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October 10, 2002
Leaders Debate Timing of Likely Lame-Duck Session
Senate Majority Leader Tom Daschle (D-S.D.) and Minority Leader Trent
Lott (R-Miss.) both said yesterday they hoped Congress would not be in
session beyond next week—although lawmakers and aides said it
remains unclear when or whether lawmakers will return for a lame-duck
session following the general election, CongressDaily reported.
Sen. Lott said it is possible that the Senate could act on a number of
conference reports before recessing, including those on election reform,
energy, bankruptcy reform and terrorism insurance.
Clock Ticking at United
It's autumn, the time when United Airlines said it might file for
bankruptcy, but despite a labor offer of $1 billion a year in cost cuts,
management and unions still have not struck a deal that will keep the
giant airline out of court, Reuters reported. The clock is ticking
toward a Nov. 17 debt payment United must make, and much work must be
done between now and then to keep the carrier out of courts, said people
familiar with the situation. A bigger payment is due in December. The
airline announced last week it would suspend payments on some
debt/equity hybrid securities. United has cash, $2.7 billion as of June,
but much of it is already committed. United spokesman Joe Hopkins on
Wednesday declined to comment on the progress with a five-union
coalition or when any announcement might be made. UAL shares on
Wednesday were 12 cents, or 5.77 percent, lower to $1.96, near the low
point of $1.90 hit after the bankruptcy warning this summer. The airline
sector was hard-hit again on Wednesday, after a Wall Street analyst
downgraded the entire group and cut his rating on the No. 1 U.S.
carrier, American Airlines parent AMR Corp. AMR shares sank to yet
another new low of $3.46 after losing 75 percent of their value in the
third quarter.
Dow Jones reported that UAL Corp.'s (UAL) United Airlines said
'productive dialogue' continues with the union coalition, and the
airline plans to enter into bilateral negotiations with each of the
coalition members. That process began Wednesday with the International
Association Of Machinists, United said in a press release Wednesday
evening.
Out of Bankruptcy, Into Uncertainty
Metrocall Inc. announced yesterday that it had emerged from bankruptcy
protection, allowing the second-largest U.S. paging company to shed most
of its $880 million in debt while it tries to rebuild itself as a
smaller company, the Washington Post reported. Alexandria-based
Metrocall says it has 4 million current customers, down from 6.3 million
at its peak in June 2001, and expects to stabilize at 2.5 million
customers in 2005. The loss of customers is reflected in its faltering
sales; its quarterly sales have declined steadily to $106.5 million for
the quarter ended June 30 from $126.7 million a year earlier.
Metrocall's primary goal is to pay off its remaining $80 million debt by
the end of 2004 and to stay in business as long as possible, said
Vincent D. Kelly, chief financial officer and chief operating
officer.
Metrocall, which filed for chapter 11 bankruptcy protection in June,
currently employs 2,000 people, and does not have plans to lay off any
more, but it may not fill vacant positions, Kelly said. Bankruptcy
experts estimate only about 10 percent of companies that file for
chapter 11 end up emerging from it; fewer still survive the aftermath.
'Fairly few end up surviving in the long-term sense,' said G. Ray
Warner, a law professor at the University of Missouri at Kansas City
and a scholar in residence at the American Bankruptcy Institute, who
cited studies showing that more than half of the companies that emerge
from chapter 11 fail again within five years. 'The capital structure can
be changed, but what's much harder to deal with is a real business
problem. The problem is that [companies] still have the same competitive
pressures.'
Mars Drops 20 More Jobs as it Struggles to Survive
Bankruptcy
Mars Inc. laid off 20 employees this week as the music company continued
to cut costs after filing for chapter 11 bankruptcy protection, the
Sun Sentinel reported. The affected employees worked in various
departments, including accounting, marketing and finance, at the
company's corporate headquarters in Fort Lauderdale. Mars now employs
about 260 people at its headquarters and four South Florida stores. Mars
filed for bankruptcy protection from creditors late last month, saying
that it couldn't finish restructuring and settle debt obligations before
the holiday retail season. Analysts have said Mars expanded too quickly
and invested in oversized stores that didn't make it a feasible
competitor for industry leader Guitar Center Inc. Mars Music stores
located across 20 states offer instruments, music lessons and recording
studios for musicians. The company has already closed 15 stores and let
17 employees from the corporate offices go last week.
