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October 7, 2002
Senate Sees 'Systemic Failure' by SEC in Enron Regulation
A Senate investigation revealed a 'systemic and catastrophic failure' by
the Securities and Exchange Commission in its regulation of Enron Corp.,
the Wall Street Journal reported. In a staff report and letter
yesterday to SEC Chairman Harvey Pitt, the Senate Governmental Affairs
Committee showed how Enron's years of deception missed detection by
securities regulators, rating agencies and investment-bank analysts. The
letter, signed by Committee Chairman Joseph Lieberman (D.-Conn.), and
Republican Fred Thompson, said, 'Investors were left defenseless.' The
study demonstrated, among other things, that the SEC failed to review
any of Enron's post-1997 annual reports, which would have been its
strongest chance of finding anything misleading. 'If the SEC had pressed
Enron about those and other troubling disclosures when they first
appeared in Enron's 1999 annual report, some of the enormous losses
suffered by workers and investors might have been prevented,' the
senators wrote. 'We have witnessed a fundamental breakdown in this
system,' the report said, adding that the SEC cannot depend on company
auditors and boards of directors to ensuring honest public disclosure.
'Although our investigation found no willful malfeasance by the
Commission with respect to Enron, Committee staff has concluded that the
Commission's largely hands-off approach to the company—combined
with the failure of the auditors and board of directors to do their
jobs—allowed inaccurate and incomplete information to flood the
market.'
However, the report also acknowledged that in the months since
Enron's collapse late last year, the SEC has significantly stepped up
enforcement, and admits that it had struggled for years with scant
financial and technological resources. 'I appreciate that the committee
staff recognizes our need for more resources—both people and
technology,' Pitt responded. 'Working together with the Congress and
other governmental representatives, we are well under way toward taking
and completing the tasks necessary to restore investor confidence.' At
the time of Enron's bankruptcy-court filing in December 2001, the SEC
had undertaken no review of any of the financial statements that Enron
had filed after its 1997 annual report, but SEC officials have noted
that over the years its staff was so consumed with reviewing
prospectuses of companies conducting initial public offerings of stock
during the 1990s that it didn't have enough time to more thoroughly
review financial statements. However, Sens. Lieberman and Thompson
concluded that despite the difficulties its had, the SEC must find
better ways to detect corporate fraud while lessening its historical
reliance on others to spot it first. 'Whatever the reason for the SEC's
failure to review filings with sufficient regularity or to use the right
criteria for selection…the investing public expects and deserves
more meaningful protection from the ultimate market watchdog.'
Fed Seen Holding Off on Rate Cuts, for Now
Despite the sliding stock market and stagnant labor market,
interest-rate markets said that the Federal Reserve isn't likely to cut
rates further, according to the Wall Street Journal. Friday,
interest rates soared just minutes after a government report showed the
jobless rate unexpectedly fell in September. Expectations for an
imminent rate cut were scaled back after the Labor Department said the
unemployment rate dropped to 5.6% last month from 5.7% in August,
confounding economists and traders again after the jobless rate fell
two-tenths of a percentage point in August from 5.9% in July, and some
economists wonder whether further interest-rate cuts are necessary at
this point.
Conseco Chapter 11 Seen as Imminent
Conseco is reported to be in negotiations with debt-holders seeking to
restructure its liabilities, and some market sources said they believe
the departure of Gary Wendt as chief executive officer, announced late
Thursday, was deemed a prerequisite for a restructuring, according to a
Dow Jones newswire report. A new CEO would be the 'prerogative' of new
owners said sources close to the situation—an indication that the
company is headed toward bankruptcy. The prospect of a bankruptcy filing
was also prominent in Friday's Standard & Poor's Ratings Services
announcement that it revised its counterparty credit rating on Conseco
Inc. to single-D (default) following the resignation of Wendt. S&P
also lowered its senior debt and preferred stock ratings on Conseco to
single-D from double-C. The D rating reflects the notion that Wendt's
resignation 'is a prelude to an ultimate bankruptcy filing,' S&P
credit analyst Jay Dhru told Dow Jones Newswires, adding that the agency
expects that 'Conseco's future payments on principal and interest will
be adversely affected.'
