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October 31, 2002
ITC DeltaCom Sheds $515 Million of Debt, Emerges from
Bankruptcy
ITC DeltaCom Inc., a provider of telephone services to businesses in the
southern United States, emerged from bankruptcy after shedding about
$515 million of bond debt, Bloomberg News reported. The company's
reorganization plan exchanged bond debt for new ITC DeltaCom shares.
Senior bondholders received about 82 percent of the reshuffled shares
and subordinated convertible bondholders got about 5 percent. The West
Point, Ga.-based company's past shareholders received one percent of the
new stock. ITC DeltaCom sought chapter 11 protection in June, joining a
drove of upstart phone companies that filed for bankruptcy in recent
years. Dozens of telecommunications providers were saddled with debt
accumulated from building their networks after Congress deregulated the
industry in 1996. Waning demand from business customers in the slowing
economy and the demise of myriad Internet start-ups left phone companies
squeezed for cash. U.S. Bankruptcy Judge Mary Walrath in Wilmington,
Del., approved the ITC DeltaCom reorganization plan on Oct. 17.
WORLDCOM
Coalition Lobbies to Block WorldCom from Contracts
A coalition of labor, consumer and small-business groups asked the
federal government to bar WorldCom Inc. from receiving future federal
contracts, as a first step toward dissolving the company as punishment
for its accounting scandal, the Wall Street Journal reported. The
groups described WorldCom as a 'scandal kingpin,' and said senior
executives' alleged misdeeds harmed not only the telecommunications
sector but also the broader U.S. economy. The groups also said the
grounds for barring Clinton, Miss.-based WorldCom from federal contracts
are stronger than those cited when the General Services Administration
took similar steps against Enron Corp. and Arthur Andersen LLP for their
roles in the massive Enron accounting scandal. The letter to GSA
Administrator Stephen Perry puts more pressure on the government to
sever one of WorldCom's last remaining lifelines. With corporate and
residential customers fleeing after the company's huge bankruptcy filing
and recent criminal indictments against a number of former executives,
the multibillion-dollar contracts with federal agencies such as the
Defense Department are important to WorldCom's survival.
All told, about $2 billion of the company's $35.2 billion in annual
revenue came from the government for voice, data and support services,
said people familiar with the matter. WorldCom holds more government
contracts than any other telecommunications firm. During a recent
bankruptcy-court hearing, WorldCom, which hasn't received any new
federal contracts since the accounting scandal broke, asked for and
received permission to hire Patton Boggs LLC, one of Washington's top
lobbying firms, to help save its existing contracts and make sure it was
eligible for new ones.
WorldCom Asks Court to Force EDS to Pay $80 Million Phone
Bill
WorldCom Inc. asked a U.S. bankruptcy judge to force Electronic Data
Systems Corp. to pay more than $80.3 million in overdue long-distance
phone bills, Bloomberg News reported. Electronic Data, the world's
second-largest computer services company, gets as much as $600 million a
year from WorldCom under an 11-year, $6.4 billion contract to run the
company's computers. Clinton, Miss.-based WorldCom, which sought chapter
11 protection in July, said in court papers that Electronic Data is
refusing to pay the long-distance charges and wants to offset those
bills against money owed by the phone company.
In September, EDS asked U.S. Bankruptcy Judge Arthur Gonzalez in
Manhattan to force WorldCom to return $14.7 million it says the phone
company owes to EDS customers. WorldCom, the No. 2 U.S. long-distance
phone company behind AT&T Corp., received the money to pay local
carriers that handled services for EDS in areas that WorldCom's
long-distance network doesn't reach, EDS said in court papers. WorldCom
kept the money instead of paying it to the local carriers, the newswire
reported.
