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November 6, 2002
Republicans Regain the Senate, Keep Hold on House
The GOP regained control of the Senate, after a tight race in Missouri
turned their way, and kept its majority in the House, showing unusual
strength in a midterm election for the party in the White House, the
Wall Street Journal reported.
WORLDCOM
WorldCom, SEC Close to Settlement
WorldCom Inc. and the Securities and Exchange Commission are close to a
deal to settle charges that the bankrupt telephone company committed
fraud by manipulating its financial records, Reuters reported. A deal,
which could be announced within a week or two, would impose a nominal
fine on WorldCom and require the company to agree not to violate
securities laws in the future. The exact amount of the fine would be
determined after the various investigations into WorldCom's conduct
concluded, the newswire reported. Clinton, Miss.-based WorldCom, which
filed the world's largest bankruptcy in July, has uncovered $7.68
billion in accounting problems and may reveal as much as $3 billion
more. Reaching a settlement less than five months after the SEC filed
its lawsuit would eliminate some of the many problems plaguing the
company. It also would lessen the threat that the company itself, rather
than just a few rogue executives, would be indicted for wrongdoing.
WorldCom still faces several shareholder lawsuits and investigations by
various Congressional committees. The United States attorney's office in
New York also is investigating WorldCom executives.
WorldCom Ex-CEO Ebbers Scrutinized for Possible Insider
Trading
WorldCom Inc.'s founder, Bernard Ebbers, is being investigated for
possible insider-trading violations, said Richard Thornburgh, a
bankruptcy court official who is examining the long-distance phone
company, Bloomberg News reported. Thornburgh, a former U.S. Attorney
General, said he is looking into Ebbers's sales of WorldCom stock
between September 2000 and April 29, 2002, when the then-chief executive
was forced to leave the company. Thornburgh said he's attempting to
determine whether Ebbers recorded all his sales of WorldCom stock while
he was CEO, as required by law. As chairman and chief executive officer
of WorldCom, Ebbers was required by law to report his trades of WorldCom
stock to the Securities and Exchange Commission. Ebbers had about 20
million shares of WorldCom on December 31, 2001, when he filed a
personal financial statement with his company. There are no negotiations
under way with the prosecutor in charge of that investigation, the U.S.
attorney in New York, to resolve any criminal charges Ebbers faces
related to WorldCom.
Washington State Sues to Recover WorldCom Losses
Washington state is suing 14 major financial institutions over pension
fund losses caused by WorldCom's collapse into bankruptcy, the
Associated Press reported. State pension funds lost $100 million on
WorldCom bonds after the company's accounting scandals came to light.
The lawsuit, filed on Monday in King County Superior Court, alleges the
investment firms failed to ensure that their sales pitches for WorldCom
bonds were true. 'These defendants failed to meet their obligation to
fully inform potential bond holders about WorldCom's true financial
condition,' state Attorney General Christine Gregoire said. 'We hope to
restore money to the pension system and send Wall Street a message that
we will hold them accountable if they abandon honesty for profit.'
Washington state pension officials say the $100 million WorldCom loss
won't endanger pension payouts. The state Investment Board sold WorldCom
bonds in time to recover about 46 percent of their original purchase
price. Gregoire says in the lawsuit that the defendants-including J.P.
Morgan Securities Inc., Bank of America Corp. and Arthur
Andersen-marketed WorldCom bonds in a multi-city 'road show,' where they
predicted strong revenue and profit growth for the company. This is the
second time Washington state has gone to court seeking to recover
pension funds. The state is the lead representative for public
bondholders in the class-action lawsuit against Enron, filed in Houston
late last year. Washington pension funds lost $97.5 million when Enron
bonds plummeted in value.
