January 27, 2006
Auto Woes Might Drive Congress to Act
Recent restructuring announcements by two top U.S. automakers might sharpen congressional focus on trade barriers that the U.S. industry has long claimed keep its vehicles out of markets in Japan and South Korea, CongressDaily reported today. Auto industry officials say they will seek more attention to alleged currency manipulation by Japan, even though these complaints have been overshadowed in the congressional debate by complaints about China's currency practices. Monday's announcement by Ford that it would cut up to 30,000 jobs and close 14 plants by 2012 has so far produced few concrete proposals from Congress or the administration for ways to aid the industry. But the trade complaints have long bubbled under the surface and may become more prominent as a result of the industry's woes. Rep. John Dingell (D-Mich.) blamed U.S. automakers' struggles partly on "the administration's failure to prosecute unfair trade practices," including withholding backing for Dingell's bill that would increase efforts to combat currency manipulation, is one of several issues that are affecting not just the auto industry, but other large businesses as well, including rising company health care and pension costs. In fact, some claim the auto industry does not even have an individualized lobbying strategy. But industry analysts also say the plight of Ford and GM can be attributed to over-concentration on the production of SUVs and trucks, and slow response to evolving market trends toward smaller and more fuel-efficient vehicles as gas prices surged. The two companies have acknowledged this mistake. Ford introduced a hybrid vehicle Wednesday that runs on 85 percent ethanol, 15 percent gasoline and pan electric motor. The company says it will expand annual production of gasoline-electric hybrid vehicles.
Betting Against the Asbestos Bill
As the Senate prepares for a marathon debate over an industry-paid $140 billion fund to compensate victims of asbestos exposure, at least one big corporation with hundreds of millions of dollars at stake is casting a vote of no confidence in the bill, BusinessWeek said today. On Jan. 27, USG is expected to announce a $4 billion deal to settle victims' claims that some of its products caused cancer or other lung-scarring diseases, say several sources familiar with the deal. The settlement amount equals 10 times what USG would have to pay into the trust fund under consideration in Congress. Its announcement of a settlement just two weeks before the Senate is set to take up the legislation suggests that USG is betting the $140 billion fund lacks enough support for passage, asbestos litigation experts say. And it has probably made the right choice: After three years of negotiations among industry players, insurers, workers, and victims' lawyers, the asbestos trust fund, led by Senate Judiciary Chairman Arlen Specter (R-Pa.), has grown into a mammoth and complex piece of legislation that would financially penalize insurers and small companies with limited legal liability while giving a handful of large manufacturers, such as USG, a huge break. In recent months, onetime supporters of the legislation, including the American Insurance Assn., have withdrawn their support. In a Jan. 20 letter to Senate Majority Leader Bill Frist (R-Tenn.), AIA President Marc Racicot said the trust fund would leave insurers with "an even more untenable, expensive situation than that posed by the current, highly dysfunctional litigation system." Read more.
Judge to Rule on Calpine Rejecting Deals
A federal judge aims to decide before the weekend whether the Federal Energy
Regulatory Commission (FERC) has authority over how bankrupt power generator Calpine Corp. ends contracts with energy companies, the Associated Press reported yesterday. U.S. District Court Judge Richard Casey heard arguments Thursday from Calpine's attorney, a lawyer representing the company's creditors and attorneys representing energy companies. Calpine filed for bankruptcy protection last month, citing debts of $18 billion. The San Jose,
Calif.-based company initially sought to reject the contracts in bankruptcy
court, but Casey changed the venue to his New York courtroom in a ruling
earlier this month. Calpine wants to break eight long-term electricity contracts so it can capitalize on current market rates, which are higher than the prices it's locked into under the long-term deals signed several years ago. The company has said the contracts are an excessive burden and could cause another $1.2 billion in losses. Read more.
Aloha Airlines Achieves Exit Deal
Aloha Airlines has reached a new deal with its investors that soon could fly the carrier out of bankruptcy, the Honolulu Star-Bulletin reported today. The company, whose emergence from bankruptcy was delayed last month by an appeal from the federal agency that guarantees pension plans, filed a motion yesterday seeking a hearing Tuesday before Bankruptcy Judge Robert Faris on a restructured reorganization proposal. The $98 million modified deal provides $63 million in cash and $35 million in exit debt financing. The previous reorganization plan was worth $100 million and provided $50 million in cash and up to $50 million in debt. The new deal also includes $4.5 million more in cost savings. Read more.
Queen Mary Given Bankruptcy Deadline
District Court Judge Vincent Zirzullo has set a “drop dead date” in the chapter 11 bankruptcy of Queen’s Seaport Development, Inc., holder of the lease for the Queen Mary and the surrounding 55 acres of city property, the Grunion Gazette reported yesterday. Zirzullo has set an April 20 date for QSDI to either offer a recovery plan or show cause why the bankruptcy protection should continue. QSDI’s CEO and president, Joseph Prevratil, took the firm into bankruptcy last March in the face of default claims from the city. That default was the result of a dispute over rent credits QSDI had taken beginning in 2002. QSDI’s primary asset is the long-term lease it holds on the landmark Queen Mary and the 55 acres surrounding it. That property includes the dome, the cruise ship terminal operated by Carnival Cruise Lines and parking. Another deadline, currently Feb. 14, has been set for QSDI to assign the lease to another party, show the ability to maintain the lease itself or drop the lease. Read more.
