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October 15, 2002
Bankruptcy Overhaul Possible after Election
The proposed bankruptcy reform bill—now stalled over an abortion
dispute—should come up for a vote after November congressional
elections, Senate Majority Leader Tom Daschle (D-S.D.) said on Friday,
Reuters reported. Daschle told reporters that Congress is likely to
resume legislative work after the election. Finishing a bankruptcy
overhaul law is a likely to-do item during a late, or 'lame duck,'
session, he said. 'The bankruptcy conference report is one that is
likely to be addressed in the lame duck,' the South Dakota lawmaker
said.
The law would make it harder for people to use bankruptcy to avoid
paying for purchases. On the verge of congressional approval in July,
the measure was blocked by conservative Republicans in the House of
Representatives who objected to a provision that would prevent people
who bar access to abortion clinics from avoiding court-ordered fines by
declaring bankruptcy. GOP leaders said they were not sure the bankruptcy
bill could pass without the votes of those members of Congress. Even if
it could, Republican aides said, party leaders were unwilling to anger a
loyal party constituency right before an election in which the
Republican five-seat majority in the House is at stake.
House Speaker Dennis Hastert (R-Ill.) has pledged his legislative
body would address the bankruptcy bill before the end of the year,
Daschle said. 'I'm also confident that if they do it, we can do it as
well. It will take a little time for us to do it, but I'm prepared to do
it because I think that its time has come,' said the South Dakota
lawmaker.
According to the Congress Daily, the fate of bankruptcy reform
legislation is highly precarious in what may be the Congress' last week
before the election. House Republican leaders have signaled they will
not seek to bring the conference report to the floor over the objections
of anti-abortion Republicans before the elections. But whether House
leaders would risk alienating anti-abortion factions even after the
upcoming election is unclear. Moreover, the Senate still needs to
approve the conference report - and the prospect of procedural delays
during that process could be enough to take the measure off the table
during a lame-duck session. Meanwhile, continued GOP control of the
House would present the party with new opportunities to move bankruptcy
legislation during the 108th Congress—or give the party time to
mend fences with the anti-abortion factions, should they decide to press
forward with a vote on the legislation.
September Retail Sales Fall
Retail sales fell 1.2 percent in September—the largest drop in 10
months, the Commerce Department reported today, CongressDaily
reported. It largely attributed the decline to a 4.8 percent drop in
automobile sales. Despite the news, stock prices rose significantly in
early trading, with an increase of 265 points at mid-morning. At 2 p.m.,
the Dow Jones Industrial Average was up 357 points to 7,891.21, while
the Nasdaq had risen nearly 55 points to 1,217.96.
KMART
BlueLight.com Seeks Approval to Sell Internet-Access
Business
BlueLight.com, Kmart Corp.'s e-commerce subsidiary, is seeking approval
from a federal bankruptcy court to sell its Internet-service-provider
business to United Online Inc. for $8.4 million, the Associated Press
reported. BlueLight.com, based in San Francisco, said on Friday it had
filed a motion asking the court to approve the sale, which was subject
to a competitive bidding process. The transaction also is subject to
other conditions. BlueLight.com said last month it had agreed to sell
its ISP business to NetBrands Inc., a wholly owned subsidiary of United
Online Inc., unless there was a better offer. United Online operates the
NetZero and Juno online services. BlueLight.com said the sale wouldn't
affect the Kmart.com online shopping site, which it also operates.
Under terms of the agreement, United Online, based in Westlake
Village, Calif., will receive BlueLight.com's ISP and e-mail service,
which has some 165,000 subscribers. If the deal is completed, people who
connect to the Internet using BlueLight.com should not see a disruption
or have to change their e-mail addresses, Kmart said. A hearing on the
matter is scheduled for Oct. 30.
Kmart's Turnaround Scheme Has New Aprons, Wider
Aisles
After months of secret strategizing, Kmart Corp. is ready to unveil its
post-chapter 11 plan, the Wall Street Journal reported. The
discount retailer plans to show off a prototype of future stores that
will feature a new logo, sleekly designed signs, better lighting, lower
shelves and wider aisles to encourage shoppers to buy more.
Kmart has dubbed its prototype the Store of the Future—in part
to reassure employees that it does, in fact, have a future. For now, the
retailer plans to open one prototype; only four other stores will test
the new logo. Laboring under Chapter 11 bankruptcy-court protection
since Jan. 22, Kmart can't afford to remodel every store, which would
take roughly five years, before it sees results. So Chief Executive
James B. Adamson says the company will study the prototype and focus on
changes that boost sales the most. Kmart hasn't said how long it will
test its prototype before deciding what to do at other stores.