Home-lending Boom Leads to Higher Bankruptcy Levels
The home-lending explosion has created more than just record numbers of
'McMansions' and remodeled kitchens, the Wall Street Journal
reported. There are also record numbers of homeowners now in bankruptcy
protection. Consumer bankruptcy filings of all kinds are at record
levels, but chapter 13 filings -- the category that attracts most
homeowners -- are outpacing other consumer categories. They were up 8
percent in the second quarter from a year earlier, compared with a less
than 3 percent increase in personal bankruptcies overall and a slight
decline in the more-popular chapter 7, according to the American
Bankruptcy Institute, a nonprofit group in Alexandria, Va. That rise
comes as the total amount of mortgage debt outstanding has jumped 50
percent to almost $5.7 trillion in just the past four years. And
bankruptcy experts say that is no coincidence. To read the full story,
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Lodgian Wins Court Backing of Bankruptcy Recovery Plan
Lodgian Inc., which runs hotels under the Hilton, Holiday Inn, and
Marriott names, won a federal bankruptcy judge's approval of its
reorganization plan, clearing the way for the hotelier to come out of
chapter 11, Bloomberg News reported. Lodgian, which operates 106 hotels
in 32 U.S. states and Canada, sought bankruptcy protection in December
after losses grew in the travel industry slump that followed the Sept.
11 attacks. The Atlanta-based company listed $1.07 billion in assets and
$968 million in debts in chapter 11 papers filed in the U.S. Bankruptcy
Court in Manhattan. Lodgian has an agreement for a $286 million loan
from Merrill Lynch Capital Inc. to help fund operations after it exits
bankruptcy, according to court filings. Under Lodgian's plan to emerge
from bankruptcy, senior subordinated noteholders, owed more than $210
million, will get about $117 million of new preferred shares and a
controlling stake in Lodgian's new common stock. Morgan Stanley and
Lehman Brothers Holdings Inc. helped Lodgian fund operations during the
bankruptcy with a $25 million credit line.
Besieged Pitt Quits as SEC Chairman
Securities and Exchange Commission Chairman Harvey L. Pitt resigned
yesterday after just 15 months on the job, under pressure from the White
House, the Washington Post reported. In a letter to President
Bush, Pitt said that 'the turmoil surrounding my Chairmanship' was
making it difficult for the nation's securities regulator to do its job.
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Adelphia Lowers Outlook, Blaming Drop in Subscribers
Adelphia Communications Corp. lowered its 2002 earnings projections,
blaming a decline in cable customers and complications resulting from
its chapter 11 bankruptcy filing, Dow Jones reported. The Coudersport,
Pa.-based cable provider now expects 2002 earnings before interest,
taxes, depreciation and amortization of between $1.1 billion and $1.3
billion, according to a filing on Tuesday with the Securities and
Exchange Commission. In mid-June, the company said it expected 2002
Ebitda to increase to $1.3 billion. In Tuesday's SEC filing, the company
said the lowered forecast resulted from a drop in the number of basic
cable subscribers and the disruptive effects of its chapter 11
negotiations. The company said the June 25 bankruptcy filing hurts its
marketing programs, as well as its ability to acquire and retain
customers. The revised Ebitda estimate includes year-to-date results
through Sept. 30, and excludes nonrecurring professional fees and
reorganization expenses related to its bankruptcy filing in late
June.
Ha-Lo Seeks Damages from Parties in Starbelly Deal
Ha-Lo Industries Inc. filed a complaint in bankruptcy court against
those who received consideration in the company's acquisition of
Starbelly.com Inc. in 2000, according to a filing on Monday with the
Securities and Exchange Commission, Dow Jones reported. Ha-Lo alleges a
fraudulent transfer under Illinois law in connection with the
acquisition and is seeking unspecified damages. Starbelly, a unit of
Ha-Lo, filed for chapter 11 bankruptcy with its parent on July 30, 2001.
Monday's filing said Ha-Lo filed the complaint on Oct. 22 with the U.S.
Bankruptcy Court in Chicago. The promotional products firm also said it
has begun discussing the potential form and content of a reorganization
plan with the unsecured creditors' committee. The filing said, however,
that the parties haven't yet agreed on any terms and conditions of a
consensual plan.
Frontier Gets Conditional OK for Loan Guarantee
Budget carrier Frontier Airlines Inc. on Tuesday said it received
conditional approval for a $63 million loan guarantee from the federal
government, the Associated Press reported. The loan backing from the Air
Transportation Stabilization Board, which was established by Congress
after the Sept. 11, 2001, terrorist attacks, covers 90 percent of a $70
million credit facility sought by the Denver, Co.-based airline.
