February 12, 2004
Economy Set for Vigorous Growth
Federal Reserve Chairman Alan Greenspan yesterday said the U.S. economy
has turned toward vigorous growth but policy-makers can be patient about
interest-rate rises, though not forever, Reuters reported. 'Last year
appears to have marked a transition from an extended period of subpar
economic performance to one of more vigorous expansion,' the Fed chief
told the House of Representatives Financial Services Committee. 'Looking
forward, the odds of sustained robust growth are good, although as
always, risks remain.'
Fed policy-makers believe the U.S. economy could grow as much as 5
percent in 2004, according to estimates for gross domestic product
growth ranging from 4.5 percent to 5 percent. Under close questioning by
lawmakers, Greenspan conceded there was 'a significant shortfall'
between job creation and economic growth but this won't last, if only
because the rate of productivity growth likely will slow. 'Unless I'm
mistaken, my view is that this pattern is about to change. I don't know
when it's going to change. I just find it highly difficult to imagine
that we can continue to advance efficiencies as quickly as we have been
doing,' he said, reported the newswire.
Retail Sales Post Unexpected Decline
U.S. retail sales posted a surprise decline in January as weakness in
auto sales more than offset gains in purchases of clothing and
groceries, a Commerce Department report on Thursday said, Reuters
reported. According to the report, retail sales fell 0.3 percent to
$322.87 billion in January, the first decline since September. Excluding
autos, however, retail sales posted a 0.9 percent increase. Wall Street
had expected a more robust growth for overall spending. Analysts'
forecasts had called for a flat reading on overall sales and a weaker
0.5 percent increase for ex-auto sales. While autos were the main factor
in bringing down overall sales, weakness was also seen in other
categories. Motor vehicle sales decreased 3.9 percent in January, their
steepest decline since February 2003. Purchases at furniture and
building materials stores fell 0.9 percent, reported the newswire.
Boeing Capital Seeks Own Hawaiian Air Plan
Boeing Capital Corp. is seeking bankruptcy court approval of its own
plan of reorganization for Hawaiian Airlines, a proposal that would
restore one of the carrier's former CEOs and bring in $30 million of new
equity capital, Reuters reported. Boeing Capital, along with BCC
Equipment Leasing Corp. and Corporate Recovery Group LLC, seeks to put
former CEO Bruce Nobles in charge of the airline, according to court
documents. Hawaiian Airlines, the Honolulu-based subsidiary of Hawaiian
Holdings and Hawaii's largest carrier, filed for chapter 11 bankruptcy
protection nearly a year ago. Shares of Hawaiian Holdings, which is not
in bankruptcy protection, fell as much as 12 percent to a session low of
$4.31 on the American Stock Exchange. Boeing Capital, the financing arm
of airplane manufacturer Boeing Co., is one of the airline's largest
creditors. Boeing Capital, which leases 14 planes to Hawaiian Airlines,
has been unhappy with the restructuring's progress and succeeded in
getting a trustee appointed to run the airline, reported the
newswire.
U.S. Judge Clears Adelphia to Go for $8 Billion Loan
A bankruptcy judge cleared Adelphia Communications Corp. to negotiate a
record $8 billion loan package yesterday over the objections of a
shareholder group in the bankrupt cable television company, Reuters
reported. Judge Robert Gerber, who is overseeing the bankruptcy,
rejected the action and said shareholders who brought it would have time
to address their concerns later. Adelphia collapsed into bankruptcy in
June 2002 after defaulting on millions of dollars in debt amid criminal
fraud charges by its Rigas family founders. It sought approval last
month to spend $150,000 to start work on a new $8 billion 'exit
financing' package with banks including Deutsche Bank. The loan package,
which would be the largest in U.S. bankruptcy history, is meant to
refinance some $6.7 billion in bank debt and provide working capital,
Adelphia said, reported the newswire.