It is still uncertain whether Kmart will even survive. Since seeking
bankruptcy-court protection, the company has closed 283 stores, and it
may close more. Sales at stores open at least a year dropped nearly 12
percent in August, the latest data available. The company has posted
losses of more than $2.5 billion since the chapter 11 filing, including
charges associated with its reorganization. Kmart stock has fallen from
more than $5 a share at the end of December to 48 cents on Monday at 4
p.m. in New York Stock Exchange composite trading.
Genuity Reportedly May Sell Assets to Level 3 for $100
Million
Genuity Inc., whose standstill agreement with its creditors expired on
Friday, may sell some assets to Level 3 Communications Inc., Dow Jones
reported. Level 3 may pay $100 million for Genuity Internet connection
assets that include a contract with AOL Time Warner Inc. valued at $360
million a year, Bloomberg reported, citing unnamed people familiar with
the matter. On Friday afternoon, Genuity announced it secured a 15-day
extension on its standstill agreement, which allows the company to
negotiate with its creditors without entering bankruptcy proceedings.
Among the creditors are Verizon Communications, which has loaned Genuity
$1.15 billion, and a group of banks that have loaned the company $2
billion. Genuity has defaulted on loans and has said that it may have to
seek bankruptcy protection if creditors demand payments. 'Putting a
telecom company into chapter 11 can do enormous damage to enterprise
value,' said Richard Tilton, a bankruptcy lawyer and chief
executive of turnaround firm Greenacre Asset Advisors, noting the
disruption that WorldCom's bankruptcy has caused its customers and
employees. 'They don't want to do that with Genuity unless there's no
choice.'
Sirius Seeks to Restructure Debt
Sirius Satellite Radio Inc. said it is in final talks regarding a debt
recapitalization and expects to make an announcement soon, Dow Jones
reported. The satellite radio operator failed to make a $720,000
interest payment on its 8.75 percent convertible subordinated notes,
which may cause a default at the end of its grace period on Oct. 31. In
a press release on Friday, Sirius said it has about $250 million in cash
on hand, sufficient to fund operations into the second quarter of 2003.
In August, the company said that it could be forced to file for
bankruptcy if it couldn't raise new funds by the second quarter of 2003.
As of June 30, Sirius had $319.7 million in cash, cash equivalents and
marketable securities. Sirius said on Friday that the company is still
in the process of trying to secure additional financing. The spokesman
said the company continues to negotiate with bondholders to restructure
some of Sirius' $669 million total debt, including $16.5 million
outstanding in the 8.75 percent notes, into new equity.
NYSE to Suspend Trading in EOTT Energy
The New York Stock Exchange said on Friday it plans to delist units of
EOTT Energy Partners L.P., in light of the company's announcement on
Wednesday that it would restructure through a pre-negotiated bankruptcy
filing, Dow Jones reported. The Houston energy company has the right to
appeal the exchange's decision. The NYSE said its decision is also based
on the company's plan to cancel its publicly traded units. The exchange
added that the company's units have recently traded below the exchange's
$1 minimum bid. EOTT Energy Partners said on Wednesday the plan will
significantly trim its debt, restructure its finances and formalize a
complete legal separation from Enron Corp. EOTT Energy Partners said the
prenegotiated chapter 11 filing is backed by its lenders, a majority of
its bondholders and Enron.
EOTT Energy Partners is a major independent marketer and transporter
of crude oil in North America. The company conducts the majority of its
business through the following four operating partnerships: EOTT Energy
Operating Limited Partnership; EOTT Energy Pipeline Limited Partnership;
EOTT Energy Canada Limited Partnership and EOTT Energy Liquids L.P.
Debt Sales Market Stumbles
Credit cards built today's $115 billion debt sales market,
Collections and Credit Risk reported. As late as 1999 many top
banks sold all of their monthly card chargeoffs, with an estimated $35
billion face value changing hands that year. Yet now, the figure is no
longer soaring year-to-year and many banks either severely scaled back
sales this year or plan to do so. Banks are keeping card charge offs
steady and making numbers through contingency collections—meaning
the need to sell debt for a quick bottom-line fix has eased.
The market's good fortunes first began to change when two top
buyers—Commercial Financial services and Credit rust—closed
amid scandals in 1999 and 2000. CFS had spoiled creditors by paying too
much for debt—12 to 14 cents on the dollar for
chargeoffs—something successors refused to do. And even as
consumer debt rose to $1.7 trillion and card chargeoff rates hovered
around 7 percent in July, it seemed clear that no fast relief was coming
for debt buyers as the fourth quarter neared.
