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December 11, 2002
Federal Reserve Keeps Interest Rates Steady
The U.S. Federal Reserve kept interest rates at four-decade lows as
expected on Tuesday, saving its ammunition in the hope that the economy
will see more vigorous growth in 2003, Reuters reported. The unanimous
decision by the central bank's Federal Open Market Committee leaves the
trend-setting federal funds rate at 1.25 percent, the level it hit after
the Fed slashed borrowing costs by a bold half percentage point in
November.
'The limited number of incoming economic indicators since the November
meeting, taken together, are not inconsistent with the economy working
its way through its current soft spot,' Fed policy-makers said in a
statement after their meeting, the newswire reported.
WORLDCOM
Judge Criticizes WorldCom For Capellas's Proposed Salary
A federal judge criticized a proposed $1.5 million salary for WorldCom
Inc.'s new chief executive, Michael D. Capellas, saying the amount
raises serious concerns as to whether the bankrupt company's new
management is 'committed to reform,' Dow Jones reported. The proposed
compensation package, which also includes a $2 million signing bonus,
was submitted on Monday to U.S. District Judge Jed S. Rakoff for
approval. The judge last month signed off on a settlement of the
Securities and Exchange Commission's $9 billion fraud case against
WorldCom, but has continued oversight of the company's operations.
Under the plan, Capellas, the former CEO of Compaq Computer Corp. and
president of Hewlett-Packard Co., also would be awarded $18 million of
restricted stock upon WorldCom's emergence from the bankruptcy. Judge
Rakoff had already scheduled a Dec. 16 hearing to consider Capellas's
proposed compensation, but on Tuesday ordered WorldCom to meet with a
court-appointed monitor, Richard Breeden, to try to resolve Breeden's
'very serious objections' to the package, reported the newswire.
Ex-WorldCom Board Member Areen Urges Other Directors to
Quit
WorldCom Inc. Director Judith Areen, who resigned her post yesterday,
said officials who served on WorldCom's board before the telephone
company revealed more than $9 billion in accounting errors should leave,
Bloomberg News reported. 'It's all about a fresh start,'' Areen, the
dean of Georgetown University Law Center, said in a telephone interview.
'Now is the right time. We need to complete that transition.''
Areen, 58, a WorldCom board member since September 1998, is the third
director to resign since the Clinton, Miss.-based company filed the
biggest bankruptcy in U.S. history in July. James Allen left that same
month after buying a small company that
competes with WorldCom. Stiles Kellett quit in October, agreeing to pay
WorldCom $119,000 for his use of a company jet, reported the newswire.
Chief Executive Officer Michael Capellas has pledged to steer the
second-biggest U.S. long-distance carrier out of bankruptcy in one
piece, partly by restoring public confidence in the company. He has said
board changes are part of that plan. Areen, who was a member of the
search committee that selected Capellas, said it's time for some of her
former colleagues to step down.
UNITED AIRLINES
UAL Creditors' Committee To Be Named By Trustee Friday
The U.S. Trustee for UAL Corp.'s chapter 11 filing will form an official
unsecured creditors' committee on Friday, Dow Jones reported. The
committee will likely include unsecured bondholders and their trustees,
vendors, airport authorities and union members, say bankruptcy experts,
the newswire reported.
The list of the largest 15 unsecured creditors accounts for about $3.3
billion in debt. The top three are trustees unsecured notes, with Bank
of New York Co. holding a $1.6 billion claim, Bank One Trust with $964
million and Well Fargo & Co. with $380 million, reported Dow Jones.
Of those owed airport rents and fees, the City and County of Denver has
a $12.7 million claim, while the Metropolitan Washington Airport
Authority has a $2.8 million claim.
United Air Lays Groundwork for Meetings With Unions
UAL Corp.'s United Airlines laid the groundwork on Tuesday for meetings
with its unions and reassured customers the carrier will keep flying,
the Associated Press reported. United sent a team of labor executives to
Boston for a meeting with advisers to its unions. Company spokesman Joe
Hopkins said the meetings were intended to set the stage for broader
talks with unions about management's plans in bankruptcy.