Adelphia's court-appointed committee of equity holders objected to the
move, saying the bank negotiations would lay the groundwork for a plan
of reorganization that would give nothing to shareholders. The group has
asked the judge for permission to file its own plan that would break up
Adelphia and sell its assets. Adelphia's management opposes that plan
and wants the company to remain whole, Reuters reported. A hearing on
the group's request is set for March 2, but Judge Gerber indicated he
would oppose it, saying it would be 'monumentally disruptive' to end the
company's exclusive period to propose its own plan, reported the
newswire.
MCI Seeks Extension on Bankruptcy
MCI on Wednesday asked a federal bankruptcy court for two more months to
complete its reorganization plan and emerge from bankruptcy, Reuters
reported. MCI said it would use the extra time to prepare its financial
statements for 2002 and 2003, which must be restated to correct roughly
$11 billion in improper accounting. The company, which filed for
bankruptcy in 2002, was scheduled to emerge Feb. 28. MCI said outside of
the financial statements it must file with the U.S. Securities and
Exchange Commission (SEC), it had finished 'all significant tasks'
related to bankruptcy. MCI has agreed to pay $750 million in cash and
stock to settle fraud charges filed by the SEC. The payments will go to
bondholders and shareholders who lost more than $200 billion when the
fraud was uncovered. The company said last month it expects its revenues
this year to decline as much as 12 percent from tougher competition and
pricing pressure.
LeapFrog Shares Plunge on Sales Worries
Shares of educational toy maker LeapFrog Enterprises Inc. fell 12
percent Wednesday on concern its sales growth could slow in 2004,
Reuters reported. Late on Tuesday, the company posted a sharp rise in
fourth-quarter profits and a 33 percent increase in sales that exceeded
analyst expectations. The company also replaced founder Mike Wood as CEO
with Tom Kalinske, who reclaims the CEO spot he held from 1997 to 2002.
Wood takes on the new role of Chief Vision and Creative Officer.
Investor confidence had already been battered in October after LeapFrog
reported third-quarter sales and earnings below expectations.
The toy industry had a difficult 2003 as both FAO Inc, parent of FAO
Schwarz, and KB Toys filed for bankruptcy, both citing competitive
pricing pressures. 'There's probably concerns about gross margin, we did
signal that because everyone had been talking about the shift from the
back half of the year,' Kalinske told Reuters. 'And we're in a situation
where we don't have as many retailers to sell to in the first quarter.
It will have some impact on the first quarter, but long-term it won't
have an impact,' he added, reported the newswire.
EU, U.S. OK Air France Takeover of KLM
Air France, nearly filing for bankruptcy a decade ago, was cleared by
Brussels and Washington on Wednesday to take over Dutch KLM and create
the world's largest airline group by revenue, Reuters reported. Air
France is spearheading an expected move toward consolidation in Europe's
airline sector, hoping to tap economies of scale and expand as the
European Union prepares to grow from 15 to 25 nations in May. The new
Air France-KLM combination will move ahead of Japan Airlines System
Corp. as the largest airlines group by revenue and rank third behind AMR
Corp.'s American Airlines and UAL Corp.'s United Airlines in passenger
traffic.
Elite Model Agency Files For Chapter 11 Bankruptcy
The Elite Model Management Group announced in a press release yesterday
that one of its affiliates, Elite Model Management Corp. of New York
(Elite NY), had filed for chapter 11 bankruptcy protection. The filing
does not affect the parent company in Switzerland or any of its other
affiliates. The move is a response to two lawsuits, including the
private class action litigation against it and most U.S. based modeling
management companies, including IMG, Ford, Wilhelmina and Next, over the
past two years. 'We are fighting back. We are fed up with these
outrageous lawsuits. Now we can get back to running our business,' said
Monique Pillard, founder and board member of Elite Model Management
Corp. 'Most important, this lets us put our models and bookers first.
After all, they are the essence of our business.'