Newcor Inc. Files Chapter 11 Reorganization Plan
Newcor Inc. filed a reorganization and disclosure statement that calls
for the company to emerge from chapter 11 bankruptcy as a going concern,
Dow Jones reported. The debtor's proposed plan, filed on Thursday,
projects a reorganization value of $44.8 million to $45.8 million. The
proposed plan estimates an equity value of $600,000 to $1.6 million,
according to the disclosure statement. The plan provides for a
significant reduction of debt from Newcor's capital structure.
Specifically, the proposed plan provides for the cancellation of $125
million of senior notes and a distribution of $28 million of new notes
to holders of allowed unsecured claims. Under the terms of the proposed
plan, holders of administrative claims, priority tax claims and priority
nontax claims will be paid in full.
Newcor also plans on fully repaying secured creditors, including
amounts owed to Comerica Inc. under a $3 million debtor-in-possession
loan, according to the company's proposed plan. Unsecured creditors will
receive their pro-rated share of $20 million in cash, of which $6
million shall be from a rights offering. The unsecured creditors will
also receive $28 million in new notes, according to the disclosure
statement. Newcor estimates allowed general unsecured clams will total
$156 million to $188 million. A hearing to consider the adequacy of the
disclosure statement in the U.S. Bankruptcy Court in Wilmington, Del.,
hasn't been scheduled.
Borden Chemicals Noteholders Object to Disclosure
Statement
A group of noteholders objects to approval of Borden Chemicals &
Plastics Operating L.P.'s disclosure statement for its chapter 11
liquidation plan—saying the document doesn't have adequate
information and describes a liquidation plan that is unconfirmable, Dow
Jones reported. Bennett Management Corp., Goldman Sachs & Co. and
CypressTree Investment Management together hold $80 million of $200
million of 9.5 percent notes due 2005, according to court documents. The
notes are senior unsecured obligations of Borden Chemicals and BCP
Finance Corp. The objecting noteholders said the plan is unconfirmable
because it provides different treatment to creditors with 'substantially
similar' claims. They point to a provision in the plan that puts their
claims in one creditor class and the claims of all other general
unsecured creditors in another class.
Under the Bankruptcy Code, objections to a chapter 11 plan may be
considered at a disclosure statement hearing under circumstances in
which 'the plan described in the disclosure statement pending before the
court is either fatally flawed or patently unconfirmable,' according to
the objection. The noteholders also said the disclosure statement has
inadequate information because it doesn't provide any estimate or range
of recovery for creditors—'the bare minimum of information
statutorily required.' Borden Chemicals & Plastics Operating is 99
percent owned by Borden Chemicals & Plastics L.P., which didn't file
for chapter 11 bankruptcy protection. Borden Chemicals and Plastics
Operating filed for bankruptcy protection April 3, 2001, listing assets
and debts of more than $100 million each.
Lapsed Lien Lives On in Chapter 11 Case
In what is apparently a one-of-a-kind ruling, a bankruptcy appellate
panel of the 8th U.S. Circuit Court of Appeals has said that a lapsed
security interest in collateral can still take priority over a junior
lien, even if applicable state law says otherwise, law.com
reported. This, despite a dissenting judge's warning that a
later-arriving lender who may not know of the lapsed lien could find
itself in a rock-paper-scissors conflict with the other lienholders
asking whose lien had priority. The decision in In re Dial Business
Forms, No. 02-6009, allowed the General Electric Capital Corp. to
maintain a $1 million lien on printing equipment owned by a Kansas City,
Mo.-based chapter 11 debtor, even though GE Capital didn't file a
Uniform Commercial Code lien continuation statement before its original
lien expired.
On the losing side, a U.S. bankruptcy trustee noted the absence of
controlling precedent and said he will appeal. To read the full story,
point your browser to
href='http://www.law.com/servlet/ContentServer?pagename=OpenMarket/Xcelerate/…'>http://www.law.com/servlet/ContentServer?pagename=OpenMarket/Xcelerate/…
WorldCom Bankruptcy Loan Opposed by MCI Bondholders
Bondholders of MCI Communications Corp., WorldCom Inc.'s profitable
long-distance telephone unit, are fighting the parent's plan to borrow
$1.25 billion and reshuffle cash to fund its bankruptcy reorganization,
Bloomberg reported. Approval of WorldCom's requests “will
subject MCI to the real threat that it will be financing insolvent or
undercapitalized WorldCom affiliates to the detriment of MCI and its
creditors,'' the MCI bondholders said in an objection on Friday. A
hearing on WorldCom's proposed $1.25 billion bankruptcy loan is
scheduled for today in Manhattan. U.S. Bankruptcy Judge Arthur
Gonzalez gave the company permission in July to borrow as much as
$750 million pending a final hearing. In addition to the loan, Clinton,
Mississippi-based WorldCom is seeking court approval to unify its bank
accounts and cash- management systems, something the MCI bondholders see
as a step toward combining the entire company.
