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Investors Still Expect Fed to Cut Rates
The vast U.S. services sector showed a solid rebound in May and mortgage
applications surged to a record high last week, but the reports failed
to shake firm expectations among investors that another interest rate
cut is in the works, Reuters reported. Wednesday's data came after a
battery of recent weak data that led Federal Reserve Chairman Alan
Greenspan on Tuesday to hint strongly that the Fed could cut rates later
this month.
The Institute for Supply Management said its index of non-manufacturing
activity rose to 54.5 in May from 50.7 in April, a larger-than-expected
jump that showed better times at businesses ranging from mortgage
banking to entertainment. The dollar and share prices both strengthened
after the report, with the broad Standard & Poor's 500 index up 1.1
percent at 982. Treasuries showed little reaction as bond investors
continue to bank on another rate cut. 'It's a fairly benign report. We
are seeing growth, but not enough to create jobs or inflation,' said
William Cheney, chief economist at John Hancock Financial Services. A
reading on employment in the services sector showed little improvement,
confirming recent evidence that the job market remains weak, reported
the newswire.
U.S. Consumer Credit Seen Rising $2 Billion in April
U.S. borrowing through credit cards and auto loans in April rose at a
sixth of the average rate in 2000 as consumers reduced spending and
chose the lower interest rates of home equity loans, economists said
they expect the Federal Reserve to report in Washington, D.C., Bloomberg
News reported. Households may have taken out $2 billion more in loans
during the month following an increase of $900 million in March, based
on the median of 39 estimates in a Bloomberg News survey. The March gain
was the smallest in four months. The Federal Reserve's credit report, to
be issued on Friday, doesn't include real estate loans such as home
mortgages and home equity loans.
'Consumers stayed home from the malls and car lots in April as the Iraq
war dampened confidence,'' said Chris Rupkey, an economist at Bank of
Tokyo-Mitsubishi Ltd. in New York. 'The temporary lull in activity led
to reduced purchases on credit. As demand picks up following the end of
the war, we should see credit card purchases return.'' Since the
beginning of 2001, the year the recession started, borrowing has
expanded at an average of $6.8 billion a month, according to Bloomberg
statistics, down from $12 billion per month in 2000. The National Bureau
of Economic Research has never declared that recession over, reported
the newswire.
Regulators, Privacy Interests Debate Credit-reporting Law
Congress should not permit a law governing credit reporting to expire at
the end of the year because of the law's strong consumer benefits, three
federal and state financial-services regulators told a congressional
panel on Wednesday, CongressDaily reported. But those regulators
were challenged by Julie Brill, assistant attorney general of Vermont,
who said Congress should let the law lapse. Brill, who is co-chairwoman
of the privacy working group of the National Association of Attorneys
General, said the current credit-granting system is not uniform and that
states like Vermont, with stricter pre-existing laws, have not suffered
because of them.
Brill found a receptive ear among Democrats on the House Financial
Services Financial Institutions and Consumer Credit Subcommittee in the
second of a series of hearings on the Fair Credit Reporting Act (FCRA).
'Sometimes this discussion sounds a little Orwellian to me,' said
Financial Institutions and Consumer Credit Subcommittee ranking member
Bernard Sanders (I-Vt.). 'The people who say they trust the states to do
the best job' change their mind when businesses say federal pre-emption
of tougher state laws is necessary, reported the newswire. Howard
Beales, director of the FTC's Consumer Protection Bureau, said on
Wednesday that the agency's five commissioners have no official
position. But a solid majority of those who testified on Wednesday urged
extending the pre-emption, CongressDaily reported.
The industry and broader business communities are mounting a major
lobbying push this year to extend the FCRA pre-emption Congress enacted
in 1996. Business groups worry that failure to reauthorize the
extensions would limit consumers' ability to get quick loan decisions,
reported the newswire. But privacy and consumer advocates say that
states need to fight for stricter privacy laws and that the 1996 act may
have spurred an increase in identity theft.
Hatch Considers Changing Asbestos Bill To Build Support
Senate Judiciary Chairman Orrin Hatch (R-Utah) said yesterday he is
considering changes to asbestos litigation reform legislation in order
to build support for the controversial bill, including doing away with
language that would reduce compensation to victims of asbestos-related
diseases based on payments from other sources, CongressDaily
reported. But the list of issues that Hatch indicated he might address
was far shorter than a list of concerns that Judiciary ranking member
Patrick Leahy (D-Vt.) outlined during his opening statement in a hearing
on the asbestos bill.
