November 20, 2003
Housing Starts in October Near 18-Year High
Starts of new housing unexpectedly rose in October to the highest level
in almost 18 years, led by record single-family home building, the
Commerce Department said yesterday, Bloomberg News reported. Builders
began work on 1.96 million homes at an annual pace last month, the
fastest since January 1986 and a 2.9 percent increase from a revised
1.905 million pace in September. Housing and consumer spending supported
the economy when growth again slowed at the end of 2002 and in the first
quarter of this year. Continued strength in home sales and construction
is now being accompanied by more corporate purchases of equipment,
suggesting sounder economic expansion.
Kmart Trust Sues Ex-executives Over Perks
The civil suit, filed on Tuesday in Michigan by the Kmart Creditor
Trust, alleges that former Kmart CEO Charles Conaway and other top
officers lost the company billions of dollars before Kmart filed the
largest-ever retail bankruptcy in January 2002, Reuters reported. The
creditor trust was set up as part of Kmart's bankruptcy reorganization
earlier this year to try to recover money for creditors who lost
billions. The lawsuit alleges that former managers led Kmart into a
'financial meltdown' and seeks the return of any money improperly taken
from the company. According to the lawsuit, certain former executives
billed the company $100,000 for nannies, and some were given luxury cars
including Jaguars, a BMW and a Lexus. The suit also claims that former
executives arranged a $230,000 trip to Las Vegas for 60 employees.
Conaway's attorney, Scott Lassar, said the former Kmart CEO 'acted
honorably and in the best interests of Kmart's employees and
shareholders.' He said Conaway 'looks forward to rebutting the
accusations in the complaint in court.' The trust has already sued six
former executives, seeking to recover loans given to them shortly before
Kmart filed for bankruptcy. Some 25 former executives were given $28.8
million in retention loans. Kmart's attorneys say the loans were handed
out improperly because former managers misled directors about the
company's financial health, reported the newswire.
AMC, Loews Theaters Holding Merger Talks
Top theater chains AMC Entertainment Inc and Loews Cineplex
Entertainment Corp., on Wednesday said they were in talks about a
possible merger that would rival the current industry leader, Reuters
reported. Analysts said if completed, a deal would create a company of
the same relative size as No. 1 chain Regal Entertainment Group and
enable the merged entity to lower costs. In separate statements, Kansas
City, Mo.-based AMC and Onex Corp., the operator of Loews, said talks
were preliminary and cautioned that a deal may not materialize.
The merger comes amid an ongoing consolidation in the industry, which
suffered through many bankruptcies in the late-1990s after major chains
invested heavily to build megaplexes, yet failed to close older theaters
fast enough, Reuters reported.
Conseco Reports Post-bankruptcy Profit
Conseco Inc. said it has returned to profitability since its September
emergence from bankruptcy, with post-chapter 11 assets of nearly $30
billion, compared with $52 billion when it became the third-largest
company to seek bankruptcy protection, the Associated Press reported. In
an earnings announcement late Tuesday after the company received a
filing extension, the insurer reported $24.2 million in net income for
the month of September, $5.3 million of which was paid out in dividends
to preferred shareholders, the newswire reported. Because of
'fresh-start' accounting reflecting the company's bankruptcy emergence
and new capital structure, Conseco was unable to make direct comparisons
with previous earnings periods. Conseco reported a profit of $2.2
million for the first nine months of this year, AP reported. That figure
was boosted by the elimination of $3.1 billion in liabilities through
the chapter 11 process, as well as asset sales including Conseco's
recent $1.3 billion sale of the General Motors Building in midtown
Manhattan. Conseco filed for chapter 11 last December and cast off
consumer finance operations that were the legacy of a failed attempt to
expand beyond the company's traditional insurance business.
PG&E
U.S. Court Reverses Ruling on PG&E Bankruptcy Plan
A federal appeals court overruled on Wednesday a decision that utility
Pacific Gas & Electric Co. (PG&E) was not bound by California
laws and regulations in its first reorganization plan to emerge from
bankruptcy, Reuters reported. The move by a three-judge panel of the
U.S. Court of Appeals for the 9th Circuit reversed a U.S. District Court
decision and sent the case back to the U.S. Bankruptcy Court. Tom
Dresslar, spokesman for California Attorney General Bill Lockyer,
applauded the decision, saying it 'gave the state a big victory and
PG&E a significant defeat.' The reversal will limit PG&E's
reorganization bid 'only to law that relates to the financial condition
of the utility,' he said. PG&E, however, said in a statement the
decision will not have an impact on its effort to get out of bankruptcy.
PG&E's initial reorganization plan sought to split the company into
four pieces, putting most of its operations beyond the reach of
California regulations, reported the newswire.