Three separate groups of bondholders have been maneuvering to gain an
upper hand in the company's reorganization. How the bondholders will
fare depends on whether WorldCom, its MCI unit and its Intermedia
Communications Inc. phone and data unit are combined or treated
separately in a chapter 11 recovery plan. Gonzalez can combine WorldCom
and its units under a single reorganization plan if doing so would treat
creditors more fairly based on various factors. Such consolidation is
generally invoked when a bankrupt company had operated its business as
one unit, without regard for corporate distinctions.
Forstmann, Telmex Pay XO to End Deal; Icahn Remains
An investment group led by Forstmann Little & Co. agreed to pay $25
million to XO Communications Inc. to terminate a proposed restructuring
pact, apparently closing the book on a ill-fated $1.5 billion Forstmann
investment in the beleaguered telecommunications carrier, the Wall
Street Journal reported. The termination agreement, which is subject
to court approval, leaves XO largely in the hands of financier Carl
Icahn, who had battled Forstmann head Theodore J. Forstmann for months
earlier this year for control of XO. Mr. Icahn holds a large portion of
XO's debt and is in line to swap that for a controlling position in new
XO stock as part of a new restructuring plan. XO, which filed for
bankruptcy protection in June, said it will seek court approval for a
new restructuring plan in mid-November, now that an agreement to end the
Forstmann pact had been reached.
Hindery Asks Global Crossing to Fork over Back Pay, Rent
Leo Hindery, a former chief executive of Global Crossing Ltd. and
well-known cable veteran, is fighting to force the fiber-optic carrier
to award him $708,000 in back pay and more than $100,000 in rent for a
lavish Manhattan apartment, the Wall Street Journal reported. In
papers filed in U.S. Bankruptcy Court for the Southern District of New
York, Mr. Hindery asked Global Crossing to reimburse him for
$83,000-a-month consulting payments that stopped when the company filed
for bankruptcy-law protection in January. He is also requesting $113,381
for five months of rent paid on an apartment on Manhattan's Park
Avenue.
Edward Weisfelner, an attorney representing some of Global Crossing's
creditors, called Mr. Hindery's request 'laughable.' The company's
creditors are owed $12.4 billion, and are expected to collect only a
small percentage when a plan to sell the company to two Asian telecom
providers closes next year.
Primix Sees Filing in Next Few Weeks
Primix Solutions Inc. plans to file for chapter 7 bankruptcy protection
in the next few weeks, Dow Jones reported. The Internet services company
also said in a press release on Monday that David Chapman, its chief
financial officer, treasurer and secretary, resigned effective Sept. 17.
Lennart Mengwall, Primix's chairman and chief executive, assumed
Chapman's duties. The company's shares, which trade on the
over-the-counter Bulletin Board, last changed hands at less than 1
cent.
Rigases Fight Panels' Bid to Intervene in Adelphia Suit
The Rigases and other defendants being sued by Adelphia Communications
Corp. say they oppose a request by two creditor groups to intervene in
the matter, Dow Jones reported. 'It would be a waste of resources of the
estate and inherently unfair to the defendants if the (unsecured
creditors' and shareholders') committees were permitted to essentially
separately litigate these proceedings against the defendants,' the
defendants said in a filing on Monday with the U.S. Bankruptcy Court in
Manhattan, which is handling Adelphia's 3 1/2-month-old chapter 11 case.
The intervention request is scheduled to be considered on Wednesday by
U.S. Bankruptcy Judge Robert E. Gerber.
Ames Dept Stores Seeks Court OK for New $100 Million DIP
Loan
Ames Department Stores Inc. is seeking bankruptcy court approval of a
new $100 million debtor-in-possession loan it says it needs to
successfully wind down operations, Dow Jones reported. The new loan
would be provided by Kimco Funding LLC, which had provided the
liquidating discount retailer with a $55 million term loan earlier in
its chapter 11 case, according to a filing with the U.S. Bankruptcy
Court in Manhattan. At the time of its August 2001 chapter 11 filing,
Ames had more than 400 stores. The company closed some of its
unprofitable stores while in bankruptcy, but last month decided to close
all 327 remaining locations after sales dropped and merchandise became
harder to get. Ames said that 'going forward, the critical element of
recovery to creditors lies in the value of the debtors' real estate.' To
maximize this value, 'the debtors must pay the carrying costs associated
with the unexpired leases and other real properties.' A hearing for
interim approval to use up to $30 million under the new loan is
scheduled for today before U.S. Bankruptcy Judge Robert E.