Elite NY also announced it has secured debtor-in-possession (DIP)
financing, pending court approval, from a New York-based private equity
fund. It expects an expeditious reorganization and emergence because of
the solid financing and the fact that lawsuits are the sole reason for
the chapter 11 filing. 'This filing gives us relief from these lawsuits.
Sooner or later every other modeling firm will have to deal with these
issues. By acting now, Elite can focus on growing its business,' said
Edward R. Curtin, Elite NY general counsel in the press release.
The industry's financial difficulties stem in large part from a private
class action lawsuit brought by the Boies, Schiller & Flexner law
firm, who allege that the leading model management companies conspired
to fix commissions. The firms deny the allegations, pointing out that
anyone with even a rudimentary understanding of the business knows its
fiercely competitive nature precludes the possibility of rate fixing.
Elite NY was also recently involved in a lawsuit with Victoria Gallegos,
a former employee, who claimed her exposure to second-hand smoke in the
firm's office damaged her health. Although employed at the firm for less
than six weeks, she was awarded $4.3 million. The case is on appeal.
Insurers' Claims Are Dismissed In Halliburton Asbestos
Case
A federal bankruptcy judge dismissed all claims by insurance companies
in Halliburton Co.'s $4 billion asbestos-settlement case, saying they
had no standing to challenge the agreement, the Wall Street Journal
reported. One group of insurers was led by Ace Ltd.'s Ace Property &
Casualty Insurance Co. and the other group was led by Hartford Accident
& Indemnity Co., a unit of Hartford Financial Services Group Inc. A
spokeswoman for Hartford Financial said it plans to appeal the judge's
decision. Like other companies hit by mounting asbestos litigation, the
Houston energy-services company sought to work out its debts by creating
a trust to absorb liability for all of its current and future
asbestos-related lawsuits. The company struck payment agreements with
plaintiff's attorneys before the units filed for reorganization under
the Bankruptcy Code in December, reported the online newspaper.
Michael Jackson Faces Cash Crisis
Michael Jackson is near insolvency as he continues to pile up debt,
several close financial advisers say, the New York Times
reported. Jackson faces an immediate cash crisis with a $70 million loan
from the Bank of America that is due on Tuesday and has no money to
repay it, the advisers said. But Al Malnik, a Miami entrepreneur who is
helping to repair Jackson's finances, said that he was trying to have
the loan extended. Malnik said he met with Jackson's business managers
this week to discuss the loan. Together, he said, they were 'working
toward a positive resolution of Michael's financial affairs and business
affairs that will result in a reorganization of his valuable assets,' he
said, reported the newspaper.
Footstar Ponders Filing for Bankruptcy
Shoe retailer Footstar Inc. today said it will file for chapter 11
bankruptcy protection if it cannot secure financing or sell assets to
boost its liquidity, Reuters reported. The company, in the process of
restating earnings for fiscal years 1997 through 2002, said it was
negotiating with its lenders to obtain 'necessary liquidity' and had
started talking to additional financing sources. Footstar, which is
being investigated by the U.S. Securities and Exchange Commission, said
it was also considering selling some assets to boost liquidity. 'If none
of these alternatives is successful in the near term, the company will
be required to file under chapter 11 of the U.S. Bankruptcy Code in
order to obtain necessary liquidity and restructure its debt,' Footstar
said in a statement, reported the newswire.
Barclays Says Not Worried About U.K. Bankruptcy Law
Britain's biggest credit card lender Barclays PLC said on Thursday it
was not worried about impending changes to U.K. bankruptcy laws that
will cut the time it takes to be discharged from personal insolvency,
Reuters reported. 'No we are not concerned. We keep our eye carefully on
insolvencies and personal bankruptcies,' Deputy Chief Executive John
Varley told an analyst conference call. Gary Hoffman, head of
Barclaycard, said he was not worried about the rate of personal
insolvencies in Britain, reported the newswire. 'There is no sign of an
increase in the unemployment rate and that is the main indicator of
people getting into financial difficulty.'
