wednesday's hearing and said she will sign an
order as early as Wednesday evening.
Shortly after filing for chapter 11 bankruptcy protection, Stations
Holding executed lock-up agreements with its bondholders and preferred
stockholders. Through the lock-up agreements, the bondholders and
stockholders essentially pledged to support the merger with Gray
Communications and vote in favor of any plan that contemplated the
merger or a deal that would bring a better recovery to the estate.
Confirmation of the plan comes just six months after Stations Holding
filed for chapter 11 bankruptcy protection with a prepackaged
reorganization plan.
Kmart Will Share Documents Requested by Debt Holders
Kmart Corp. will consent to sharing 66 sets of detailed documents with a
group of bondholders that together represent about $400 million in notes
and claims, Dow Jones reported. Kmart lead attorney Jack Butler told
reporters during a break in the company's proceedings that the retailer
has agreed to disclose the information to the firms on a confidential
basis--a common practice in such cases.
The matter was heard Wednesday as part of the company's regularly
scheduled monthly omnibus hearings in Chicago. Judge Susan Pierson
Sonderby did not issue a final order on the matter as the two sides
are expected to iron out their differences regarding the depositions in
a hearing set for late October. Meanwhile, Butler said Kmart 'continues
to make substantial progress' in its bankruptcy proceedings overall and
that most actions have been agreeable to retailer's concerns.
Company to Pay $1.2 Million to Polaroid Retirees
Polaroid Corp. shortchanged thousands of retirees and employees over the
past five years by crediting their retirement accounts with a lower
interest rate than they were entitled to under plan rules, Dow Jones
reported. Polaroid filed for bankruptcy protection last October. In
July, the company was sold to a group of investors led by Bank One of
Chicago. The company that was created, Primary PDC Inc., emerged from
bankruptcy and now operates in the Polaroid's traditional instant film
markets.
Williams Communications Gains Approval for Reorganization
Plan
Creditors approved the reorganization plan of Williams Communications
Group Inc., setting the stage for the telecommunications company to
emerge from chapter 11 bankruptcy proceedings next month, the Wall
Street Journal reported. A New York federal bankruptcy judge still
must approve the plan. Williams Communications said its banks, which
hold $725 million of debt, approved the plan as did Williams Cos., its
former parent company, which holds $2.36 billion in debt. Among
bondholders, who are owed $2.36 billion, nearly all of those who cast
ballots approved the plan. Late Wednesday, Williams Communications said
a U.S. bankruptcy court approved an agreement with SBC Communications
Inc. that resolves legal issues between the companies.
Like many telecommunications companies, Williams Communications has
suffered from the glut in telecom capacity. It filed for protection from
creditors in April of this year after it was unable to renegotiate its
debt. The filing is one of the largest to date for a telecommunications
firm.
Velocita Wins OK of Bid Procedures for Oct. 17 Auction
Velocita Corp. has won court approval to auction off substantially all
of its assets, Dow Jones reported. Judge Donald H. Steckroth of
the U.S. Bankruptcy Court in Newark, N.J., on Tuesday approved the
telecommunications network builder's proposed bidding procedures,
including an Oct. 15 bid deadline and Oct. 17 auction date. If the
company enters into a stalking horse agreement that contains a break-up
fee provision, it must file a motion by Tuesday seeking court approval
of such fee. The hearing on the break-up fee will be held on Oct. 7,
with objections due Oct. 3.
Judge Steckroth on Monday granted Velocita's request for a four-month
extension of its exclusive periods for filing a chapter 11 plan and
soliciting plan votes. Velocita asserted that it needed the extension to
give it time to explore the possibility of a formal sale and form a
strategy to complete construction of critical portions of its
fiber-optic network. Falls Church, Va.-based Velocita and 11 affiliates
filed chapter 11 petitions on May 30, listing assets of $487.8 million
and liabilities of $827 million as of March 31.