PG&E Shares Up; Settlement Changes Are Modest, Goldman
Says
PG&E Corp. shares rose as much as 7 percent on Wednesday despite
a California administrative law judge's recommendation that its proposed
settlement with its Pacific Gas & Electric Co. unit be rejected. The
decision wasn't perceived as a major setback to Pacific Gas &
Electric because Judge Robert Barnett and the state's Public Utilities
Commission President Michael Peevey offered up alternative plans that
featured modest changes. Goldman Sachs analyst Jonathan Raleigh wrote in
a research report titled 'Headlines Worse Than Reality' that the
recommended changes wouldn't materially alter the underlying financial
elements of the plan.
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Exide Asks To Amend Loan; Creditors Want Company's Exclusivity
Ended
Exide Technologies' is trying to make sure loose ends don't trip up
confirmation of its chapter 11 plan, but unhappy creditors are still
trying to tie up the company and get a better payout. The battery maker
filed a motion with the U.S. Bankruptcy Court in Wilmington, Del.,
asking for approval to amend its debtor-in-possession loan agreement
that extends the deadline for the company to emerge from bankruptcy
protection. The deadline had been Tuesday, but Exide's lenders agreed to
push it out to as late as Feb. 15, subject to court approval, the motion
filed Monday said. Exide has also sought to extend its exclusive period
to solicit votes for its plan, preventing creditors from filing
competing plans.
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UNITED AIRLINES
A Plan to Postpone Pension Financing at United
United Airlines is devising a plan to postpone about $2 billion of
required pension contributions over the next three years, having
concluded that doing so is the only way to bring the airline out of
bankruptcy, the New York Times reported. The plan, which was
described in general terms by company executives and people briefed on
the deliberations, would require the federal agency that insures
pensions to take on significant risk, and the agency is expected to
resist it. The plan would be subject to Internal Revenue Service
approval. Other airlines might also oppose it or insist on comparable
breaks in their pension contributions. Slowing contributions to any
pension plan can put workers' benefits at risk. United officials say the
airline does not have enough cash to make the required payments to its
pension funds and finance its business operations at the same time,
reported the Times.
Atlantic Coast Names Low-fare Airline
Regional air carrier Atlantic Coast Airlines Holdings Inc. on Wednesday
unveiled 'Independence Air' as the name for the new low-fare airline it
plans to start in the first half of 2004 at Washington Dulles Airport,
Reuters reported. Atlantic Coast in July announced plans to start a
low-fare airline after failing to reach a deal with United Airlines to
continue regional jet service. Atlantic Coast has been fighting an
unsolicited bid from Mesa Air Group Inc. since October. Independence Air
will set an official start date when Atlantic Coast is freed from the
contract to provide the flights to United, Atlantic Coast said. United
has been cutting cheaper deals with regional air carriers for its
bankruptcy restructuring, and plans to start its own low-fare air
carrier in 2004 that may eventually compete with Atlantic Coast in the
Washington market. Analysts have called Atlantic Coast's plan to launch
a low-fare carrier risky. About 85 percent of its revenue comes from
commuter flights for United, with some from regional flights for Delta
Air Lines, the newswire reported.
Oklahoma May Dismiss Ebbers Charges
Oklahoma may dismiss charges against former WorldCom Chief Executive
Bernie Ebbers and refile them at a later time, deferring to federal
prosecutors investigating the bankrupt long-distance company, Reuters
reported. Attorney General Drew Edmondson has until Dec. 1 to decide
whether to pull the charges, but the Attorney General's office still
plans to pursue its case against Ebbers, Edmondson's spokesman, Charlie
Price, said on Wednesday. The state charged WorldCom, Ebbers and five
former executives with violating state securities laws by knowingly
giving false information to investors.
Oklahoma state pension funds lost $64 million in the collapse of MCI,
which filed for bankruptcy last year. The Oklahoma case marked the first
criminal charges against Ebbers, who pleaded not guilty, reported the
newswire.
KPS Fund to Buy Atchison Steel Assets
KPS Special Situations Fund II, a private equity fund specializing in
buying distressed companies, said on Wednesday it agreed to buy the
operating assets of steel component maker Atchison Casting Corp. for $40
million, Reuters reported. New York-based KPS, which has $350 million
under management, said it would purchase five business units as part of
a bankruptcy court-sponsored auction with Atchison, which filed for
chapter 11 bankruptcy protection in August. The KPS bid is subject to
higher offers, however, since the KPS offer forms the base, or 'stalking
horse' bid. KPS said it would invest 'substantial capital' in a new
company formed to take control of the assets in a deal that has the
support of the United Steelworkers of America and other unions.
American Air CFO to Leave for McKesson
American Airlines on Wednesday said Jeff Campbell, its CFO who helped
steer the airline through its post-Sept. 11 financial crisis, will join
drug distributor McKesson as its CFO, Reuters reported. American, a
division of AMR Corp, said Campbell was instrumental in a turnaround
plan that helped stabilize the carrier as it was teetering on the brink
of bankruptcy earlier this year. Campbell, who takes office on Jan. 1,
will replace William Graber, who is retiring, McKesson said. Gerard
Arpey, AMR's president and chief executive said the company would soon
name a successor for Campbell.