Desa International Wants More Time to File Plan
Desa International Inc., a maker of heating and home products which
filed for bankruptcy protection in June, is seeking an extension of its
exclusive right to file a reorganization plan and solicit approval from
creditors because the company said its managers have been so busy trying
to sell assets that they haven't had enough time to develop a plan, Dow
Jones reported. Court papers said the Bowling Green, Ky., company wants
a 120-day extension, up to Feb. 1, to file a plan and until April 4 to
obtain creditor approval. A hearing is scheduled for Nov. 13 in the U.S.
Bankruptcy Court in Wilmington, Del. Objections are due by Oct. 22. This
is the company's first exclusivity extension request. Desa said it
believes the outcome of the asset sale will be a key factor in shaping
its reorganization plan, and sees greater value in its assets sold as
part of a going concern rather than sold in pieces in a liquidation
effort.
The company said failure to extend its exclusive periods would invite
competing plans to be filed and would lead to distractions that could
hurt its ability to complete its sale efforts, which is expected to
occur Nov. 26. Sale procedures were approved by the bankruptcy court; an
auction is scheduled for Nov. 13, and a sale hearing is planned for Nov.
15, court papers said.
WORLDCOM
WorldCom Expects to File Reorganization Plan in
March
WorldCom Inc. expects to file a reorganization plan with the bankruptcy
court in March 2003, Dow Jones reported. That date has already been
publicly disclosed by WorldCom's chief restructuring officer, according
to Neal R. Larsen, regional executive of law and public policy for
WorldCom. Larsen was speaking at a Missouri Public Service Commission
hearing regarding how the bankruptcy of telecommunications carriers is
affecting Missouri residents. WorldCom is paying its bills, and the
company continues to work with its creditors on its pre-petition
obligations to determine which creditors will be paid and how much,
Larsen said. That information will be included in WorldCom's
reorganization plan, he said. The company filed for chapter 11
bankruptcy on July 21.
When questioned by Commissioner Connie Murray as to whether WorldCom
will eventually be profitable at the expense of its competitors once it
emerges from bankruptcy because it won't have the debts that its
competitors do, Larsen said many people have been affected by the
bankruptcy filing. That includes shareholders 'who will likely lose all
equity interest' in the company, he said. When asked by Murray what will
be done with the money MCI WorldCom may get back from bonuses paid to
executives, Larsen said any recovery would likely be viewed as a general
asset and not applied to any specific debt.
Midsize Telecom Carriers Oppose WorldCom DIP Loan
Terms
A group of 13 midsize telecommunications firms that are creditors in
WorldCom Inc.'s chapter 11 case have objected to some terms of the
company's proposed debtor-in-possession financing agreement, saying the
lien granted to the lenders would affect their existing interests, the
Dow Jones reported. The group—including Alltel Corp. subsidiary
Alltel Communications Inc., CenturyTel Inc., FairPoint Communications
Inc. and Rock Hill Telephone Co.—said in a limited objection
Tuesday that the lien granted to the lenders in the DIP financing motion
should be subordinate to setoff or recoupment rights of the group
members. An August court order requires members of the midsize carrier
group to extend unsecured credit to WorldCom but restricts the carriers'
right to terminate services to WorldCom to failure to pay post-petition
invoices. The objection said it is unclear whether the DIP financing
would hurt the rights of the midsize carriers to assert their setoff
rights under the Bankruptcy Code as well as post-petition setoff
rights.
In Tuesday's filing, the midsize carrier group said it provides more
than $30 million in services to WorldCom on a monthly basis. Some group
members also purchase services from the telecommunications giant. The
company in July received bankruptcy court approval of a $750 million
interim DIP loan from lenders led by Citigroup Inc., J.P. Morgan Chase
& Co. and General Electric Co.'s financial-services arm General
Electric Capital Corp. Under the proposed final agreement, WorldCom
would grant the lenders senior secured liens on all its assets, as well
as a superpriority administrative expense claim in the chapter 11
case.
Major Worldcom Customers Seek Court OK for Official
Committee
Some of WorldCom Inc.'s largest corporate customers are seeking to form
an official committee to represent their interests in the
telecommunications firm's chapter 11 reorganization, Dow Jones reported.