Aladdin Gaming Seeks Two-month Extension of Chapter 11
Exclusivity
Aladdin Gaming LLC is asking a bankruptcy court for a two-month
extension of its exclusive periods to file a chapter 11 reorganization
plan to solicit acceptances of the plan, Dow Jones reported. The company
said it has begun drafting a disclosure statement and reorganization
plan and expects to file the documents with the court before the
extended plan filing period expires. Aladdin Gaming, a unit of Aladdin
Gaming Holdings LLC, is seeking court approval to extend to Dec. 2 the
period in which it has the exclusive right to file its plan of
reorganization and to extend to Dec. 30 the period for securing
acceptances for the plan.
Court OKs Competitive Bid Rules for Metromedia Fiber Sale
A bankruptcy court has approved procedures through which parties can
offer competitive bids for some of Metromedia Fiber Network Inc.'s
personal property, Dow Jones reported. Subject to higher offers,
Metromedia, a fiber-optic network builder, has agreed to sell the items
to Computers Online Networks Inc. for $4.5 million. In an order obtained
Wednesday by Dow Jones Newswires, the judge handling Metromedia's
chapter 11 case approved procedures the company had proposed using to
solicit any higher offers. The court will hold a hearing on Oct. 1 to
consider approving the sale to Computers Online or the successful bidder
at the auction.
Panaco Seeks Court Authority for Hedging Agreements
Oil and gas firm Panaco Inc. has filed a motion asking a bankruptcy
court to approve hedging agreements in an attempt to reduce price risk
and to protect against extreme price swings for crude oil and gas, Dow
Jones reported. Since oil and gas prices are volatile, companies in
those industries periodically enter hedge transactions with respect to a
portion of their expected future production.
When Panaco filed for chapter 11 bankruptcy on July 16, it owed Foothill
Capital Corp. roughly $38.6 million plus fees and expenses under a
pre-petition credit agreement. The company has been using the lender's
cash collateral to pay operating expenses and preserve the value of its
assets since the bankruptcy filing. The U.S. Bankruptcy Court in Houston
has scheduled a hearing on the company's request for Oct. 17.
Peregrine Wins Interim Approval of $60 Million DIP Loan
Peregrine Systems Inc. won interim court approval of a $60 million
debtor-in-possession loan from BMC Software Inc. on Wednesday, Dow Jones
reported. Judge Judith K. Fitzgerald of the U.S. Bankruptcy Court
in Wilmington said she would sign an order approving the loan on an
interim basis. Judge Fitzgerald's statement came after Peregrine and its
lender, BMC Software, agreed to defer their request for approval of a
provision in the loan agreement that would release their officers and
directors from any and all claims. Peregrine has said interim approval
of the $60 million DIP loan and final approval of the proposed $110
million DIP loan are vital to its reorganization efforts. The hearing to
consider final approval of the $110 million loan is scheduled on Oct. 15
at 11 a.m.
Valeo Electrical Systems Cleared to Emerge from Chapter 11
Valeo S.A.'s electrical systems unit received court approval of its
recapitalization plan, allowing it to emerge from chapter 11 bankruptcy
protection, Dow Jones reported. In a press release Wednesday, Valeo
Electrical said its parent agreed to recapitalize the unit through the
infusion of $226 million. Reorganization will allow unsecured creditors
to receive 95 percent of their allowed claims against the unit. Payments
to creditors will begin shortly after the reorganization becomes
effective.
Horsehead Industries: Adviser to Aid with Chapter 11
Horsehead Industries Inc. agreed to hire Blackstone Group as financial
adviser to assist the company in its plan to emerge from chapter 11
bankruptcy, Dow Jones reported. In a press release Wednesday, Horsehead
said New York-based Blackstone Group will assist with negotiating
debtor-in-possession financing, formulating continuing business and
reorganization plans and plans for a successful exit from the bankruptcy
filing. Horsehead and three affiliates filed for chapter 11 bankruptcy
protection a month ago with the U.S. Bankruptcy Court in Manhattan. The
company listed about $215.6 million in total assets and roughly $231.2
million in total liabilities, according to court papers obtained by Dow
Jones Newswires.