Hatch is trying to win the support of key Democrats to pass the plan for
reforming the litigation system for victims of asbestos-related
illnesses. Both parties as well as insurers, defendant companies,
victims' groups, unions and others say reform is badly needed to ensure
that companies are not driven into bankruptcy and to ensure that the
sickest victims are compensated. However, Democrats have yet to coalesce
around Hatch's plan, and key private sector stakeholders, including
labor unions and trial lawyers, are balking. The legislation calls for a
$108 billion trust fund made up of money from defendant companies and
insurers. It would establish a separate court system for asbestos cases
and sets medical criteria and compensation amounts, reported the
newswire.
But Leahy expressed concern about a few fundamental aspects of the
bill, including the separate court structure that would decide asbestos
claims. 'Such a court appears to be inconsistent with a 'no-fault'
system and may prove unworkable,' Leahy said. Ensuring solvency of the
trust fund is one of Leahy's and other Democrats' biggest concerns. 'The
bill guarantees businesses a lifetime of absolute legal and financial
certainty, but it leaves asbestos victims completely out of luck if the
trust fund runs out of money any time in the next 50 years,' Leahy said.
Hatch urged interested parties to submit suggestions for changes by the
end of the week and said he hopes to hold a markup session next
Thursday, reported the newswire.
Williams Cos. Expects to Secure $800 Million Credit Line
Williams Cos. Inc. said on Wednesday it expects to secure a new $800
million credit facility in the next few weeks, Reuters reported. The new
financing would replace an existing $1.1 billion credit line the company
secured last summer and would be used primarily for issuing letters of
credit. Williams said in a statement that the new facility, which would
be cash-collateralized, releases its midstream gas and liquids assets as
credit backing. The announcement is part of Williams' strategy to pay
down debt and improve its fragile finances. The Tulsa, Okla.-based
company was near bankruptcy last year before it was bailed out by
last-minute funding. Like many merchant energy companies, Williams has
suffered from credit downgrades and wavering investor confidence since
the collapse of energy trader Enron Corp. ignited a series of industry
crises, reported the newswire.
WORLDCOM
WorldCom Seeks Time for Chapter 11 Vote
WorldCom Inc. has filed a request with the bankruptcy court asking for
more time to solicit votes for its reorganization plan without the
threat of other parties filing competing plans, the Associated Press
reported. The company wants to extend to Sept. 30 from June 16 its
exclusive vote-solicitation period. The U.S. Bankruptcy Court in
Manhattan, which is overseeing WorldCom's chapter 11 case, will consider
the request, made earlier this week, at a hearing on June 10.
The court recently approved the disclosure statement to WorldCom's
chapter 11 reorganization plan and established a vote-solicitation
period beginning June 13 and ending Aug. 12. After June 16, other
parties would be able to file competing plans
for the company under the prior order, reported the newswire.
WorldCom Wins Bankruptcy Judge's Approval of Agreement With
EDS
WorldCom Inc. won a judge's approval to pay Electronic Data Systems
Corp. (EDS) $98.6 million and amend a $6 billion contract with the
world's second-largest seller of computer services, Bloomberg News
reported. U.S. Bankruptcy Judge Arthur J. Gonzalez in Manhattan gave
WorldCom permission to change the 10-year service contract to a
three-year $1.8 billion deal, saving the phone company $83 million a
year, court papers show. The $98.6 million payment to EDS settles unpaid
bills under the original contract. 'MCI WorldCom will recoup the cure
payment of $98,627,276 within the first 12 months of the amended
contract due to favorable pricing adjustments,'' Gonzalez wrote in an
order issued yesterday. Gonzalez's decision comes as WorldCom is trying
to advance its plan to wipe out most of its more than $41 billion in
debts and come out of bankruptcy in October. A hearing on approval of
the plan is scheduled for Aug. 25, Bloomberg reported.
U.S. Procurement Agency Defends Contracts with MCI
The federal government's chief procurement agency has defended its
decision to continue contracting with scandal-ridden telecommunications
giant WorldCom Inc., Reuters reported. In a letter to a key U.S. senator
dated May 30, the General Services Administration (GSA) said it had not
disqualified WorldCom because there was no evidence the company could
not provide the services for the government. The letter, released by
Sen. Susan Collins (R-Maine), came in response to criticism from the
legislator, who heads the Senate Government Affairs Committee. Collins
has questioned the GSA's decision to allow bankrupt WorldCom continued
access to lucrative government contracts. WorldCom has agreed to pay a
$500 million fine to settle charges by the U.S. Securities and Exchange
Commission that the company engaged in the biggest accounting fraud in
U.S. history, reported the newswire.