After WorldCom filed for bankruptcy on July 21, these big customers
began to organize themselves into what is now as ad hoc enterprise
customer committee consisting of 17 members. The filing said members of
the ad hoc committee purchase more than $300 million in services
annually from WorldCom. Members of the ad hoc committee include
DaimlerChrysler , American Standard Cos., Washington Mutual Inc.,
Procter & Gamble Co., Sun Microsystems Inc. and Invensys PLC,
Inovant and Thomson Corp., an affidavit filed with the motion said.
On July 29, the ad hoc committee asked the U.S. Trustee to appoint an
official committee of commercial customers. However, the trustee Aug. 21
denied the request, leaving Tuesday's motion as those customers' 'only
effective legal recourse.' The interests of those customers, however,
aren't adequately represented by the 15-member unsecured creditors'
committee, which the U.S. Trustee named on July 29. The motion said the
creditors' committee is dominated by lenders and investment managers,
whose interests 'materially vary' from those of the large corporate
customers. The U.S. Bankruptcy Court in Manhattan will consider the
corporate customers' request at a hearing Nov. 12. Objections are due
Nov. 6.
GAO Denies Protest of US-WorldCom Deal
The U.S. General Accounting Office on Wednesday dismissed protests
challenging the award of a $450 million contract to bankrupt WorldCom
Inc. to build a network for scientists and researchers at the Defense
Department, Reuters reported. Rival telecommunications firms Sprint
Corp., parent of the No. 3 U.S. long-distance company Sprint FON Group,
wireless carrier Sprint PCS and bankrupt carrier Global Crossing Ltd.
challenged the contract award because WorldCom admitted this summer it
improperly accounted for almost $7.7 billion, raising questions about
its credibility. The General Accounting Office, the congressional
watchdog agency that rules on such protests, said it had qualms about
intervening since the project was already well under way and the Defense
Department 'has authority to address the alleged impropriety' if it so
chooses. Global Crossing was originally awarded the contract, but it was
canceled after protests by WorldCom's MCI unit and Sprint. The
government selected Global Crossing again but the company went bankrupt,
leading the government to re-evaluate the award and determine that the
company's poor financial performance, unfavorable trends and legal
consequences of its bankruptcy proceedings posed unacceptable risks.
U.S. Credit and Debit Cards Projected through 2010
There were 1.43 billion general purpose and proprietary credit cards in
circulation in the U.S at the end of last year, unchanged versus
year-end 2000, according to the Nilson Report. This was due to a
decrease in proprietary cards, mostly store cards but also gasoline.
Proprietary cards, which are usable only at select outlets, totaled
841.2 million at the end of last year and accounted for 59 percent of
all credit cards in the U.S. Visa, MasterCard, American Express,
Discover and Diners Club general purpose cards totaled 583.8 million at
the end of 2001, and accounted for 41 percent of all credit cards in
circulation. Purchase volume on credit cards (excluding telephone cards)
totaled $1.298 trillion in 2001, up only 4.5 percent over 2000. Purchase
transactions on credit cards totaled 16.76 billion last year, up 5.4
percent.
General Purpose and proprietary debit cards generated $386.91 billion
in purchases of goods and services last year, up 24.4 percent over 2000.
Purchases of goods and services totaled $386.27 billion last year, up
24.5 percent over 2000. Purchase volume is projected to reach $1.186
trillion by 2010. Purchase transactions totaled 10.52 billion last year,
up 26.3 percent. Purchase volume of proprietary debit cards totaled
$0.64 billion last year and is expected to reach $0.77 billion by 2010.
According to the report, last year credit and debit cards generated
27.30 billion transactions at merchants, up 12.4 percent over 2000.
Credit cards accounted for 61.4 percent of these purchases of goods and
services, down from 65.5 percent the prior year. Debit cards contributed
the remaining 38.6 percent, up from 34.5 percent. By 2010, debit cards
are expected to account for 52.9 percent of purchase transactions.
Network Plus in Talks to Resolve Level 3 Contract Dispute
Network Plus Corp. said Wednesday it is nearing resolution of a contract
dispute with Level 3 Communications Inc., Dow Jones reported. The debtor
company hopes to submit a stipulation to Chief Judge Peter J.
