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November 11, 2002
GOP Majorities Complicate Bankruptcy Reform Outlook
The Republican sweep of Congress in Tuesday's midterm election could
have a significant impact on the fate of bankruptcy reform legislation -
if not this year, then most assuredly in the 108th Congress,
CongressDaily reported. The measure is pending before the House
in the form of a conference report, and Senate Majority Leader Tom
Daschle (D-S.D.) has pledged to bring up the measure during the
lame-duck session if the House manages to pass it. However, there was
uncertainty before the election as to whether House Republican leaders
would opt to bring the measure for a vote during the post-election
session. The measure contains an abortion-related provision drafted by
Senate Democratic conferees that has divided the House Republican
Conference - and has forced party leaders to choose between powerful
financial interests and their social conservative base. Republican aides
said today that no definitive decisions about the agenda would be made
until after lawmakers return on Tuesday. However, several bill
supporters today conceded the lame-duck session probably would prove too
brief to move the measure - especially given a threatened Democratic
filibuster in the Senate.
Nevertheless, House Republicans can now make a strong case for simply
holding off on bringing up the existing measure - minus the offending
abortion provision - until early next year when Congress is under solid
Republican control, the newswire reported. Outgoing Senate Judiciary
Chairman Patrick Leahy (D-Vt.) had said he could not abide bringing the
measure back for consideration next year, but Senate Judiciary ranking
member Orrin Hatch (R-Utah), the incoming chairman, will undoubtedly
renew the fight, as House Judiciary Chairman James Sensenbrenner
(R-Wis.) already has pledged to do. The question then becomes whether
Republicans will seek to toughen the bill in other areas where the GOP
was forced to concede to Democrats in conference negotiations. One
industry lobbyist working the bill said he expected industry proponents
to push for passage of the existing conference report. 'The [Senate]
leadership has changed, but not the political landscape,' this lobbyist
said. 'You start making too many changes and you start losing votes that
you need. If the financial industry has to choose between getting this
package quickly or reopening a new package, we'd probably opt for swift
action.'
Meanwhile, Senate Democrats' incentive for passing the bill during
the lame duck has possibly increased, sources said. 'Maybe the hitch is,
[Republicans] come back with a more muscular version of this next time.
It could be worse, this is a devil they know,' said Sam Gerdano
of the American Bankruptcy Institute. However, Travis Plunkett of
the Consumer Federation of America disagreed there was any benefit to
consumers in trying to facilitate passage of the bankruptcy bill this
year. 'This is still a fairly harsh and unbalanced bill … It could
always get worse, but they'd have to try really hard,' he said.
Stuck Under a Load of Debt (Washington Post)
Many American middle- and lower-income borrowers are strained by debt as
the economy slumps, according to the latest batch of economic data and
corporate earnings reports, the Washington Post reported. While
affluent homeowners are taking advantage of low mortgage rates to
refinance their home loans and lower their monthly bills or pay off
debt, borrowers who live from paycheck to paycheck are more vulnerable
to the kinds of setbacks -- divorce, illness, job loss -- that can make
debts more overwhelming. These borrowers' problems, in turn, add to the
financial woes of the companies that lend to them and may signal trouble
for the entire economy.
Companies that serve lower-income borrowers and those with bad credit
histories, known in the industry as subprime borrowers, recently
reported a rise in troubled accounts. These companies said there had
been an increase in the percentage of their loans considered credit
losses -- loans more than 180 days overdue and that they consider a
financial loss -- in the third quarter from the same time period a year
ago. And many also reported a rise in the percentage of loans that were
'delinquent' -- those whose payments are 30 or more days late. To read
the full article, point your browser to
href='http://www.washingtonpost.com/wp-dyn/articles/A30187-2002Nov8.html'>
color='#000080'>http://www.washingtonpost.com/wp-dyn/articles/A30187-2002Nov8.html
WORLDCOM
1-800-Collect:To Take Part In WorldCom DIP Loans
1-800-Collect, which urges its customers to 'save a buck or two,' and
each of the other WorldCom entities that filed for bankruptcy on Friday
will take part in the parent company's $1.25 billion
debtor-in-possession financing agreement, Dow Jones reported. As a
result, those 38 firms will become guarantors under the loan pact, court
papers said. U.S. Bankruptcy Judge Arthur J. Gonzalez on Oct. 15
granted WorldCom final approval of its debtor-in-possession financing
agreement so the company could carry on its telecommunications business
while restructuring its debt under bankruptcy protection.