United made clear in its chapter 11 bankruptcy filing on Monday that it
will seek steep cost cuts soon in order to begin its turnaround in
bankruptcy. The unions haven't been given specific terms, and the
airline said there were no plans yet for a meeting with a coalition of
union leaders, which CEO Glenn Tilton had suggested would occur on
Tuesday.
Upstart Huron Gets Big UAL Consulting Contract
The seven month-old Chicago firm, formed by dozens of jobless expatriate
Arthur Andersen partners, has been steadily hiring new professionals
since its inception and expects strong demand for its services to
bolster revenue by 20 percent to 30 percent annually, Dow Jones
reported. And that was before UAL Corp.'s massive bankruptcy filing.
Huron beat out several of its more-established competitors on Monday by
landing one of the highest-profile bankruptcy consulting deals this
year.
Huron will handle a range of accounting and restructuring consulting
duties for the world's second-largest airline, including helping with
the company's reorganization plan and preparing a liquidation analysis.
It will get hourly rates ranging from $175 an hour for analysts to up to
$550 an hour for managing partners. To read the full article, point your
browser to
href='http://online.wsj.com/article/0,,BT_CO_20021211_002006-search,00.html?c…'>
color='#000080'>http://online.wsj.com/article/0,,BT_CO_20021211_002006-search,00.html?c…
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Budget Airlines Threaten United
One of United Airline's biggest challenges as it restructures itself
under bankruptcy protection is to stanch the flow of passengers to
profitable low-cost carriers, which have steadily eaten away at its
market share, the New York Times reported. In the last two days, United
has hinted at strategies it might adopt: taking another stab at starting
its own low-cost carrier, for example, or overhauling its fare structure
to match the simplicity of the pricing offered by Southwest Airlines and
its kin. 'The business will change so dramatically,' Glenn F. Tilton,
the chief executive of United, said in an interview. 'There will be more
people like the people who created JetBlue coming into the industry. I
am expecting a much more competitive landscape.' To read the full
article, point your browser to
color='#000080'>http://www.nytimes.com/2002/12/11/business/11AIR.html.
ENRON
Enron Objects to NewPower's Liquidation Plan
Enron Corp. and some of its affiliates that are creditors in NewPower
Holdings Inc.'s chapter 11 case have opposed terms of the disclosure
statement to NewPower's liquidation plan, saying the document doesn't
provide enough information concerning the payments of some claims, Dow
Jones reported. In an objection filed on Monday, Enron said NewPower's
disclosure statement doesn't contain adequate information about
securities claims. As a result, creditors can't fully understand the
amount of funds available to settle the claims. A hearing on the
NewPower disclosure statement is scheduled for Dec. 17 at the U.S.
Bankruptcy Court in Newnan, Ga. NewPower was started by Enron to provide
electricity and natural gas in deregulated markets. The company filed
for chapter 11 bankruptcy protection in June, and filed a liquidation
plan in October.
Enron Bankruptcy Has Been Fee Bonanza for Its Advisers
Mega-bankruptcies such as Enron, WorldCom Inc. and UAL Corp. generate
enormous losses for creditors and shareholders, the Wall Street
Journal reported. But they represent a potential bonanza for the
lawyers, financial advisers, and other consultants who specialize in
restructuring. Through October, lawyers and other professionals working
on the Enron case had rung up $280 million in fees and expenses,
according to a person familiar with the totals. That puts Enron's
advisers on pace to break the $300 million barrier in the year since
Enron sought bankruptcy protection, potentially making it the most
expensive bankruptcy ever. To read the full article, point your browser
to
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color='#000080'>http://online.wsj.com/article/0,,SB1039579677272120753-search,00.html?c…%
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Mesa Air Group Announces Voluntary Pay Reduction Plan
Mesa Air Group Inc. will implement a pay plan designed to lower its
labor costs in 2003, citing significant concerns and challenges in its
industry, Dow Jones reported. In a press release on Tuesday, the carrier
said participating employees in the voluntary program agree to a 5
percent reduction in their base wages for one year. In exchange, for
every quarter that Mesa records a quarterly operating profit, Mesa will
pay employees the amount of the pay cut and an equal amount as a bonus,
the newswire reported.