Walsh of the U.S. Bankruptcy Court in Wilmington outlining an
agreement with Level 3 later this week, said Maureen D. Luke, an
attorney with the firm representing Network Plus. The two companies are
trying to resolve a dispute over Network Plus's efforts to reject a
portion of contracts with Level 3 regarding data circuits. On Wednesday,
Luke said she believes Network Plus will reject all contracts with Level
3. Richard A. Keuler, Jr., an attorney representing Level 3, said the
sides are 'close to resolving the issue' but added it is still unclear
whether Network Plus will reject the contracts in their entirety.
Network Plus, which filed for chapter 11 bankruptcy protection on Feb.
4, listed assets of $433 million and liabilities of $206 million
petition.
FDA to Resume Scientific Review of Gliatech's Applications
The Food and Drug Administration resolved Gliatech Inc.'s application
integrity policy status and will resume scientific review of the
company's applications, Dow Jones reported. In December 2000, the FDA
invoked the application integrity policy, which it uses when it believes
there is evidence of wrongful conduct, and suspended its review of all
Gliatech premarketing approval applications of supplements. The company
filed for chapter 11 bankruptcy protection in May and hired a financial
adviser in September to sell its Adcon assets. In a press release
Wednesday, Gliatech said that as a condition of resuming ordinary course
submissions, the FDA will require for two years that all submissions be
reviewed and certified by an independent auditor before they are
presented to the FDA.
Integrated Telecom Express Files for Chapter 11 in
Delaware
Integrated Telecom Express Inc. filed for chapter 11 bankruptcy
protection on Tuesday, shortly after the company said its board had
approved such a move to facilitate plans to shut down operations, Dow
Jones reported. In papers filed with the U.S. Bankruptcy Court in
Wilmington, Del., the company listed assets of $116 million and debts of
$4.3 million. Based in San Jose, the company provides integrated circuit
and software products to the broadband access communications equipment
industry. Integrated Telecom—which is down to 13 employees and
winding up operations—said in court papers that it believes it
will have sufficient funds to make a distribution to its stockholders.
As of Sept. 25, the company had 42.6 million outstanding common shares
held by 200,000 holders. Those with 5% or more of the company's voting
shares are United Microelectronics Corp., Fortune Venture Capital Corp.
and Creative Group Ltd. Integrated Telecom's decision to liquidate
followed a declining financial performance and unsuccessful sale and
merger efforts. The company said in court papers it expects to file
applications to retain PricewaterhouseCoopers LLC as its auditor.
Comdisco to Redeem $400 Million in Variable Senior Secured
Notes
Comdisco Holding Co. expects to redeem on or about Oct. 21 the entire
$400 million outstanding principal amount of its variable rate senior
secured notes due 2004, Dow Jones reported. In a press release
Wednesday, the company said the senior notes will be redeemed at 100
percent of their principal amount, plus accrued and unpaid interest from
Aug. 12 to the redemption date. Comdisco said the progress the company
has made in its reorganization plan has enabled it to redeem the notes
before maturity. As reported, the technology services company emerged
from chapter 11 bankruptcy in August with a plan to sell off remaining
assets over three years. Wells Fargo Bank will be the paying agent for
the debt redemption.
Enron Affiliate EOTT Files for Bankruptcy Protection
EOTT Energy Partners LP, a crude-oil marketing affiliate of Enron Corp.,
made a prenegotiated bankruptcy-protection filing that is supported by
the company's lenders, a majority of its bondholders and Enron, Dow
Jones reported. EOTT said a restructuring plan that accompanied the
chapter 11 filing will 'significantly' reduce its debt, restructure its
finances and formalize a complete legal separation from Enron. EOTT
expects the restructuring, which is subject to approval by the U.S.
Bankruptcy Court for the Southern District of Texas, Corpus Christi, to
be completed in early 2003. As part of the plan, EOTT received a
commitment from its lenders to provide debtor-in-possession financing of
$575 million, an increase of about $100 million from the company's
current working-capital facility. Company officials said they believe
this financing should be sufficient for EOTT to work toward achieving
the level of business activity that existed before Enron's
bankruptcy-court filing.
