January 282003

Senate Judiciary ranking member Patrick Leahy (D-Vt.) believes a
permanent chapter 12 extension should move independently if the overall
bankruptcy bill is not passed by the time the temporary extension
expires in June, an aide said, according to CongressDaily. Senate
Finance Chairman Charles Grassley (R-Iowa), the original author of the
chapter 12 program, has regularly resisted separating the two, saying
the chapter 12 stand-alone likely would fall prey to bankers who do not
like the program.

Senate Judiciary Committee Could Unveil Bankruptcy Bill Draft Next
Month

Senate Judiciary Committee Republican aides could unveil a draft of the
Senate's 2003 version of comprehensive bankruptcy legislation next
month, reported CongressDaily. The measure will be similar to the
bill approved by the Senate last year, reported the newswire. Some
Senate Democrats believe the measure will ultimately fail because the
House is intent on passing a version of the bankruptcy bill that Senate
Democrats find objectionable, reported CongressDaily.

While the House is expected to finish its version of the bankruptcy
legislation with minimal debate, the measure would not move nearly so
swiftly in the Senate, and it is unclear whether Senate Republican
leaders have a desire to devote multiple weeks to overcoming promised
Democratic filibusters, the newswire reported. 'If we do this again, it
has to be from the beginning,' an aide to Sen. Leahy said, noting that
there are new members of the committee and of the Senate as a whole. New
members of the committee include Lindsey Graham (R-S.C.), Saxby
Chambliss (R-Ga.) and John Cornyn (R-Texas). He noted that there is a
new crop of employment and bankruptcy issues and worsening economic
conditions that have arisen in the 18 months since the Senate passed its
last bankruptcy bill.

NextWave Can Keep Wireless Licenses, U.S. Supreme Court
Rules

NextWave Telecom Inc. can keep 90 wireless licenses, worth as much as
$12 billion, after the U.S. Supreme Court yesterday rejected a bid by
regulators to reclaim the spectrum from the fledgling telecommunications
company, reported Bloomberg News. The 8-1 ruling ends five years of
legal uncertainty over airwaves coveted throughout the industry,
particularly by Verizon Wireless Inc., which wants more capacity for
transmitting calls on the East Coast. NextWave will have access to 172
million potential customers and the 10 largest U.S. markets, including
New York and Los Angeles, reported the newswire. The justices said
NextWave's bankruptcy reorganization shielded the company from Federal
Communications Commission (FCC) efforts to revoke the licenses because
of missed payment deadlines, reported Bloomberg. The ruling was a sharp
defeat for the FCC, which claimed that its desire to re-auction the
licenses trumped the bankruptcy law, reported Law.com. That regulatory
motive is 'irrelevant' under bankruptcy law, Justice Antonin Scalia
stated for the majority. The ruling is 'a fabulous decision for the
integrity of the bankruptcy system,' said NextWave co-counsel G. Eric
Brunstad Jr. of Bingham McCutchen, reported Law.com. 'The court is
saying we are not going to be creating policy exceptions from bankruptcy
protection for government agencies. If the FCC could have done this
here, then the [Internal Revenue Service] could also in other
cases.'

The high court pointed to the specific words of the bankruptcy law,
which bar government agencies from canceling licenses of debtors in
bankruptcy 'solely because' they have not made payments. 'Some may
think...that there ought to be an exception for cancellations that have
a valid regulatory purpose,' wrote Justice Scalia, reported Law.com.
'Besides the fact that such an exception would consume the rule, it
flies in the face of the fact that, where Congress has intended to
provide regulatory exceptions to provisions of the Bankruptcy Code, it
has done so clearly and expressly.' In dissent, Justice Stephen Breyer
said the majority had interpreted the bankruptcy law too literally
without considering the statute's purpose, reported the online
newspaper. He analogized that a sign reading 'No vehicles in the park'
should not be taken literally, since it 'does not refer to baby
strollers or even to tanks used as part of a war memorial.' To read the
full story, point your browser to
href='http://www.law.com/jsp/article.jsp?id=1043457916485'>http://www.law.com/jsp/article.jsp?id=1043457916485.

