March 17, 2006
Distressed Cities See No Clear Path
A number of large U.S. cities, including San Diego, Pittsburgh and Detroit, are in serious financial distress, the National Law Journal reported today. Municipalities resorting to chapter 9 is quite infrequent. In fact, the last major municipal bankruptcy under chapter 9 was the Orange County, Calif., in 1994. Unlike the Orange County case, which was a restructuring driven principally by speculative investment decisions and resulting degraded asset values, the large municipal bankruptcy cases on the horizon are likely to be driven more by the massive health care and pension liabilities facing large cities than by a need to restructure their debt instruments. For example, San Diego faces a whopping $1.4 billion pension shortfall, with little relief in sight. Consequently, any large municipal bankruptcy filing in the near future will likely center around very different legal issues than those that were the focus of previous municipal bankruptcy cases. Read more. (Free registration required to access full story).
2005 Loss for GM to Jump $2 Billion
General Motors Corp. late Thursday revised its loss for 2005 to $10.6 billion—$2 billion more than it reported in January— citing the higher costs it expects for a broad restructuring and the bankruptcy reorganization of Delphi Corp., the Associated Press reported today. The loss translates to $18.69 a share. Previously, the world's largest automaker said it lost $8.55 billion, or $15.13 a share, last year. In a statement, GM also said that it will delay filing its 2005 annual report but expects to do so within two weeks and that it will correct accounting errors it disclosed in November. GM said that it expects to increase the charge for its exposure relating to Delphi's chapter 11 filing to $3.6 billion from the previous estimate of $2.3 billion. Read more.
Delphi Shareholder Threatens Legal Action
One of the largest shareholders of Delphi Corp. sent a letter this week to its Chairman and Chief Executive Robert S. Miller, accusing the auto supplier of overstating its financial obligations and rushing into bankruptcy court protection, the Wall Street Journal reported today. The letter from David Tepper, the former head of junk bonds at Goldman Sachs Group Inc. who runs a $3 billion hedge fund called Appaloosa Management LP, demands that Delphi convene a now-canceled annual meeting to face a slate of directors nominated by Appaloosa. Tepper said Miller and Delphi management ignored their fiduciary obligation to its shareholders while exaggerating its labor-related liabilities. Tepper threatened legal action against Delphi officials if the company doesn't schedule an annual meeting. He reported his 9.3 percent stake in Delphi as a passive investor Oct. 11, three days after the company filed for chapter 11 protection, and he is seeking bankruptcy court approval for an official equity committee to represent the interests of Delphi's common shareholders. A hearing is scheduled on that request for Tuesday in U.S. Bankruptcy Court in Manhattan.
New York's St. Vincent Medical Centers Claimants Push Malpractice Suits
Medical malpractice claimants have asked a Manhattan bankruptcy court to lift an automatic litigation stay as they continue in their attempts to recover an estimated $100 million from bankrupt Saint Vincent Catholic Medical Centers, Portfolio Media reported today. Numerous malpractice plaintiffs have lobbied U.S. Bankruptcy Court Judge Adlai S. Hardin, hoping to convince him that the petitions should not be grounded until after the New York health care provider exits chapter 11. On Monday, Hardin extended the claimants’ request to lift the stay as he mulls a proposal, suggested by Saint Vincent, to handle the malpractice suits. Saint Vincent, which runs six hospitals in the New York area, asked the court earlier to adopt a “uniform and systematic approach” to deal with the slew of requests. The health care provider stressed that streamlining the process was essential to the efficient administration of the estate and to the fair treatment of creditors in court papers filed last week. Saint Vincent filed for bankruptcy protection last July. A hearing on the matter is scheduled for March 29. The hospital chain requested permission from the court to delay until June its sole right to file a reorganization plan, originally set to expire on March 13. The medical center was also seeking more time to gather creditor support for its restructuring plan, asking for the deadline to be moved from May 1 to August 29.