Frontier joins US Airways, which is restructuring under bankruptcy-court
protection, in receiving conditional approval for a loan guarantee. US
Airways applied for a $900 million guarantee. America West, the nation's
eighth largest airline, received a $429 million loan guarantee. Many
smaller airlines have been rejected by the federal board. For example,
Las Vegas, Nev.-based National Airlines' request for a $50.5 million
loan guarantee was rejected in August because it was deemed too risky.
Spirit Airlines of Fort Lauderdale, Fla., was denied a $54 million
guarantee. The board also rejected proposals from Kansas City-based
Vanguard Airlines and Frontier Flying Service Inc., an Alaska commuter
airline. Vanguard shut down after the rejection. United Airlines, the
nation's second-largest airline, seeks a $1.8 billion guarantee to help
head off possible bankruptcy.
Trustee Seeks Multi-CAP Liquidation
The trustee appointed to oversee Multi-CAP's bankruptcy has asked a
federal judge to force the nonprofit agency to sell its assets and close
its doors because officials have not provided required operating
reports, the Associated Press reported. The motion, filed by Trustee W.
Clarkson McDow Jr., asks U.S. Bankruptcy Judge Ronald G. Pearson to
convert Multi-CAP's May 2001 bankruptcy filing from chapter 11 to
chapter 7. That change would force the agency to stop operating and
liquidate its assets to pay creditors. Pearson will hear the motion on
Dec. 11. Under chapter 11 bankruptcy protection, Multi-CAP officials
were required to provide operating reports and reorganization plans.
Those reports haven't been provided to McDow, the motion said.
Morgan Group Files to Liquidate
Unable to continue trucking without liability insurance, Morgan Group
Inc. has filed for bankruptcy, the Daily Deal reported. The Elkhart,
Ind.-based heavy-duty hauler and its two subsidiaries, Morgan Drive Away
Inc. and TDI Inc., disclosed in their Oct. 18 filing that they intend to
liquidate. The filing, in the U.S. Bankruptcy Court for the Northern
District of Indiana, was inevitable. Morgan Group shut itself down on
Oct. 3 after its liability insurance expired and it was unable to secure
replacement coverage.
Morgan Group made its money by hauling manufactured housing, trucks and
other specialized vehicles. The company had already sold its
manufactured housing transport division in August, after revenue from
the unit plunged $16 million, or 50 percent, in the first six months of
2002.
Big City Broadcasts Radio Station Auction
New York-based broadcaster Big City Radio Inc. announced late on Monday,
Nov. 4, the retention of Jorgenson Broadcast Brokerage to auction off
all 16 of the company's radio stations in an attempt to avoid bankruptcy
protection, the Daily Deal reported. The announcement was not
surprising since Big City said last month it would seek such remedies
after missing the semi-annual interest payment on its 11 percent senior
discount notes due in 2005. Payment on the $174 million principal amount
of notes originally was due Sept. 15. Big City has been in default since
the 30-day grace period for payment lapsed on Oct. 15. Proceeds from any
sale will go first to pay Big City's note obligations. Any surplus will
then be distributed to shareholders. 'No assurances can be provided that
the company will be successful in selling the stations at all or selling
the stations at prices sufficient to pay the principal and interest on
the notes,' Big City said in a statement. 'In the absence of successful
sales, the company will consider other strategic alternatives, including
filing for protection under the United States bankruptcy laws.'
Dearborn Leads in Sterling Auction
Weeks after buying Jefferson Smurfit Group for $3.7 billion, Chicago
buyout firm Madison Dearborn Partners LLC is poised to win another pulp
and paper-related business, the Daily Deal reported. Madison
Dearborn is favored to win the auction for Sterling Chemicals Holdings
Inc.'s pulp chemicals division, several sources said. The firm made a
binding bid of $380 million, or a 5.7 times 2002 Ebitda multiple, for
the business by the auction's Nov. 1 deadline, a source said.