Chamber Says Asbestos Reform Top of Agenda

Asbestos litigation-related business bankruptcies cost between 52,000
and 60,000 U.S. manufacturing jobs in 2002, according to a U.S. Chamber
of Commerce study, reported the Dallas Business Journal. Because
asbestos litigation claims are subject to joint and several liability,
anyone who ever made, sold or installed asbestos can be sued. Fred
Baron, a well-known asbestos litigator and senior partner at Baron &
Budd P.C., said 55 of the 60 corporations that sought bankruptcy
protection due to asbestos claims filed for chapter 11, rather than
chapter 7, protection, reported the online newspaper. 'I don't know of
any companies that have laid off employees as a result of
asbestos-related chapter 11s,' said Baron. 'The people getting hurt are
shareholders.'

Asbestos litigation reform is near the top of the U.S. Chamber's
agenda for the 108th Congress, according to U.S. Chamber Executive Vice
President Bruce Josten, reported the Journal. The chamber study,
commissioned by the National Economic Research Associates Inc. of White
Plains, N.Y., indicated that local communities and companies already
have absorbed between $600 million and $2.1 billion in reduced business
income, even before calculating multiplier effects, reported the online
newspaper. Business groups, plaintiffs' attorneys and labor unions are
fiercely divided on most asbestos-related issues. Congress is unlikely
to act until the business community unites around consensus proposals,
said Josten, reported the Journal.

Bishops Blocked Bankruptcy Idea

The Boston Globe reported that the Vatican gave the Archdiocese
of Boston conditional approval to file for bankruptcy in December, but
put the decision on hold after influential U.S. prelates objected that
such a step by a major archdiocese would cause grievous damage to the
U.S. Catholic Church. As the archdiocese faces initial legal demands for
$150 million in damages from the first 390 victims of clergy sexual
abuse, with an additional 110 alleged victims who have yet to file, the
bankruptcy issue has become a source of controversy, reported the online
newspaper. According to the Globe, archdiocese advisers have
portrayed a chapter 11 filing as the most logical way to bring all of
the claims together in an orderly setting that would suspend all civil
lawsuits, force the two sides to agree on an amount and set a deadline
for other victims to press new claims.

Lawyers and advocates for victims have expressed suspicions that the
church's plan to file for bankruptcy is an attempt to escape payment of
the 'fair and equitable' settlements that Cardinal Bernard Law, and now
Bishop Richard G. Lennon, have said they are committed to. The prelates
have expressed concerns that a bankruptcy filing by the fourth largest
American archdiocese would prompt a serious falloff in U.S. donations,
damage the church's reputation and create an ominous precedent by
opening the church's secret financial records to public view. The
newspaper reported that a spokesman for the Boston archdiocese says the
church is still considering bankruptcy, but has not yet made a decision,
leaving it with two options: negotiate a 'global' settlement with the
help of mediators who would place dollar values on each claim or go to
trial.

Divine Inc. Unit to File for Bankruptcy Protection

Bloomberg News reported that Divine Inc.'s RoweCom unit will file for
voluntary chapter 11 bankruptcy protection as part of a plan to sell the
division to privately held information systems provider EBSCO Industries
Inc. In a press release Monday, RoweCom said the bankruptcy filing will
help ensure that the software company's operations continue without
interruption until the sale is completed, the newswire reported.
Financial terms weren't disclosed.

The latest sale proposal is contingent on regulatory approval in
France and customary closing conditions, reported Bloomberg. It has been
endorsed by the steering committee of the ad hoc committee of publishers
and RoweCom customers, according to the newswire.

WorldCom to Sell Canadian Ranch Obtained from Ebbers

Bankrupt WorldCom Inc. will sell the Canadian cattle ranch it obtained
this month from former Chief Executive Officer Bernard Ebbers, according
to Bloomberg News. The property, Douglas Lake Ranch, is the largest
private ranch in Canada, WorldCom said in a statement, the newswire
reported. The company didn't give a possible price for the sale, which
is being handled by Hilco Real Estate LLC and Colliers
International.

Ebbers resigned under pressure in April after he borrowed $400
million from WorldCom to cover bank loans backed by declining company
stock. WorldCom, the second-biggest U.S. long-distance phone company, is
trying to emerge from its July chapter 11 bankruptcy filing by the third
quarter. The company has admitted to at least $9 billion in accounting
misstatements.