U.S. Unit of LG.Philips Files for Chapter 11
Just two months after its units in France, Germany and the Netherlands toppled into bankruptcy, LG.Philips Displays BV saw its U.S. unit fall into the same pattern, according to its chapter 11 filing Wednesday, Portfolio Media reported yesterday. LG.Philips Displays USA is the U.S. unit of the company, which is a joint venture between Philips Electronics N.V. and LG Electronics Inc. of South Korea for developing cathode-ray tubes used in televisions. LG.Philips USA, with between $50 million and $100 million in assets, stated that it owes its bank lenders $573 million and its trade vendors $52 million. The U.S. unit, based in San Diego, Calif., did not cite a reason for its bankruptcy filing; however, it is liable for at least a portion of the $573 million owed by the joint venture to its bank group. In January, the European units said their bankruptcy filings came about after a demand for cathode-ray tubes, or CRTs, dropped precipitously in mature markets due to competition from more popular flat-panel displays. Joint venture owners Philips and LG Electronics wrote off their stakes in the ailing company last year. LG.Philips USA said it planned to continue running its business operations while it assessed its options. The company has asked the bankruptcy court for permission to use up to $3.7 million to cash collateral securing the loans from J.P. Morgan Chase and other bank lenders to support its business while under bankruptcy protection.
USG Seeks to Acquire Paper Mill for $18M
Hoping to gain a competitive edge in the construction material industry, USG Corp. has asked a bankruptcy court to allow it to fund the $18 million purchase of a Michigan paper mill through a new subsidiary, Portfolio Media reported yesterday. USG, a Chicago-based building materials manufacturer, believes the deal would bring in substantially more than its $18 million asking price, according to a court filing Monday. Through its subsidiary Otsego Paper Inc., USG decided Friday to purchase the mill in Otsego, Mich., from Menasha Corp. Acquiring the mill will give USG additional paper capacity to help it expand and will allow it to offer lower-delivery cost paper capacity in its manufacturing system, the filing stated. If any objections against the company’s move to acquire the mill are filed by March 30, a hearing will be set for April 17 in the U.S. Bankruptcy Court in Wilmington, Del. Otherwise, the court is expected to approve the request without a hearing. USG filed for chapter 11 protection in June 2001 to deal with increasing costs for asbestos litigation connected with its Gypsum Co. division.
Enron Jurors Take Thursday Off
Jurors in the fraud and conspiracy trial of Enron Corp. founder Kenneth Lay and former CEO Jeffrey Skilling got a day off yesterday as the government neared the final two weeks of its case against the two former corporate titans, the Associated Press reported yesterday. Testimony will resume Monday. Prosecutors reiterated that they expect to wrap up their case-in-chief by the last week of March. Then the defendants will have their turn, and the prosecution gets the last word with rebuttal witnesses once the defense teams finish presenting their cases. Read more.
American Italian Pasta Co. Sidesteps Bankruptcy
American Italian Pasta Company, the country’s biggest pasta maker, of Kansas City, Mo., has avoided filling for bankruptcy with a new loan arrangement package from its lenders, Missouri.net reported yesterday. The new loan arrangement totals $295 million. The company has been suffering from two issues: the low-carb diet craze and a Securities and Exchange Commission investigaiton. Since August 2005, company stock value has dropped about 75 percent.
Exec: Delta Won't Lower Pilot Concessions
Delta Air Lines Inc. won't lower the amount of concessions it is seeking from its pilots any further, but would be willing to discuss concerns pilots have about the possible termination of their defined benefit pension plan, the carrier's chief CEO said yesterday, according to the Associated Press. CFO Edward Bastian, following the fourth day of two weeks of hearings before an arbitration panel that will decide whether to allow the company to throw out its pilot contract, made the most definitive statement to date about what Delta is willing to accept and what it isn't. The comments came even as the chairman of the union's executive committee, Lee Moak, said that anyone who doubts the pilots' resolve to strike if their contract is voided is mistaken. The arbitration panel must decide on Delta's motion to reject its pilot contract by April 15. Read more.