Toronto-based ChemTrade Logistics Inc., possibly working with Foster
City, Calif.-based buyout firm Fox Paine & Co., and Toronto-based
Onex Corp. are its most likely competitors in the auction, the sources
added. Based in Toronto, Sterling's pulp chemicals unit supplies mills
with chemicals that bleach wood pulp. It is seen as a low-growth company
because the North American pulp and paper industry is in decline and
mills are being shuttered.
Its parent, Houston-based Sterling Chemicals Holdings, is bankrupt
and selling assets as part of its second reorganization plan. Sterling
plans to retain its larger petrochemical unit and use proceeds from the
pulp sale to pay senior creditors and retire some debtor-in-possession
financing. The U.S. Bankruptcy Court for the Southern District of Texas
in Houston is running the auction, and Sterling is using Greenhill &
Co. for advice.
The court is expected to choose a stalking-horse, or lead bidder, within
days and set a breakup fee. It hopes to wrap up the process by
mid-December, shortly after a Nov. 20 hearing to confirm Sterling's
reorganization plan.
International Steel May Buy Part of Bethlehem Steel
International Steel Group Inc., created this year by investor Wilbur
Ross, is considering buying all or part of bankrupt Bethlehem Steel
Corp. in a bid that may give it the biggest share of steel making
capacity in the United States, Bloomberg News reported. 'We are going to
start due diligence later this week,' International Steel Chief
Executive Rodney Mott said in an interview. 'Our primary focus will be
on flat roll, but we'll be looking at all their steel-making assets.'' A
full purchase would almost double International Steel's production
capacity to 20 million tons a year, giving it control of as much as 17
percent of U.S. capacity and greater ability to affect prices. Ross
created International Steel by buying assets of bankrupt LTV Corp. and
has benefited from non-union labor and U.S. tariffs. He has 60 days to
review Bethlehem's operations. Bethlehem said yesterday that the U.S.
government will take control of its employee pension fund after the
company struggled to make up for a $6 billion shortfall. Bethlehem,
which had $3.33 billion in sales last year, filed for chapter 11
bankruptcy protection in October 2001, saddled with $4.5 billion in
debt.
The Bethlehem, Pa.-based company has about 11,800 workers and all of its
facilities are running, spokeswoman Bette Kovach said. Ross's buyout
firm, W.L. Ross & Co., is run from New York. Closely held
International Steel is based in Cleveland, Ohio. The United Steelworkers
of America said in a statement 'it was encouraged by the announcement,'
and is in talks on agreements that 'would enable both to survive.' The
Pension Benefit Guaranty Corp. (PBGC), which guarantees pensions through
the federal government, will terminate Bethlehem's pension plan in the
'next few months,' the company said in a statement. The PBGC takes over
plans if they remain underfunded and uses the employer's assets to help
make payments. Bethlehem pays pensions to about 75,000 retirees and
surviving spouses and has blamed its financial losses on those
commitments. Bethlehem also has said about 130,000 people are receiving
health benefits.
National Steel Given More Time to File Bankruptcy Recovery Plan
National Steel Corp. was granted more time to file a bankruptcy recovery
plan after showing a net income of $7.3 million in September, Bloomberg
News reported. U.S. Bankruptcy Judge John H. Squires said he
ordinarily wouldn't allow a second extension of time for a company to
file a recovery plan before creditors or shareholders can file competing
plans. He said the September results and creditors' support of the
request were enough to persuade him. 'It looks like operations have
started to turn around,' Squires said, granting the fourth-biggest U.S.
steelmaker's request to extend its filing deadline to April 7, 2003. The
Mishawaka, Ind.-based company filed for chapter 11 bankruptcy protection
on March 6, citing low prices and a weak economy. Other steelmakers that
have filed for bankruptcy in the past two years include Bethlehem Steel
Corp., the third-biggest U.S. steelmaker, and Trico Steel Co. National
Steel's attorney, Mark Berkoff of Chicago-based Piper Rudnick LLP, said
the company believes it is making progress in creating an acceptable
reorganization plan. National Steel, which had $2.49 billion in sales
last year, listed $2.61 billion in debt and $2.3 billion in assets in
court papers filed in March. National Steel is majority-owned by NKK
Corp., which along with Kawasaki Steel Corp. is part of Tokyo-based JFE
Holdings Inc.