FAO Seeks Approval of $2 Million Employee-retention Plan

FAO Inc., owner of the FAO Schwartz and Zany Brainy toy-store chains,
asked a bankruptcy court to approve a $2 million employee-retention plan
that includes $750,000 to Chief Executive Jerry Welch, reported
Bloomberg News. The plan would pay 15 senior managers bonuses totaling
$1.65 million, including Welch's bonus, while lower-level managers would
share as much as $350,000, said court papers filed Friday in the U.S.
Bankruptcy Court in Wilmington, Del. The managers would be paid for
staying with the company through its reorganization or until all assets
are sold, according to Bloomberg. FAO sought bankruptcy on Jan. 13 after
failing to get easier credit terms. FAO plans to seek bankruptcy court
approval of its retention plan at a hearing Feb. 14, reported the
newswire.

Cannondale Plans to File Voluntary Chapter 11 Petition

Bike maker Cannondale Corp., citing difficulties at its motorsports
operations, plans to file for chapter 11 bankruptcy protection today,
the company said in a press release, reported Dow Jones. The company
said it has reached an agreement in principle with its
lenders—CIT/Business Credit Inc. and Pegasus Partners II
L.P.—that, subject to bankruptcy court approval, will provide
interim financing to fund post-petition operating expenses and to meet
supplier and employee commitments, according to the newswire. Cannondale
also agreed in principle to sell substantially all of its assets to
Pegasus Partners II, subject to better and higher offers and court
approval, reported Dow Jones.

Pegasus would operate the bicycle business as a going concern with
the involvement of current management and would purchase separately the
company's motorsports assets, according to the newswire. Because
Cannondale has obtained interim post-petition financing, it will be able
to pay vendors for goods and services received after the filing in the
ordinary course of business, the newswire reported.

Globalstar Seeks OK of Settlement with Service Providers

San Jose-based Globalstar L.P. is asking the bankruptcy court overseeing
its chapter 11 case to approve a settlement with two of its service
providers that would resolve issues related to two service gateways and
amounts owed among the firms, according to a motion obtained by Dow
Jones Newswires. The bankrupt company owns and operates a worldwide,
low-Earth orbit satellite-based digital telecommunications system.
Globalstar's customers are mainly service providers that own, operate
and maintain the 24 'gateways' that are in commercial service. The
gateways provide the link between Globalstar's satellites and the public
switched telephone networks in the countries where Globalstar has its
services, according to the newswire. The U.S. Bankruptcy Court in
Wilmington, Del., which is overseeing Globalstar's chapter 11 case, has
scheduled a hearing on the proposed settlement for Feb. 18.

Federal-Mogul Fights Creditors' Bid to File Reorganization

Federal-Mogul Corp., along with its bank lenders and shareholders, is
fighting a bid by creditors and asbestos claimants to file a
reorganization plan for the company in its chapter 11 case, according to
court papers, reported Dow Jones Newswires. In a related move, a group
representing the shareholders said it wants the court to set procedures
the auto-parts maker can use to begin estimating its asbestos
liabilities, according to other papers filed with the U.S. Bankruptcy
Court in Wilmington, Del. Federal-Mogul said that request is premature
and would be 'extremely expensive and time-consuming' to implement,
reported the newswire. A hearing on the request is scheduled for
Wednesday. Federal-Mogul filed for chapter 11 protection in October
2001, and is one of several companies to seek bankruptcy protection over
the past few years to resolve asbestos-related claims.

Kmart Plans Going-out-of-business Sales Starting Next Week

Troy, Mich.-based Kmart Corp., which hopes to emerge from bankruptcy
protection by the end of April, will begin going-out-of-business sales
next week at stores slated for closing, said Kmart Chief Restructuring
Officer Ron Hutchison, reported Bloomberg News. Hutchison said the
discount retailer may close 316 stores, rather than the 326 previously
reported, because Kmart has worked out rent concessions with some
landlords, the newswire reported. The retailer on Friday filed its
reorganization plan, which if accepted would eliminate $7.8 billion of
unsecured debt, according to Bloomberg.

Univance Files for Chapter 11 Bankruptcy Protection

Englewood, Colo.-based Univance Telecommunications Inc. filed for
chapter 11 bankruptcy protection on Jan. 23, according to a filing with
the U.S. Bankruptcy Court for the District of Colorado, reported the
Denver Business Journal. The company reported assets of $1
million to $10 million and debt of $10 million to $50 million, reported
the online newspaper. Univance owes more than 200 creditors, including
telecom giant WorldCom Inc. ($3.7 million), New Jersey-based global
telecom carrier Global Crossing Ltd. ($2.9 million) and
Philadelphia-based Kenexa, formerly TalentPoint ($1.2 million),
according to the Journal.

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