US Airways Opposes Request by Alabama Retirement Systems
US Airways Group Inc. has asked the court handling its chapter 11 case
to deny a request by the Retirement Systems of Alabama that could
bolster its efforts to sponsor the company's reorganization plan, Dow
Jones reported. US Airways says that the pension fund is trying to
intrude on the company's plan formulation process by seeking a court
order that would force it to abandon current plan negotiations and
instead enter into negotiations with the pension fund. U.S. Bankruptcy
Judge Stephen S. Mitchell is scheduled to consider the matter
today.
Before filing for chapter 11 on Aug. 11, the airline received an
investment proposal from private equity firm Texas Pacific. Subject to
certain conditions and higher offers, Texas Pacific said it would make a
$200 million investment in the company upon its emergence from chapter
11 in exchange for a 38 percent stake and seats on a reconstituted US
Airways board. The deal will form the basis of a reorganization plan the
company hopes to file by Dec. 31.
Organogenesis Files for Bankruptcy Protection
Organogenesis Inc., which makes a skin substitute from living cells,
filed for bankruptcy protection after terminating its agreement with the
product's sole distributor, Reuters reported. Organogenesis, based in
Canton, Mass., said it would continue to operate in a scaled-down manner
as it seeks to reorganize and bring its product, called Apligraf, back
to the market. It reduced its workforce to 15 from 125 employees. The
company filed for protection under chapter 11 in the U.S. Bankruptcy
Court for the District of Massachusetts after failing to reach an
agreement with distributor Novartis AG to restructure the companies'
relationship.
Enron-Linked LJM2 Files for Bankruptcy Protection
LJM2 Co-Investment LP, an Enron Corp.-affiliated partnership, filed for
protection under chapter 11 of the Bankruptcy Code, partly in response
to a lawsuit brought by its lenders, the Wall Street Journal
reported. LJM2, which was organized by former Enron Chief Financial
Officer Andrew Fastow to move debt off Enron's balance sheet, owes $70
million to a bank group led by Dresdner Bank AG. Dresdner had sued the
partnership to recover the money. In seeking bankruptcy-court protection
in federal court in Dallas, LJM2's new general partner said the bank
litigation could have led to a judgment giving the banks a claim on all
the partnership's assets, depriving other unsecured creditors of any
recovery.
Burlington Industries Gets Extension of Chapter 11 Plan
Exclusivity
Burlington Industries Inc. received a four-month extension of its
exclusive period in which to file a reorganization plan in its chapter
11 case, Dow Jones reported. U.S. Bankruptcy Judge Randall J.
Newsome signed an order approving the extension on Tuesday,
according to court papers. The extension means Burlington Industries
will remain the only party permitted to propose a chapter 11 plan in its
case through Jan. 31, 2003. The company's exclusive plan filing had been
set to expire on Nov. 15. Burlington Industries said in court papers
that it hoped to use the extension to continue evaluating a recently
implemented business plan. It said it would also work to analyze claims
asserted against the chapter 11 estate, evaluate borrowing capacities
and other sources of capital, and potential capital structures and exit
strategies to develop a reorganization plan. The extension request was
the company's second.
Avix Technologies Files for Chapter 11 Bankruptcy
Protection
Avix Technologies Inc. has filed for chapter 11 bankruptcy protection in
the U.S. Bankruptcy Court in Tampa, Dow Jones reported. The company said
it had substantial debts coming due, and that these debts, along with
its inability to generate revenue until telecommunications regulatory
issues are resolved, made it difficult for the company to continue as a
going concern. The company said its attempt to obtain capital to sustain
its operations has been relatively unsuccessful. It said its board has
taken several actions to downsize, cut costs and minimize operating
expenses while focusing resources on revenue generation and on business
basics so that the company has a chance of surviving.
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