Armstrong to Create Trust for Asbestos Cases
Armstrong World Industries Inc. said on Monday that it would create a
billion-dollar trust to resolve thousands of asbestos-related lawsuits
as part of its plan to emerge from bankruptcy, Bloomberg News reported.
The flooring maker said it would fund the trust with cash and securities
to settle claims by individuals who say asbestos in the company's
products made them ill. In creating the trust, Armstrong follows the
example of Johns Manville Corp., a building-products maker that in 1982
filed for chapter 11 protection. Manville's trust, the first created to
handle asbestos claims, has paid exposed workers about $2.7 billion. The
settlement later became part of U.S. bankruptcy law, allowing companies
to establish trusts to settle asbestos suits. Warren Buffett's Berkshire
Hathaway Inc. now owns Manville. Armstrong filed for chapter 11
protection in December 2000 after the Lancaster, Pa.-based company
reported to the Securities and Exchange Commission that it couldn't cope
with an onslaught of asbestos suits and might face more than $1.35
billion in asbestos claims by 2006.
NCI Holdings and Nationwide Credit Complete Corporate
Refinancing
NCI Holdings Inc. and Nationwide Credit Inc. yesterday announced the
completion of a corporate refinancing effort that will result in
Nationwide having one of the strongest balance sheets in the industry,
Collection Industry.com reported. Terms of the existing bank
finance have been revised so that Nationwide Inflection LLC will provide
the Tranche B and C term loans, previously provided by the banks, on
substantially the same terms; Nationwide Inflection LLC is the
acquisition vehicle set up by Bayshore Capital of Toronto and Triton
Partners Inflection Fund of New York. Bayshore is a private investment
firm with extensive prior holdings in the financial services industry,
and Triton structures and invests in recapitalizations and other special
situations. Nationwide is one of the leading accounts receivable
management companies in the United States.
Asbestos Ruling May Reduce Jury Awards for Pain and
Suffering
Automakers, construction contractors and other businesses facing
asbestos-exposure claims shouldn't shoulder the liability of bankrupt
defendants, a New York state judge ruled, in a decision that may make it
harder to collect pain-and-suffering damages in tens of thousands of
cases, Bloomberg News reported. The decision was a victory for companies
including Ford Motor Co., DaimlerChrysler Corp., General Motors Corp.
and American Standard Inc., which argued that bankrupt companies should
be included in apportioning responsibility for pain and suffering
awards. 'This issue is relevant to any personal injury action,'' New
York Supreme Court Judge Helen E. Freedman wrote, in an opinion issued
on Thursday. 'But its impact on asbestos litigation is especially
pronounced because of the large number of potentially culpable parties
that have filed for bankruptcy.''
The Wall Street Journal reported that the high court will hear
arguments today on whether six retired railroad workers from West
Virginia should be compensated not only for physical injuries from
asbestos, but also for their fears of future illness. In the same case,
the court will also consider the question of whether a defendant who is
only partly responsible for an injury should have to pay all the damages
awarded in the case.
Kmart Management to Meet With Vendors to Discuss Strategy
Kmart Corp. Chief Executive Jim Adamson and other executives will meet
with about
150 suppliers today as the discount retailer continues to develop its
plan to emerge from chapter 11 protection, Bloomberg News reported.
Chief Financial Officer Al Koch and Chief Operating Officer Julian Day
will also be at the meeting with representatives from
the companies to update them on Kmart's current situation, spokesman
Jack Ferry said, without being more specific. Additional meetings will
be held once every three months, he said. This is the first time since
June that Kmart, the largest U.S. retailer to file for bankruptcy, has
had a general meeting with suppliers, Ferry said. Suppliers need to be
reassured about Kmart's future as it approaches the crucial holiday
selling season
and prepares to order spring merchandise, analysts said. Kmart has said
it will file a reorganization plan by Feb. 24 and emerge from bankruptcy
in July. Suppliers are 'all very antsy about the holiday season,'' said
Charles Tatelbaum, a Connecticut-based bankruptcy lawyer representing
several Kmart creditors. 'Everybody is uncertain
about the holiday in general, not just for Kmart. They're just
waiting.''