EDS Says Profit Fell 59 Percent, Plans Cuts to Workforce
With some big contracts souring and corporate spending dropping,
Electronic Data Systems Corp. said third-quarter profit fell 59 percent,
the Wall Street Journal reported. The big computer-services
company will cut its work force of 138,000 by as much as 4 percent, or
5,500 people. EDS said it would raise about $500 million in cash over
the next six to eight months by shedding 'nonstrategic assets' and cut
its work force between 3 percent and 4 percent over the next several
quarters, including 800 to 1,000 positions by year end. It said that
other measures would shave costs by $75 million next year and that it
would transfer at least 1,500 jobs to save money. Chairman and Chief
Executive Officer Richard H. Brown said he and other executives won't
get any bonuses this year. 'There is no sugar-coating these results,'
Mr. Brown said in a conference call with analysts. Mr. Brown steered EDS
to sharp revenue and earnings growth after joining the company in 1999,
but some of his big coups are coming back to haunt him. Two major
customers -- WorldCom Inc. and US Airways Group Inc. -- have filed for
bankruptcy protection, and a $6.9 billion contract with the U.S. Navy
has been hampered by delays and high initial costs. EDS blamed the drop
in third-quarter earnings on poorly performing contracts in Europe as
well as WorldCom and US Airways.
Arizona Company Bypasses Bankruptcy Process
Like most tech firms, Integrated Information Systems (IIS), the Arizona
parent company of Portland's Step Technology, was hit hard by the
recession, the Oregonian reported. Earlier this year, IIS found
itself with more than $20 million in obligations that it had no way to
meet. The company faced two options: file for chapter 11 bankruptcy
protection, or stay out of court and negotiate with more than 50
creditors. IIS chose the latter option, and after five months of intense
negotiations, succeeded. Earlier this month, it reduced its debt and won
freedom to survive as a leaner company outside of bankruptcy court.
For the many businesses that have hit a bumpy road in the tumultuous
tech economy, IIS's experience shows that bankruptcy isn't the only
option, even when it seems inevitable. Struggling companies such as IIS
should avoid heading to court, said Kent Snyder, a Portland
bankruptcy attorney and board member of the American Bankruptcy
Institute. 'If there's a way to pencil it all out and go get everybody
to agree, that's generally a cheaper way to go,' Snyder said. 'The
lending market and landlord market have become more sophisticated and
knowledgeable about work-outs.' But there was a big risk in choosing
this route, Bill Mahan, IIS's chief financial officer said. If the vast
majority of its creditors hadn't agreed to lower debt payments, IIS
would have had to file chapter 11 anyway, and the filing delay would
have cost the company valuable reorganization time. To read the full
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Bondholders Seek to Examine Hayes Lemmerz
A group of bondholders is asking a bankruptcy court to order Hayes
Lemmerz International Inc. to share information regarding the company's
restatement of financial results in two quarters, Dow Jones reported.
Pacholder High Yield Fund Inc., Copernicus Euro CDO-I B.V., Topsail CBO
Ltd., TCW LINC III CBO Ltd. and TCW Leverage Income Trust IV L.P. said
they want access to information already being granted to a special audit
committee. The audit committee is investigating the circumstances
surrounding the debtor's restatement of its financial results for the
quarters ended Jan. 31, 2001, and April 30, 2001, according to court
documents. Hayes Lemmerz filed an objection to the motion. The debtor
company said the bondholders want the information as 'backdoor
discovery' in a class action case in the U.S. District Court for the
Eastern District of Michigan. Hayes Lemmerz said that its creditors,
including the bondholders, are represented in the investigation by the
company's committee of unsecured creditors. A hearing on the matter is
scheduled before Judge Mary F. Walrath of the U.S. Bankruptcy Court in
Wilmington, Del., for today. The automotive wheels and brakes supplier
filed for chapter 11 bankruptcy protection on Dec. 5, 2001, citing
declining market conditions and excessive debt burdens. It reported $2.8
billion in assets and $2.66 billion in liabilities as of April 30, 2001,
in its bankruptcy filing.
UAL Employees Selling Company Shares Amid Bankruptcy
Threat
Amid the threat of potential bankruptcy filing, there is a new class of
shareholders selling the stock of United Airlines parent UAL Corp.: its
employees, Dow Jones reported. Owning nearly 55 percent of UAL, United
workers face the possibility of seeing their stakes becoming worthless,
as shares of a company in bankruptcy-court protection typically do.
Facing $945 million in debt repayment and other obligations before
year-end, UAL, parent of the world's second-largest carrier, has warned
it may be forced to file for chapter 11 later this year if it can't
reduce costs, win $1.8 billion in federal loan guarantees and raise $2
billion in fresh capital. By unloading part of their stake, UAL
employee-shareholders hope to diversify their holdings and help protect
their nest egg.