Court Dismisses Complaint Seeking Revocation of Bankruptcy Confirmation
On Jan. 21, 2005, the U.S. Bankruptcy Court for the Southern District of New York approved the plan of reorganization of Trico Marine Services, Inc. and related companies ("Trico"), Primezone reported yesterday. The bankruptcy case number is 04-17985-smb, and was pending before Hon. Stuart M. Bernstein. The plan of reorganization became effective on or about March 15, 2005, at which time Trico emerged from bankruptcy. In July 2005, a proceeding was commenced by the owners of Trico warrants, pursuant to §1144 of the U.S. Bankruptcy Code seeking the revocation of the approved plan of reorganization of Trico. Trico moved to dismiss the complaint and by order dated Jan. 6, the court granted that motion but gave plaintiffs leave to amend their complaint to assert claims that did not seek the revocation. The court has since permitted plaintiffs and defendants to file additional papers on the Trico motion after which it will review its decision granting the motion, although it did not vacate its Jan. 6 order, which is being held in abeyance by the court. Plaintiffs have filed additional papers and defendants' response is due on Feb. 6. Read more.
EaglePicher Incorporated announced that it and certain affiliates filed its reorganization plan and disclosure statement yesterday, BankruptcyData.com reported today. The plan, which is being proposed jointly by EaglePicher and the official committee of unsecured creditors appointed in the chapter 11 cases, provides for the transfer of substantially all of the assets of the EaglePicher entities to newly formed companies. Consideration for the transferred assets will be paid to each debtor in amounts equal to the value of the assets transferred by that debtor. Under the plan, unsecured creditors of each debtor will receive their pro rata share of that value available for unsecured creditors after satisfaction of all secured and priority claims. Holders of the company's 9.75 percent senior notes will receive their distributions in the form of all of the common stock in the new holding company. All other general unsecured creditors of each debtor will receive their distributions at their option either in the form of cash payments over time or a single discounted cash payment.
Texas Bankruptcy Judge Blasts New Bankruptcy Law
Three months after the Act took effect, a federal bankruptcy judge in Texas has expressed his utter dissatisfaction with the new law, the blog at TPMCafe.com said yesterday. His opinion is notable for two reasons: first, as a sitting judge, he is a relatively impartial commentator; second, it excoriates Congress for passing the new bankruptcy act. As Judge Monroe noted, "to call the Act a 'consumer protection' Act is the grossest of misnomers." The PDF of the full opinion is available here. Judge Monroe singles out the provision of the Act requiring any consumer contemplating bankruptcy to receive "credit counseling" from an approved counseling agency before filing for bankruptcy. "Simply stated, if a debtor does not request the required credit counseling services . . . that person is ineligible to be a debtor no matter how dire the circumstances." Judge Monroe said "This Court views this requirement as inane." Read more.
Opinion: GM and Ford Won't Go Bankrupt
Enough already on General Motors and Bankruptcy, an opinion piece in Forbes Magazine said today. GM isn't going bankrupt this year; GM isn't going bankrupt next year; 2008 is so far off that even Bill Gates could be bankrupt by then. The company has $19 billion in the kitty and just about $100 billion in the pension fund. But there's more here than the balance sheet. GM can pay its bills, so that's not a problem. The new reason for bankruptcy is to break a union contract. GM would have to negotiate any change in the contract, so the bankruptcy ploy just doesn't work here. Read more.
International
LG.Philips Seeks Bankruptcy Protection in Europe
Cathode ray tube firm LG.Philips Displays has filed for bankruptcy protection for its European holding company and two of its European subsidiaries in the Netherlands and Germany, ElectronicsWeekly.com reported today. The firm, which holds around a quarter of the world market for CRT displays, blamed worsening conditions in the CRT market and unsustainable debt for the move. The Netherlands and German subsidiaries are responsible for 750 employees. The firm said that months of negotiation with its two parent companies had failed to garner the necessary funding. As a result, LG.Philips also said it was unable to continue financial support for some of its loss making subsidiaries. This statement has led to other operations in France, Czech Republic, Slovakia, Mexico and the United States to review their financial position. Further applications for insolvency protection are expected. Read more.
Analysis: German Health Care Heading for Bankruptcy
Germany's health care system is in for a sweeping reform as it has turned from one of the world's best models into one that has careened toward bankruptcy, UPI reported yesterday. Health care spending eats up roughly $280 billion (230 billion euro), or about 11 percent of Germany's gross domestic product, according to the Federal Statistics Office in Wiesbaden. That compares with 7 percent in the United Kingdom. That financing system is based on everyone paying into a publicly funded health care system through payroll taxes. But with Germany's elderly retiring earlier than ever, large unemployment numbers (whose benefits pay some of the fees) and people working in low-cost jobs, the government has to reach deeply into its own pocket to make the system work. Read more.
Gama Reacts to Bankruptcy Report
The Austrian textile group that planned to open a factory in Malta yesterday admitted that its CEO was the joint-owner of a company when it went bankrupt in 2003, though it said he had stepped down as managing director about four months before bankruptcy proceedings began. The Gama Textile Group initially issued a statement after the Times of Malta reported yesterday that Manfred Baier was the joint owner and managing director of a textile company that went bankrupt in 2003, saying he "had never been involved" in any bankruptcy case. Read more.