1-800-Collect's chapter 11 petition said the company's total assets and
debts are being consolidated with those of WorldCom and all its debtor
subsidiaries. The filing said the collect-calling services' creditors
are also being consolidated with those of its parent. John S. Dubel, the
chief financial officer of WorldCom , said in court papers filed on
Friday that the affiliated debtors that filed Friday are asking the
bankruptcy court to jointly administer their cases along with
WorldCom.
WorldCom Files Additional Bankruptcy Petitions
WorldCom Inc. filed bankruptcy petitions in the U.S. Bankruptcy Court
for the Southern District of New York for 43 of its units, Dow Jones
reported. In a press release on Friday, WorldCom called the filing a
formality and said the units were effectively inactive, with no
significant debt. The filing is to allow the units to have the same
relief under chapter 11 as its other businesses, with the cases jointly
administered under the WorldCom petition. The bankruptcy court will hear
the request on Tuesday.
H-P's Capellas Leads List To Be CEO of WorldCom
Michael D. Capellas, president of Hewlett-Packard Co. and former
chairman and chief executive of Compaq Computer Corp., has emerged as
the front-runner to succeed WorldCom Inc.'s departing CEO, John W.
Sidgmore, according to people familiar with the matter, the Wall
Street Journal reported. At this point, WorldCom's board informally
'has already signed off' on picking Capellas for the job, one person
close to the situation said. Also, the five creditors' committee
representatives on the search panel at WorldCom, which is operating
under bankruptcy-court protection, 'are all enthusiastic' about
Capellas, this person added. But three other executives are still being
considered by WorldCom's search committee, making the situation fluid,
people close to the situation said. Besides Capellas, WorldCom also has
held serious discussions with XO Communications Inc.Chairman and Chief
Executive Dan Akerson and BellSouth Corp. Vice Chairman Gary Forsee. The
identity of the fourth candidate couldn't be determined.
NRG Energy Says Bankruptcy Filing 'Not Imminent'
NRG Energy Inc. said it doesn't have 'imminent plans' to file for
bankruptcy protection, but noted that a chapter 11 filing could
'ultimately be the means to implement any restructuring proposal' with
its creditors, Dow Jones reported. The unregulated power-generation
subsidiary of Xcel Energy Inc. issued the statement in response to an
article in Friday's edition of the Wall Street Journal, but acknowledged
that the piece 'accurately portrayed' elements of NRG's restructuring
proposal presented to its creditors earlier this week. 'We have begun
the process of negotiating with our various bank and bondholder
constituencies regarding specific points in the restructuring proposal,'
said NRG President and Chief Executive Richard C. Kelly in a press
release on Friday.
Budget Group Gets Court OK for $507 Million Sale to Cendant
Unit
Budget Group Inc. on Friday won approval of the sale of substantially
all of its assets to a unit of Cendant Corp. in a deal valued at $506.8
million, Dow Jones reported. Judge Mary F. Walrath of the U.S.
Bankruptcy Court in Wilmington approved the sale after finding that the
debtor company and Cherokee Acquisition Corp., which was created by
Cendant to purchase the assets, demonstrated that Cherokee will be able
to meet future obligations under the contracts it's assuming as part of
the sale. 'I am satisfied that Cherokee and the debtor have met their
burden of establishing that Cherokee will be in position to satisfy the
contracts that are being assumed under the asset purchase agreement,'
Judge Walrath said. Budget Group said it expects to close the sale by
Nov. 22, said Larry J. Nyhan, an attorney with Sidley Austin Brown &
Wood, the firm representing the rental car company. Cendant owns Avis
Rent-A-Car. Cherokee is purchasing all of Budget Group's American,
European and Australian assets as well as assets in Asia, according to
court documents. Judge Walrath's order came at the end of a three-day
hearing to consider approval of the asset purchase agreement. Roughly
170 objections were filed regarding the sale. Budget Group filed for
chapter 11 bankruptcy protection in July, listing $4.05 billion in
assets and $4.33 billion in liabilities. The debtor is the nation's
third-largest car and truck rental company.