Nucor Clears Anti-trust Review for Birmingham Steel Deal
Nucor Corp. received antitrust approval to acquire Birmingham Steel
Corp., Dow Jones reported. In a press release on Wednesday, Nucor said
the closing is tentatively scheduled for early December. In May, Nucor
signed a definitive agreement to purchase substantially all of the
assets of Birmingham Steel for $615 million cash. In September, the
Delaware Bankruptcy Court approved the sale of Birmingham's assets to
Nucor. Birmingham filed for chapter 11 bankruptcy protection in June.
Nucor had made an unsolicited offer for Birmingham Steel in February,
offering to pay $500 million in cash for most of the company's assets.
Birmingham rejected the deal and invited other bids, none of which
materialized. Days before filing its bankruptcy petition, Birmingham
Steel accepted an increased cash offer from Nucor.
Owens Corning Gets Court OK to Extend DIP Loan, Cut Amount
The court handling Owens Corning's two-year-old chapter 11 case has
approved the company's request to amend its debtor-in-possession loan,
Dow Jones reported. The company reached an agreement with its lenders to
renew the financing for an additional term of two years, with a reduced
maximum availability of $250 million. The loan, provided by a group of
lenders led by Bank of America N.A., was originally for $500 million and
was scheduled to expire on Nov. 15. Owens Corning said in court papers
that continuing the loan would likely give its vendors and suppliers
confidence to continue ongoing business relations and be viewed
favorably by employees and customers. As reported, Toledo, Ohio-based
Owens Corning and 17 affiliates filed for chapter 11 protection on Oct.
5, 2000, to address growing demands on its cash flow resulting from
multibillion-dollar asbestos liabilities. The liabilities were related
to asbestos-containing products allegedly made, sold or installed by
Owens Corning or one of its units.
Federal-Mogul Gets Extension of Exclusive Plan Periods
Federal-Mogul Corp. on Monday received a four-month extension of its
exclusive periods to file a reorganization plan and solicit plan
acceptances, Dow Jones reported. The debtor company will use the
extension to evaluate claims against its chapter 11 estate and negotiate
a plan of reorganization with its creditors. The order, signed by
Judge Randall J. Newsome of the U.S. Bankruptcy Court in
Wilmington, Del., grants Federal-Mogul the sole right to file a plan
through March 3, 2003, and the exclusive right to obtain votes for the
plan through May 1, 2003. 'This case is large and complex, requiring the
debtor to coordinate, among other things, parallel proceedings in the
United Kingdom, the affairs of over 450 debtor and non-debtor
affiliates, and a large volume of potential claims, including nearly
400,000 unliquidated asbestos-related personal injury claims,'
Federal-Mogul said in its motion. Federal-Mogul filed for chapter 11
bankruptcy protection last October. The company listed $10.15 billion in
assets and $8.86 billion in liabilities, as of June 30, in its chapter
11 petition.
Chiquita Loss Narrows as Restructuring Continues
Banana producer Chiquita Brands International Inc. posted a narrower
quarterly loss on Wednesday as it continued to restructure after its
emergence from bankruptcy protection in March, Reuters reported. The
Cincinnati, Ohio-based company reported a net loss of $8 million, or 21
cents a share, in the third quarter ended Sept. 30, on 40 million shares
of stock issued in its reorganization. The improvement in results was
due to a $34 million reduction in net interest, depreciation and
amortization expense resulting from the financial restructuring.
Chiquita emerged from bankruptcy in mid-March after gaining approval for
a restructuring plan that converted more than $700 million of debt into
equity. Shares of the company then began trading again on the New York
Stock Exchange.
Uniroyal Technology Gets Interim Nod for DIP Loan
Uniroyal Technology Corp. won interim approval for the second time to
allow it to continue borrowing up to $10 million pending a Nov. 22 final
hearing on a proposed $15 million debtor-in-possession financing
facility with CIT Group/Business Credit Inc., Dow Jones reported. The
interim DIP financing available to the company will be subject to a
reserve for pre-petition obligations, the U.S. Bankruptcy Court in
Wilmington, Del., said in an Oct. 23 second interim order. The order
said that without the DIP financing, the plastics and specialty
chemicals firm wouldn't have enough funds to operate its businesses
until an 'orderly reorganization' can occur.