The move comes after an analyst downgraded Mesa to neutral on Friday on
concerns about US Airways Group Inc.'s bankruptcy proceedings. According
to a Credit Suisse First Boston analyst, should US Airway's chapter 11
reorganization become a chapter 7 liquidation, Mesa Air would suffer a
setback, as US Air generates about 45 percent of Mesa's capacity,
reported the newswire.
Boston Priests Demand Law's Ouster
The Archdiocese of Boston was in a state of open rebellion on Tuesday
after 58 priests took the unprecedented step of asking Cardinal Bernard
Law to resign in a letter delivered to the senior U.S. prelate's
residence, Reuters reported. 'It's as close to an open revolt as priests
can come,' said Stephen Pope, chairman of the Theology Department at
Boston College. 'It's not that they're taking to the streets with
torches, but this is something they never do.'
The delivery of the letter marked the first time that a group of clergy
had formally called for Law to step down following revelations that he
and other church leaders shuttled priests accused of pedophilia from
parish to parish, Reuters reported.
Kmart to Offer Clothing Designed by Mexican Singer
Kmart Corp. plans to spice up its women's apparel selection with
clothing designed by
Mexican singer Thalia, as the biggest U.S. retailer to file for
bankruptcy tries to woo Hispanics and appeal to younger shoppers,
Bloomberg News reported. The Thalia line, which won't be in stores until
next year, is expected to add $300 million to $500 million in annual
sales, Chief Executive James Adamson said. Kmart had $36.2 billion in
sales last year. Terms of the agreement weren't disclosed.
Kmart needs to stem more than a year of sales declines to emerge from
bankruptcy by its July goal, analysts said. A poor showing in the
November-December period may prompt creditors and suppliers to push the
discounter into liquidation, analysts said. November sales, which didn't
include Thanksgiving, were weaker than expected because of sluggish
consumer spending, Adamson said, the newswire reported.
Global Crossing Shareholder Lawsuits to Be Led by Ohio
Funds
A federal judge yesterday appointed two Ohio pension funds to lead
shareholder securities- fraud lawsuits against Global Crossing Ltd.,
Bloomberg News reported
The Ohio Public Employees Retirement System and the State Retirement
System of Ohio, which claim losses of $115 million on stock of the
bankrupt fiber-optic network operator, were selected by U.S. District
Judge Gerard Lynch to guide trial strategy and any settlement
negotiations on behalf of shareholders. 'The court recognized that, in
addition to Ohio's large loss, Ohio is the type of plaintiff that
federal law encourages:
an institutional investor,'' said Jay W. Eisenhofer, lead lawyer for the
pension funds.
Global Crossing sought chapter 11 protection in January after amassing
$12.4 billion in debt in building a 100,000-mile fiber-optic network in
27 countries. Lawyers representing the company expect it to emerge from
bankruptcy early next year.
Napster Firesale to Begin
Computers, laptops and a slew of T-shirts with a grinning cartoon cat
logo will go up for auction today as the now defunct online song-swap
company Napster cleans out its remaining physical assets, the Associated
Press reported. Roxio Inc. has bought the brand name and intellectual
property after Napster's bankruptcy. Available for purchase on the cheap
are pallets of monitors and servers that were once used as the company
amassed tens of millions of users looking to trade music for free
online. A federal judge ordered Napster offline last year until it could
comply with an order to halt the unauthorized trade of copyright music.
Napster never met that legal challenge and has remained offline ever
since. Napster filed for bankruptcy earlier this year, and Roxio says it
may launch some form of renewed service under the brand name in the near
future, reported the newswire.
Thanks for visiting Today's Bankruptcy Headlines. New articles
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