ANC Rental Seeks Extension to File Exclusive Plan
ANC Rental Corp. is seeking approval from the U.S. Bankruptcy Court in
Wilmington, Del., for a 120-day extension of its exclusive right to file
a reorganization plan and lobby for creditor support, Dow Jones
reported. Court papers said the company wants up to March 8 to file a
plan and until May 7 to solicit creditor support. A hearing on the issue
is scheduled for Dec. 3. Objections are due by Nov. 26. The current
deadlines are Nov. 8 to file an exclusive plan and Jan. 7 to solicit
support. ANC, which operates National Car Rental System and Alamo Rent A
Car, filed for chapter 11 bankruptcy protection in October 2001.
Auto Finance Company Lays Off 230 Workers in Indiana
Automobile finance company Union Acceptance Corp. laid off nearly half
its workforce six days after filing for chapter 11 bankruptcy
protection, Dow Jones reported. The Indianapolis-based company laid off
230 of its 470 employees on Thursday. Lee Ervin, the company's chief
executive, didn't discuss the job cuts during an afternoon
teleconference, although he did refer to a 'carefully planned head-count
reduction.' Ervin said Union Acceptance would hire a reorganization firm
and ask the Securities and Exchange Commission for a five-day extension
to file its latest quarterly report. Union Acceptance said last week it
posted a third-quarter loss of $35.5 million, or $1.14 per share. For
the nine months ending Sept. 30, the company lost $45.7 million, or
$1.47 per share. Shares of Union Acceptance, which was taken off the
Nasdaq market on Tuesday, fell 7 cents to 23 cents in trading on
Thursday.
UNITED AIRLINES
Analyst Expects UAL Bankruptcy, Bigger Industry Loss
Despite some recent positive headlines on debt restructuring and labor
negotiations, UAL Corp., parent of United Airlines, is still likely to
file for bankruptcy, analyst Sam Buttrick at UBS Warburg wrote in a
research note on Friday, Dow Jones reported. Based on a weak revenue
environment for airlines, United will be unable to survive, he said. And
he now expects the airline industry to post bigger fourth-quarter losses
than earlier expected. Buttrick said the Air Transportation
Stabilization Board, where UAL has filed for a $1.8 billion federal loan
guarantee, 'may reasonably conclude that UAL's purported savings are
insufficient relative to the weak yield environment, and that UAL is
unable to access capital outside the ATSB.' On Tuesday, the nation's
second-largest airline said it had reached an agreement with a German
bank to restructure about $500 million of debt. But the ATSB has said it
won't decide on a loan for United until the airline provides more
detailed information on how it expects to cut costs. UAL is working
toward a goal of cutting labor costs by $5.8 billion, but so far the
company hasn't said whether its mechanics, a key union group, will agree
to the plan. Meanwhile, the airline industry continues to suffer from
weak yields, the revenue generated per passenger.
United Air, Flight Attendants Reach Tentative Pact
UAL Corp.'s United Airlines and its flight attendants union reached a
tentative agreement on wage cuts, just days after the airline said it
would furlough 2,700 more attendants by Jan. 31, Dow Jones reported. The
union agreed to $412 million in cuts over the next five-and-a-half
years. On Friday, the airline announced more furloughs that would bring
the total number of attendants on furlough to 4,800. The company, which
currently has about 23,800 flight attendants, said it will first offer
voluntary furlough options to offset involuntary furloughs. Last month,
a coalition of United Airlines unions said they would support $5.8
billion in concessions over five years, which the airline sought as part
of efforts to secure government aid and cut costs under its recovery
plan. Without lower expenses and loan, the airline had said it may have
to seek bankruptcy protection before the end of the year.
Med Diversified Unit Files for Bankruptcy Court Protection
Tender Loving Care Health Care Services Inc., a unit of Med Diversified
Inc., filed for bankruptcy protection following the collapse of its
primary lender, National Century Financial Enterprises, and its units
NPF XII and NPF VI, Dow Jones reported. In a press release on Monday,
the provider of home and alternate site health care services said that
J.P. Morgan Chase & Co., as well as Bank One Corp., in their
capacity as representatives and trustees of the Dublin, Ohio, finance
company, should have known about the extent of financial problems at the
lending company and its units, NPF VI and NPF XII. On Oct. 17, the
lending company failed to make agreed-upon payments; as a result, Tender
Loving Care failed to meet payroll obligations, which have since been
met. Med Diversified, a company that is listed on the pink sheets, also
asserts that J.P. Morgan, Bank One, and other independent directors
prevented it from seeking alternate funding and succeeded in getting a
temporary restraining order placed against the company when it took
legal steps to collect reimbursement of pending claims directly from its
payers.
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