The DIP funds will go toward working capital and paying the costs of
administering the chapter 11 case pursuant to a budget agreed upon by
the lender. The interim order grants the lender a first priority
security interest in and lien upon all of the company's pre- and
post-petition property, subject only to a carve-out for the payment of
professional fees up to a total of $550,000, and the U.S. Trustee's and
court clerk's fees. The DIP financing will become due and payable on the
earliest of: Aug. 26, 2003; the entry of an order confirming a
reorganization plan, terminating the DIP financing or approving another
loan, appointing a trustee or examiner with expanded powers, dismissing
the chapter 11 case or converting it to one under chapter 7; or upon
acceleration of the financing due to a loan default.
Kmart Says Sales at Stores Open a Year Improved in October
Kmart Corp., the largest U.S. retailer to file for bankruptcy, said
sales at stores open at least a year improved in October from September,
Bloomberg News reported. The discount retailer's so-called same-store
sales declined 6.9 percent in September, the twelfth consecutive monthly
drop. Kmart Chief Restructuring Officer Ronald Hutchison wasn't more
specific following a bankruptcy hearing in Chicago. The company has said
it will meet a February 2003 deadline to file a reorganization plan, and
it expects to emerge from bankruptcy protection by July. Kmart has lost
about $2.7 billion since filing for bankruptcy protection in
January.
Reuters reported that a U.S. bankruptcy court on Wednesday approved
Kmart Corp.'s deal to sell its Bluelight.com Internet access unit, after
Kmart resolved issues raised by Microsoft Corp. and three states on
software licenses and taxation. U.S. Bankruptcy Court Judge Susan
Pierson Sonderby overruled an objection from Kmart's lenders, led by
J.P. Morgan Chase & Co, who had asked that proceeds from the $8.4
million sale be set aside instead of going directly to Kmart.
Farmland Gets $180 Million Offer From Koch for Fertilizer
Assets
Farmland Industries Inc. was offered $180 million by Koch Industries
Inc. for part of the money-losing fertilizer business Farmland plans to
sell as it reorganizes under bankruptcy protection, Bloomberg News
reported. Farmland, which disclosed the Koch offer during a bankruptcy
court hearing yesterday in Kansas City, Mo., is accepting bids for its
second-largest business until Nov. 12, spokeswoman Sherlyn Manson said
in an interview. The largest U.S. farm cooperative announced last month
it would sell or find a partner to help run the fertilizer division,
which had a loss of $122.6 million in the first six months of this year.
Farmland blamed a slump in fertilizer profits for its May 31 chapter 11
bankruptcy filing.
Dairy Mart, Lessors Seek Court Approval of Settlement
Dairy Mart Convenience Stores Inc. is seeking approval of settlement
agreements with some of its equipment lessors whose leases weren't
assumed or rejected as part of Dairy Mart's $79.5 million asset sale,
Dow Jones reported. The company would pay the pre-petition
lessors--Provident Bank, National City Leasing Corp. and VF Leasing
LLC--a total of about $2 million to settle those parties' claims. Rather
than seeking to force Dairy Mart to assume or reject their leases, those
firms agreed to receive a percentage of monthly amounts reserved under
the leases, the newswire reported. The lessors had asserted their leases
were subject to the Bankruptcy Code, whereas Dairy Mart claimed that
each of the leases 'was a disguised secured financing' pact, and
therefore not subject to the code, according to the company's motion.
The U.S. Bankruptcy Court in Manhattan has scheduled a hearing on the
matter for Nov. 6. Interested parties may file objections through
Monday. Hudson, Ohio-based Dairy Mart filed for chapter 11 protection on
Sept. 24, 2001, listing assets of $190.7 million and debts of $220.7
million as of May 5, 2001.