MCI Chief Feels Confident Fraud Was Limited at Former
WorldCom
Two investigative reports about the accounting fraud and mismanagement
that drove MCI into chapter 11 bankruptcy-court protection are due on
Monday, and the company's chief said that after reviewing parts of one
of them, he is confident that the wrongdoing was confined to 'fewer than
100' employees who have quit or been dismissed, the Wall Street
Journal reported. In an interview, Chairman and Chief Executive
Michael Capellas said the fraud at the nation's second-largest
long-distance carrier was carried out using crude techniques the
company's former auditors should have spotted. In particular, he noted
that large sums had been moved around in the company's books in
suspiciously round numbers.
The long-awaited reports are an important step in MCI's effort to emerge
from bankruptcy-court protection in September, just 14 months after
making the largest bankruptcy-court filing in U.S. history. The Ashburn,
Va.-based company's effort to emerge from bankruptcy protection free
from most of the $41 billion in debt has drawn criticism from rivals,
who say the company essentially is a criminal operation that is being
rewarded for committing fraud, reported the Journal.
Adelphia Communications Says Four Directors Will Step Down
Adelphia Communications Corp. said four directors who served on the
company's board prior to its chapter 11 filing will step down, Bloomberg
News reported. Leslie Gelber, Pete Metros, Dennis Coyle and Erland
Kailbourne said yesterday in a statement that they are leaving as the
Greenwood Village, Colo.-based company shifts to a new independent board
of directors. The directors announced plans to leave after Adelphia
reached an agreement with lenders last week to gain access to $1.5
billion in financing and retained new management. Adelphia, which has
ousted founder John Rigas and members of his family from executive
positions, is trying to emerge from an accounting scandal that led it to
file for bankruptcy protection last June, reported the newswire.
Larry's Shoes Files for Bankruptcy
Larry's Shoes, a family-run company founded in Fort Worth, Texas, more
than a half-century ago, filed for bankruptcy on Tuesday and said it
will close five stores, including its downtown location in Sundance
Square, the Star Telegram reported. With the backdrop of
persistent economic weakness, the smaller stores that Larry's Shoes
built in the past decade could not generate enough business and became a
drain on profits at the 14-store chain, the company's top officer said.
'We got spread a little thin,' said Elliot Goodwin, president of the
company that his father, Larry, started in 1949 in a tin shack at 1409
Houston St. 'We've got to go back to fewer locations, flagship kind of
stores where we have the big selection and the best people,' reported
the newspaper.
Court Approves Loan for Bankrupt DirecTV Latin America
DirecTV Latin America LLC said on Wednesday it has received bankruptcy
court approval of a $300 million credit line from majority owner Hughes
Electronics Corp., the Associated Press reported. The
debtor-in-possession loan, approved by the U.S. Bankruptcy Court in
Wilmington, Del., is meant to finance the company until it emerges from
chapter 11 bankruptcy. Some minor changes were made to the agreement
that clarify and modify Hughes' rights, should DirecTV Latin America
default on the loan, said Jannice Reyes, spokeswoman for the satellite
broadcaster. El Segundo, Calif.-based Hughes made the changes to address
concerns from its unsecured creditors' committee.
Fort Lauderdale, Fla.-based DirecTV Latin America filed for chapter 11
in March and the company received interim approval from the court to
borrow $30 million on the Hughes credit line, pending final approval.
DirecTV Latin America said in its request for the interim loan that
without the financing, it would be forced to cease operations, reported
the newswire.
Fleming to Restate 2000 Results, Delays First-quarter Report
Fleming Cos. said it will restate its 2000 financial results by about $2
million, Bloomberg News reported. The company also delayed filing its
first-quarter report. The restatement reflects an increase in its 2000
pretax loss from continuing operations of no more than $6 million and a
decrease in its pretax loss from discontinued operations of no more than
$4 million, the company said in a filing with the Securities and
Exchange Commission. Spokesman Shane Boyd didn't immediately return a
voice-mail message left at his office.
Lewisville, Texas-based Fleming in April said restatements to correct
accounting errors and the loss of a supply contract lowered pretax
profit for 2001 and 2002 by as much as $85 million. In yesterday's
filing, the company also said it will delay filing its quarterly report
for the period ended April 19, reported the newswire.
Key3Media's Bankruptcy Reorganization Plan Approved by Court
A federal judge approved a bankruptcy reorganization plan for Key3Media
Group Inc., Bloomberg News reported. The plan reduces the company's debt
by 87 percent to $50 million and transfers ownership to Thomas Weisel
Capital Partners. U.S. Bankruptcy Judge Jerry Venters approved the plan
at a hearing yesterday in Wilmington, Del., clearing the way for the
company to exit chapter 11 this month. Key3Media filed for bankruptcy
protection in February, the newswire reported. The Los Angeles-based
company lost revenue as trade-show attendance fell with the collapse of
Internet and computer-related companies.