Court OKs New Procedures for Trading US Airways Stock
On Wednesday, the U.S Bankruptcy Court in Alexandria, Va., changed
procedures designed to monitor and preserve the US Airways net operating
losses in its chapter 11 case, according to a Form 8-K the airline filed
Friday with the Securities and Exchange Commission, Dow Jones newswires
reported. Judge Stephen S. Mitchell signed an order that alters a
previous ruling imposing notice and hearing procedures on the trading of
US Airways's claims and equity securities on any party that owns
directly or indirectly more than $50 million of the airline's claims or
more than 3 million common shares, or about 4.5% of its outstanding
shares.
Court Extends Timeframe for RSL Com USA to File Plan
The U.S. Bankruptcy Court in Manhattan has again extended the time in
which only RSL Com USA Inc., which provides a range of voice, data,
Internet and value-added products and services, may file a chapter 11
reorganization plan and solicit the plan's acceptance, according to a
Dow Jones newswire report. Judge Allan L. Gropper signed the
order at a hearing Thursday that extends for 45 days the company's
exclusive period to file a plan. If the company files a plan by Nov. 25,
other entities would be prohibited from filing competing plans through
Jan. 23, 2003, while RSL Com solicits votes for its plan. Under a prior
extension from Aug. 5, the company's plan-filing exclusivity would have
been set to expire next Tuesday. In its most recent motion, the company
said that since its last extension request the company has continued
preparing to close the sale of its 'most significant asset,' its
enterprise business, which on May 23 the company won court approval to
sell to Counsel Springwell Communications LLC for $15.5 million.
Pittsburgh-based RSL Com USA listed assets of $308.5 million and
liabilities of $536.9 million as of March 1, 2001.
CTC Communications Reaches Deal to Use Lenders' Cash
Collateral
CTC Communications Group and its CTC Communications Corp. unit reached a
deal Friday to use the cash collateral of their secured creditors to
fund operations and pay vendors they deem critical to their business,
according to a Dow Jones newswire report. The debtors struck an
agreement with Toronto Dominion (Texas) Inc., Lehman Brothers Inc.,
Credit Suisse First Boston Corp., and TD Securities Inc. to use the cash
collateral through October. CTC said that the lenders are owed roughly
$225 million under a pre-petition credit agreement. Verizon
Communications and Cisco Systems Inc., its largest trade creditors, also
gave CTC the go-ahead. The debtors will submit a revised interim order
to the office of Chief Judge Peter J. Walsh of the U.S.
Bankruptcy Court in Wilmington, Del., Friday afternoon. A final hearing
is scheduled for Nov. 5.
Under the terms of the agreement, CTC Communications will use the
cash collateral to make $30.85 million in payments through October. The
expenses include $20.15 million in telecom costs, $2.3 million in
personnel costs and $4 million in adequate assurance payments to
utilities companies, according to a budget submitted to the court. The
company will also make weekly payments of $3.6 million to Verizon as
adequate assurance for future performance, and Verizon will continue to
provide services. The agreement also authorizes CTC Communications to
set aside $750,000 to cover its professional expenses and $250,000 to
cover professional expenses incurred by a soon-to-be-appointed committee
of unsecured creditors, according to court documents. Judge Walsh
granted the debtors interim authority to make up to $500,000 in payments
to vendors they deemed critical to their business and reorganization
efforts. No more than $250,000 can go to trade creditors that perform
work under a pre-petition contract. The Waltham, Mass.-based integrated
communications services company filed for chapter 11 protection
Thursday, listing assets of $306.8 million and liabilities of $394
million as of July 31.