Gerber. A final hearing on the full amount is scheduled for Oct.
23.
NEXIQ Technologies Inc. Announces Chapter 11 Filing
Nexiq Technologies Inc. and certain of its units filed voluntary chapter
11 bankruptcy petitions in order to sell significantly all of the
company's operations, Dow Jones reported. In a press release on Monday,
the provider of diagnostics and telematics products said it will
implement a cost-saving program that will include job cuts in an effort
to conserve capital. The timing and extent of the work force reductions
are yet to be determined.
Last month, Nexiq said John R. Allard resigned as chief executive,
but he remains chairman. At the time, the company announced it continued
to seek additional investment banking and restructuring services to help
its efforts to improve operating results, explore strategic options and
raise additional financing. Nexiq said on Monday it will ask the
bankruptcy court to consider early motions, including permission to
continue paying employees' wages and benefits, to use available cash and
to hire legal and financial advisers. The company has obtained the
lenders' consent for use of cash. The chapter 11 filing in U.S.
Bankruptcy Court for the Eastern District of Michigan includes three
affiliated entities: Nexiq Technologies Inc. and its two operating
units, WPI Micro Processor Systems Inc. and Diversified Software
Industries Inc.
Warren Buffett Reports 35.04 Percent Comdisco Holding Company
Stake
Berkshire Hathaway Inc. Chairman and Chief Executive Warren Buffett
reported holding a 35.04 percent stake in Comdisco Holding Co.,
according to a Schedule 13D filed on Friday with the Securities and
Exchange Commission, Dow Jones reported. Buffett beneficially owns 1.5
million common shares, the filing said. According to the filing, the
shares were issued pursuant to Comdisco Inc.'s chapter 11 reorganization
plan. Buffett's affiliates were creditors and received the shares under
a distribution Oct. 1. The aggregate claims of the affiliates totaled
approximately $1.4 billion. The U.S. Bankruptcy Court entered a
confirmation order with respect to the plan on July 30 and the plan
became effective on Aug. 12. According to the filing, the shares are
held for investment. Comdisco, Rosemont, Ill., a technology services
company, emerged from chapter 11 bankruptcy in August with a plan to
sell off remaining assets over three years.
Plymouth Rubber, Lenders Agree to Restructure Debt
Plymouth Rubber Co. reached an agreement in principle with its lenders
to restructure its debt, Dow Jones reported. In a press release on
Friday, the rubber products maker said the lenders agreed to lower its
principal payments for the next three years, eliminate financial
covenants, waive existing defaults and rescind demands for accelerated
payments, in return for enhanced collateral positions. Plymouth said the
debt restructuring, combined with the company's return to profitability
in the year to date 'should provide the stability and financial
framework to allow Plymouth to continue its turnaround.' Plymouth's net
income for the first nine months was $1.1 million, compared with a $3
million loss for the same period last year. As reported, Plymouth wasn't
in compliance with the covenants of its revolving credit and long-term
loan agreements as of May 31. Plymouth had been negotiating with its
lenders since falling out of compliance in order to avoid filing for
chapter 11 bankruptcy protection.
GenTek Files for Chapter 11 Protection in Delaware
Telecommunications products manufacturer GenTek Inc. and 32 affiliates
filed for chapter 11 bankruptcy protection on Friday in the U.S.
Bankruptcy Court in Wilmington, Del., listing $1.2 billion in assets and
$1.4 billion in debts, Dow Jones reported. In a press release issued on
Friday, the company said it has $110 million in cash and its access to
cash from operations would be enough to fund its ongoing expenses and
meet all its obligations to customers, vendors and employees during its
chapter 11 proceedings. GenTek said it doesn't see a need to obtain
debtor-in-possession financing because its strong cash position
permitted it to make about $32 million of principal and interest
payments under its current credit agreements in the past two weeks.
According to the press release, GenTek's chapter 11 petition was spurred
by a need to deleverage its balance sheet and create an improved
long-term capital structure. The company also said its operations
continue to remain cash positive. The company's largest unsecured debt
is a $200 million amount held by U.S. bank Trust National Association of
New York, which is the indenture trustee for 11 percent senior
subordinated notes.
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