Ex-Enron CFO to Plead Innocent to Criminal Charges
Former Enron Corp.'s Chief Financial Officer Andrew Fastow allegedly
masterminded a series of complex financial schemes that contributed to
the energy trader's downfall, the Associated Press reported. A flood of
criminal charges followed, and on Wednesday he faced arraignment in a
federal courtroom on a 78-count indictment. His attorneys have indicated
Fastow, 40, would plead innocent. Fastow's attorneys have said top Enron
executives approved his work and that Fastow did not believe he
committed any crimes. Former Chief Executive Officers Jeffrey Skilling
and Kenneth Lay were Fastow's immediate superior at different times.
Spencer Station Generating to Shut Down
PG&E Corp.'s PG&E National Energy Group Inc. unit plans to shut
down its Spencer Station Generating facility in Denton, Texas, Dow Jones
reported. In a press release on Tuesday, PG&E National Energy said
it expects to complete the shut-down process by Dec. 31 and will offer
the plant's 27 employees severance and other benefits. PG&E National
Energy decided to shut down the facility because of the increased cost
of doing business across the entire wholesale power sector and a
slowdown in the growth of demand for electric power because of current
economic conditions. As reported, PG&E Corp., the San Francisco
electricity and natural-gas company whose regulated utility is already
operating under bankruptcy protection, is looking for a buyer for all or
part of PG&E National Energy to resolve its debt crisis.
U.S. Trustee Seeks Examiner in Peregrine Systems Case
The U.S. Trustee acting in Peregrine Systems Inc.'s bankruptcy case is
asking a court to appoint an examiner to investigate the circumstances
that necessitate a restatement of the company's financial results, Dow
Jones reported. According to a motion filed on Tuesday, the U.S. Trustee
is also seeking an examiner to investigate potential claims of Peregrine
Systems against current and former directors and officers. The examiner
would look into conflicts of interest of the current members of the
board of directors. If the U.S. Bankruptcy Court in Wilmington, Del.,
decides not to name an examiner, the motion asked the court to appoint a
chapter 11 trustee to oversee the administration of the case. Before it
filed for bankruptcy protection on Sept. 22, Peregrine Systems announced
its intention to restate financial results for 11 quarters beginning
with the first quarter of 2000.
United Restructures Debt Obligations
United Airlines won a reprieve on Tuesday from $500 million in looming
debt repayments that threatened to push it into bankruptcy, announcing
that a German lender has agreed to restructure the debt and take payment
later, the Associated Press reported.
By putting off payments due in November and December, the deal with
German development bank Kreditanstalt fur Wiederaufbau removes one of
the biggest immediate financial threats facing cash-crunched United.
Once the agreement in principle is made final, the debt will come due in
2007, United said. 'We appreciate this significant show of confidence in
United's future,' said CEO and chairman Glenn Tilton. 'This is a welcome
development in our continuing efforts to achieve an out-of-court
financial recovery.' United, which is losing money at the rate of more
than $7 million a day, isn't out of danger yet in its bid to avoid
bankruptcy.
The Elk Grove Village, Ill.-based carrier still faces a Dec. 2
deadline for the repayment of $375 million in aircraft-backed loans, as
well as a $70 million payment to the machinists union for retroactive
wages due on Dec. 15. It also needs agreements soon with the machinists
and flight attendants in order to reach the targeted total of $5.8
billion in labor cutbacks. The reductions are the key plank of its
application for a $1.8 billion federal loan guarantee, which it says is
needed to avoid a chapter 11 bankruptcy filing.
Industry observers say the toughest labor deal for United to close will
be with the International Association of Machinists (IAM), which
represents 13,000 mechanics and 23,000 ground workers at the airline.
Despite optimism Tilton expressed on Monday that there will be
additional labor agreements soon, the mechanics' union has no talks
scheduled with United this week, according to IAM spokesman Joe
Tiberi.
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