Court Orders Network Plus to Pay Post-chapter 11 Bills
The U.S. Bankruptcy Court in Wilmington, Del., ordered Network Plus
Corp. on Sept. 25 to pay its post-chapter 11 bills to FiberNet Telecom
Group Inc., according to a Dow Jones newswire report. The company would
be required to pay the fiber-optic company monthly service charges
totaling $54,251. The court also directed Broadview NP Acquisition
Corp., which acquired most of the assets of Network Plus in March, to
pay FiberNet $124,797 because of liabilities assumed in the sale. New
York-based FiberNet is an operator of telecommunications networks that
provides bandwidth to corporate office buildings and services other
telecom carriers that provide retail voice and data services. Court
papers indicate that before Network Plus filed for chapter 11 protection
Feb. 4, listing assets of $433 million and liabilities of $206 million,
it had signed a telecommunications service agreement under which it
agreed pay some rates and charges for FiberNet services. At the time of
filing, Network Plus served 75,000 customers, including hospitals, trial
courts, universities, religious organizations and charities.
Morgan Group Plans To File For Bankruptcy Protection
Morgan Group Inc. said it will file for chapter 11 protection within the
next few days after being forced to shut down its operations, according
to a Dow Jones newswire report. In a press release Friday, Morgan said
the company and its two wholly owned units, Morgan Drive Away Inc. and
TDI Inc., plans to liquidate all assets and liabilities. On Thursday,
Morgan's liability insurance expired, and the company said it has been
unable to secure a replacement; by law, without insurance the company,
which transports manufactured homes and recreational vehicles, is
required to stop operating motor vehicles.
Ames Seeks Court Approval of Severance, Retention Plan
Ames Department Stores Inc. said it is seeking court authorization to
implement an employee severance, retention and performance incentive
program while it winds down its business, according to a Dow Jones
newswire report. The discount retailer said it is negotiating a new
financing package with Kimco Funding LLC that would provide funds for
its wind-down, including payments under the proposed wind-down of
severance-retention program, which Ames said is necessary to provide
incentives to retain key employees as it concludes its operations. On
Aug. 14, Ames had announced that it would conduct an orderly wind-down
of its business. Going-out-of-business sales are scheduled to be
completed by Oct. 31, and real estate sales, avoidance actions and other
wind-down functions will continue for about 12 months. Arguing the need
for the severance-retention program, Ames said its store-level employees
are the 'backbone' of successfully running the going-out-of-business
sales. 'The requested severance pay program is not only the humane
action to take for these employees—many of whom live from paycheck
to paycheck—but also will help ensure that these necessary
employees remain for the duration of their required service,' Ames said.
The U.S. Bankruptcy Court in Manhattan has scheduled a hearing on the
severance-retention program for Oct. 10, with objections due today. Ames
has been under chapter 11 protection since Aug. 20, 2001, the company's
second filing in a decade.
Vanguard Says It Has Another Offer for Assets
Vanguard Airlines, the discount carrier that rejected a bid from a group
headed by the chairman of the Hooters restaurant chain to buy it out of
bankruptcy, says it has another offer from an unidentified bidder, the
Associated Press reported. The airline said Thursday that there was a
new offer but declined to say who it was from or to give any details
about it because the company must receive bankruptcy court creditors'
committee approval in its chapter 11 case. A buyout proposal from the
group headed by Robert H. Brooks, chairman of Hooters of America Inc.,
was turned down last week, with Vanguard describing it as inadequate;
the terms were never publicly disclosed. Thursday had been Vanguard's
deadline for other proposals to buy its assets. The carrier has let go
of its leases at Kansas City International Airport and has only one
remaining leased plane. Vanguard filed for chapter 11 on July 31, laying
off more than 1,000 employees and stranding about 6,500 customers.
Sunbeam Creditor Panel Says Plan Is 'Doomed To Fail'
Sunbeam Corp.'s unsecured creditors' committee said the company's latest
chapter 11 reorganization plan is 'doomed to fail,' according to a Dow
Jones newswire report. Sunbeam's third amended reorganization plan
proposes to release the committee's claims against the consumer
product-maker's lenders and financial adviser, Morgan Stanley & Co.,
for 'essentially no consideration,' the committee said, adding that the
plan can't be confirmed because it won't consent to the proposed
settlement of its claims against the lenders, and that its
members—who hold more than 66 percent of Sunbeam's
notes—will vote against the plan. The U.S. Bankruptcy Court in
Manhattan has scheduled a confirmation hearing for Nov. 4. The Boca
Raton, Fla., company and its affiliates filed for chapter 11 protection
Feb. 6, 2001, listing assets of just under $3 billion and liabilities of
$3.2 billion as of Sept. 30, 2000.