Meanwhile, UAL Corp., parent of United Airlines, and Delta Air Lines Inc. have delayed filing their 2005 annual reports with the Securities and Exchange Commission, citing complications related to bankruptcy, Bloomberg News reported today. United said yesterday that it wasn't able to complete the report because it was busy with accounting work related to its exit from bankruptcy on Feb. 1. Earnings won't be affected by the delay and the report will be made within 15 days. Atlanta-based Delta said its delay was related to its bankruptcy and it also will file the report within 15 days. The task of converting the accounting practices came as the company was preparing its annual report, creating an "additional workload that prevented" UAL from making the filing, the company said.
Ohio Storage Co. Files for Bankruptcy
Flood damage, high material prices and skyrocketing medical costs combined to put the employee-owned Republic Storage Systems Co. Inc. into bankruptcy, the Akron Beacon Journal reported yesterday. The Canton, Ohio, maker of school lockers and other steel shelving products filed its chapter 11 bankruptcy petition on Tuesday. Republic's workers bought the company in 1986 after it was put up for sale by LTV Corp. Its hourly workers are members of Local 2345 of the United Steelworkers of America, and labor holds three of the seven seats on the board of directors. Employee ownership would end if the U.S. Bankruptcy Court in Canton approves an offer from Monomoy Capital Partners, a private equity firm based in New York City, to buy the company for $20 million. Republic expects to terminate its pension plan in the bankruptcy, which Anderson said is underfunded by $8 million. The plan is $30 million short of the total needed to pay pensions to all eligible employees, he said. Republic expects the plan to be taken over by the Pension Benefit Guaranty Corp., Anderson said. Read more.
Bankruptcy for Chamber Orchestra
After 33 years of business, the Northwest Chamber Orchestra in Seattle announced yesterday that it is filing for bankruptcy protection, the Seattle Post-Intelligencer reported today. The group is canceling the final two concerts of the 2005-06 season as well as tours to festivals in Michigan and Finland. "After our fund-raising auction on March 3 fell far short of our financial projections, we faced the certain prospect of deepening insolvency if we finished our season concerts and tours as planned,"acting President Steve Brady said in a statement. The orchestra, founded by Louis Richmond in 1973, has had a history of financial difficulty, often close to the brink of closing its doors only to be saved by a generous donor—either an individual patron or foundation. Read more.
International
Canada’s Dana Corp. Cancels Shareholders Meeting
This year, in which Toledo's largest corporation filed for bankruptcy, shareholders won't get a chance to question executives face to face, the Toldedo Blade reported today. Dana Corp. will not hold its annual shareholders meeting this year, a gathering it has held for two years at its nearby Ottawa Lake, Mich., research facility. "Our board of directors determined holding the meeting wasn't the best use of our resources under the current circumstances," spokesman Chuck Hartlage said yesterday. But shareholder Etson Hougland of Fort Wayne, Ind., said directors should have the session to answer questions about why they opted for chapter 11 bankruptcy protection, filed March 3 in U.S. Bankruptcy Court in New York. The former Dana employee said he lost $5,000 on shares he recently sold. With no annual meeting, the firm will not issue a proxy. But material usually contained in the proxy, such as executive compensation and stock ownership, will be in the Fortune 500 firm's annual financial report for 2005 filed in the next several weeks with the U.S. Securities and Exchange Commission, Mr. Hartlage said. Read more.
Hong Kong Bankruptcy Petitions Down 2 Percent
A total of 724 bankruptcy petitions were presented in February, down 2 perecent from January's 739. That is a drop of 12.6 percent compared with the monthly average of 828 in 2005, the Official Receiver's Office in Hong Kong said today. During the month, the court made 820 bankruptcy orders, down 15.4 percent from the previous month's 969. It represents a rise of 0.24 percent, though, compared with the monthly average of 818 in 2005.
In February 2005, there were 640 bankruptcy petitions presented while the court made 698 bankruptcy orders.