GFinancial Seeks Protection Under the Bankruptcy Code
GFinancial LLC, formerly known as brokerage house Gruntal Financial LLC,
filed for chapter 11 bankruptcy-law protection in Manhattan to preserve
its remaining assets while 'effectuating a fair and efficient
wind-down,' Dow Jones reported. An affiliate, GCO Services LLC, formerly
known as Gruntal & Co. LLC, also filed for chapter 11, according to
court papers. The entities had operated a full-service broker-dealer
under the Gruntal & Co. name. Their headquarters at One Liberty
Plaza in New York became uninhabitable after the Sept. 11, 2001, terror
attacks, and the office wasn't ready for reoccupation until April. After
several unsuccessful sale attempts, GCO Services sold its retail
brokerage business, related assets, three units and the right to use the
Gruntal name to Ryan Beck & Co. The sale took place in April. Recent
litigation prompted the entities to complete their wind-down under
chapter 11 protection.
Enron Nets $3.3 Million from 2-Day Auction
Enron Corp. raised $3.3. million with its two-day auction to help pay
off creditors, Dow Jones reported. The bankrupt former giant energy
trader will hold another auction in December, featuring items similar to
the 10,000-plus articles auctioned during the initial sale, Enron
spokeswoman Karen Denne said on Wednesday. Proceeds will be placed in an
escrow account for distribution to creditors. Houston-based Enron
declared bankruptcy after revealing accounting irregularities that sent
its high-flying stock price crashing late last year. The company's
failure was fueled by a complicated web of partnerships federal
prosecutors allege were created to enrich some employees while hiding
debt and inflating profits.
Court Rules for Plaintiff in Suit Against Weyerhaeuser
An order by U.S. Bankruptcy Judge Margaret Murphy granted summary
judgment on liability against Weyerhaeuser Co. and in favor of the
bankruptcy estate of Paragon Trade Brands Inc. on Wednesday, Dow Jones
reported. The order denied Weyerhaeuser's motion to strike the testimony
of Paragon's expert witnesses, and Weyerhaeuser's cross-motion for
summary judgment, according to the plaintiff law firm Andrews &
Kurth LLP. Judge Murphy concluded that Weyerhaeuser breached four
contractual warranties it made to Paragon, that the warranties were
enforceable and that the Paragon estate is entitled to recover damages
related to Weyerhaeuser's breach of the warranties, the law firm said in
a press release on Wednesday. The bankruptcy estate of Paragon has filed
a $400 million breach of contractual warranty suit against Weyerhaeuser.
The suit alleges that Weyerhaeuser didn't have the necessary licenses
from its competitors for the use of the diaper technology that became
part of the operations of Paragon 10 years ago when it split off as a
separate company through an initial public offering. The judge's order
sets up a trial to determine the damages the Paragon estate is entitled
to recover. According to the plaintiff law firm, the exact amount of
damages, pre-judgment interest and attorneys' fees will be determined in
a trial before Judge Murphy this fall or in early 2003.
Armstrong World May Limit Loan to Letters of Credit
The bankruptcy court handling Armstrong World Industries Inc.'s chapter
11 case has authorized the company to amend its debtor-in-possession
loan so it can only be used for letters of credit, Dow Jones reported.
Pursuant to the amendment, approved by U.S. Bankruptcy Judge Randall
J. Newsome, the DIP lenders will no longer be obligated to make
loans or advances, and the amount of the loan will be reduced to $75
million, from $200 million. The loan's term will also be extended
through Dec. 8, 2003, according to court papers. With more than $345
million in excess cash as of June 30, the Armstrong Holdings Inc. unit
said in court papers that it has more than enough cash to fund ongoing
operations. It said it no longer needed access to a credit facility,
except to get letters of credit it must post in the ordinary course of
business. The company -- one of several large companies to seek chapter
11 protection to deal with asbestos liabilities -- hasn't drawn on the
DIP financing except for getting $24 million in letters of credit, it
said.
Armstrong World's move to reduce its loan comes amid a third-quarter
surge in the dollar amount of chapter 11 debtor-in-possession loans
approved by U.S. bankruptcy courts, according to information compiled by
Dow Jones Newswires. In the last three or so months, courts across the
country approved interim and final DIP loans totaling roughly $3.7
billion, compared with the second quarter figure of $1.65 billion. The
increase largely can be attributed to a slight jump in the number of
corporate chapter 11 filings in the most recent quarter and the
financial needs of Adelphia Communications Corp., which had a $1.5
billion loan approved in August.
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