Global Crossing Ltd. May Change Company Name
Global Crossing Ltd. Chief Executive John Legere said Friday that the
company was considering dropping the Global Crossing name, saying that
the company had 'very little brand power' and rebranding was 'a very
fickle issue we're looking at,' according to a Dow Jones newswire
report. 'We have huge recognition, [and] right now [it] doesn't
necessarily drive towards the right perception.' Legere said that Global
Crossing, which has a major network in the U.K. since buying Racal
Telecom for GBP1 billion in 1999, may expand further in the U.K. He said
that executives of other companies may decide to follow Global
Crossing's example and seek creditors' protection.
Fabric Maker Emerges from Bankruptcy
Guilford Mills Inc., Greensboro, N.C., once among the nation's leading
makers of fabrics for clothing and home furnishings, emerged from
bankruptcy protection half a year after agreeing to major restructuring,
the Associated Press reported. Guilford Mills filed for chapter 11
protection in March after defaulting on bank loans last year. The
company, which emerged from bankruptcy on Friday, says it has reduced
costs by moving production from old operations to newer, more
cost-efficient plants.
Pittsburgh May Need State Financial Bailout
Pittsburgh may ask for state help to stay afloat due to its decades-long
financial problems, the Pittsburgh Tribune Review reported. The
City Council could face a deficit of up to $50 million when it begins
budget deliberations later this year, and City Mayor Tom Murphy says he
hasn't ruled out filing for bankruptcy-like protection under
Pennsylvania's Act 47, which would allow the city to renegotiate costly
labor contracts. 'From a business standpoint, something like that would
be a major red flag, for me at least, in recommending a site to
someone,' said Dennis J. Donovan, director of global site selection for
the Wadley-Donovan Group, a Grubb & Ellis unit in Chicago. 'It
raises a degree of uncertainty. When companies opt to locate somewhere
new, why would they want to do it in a place where the future is
anything but certain?' Donovan said businesses want to know that the
city will be able to build roads, provide public safety and keep its
taxes in line. Pittsburgh has long been burdened with an image as a
dirty, down-on-its-luck steel town, although it has been trying to
promote itself over the last few decades with new stadiums, a new
convention center and a growing tech-based economy, and whether or not
it will seek state assistance is speculation at this point. 'Image is
everything,' said Audrey Guskey, a marketing professor at Duquesne
University. 'All these fund-generating events—concerts, sporting
events, conventions, people looking to vacation somewhere—could be
marred if it looks like it's a loser city.'
Southern Convenience Store Chain Files for Bankruptcy
The Swifty Serve convenience store chain filed for bankruptcy Friday and
shut down all 420 of its stores in the Southeast, including 32 in
Mississippi, the Associated Press reported. All but one of the Swifty
Serve stores in this state are in South Mississippi. The company said it
had been working with lenders for months, and that one of them did not
allow the company to use cash collateral to pay its employees. Swifty
Serve operates in seven states under the names EZ Serve, Swifty Serve,
Swifty Mart, Country Cupboard and Majik Mart.
Singer Michael Civisca Files for Bankruptcy
Michael Civisca, who this spring starred as Frank Sinatra in a Las Vegas
tribute show called 'The Rat Pack Is Back,' has folded his record label
and filed for chapter 7 protection, The Buffalo News reported.
The singer listed debts of $348,125 and assets of $32,046 in his
petition. Longtime Buffalo music company executive Leonard Silver, whose
Amherst Records and Transcontinent Records are owed $4,800, said he was
shocked when he received the court notice that Civisca had filed
bankruptcy. 'I was completely surprised. I knew he owed us money, but he
was doing shows in Las Vegas and promoting the new CD, so I assumed he
was making decent money,' Silver said. Civisca's attorney blamed the
economic troubles of the recording industry for his client's financial
problems.
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