'We had a lot of problems,'' David Friedman, a lawyer representing the
company, said at the hearing. 'The people with money at stake are
putting their money behind Key3 and saying we believe the company will
survive.'' Investment funds managed by Weisel Partners owned about 68
percent of Key3Media's bank debt and about 38 percent of its bonds
before the bankruptcy filing, Key3Media said. The partnership will own
89 percent of the shares in the reorganized company, reported the
newswire.
NextWave, Clarity Seek OK For Deal On Financing, Airwaves
NextWave Telecom Inc. is seeking bankruptcy court approval of an
agreement with Clarity Partners L.P. under which Clarity will help
develop a nationwide broadband wireless service and provide private
equity financing under a reorganization plan.
In a court filing last week, NextWave said the strategic partnership
agreement with Clarity Partners could optimize the company's radio
spectrum licenses through efficient use and by possible acquisition of
new licenses, thereby helping the reorganization efforts. The filing
said NextWave is also evaluating the sale of a portion of its licenses,
but it didn't provide further details. NextWave is under chapter 11
bankruptcy protection and recently won a court battle to keep the
wireless licenses.
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America West Tests Low Fares
America West is in the final stages of becoming a low-fare airline, a
shift rivals have attempted more narrowly by creating low-fare carriers
within their airlines or lowering their fares structures only in
selected markets, the Wall Street Journal reported. America
West's retooling has been broad, requiring much more than just cutting
fares. 'We didn't recognize how much it would fundamentally change
everything about the company -- the way we do business and the way we
make decisions,' said Scott Kirby, executive vice president of sales and
marketing at the Phoenix-based unit of America West Holdings Corp. The
shift, which began in March 2002, has required the airline to put
greater focus on customer service, cost controls and simplicity.
But the gains aren't yet showing up on the company's bottom line.
America West has continued to suffer hefty net losses, and it is loaded
down with substantial debt from loans that helped avert bankruptcy after
the Sept. 11, 2001, terrorist attacks, reported the Journal.
Hearing Due Monday on Appeal for Song-swap Ruling
A case pitting film and music companies against song-swap services
Grokster and Morpheus heads back to a federal court next week to
determine if a judge's ruling to deny a request to shut down the two
companies can be appealed, Reuters reported.
The ruling in April by U.S. District Court Judge Stephen Wilson in Los
Angeles was the first big setback for Hollywood in its fight against
popular peer-to-peer services that allow users to swap movies, music and
other files for free. Wilson ruled that Grokster and Morpheus should not
be shut down because they cannot control what is traded over their
systems. Trade groups for the movie and music industries immediately
vowed to appeal. The case has not yet gone to trial.
The hearing scheduled for Monday before Wilson is a procedural step in
the appeals process, lawyers for both sides said. The appellate court in
this case would be the Ninth U.S. Circuit Court of Appeal. In February
2001, that same appeals court ruled that Napster infringed on the rights
of copyright owners. Napster shut down and filed for bankruptcy and
courts have so far supported the industry's efforts to crack down on
copyright piracy, reported the newswire.
Delta to Cut $2.5 Billion in Costs by 2005
Delta Air Lines said on Wednesday it planned to cut $2.5 billion in
costs by the end of 2005 without eliminating any jobs, in part by
reducing employee health care and pension benefits, Reuters reported.
The plan, which aims to reduce non-fuel unit costs by 15 percent, should
yield total savings of $1.5 billion because Delta expects fuel and some
other costs to rise by about $1 billion, spokeswoman Peggy Estes said.
She said the company has no immediate plans to eliminate any of its
59,000 workers as part of the cost cuts -- even though it aims to save
$500 million in a workforce initiative that includes reducing employee
benefits as part of a review of overall overhead expenses, reported the
newswire.
AMR Leads Surge in U.S. Airline Shares
Beaten-down U.S. airlines stocks surged on Wednesday after analysts said
they could benefit from even a moderate economic recovery, Reuters
reported. Shares in American Airlines parent AMR Corp. rose almost 23
percent after Goldman Sachs analyst Glenn Engel said he saw significant
upside in AMR stock and J.P. Morgan analyst Jamie Baker raised the
stock's rating.
Northwest shares rose $1.22, or 13.23 percent, to $10.44 on the Nasdaq.
Continental Airlines Inc. rose to a near 11-month high, adding 95 cents,
or 7.25 percent, to $14.06 on the NYSE after Engel said the airline may
show a profit for June. Delta Air Lines Inc. rose $1.23, or 8.87
percent, to $15.10, also on the NYSE. Engel said that Continental and
AMR shares could double their value based on only a modest corporate
recovery, helped by government aid, wage and capacity cuts, moderate
fuel prices and slightly higher business travel that should ensure
financial survival, reported the newswire.
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