FDIC's Powell Says Corporate Profits May Have Bottomed
There are indications U.S. corporate profits may be bottoming out, but
the overall U.S. economy is sending mixed signals, Federal Deposit
Insurance Corp. Chairman Don Powell said on Wednesday, Dow Jones
reported. 'Recent earnings reports suggest that the trend of declining
corporate profits may have run its course,' Powell said in prepared
remarks to the National Bankers Association in New Orleans. 'In the
overall economy, the signals are mixed,' he added. The economy grew at a
5.0% pace in the first quarter, but cooled to a 1.3 percent pace in the
second quarter, Powell said. The latest Blue Chip Economic Indicators
survey showed the recovery is intact, with expectations the economy will
grow by 3.2 percent next year, he added. Powell's upbeat assessment of
where corporate profits may be heading comes as Wall Street is growing
increasingly concerned about the sputtering economic recovery in the
wake of softer-than-expected economic data and increasing nervousness
about a potential U.S. war against Iraq.
ICG Communications Wins Confirmation of Chapter 11 Revised
Plan
For the second time, a bankruptcy court confirmed a reorganization plan
that calls for ICG Communications Inc. to emerge from chapter 11
protection as a going concern, Dow Jones reported. Chief Judge Peter
J. Walsh of the U.S. Bankruptcy Court in Wilmington signed the order
Wednesday after the company received support in favor of confirmation
from its creditors. ICG Communications initially won confirmation of
essentially the same plan in May. The plan was scrapped soon after
Cerberus Capital Management L.P. said it wouldn't provide the $65
million exit financing required to fund the plan. Over the summer, ICG
Communications reached a deal with Cerberus Capital Management for a $25
million exit financing facility to fund the reorganization plan. The
confirmed plan will become effective Thursday, said Timothy R. Pohl, an
attorney with Skadden Arps Slate Meagher & Flom, the firm
representing the debtor. The Englewood, Colo., communications provider
and 24 affiliates filed for chapter 11 bankruptcy protection Nov. 14,
2000, listing assets of $2.79 billion and debts of $2.81 billion as of
Sept. 30, 2000.
Federal-Mogul Confirms It Might Move Headquarters
Federal-Mogul Corp. confirmed Wednesday that it might relocate its
corporate headquarters to cut costs and bolster its turnaround plan, Dow
Jones reported. Company spokeswoman Kimberly Welch said the Southfield,
Mich., auto parts-maker is considering a handful of sites in Michigan's
Oakland County, including other locations in Southfield, to move its
headquarters. The company is also looking at remaining at its current
location if the company can negotiate a new lease, Welch said. 'On an
annual basis, we think we can save millions through the development of a
more competitive lease,' she said. She added that the lease doesn't
expire for another six years, but given the company's bankruptcy status
and the nature of the lease contract, the company can accept or reject
the lease.
NewPower Holdings Files Chapter 11 Liquidation Plan
NewPower Holdings Inc., which has already sold nearly all its assets, on
Tuesday filed a chapter 11 liquidation plan that calls for about $147
million to be distributed among the creditors of the company and its
units, Dow Jones reported. The company filed the plan and accompanying
disclosure statement on behalf of itself and subsidiaries New Power Co.
and TNPC Holdings Inc. The disclosure statement said the plans for the
three entities were combined for convenience, and doesn't consolidate
the three estates into one. As a result, each debtor can separately
confirm the plan, according to the filing. NewPower Holdings said asset
sales have generated more than $80 million. The company noted it
expected to recover roughly $27 million of cash collateral posted with
certain utilities when the asset sales closed. NewPower Holdings and its
two units filed for bankruptcy protection June 11. The parent company
listed total assets of about $231.8 million and total debts of roughly
$78.9 million as of March 31 in its chapter 11 filing.
Court OKs $155 Million Sale of Teleglobe Assets to Cerberus,
TenX
Teleglobe Communications Corp. Wednesday won court approval of a $155.3
million sale of its core voice and data business in the U.S. to Cerberus
Capital Management LP and TenX Capital Partners LLC, Dow Jones reported.
The sale is the latest in Teleglobe's effort to sell its assets while
they maintain a substantial 'going concern' value, said Mark D.
Collins, an attorney with Richards Layton & Finger, the firm
representing the debtor. In September, the company won authority to sell
its Latin American business in a $6 million deal. Creditors are expected
to receive a portion of the proceeds from the sale under a chapter 11
reorganization plan. Teleglobe had already obtained authority to execute
the sale from a Canadian court and needed approval from the U.S.
Bankruptcy Court in Wilmington to seal the deal.
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