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October 29, 2002
Second Circuit Contradicts Cybergenics on Committee Suits
A unanimous U.S. Court of Appeals for the Second Circuit held on
Thursday that creditors and committees can sue for fraudulent transfers
under §§548 and 549 of the Bankruptcy Code. The defendant had
argued that only trustees or debtors-in-possession-not creditors-had
standing to bring avoidance actions. 'Although not explicitly authorized
in the Code, we have extended standing to bring fraudulent conveyance
claims ... when to do so is in the best interests of the estate,' said
the Court. 'We have held that an unsecured creditors' committee may
initiate an adversary proceeding in the name of the DIP if the DIP
unjustifiably refuses to bring suit,' said the Court. The opinion did
not mention the Third Circuit's ruling to the contrary this September in
the Cybergenics case. A conflict in the Circuits could make the
case a candidate for review by the Supreme Court. The case is In re
Housecraft Industries, 2002 WL 31388883 (2nd Cir), decided October 24,
2002.
APW Bankruptcy Lawyers' Fees Approved
A New York bankruptcy judge on Thursday, Oct. 24, approved fee
applications for four debtor law firms in the chapter 11 filing of APW
Ltd., Law.com reported. Judge Prudence Carter Beatty of
the U.S. Bankruptcy Court for the Southern District of New York approved
the fees for lead debtor counsel Weil, Gotshal & Manges of New York
that are as high as $650 an hour. Beatty also approved fees for special
debtor counsel Conyers Dill & Pearman of Bermuda, and Milwaukee,
Wis.-based general corporate counsel Quarles & Brady and special
counsel Foley & Lardner. The final fee applications are for July 16
to July 23 as APW now only has to resolve some claims issues and hopes
to close the case by year's end, said Weil Gotshal partner Richard
Krasnow. To read the full article, point your browser to
href='http://www.law.com/servlet/ContentServer?pagename=%3Cbr%3E'>
color='#000080'>http://www.law.com/servlet/ContentServer?pagename=
OpenMarket/Xcelerate/View&c=LawArticle&cid=1032128832649&t=LawArticle.
Peregrine Systems Gets OK for $110 Million DIP, Bid Rules for
Unit
Peregrine Systems Inc. on Friday won final bankruptcy court approval of
a $110 million debtor-in-possession financing agreement with BMC
Software Inc. and authorization of procedures for the proposed $350
million sale of its Peregrine Remedy Inc. unit to BMC, Dow Jones
reported. U.S. Bankruptcy Judge Judith K. Fitzgerald signed an
order that approved the financing, which will 'prevent immediate and
irreparable harm' to Peregrine Systems' estates and 'facilitate the
reorganization' of the company's businesses. Judge Fitzgerald, presiding
in the U.S. Bankruptcy Court in Wilmington, Del., also approved bidding
procedures for the Peregrine Remedy sale, under which Peregrine Systems
will hold an auction on Friday. According to court papers Dow Jones
Newswires obtained on Monday, the court would then consider approval of
the winning bidder at a hearing on Nov. 4.
Judge Fitzgerald on Sept. 26 signed an interim order that granted
Peregrine Systems interim approval to borrow up to $60 million under the
DIP pact. At that time, Peregrine paid BMC Software a facility fee of
0.35 percent of $60 million upon interim approval of the loan. San
Diego-based Peregrine Systems filed for chapter 11 bankruptcy protection
on Sept. 22 amid investigations into its accounting practices. The
company said in court papers the following day that, subject to
restatement, unaudited financial reports indicate it had $2.3 billion in
consolidated assets and $950 million in consolidated liabilities as of
Dec. 31, 2001.
NII Holdings Gets Court Approval for Plan to Repay Creditors
NII Holdings Inc., a telecommunications company that had been owned by
Nextel
Communications Inc., won court approval of a bankruptcy reorganization
plan that eliminates $2.2 billion in debt, Bloomberg News reported. U.S.
Bankruptcy Judge Mary Walrath in Wilmington, Del., approved a plan that
will give noteholders 3.92 million shares plus rights to purchase a
proportionate share of $180.8 million in new notes and as many as 15.68
million shares of common stock, eliminating Nextel's majority stake.
Reston, Va.-based NII filed for bankruptcy in May after missing an $8.3
million loan payment. NII, formerly known as Nextel International, sells
wireless service in Latin American countries that have been hurt by
Argentina's financial crisis. The reorganized company will be worth
about $50 million, court papers say. Nextel last week reported a profit
for the third quarter, the second in a row, and an increase in sales
after 10 years of
losses.
Budget Group Reschedules Hearing on Sale to Cendant Unit
Budget Group Inc. on Monday rescheduled the hearing to consider the
proposed $507 million sale of substantially all of its assets to a unit
of Cendant Corp., Dow Jones reported. The car rental company said it
hopes to resolve the 10 objections to its sale before asking the U.S.
Bankruptcy Court in Wilmington, Del., to approve the deal. The hearing
is now scheduled for Nov. 6 before Judge Mary F. Walrath of the
Wilmington, Del., court. To reschedule the hearing, Budget Group had to
obtain a waiver of a provision in the sale deal that required court
approval of the sale by Monday. To date, 10 objections have been filed
in opposition to the sale. The objecting parties include the Office of
the U.S. Trustee on behalf of the Environmental Protection Agency, Ryder
System Inc., the city of Los Angeles, the city and county of San
Francisco and the Indiana Department of Environmental Management. Budget
Group filed for chapter 11 bankruptcy protection in July, listing $4.05
billion in assets and $4.33 billion in liabilities. The debtor is the
nation's third-largest car and truck rental company.
Car Rental Agencies Escalate Market War
Terrorism fears and the slack economy have battered travel demand and
sent some major car rental firms into bankruptcy, Reuters reported. But
business is booming for other industry players, who have siphoned market
share and pricing power from weaker rivals. Profits at Avis Rent A Car
and Dollar Thrifty Automotive Group were stellar this quarter compared
with dismal results a year ago, when the Sept. 11 attacks brought travel
to a near-standstill and demand for rental cars dropped more than 30
percent. Dollar Thrifty said on Wednesday that its third-quarter profit
jumped more than 250 percent, as it kept its fleet size in line with
lower demand and rental rates stayed strong.
Rental car demand has now leveled off about 10 percent below pre-Sept.
11 levels on average, said C.L. King & Associates analyst Michael
Gallo. The slower revenue helped force leisure travel-focused Budget
Group and ANC Rental Corp.-burdened by both debt and vehicle obligations
-- into chapter 11 protection. But companies with stronger balance
sheets, such as Dollar Thrifty, Ford Motor Co. unit Hertz Corp. and
Avis, a unit of Cendant Corp., have been able to voluntarily cut the
size of their fleets to match demand and save on costs. Fort Lauderdale,
Fla.-based ANC, which filed for bankruptcy last November, holds a 22
percent share of the car rental market between its Alamo Rent A Car and
National Car Rental businesses, down from 25 percent before its
bankruptcy filing, Gallo said. 'They still have a lot (of market share)
left that competitors can capture,' Gallo said. After going through a
handful of chief executives in recent years and an array of financial
problems, there's a distinct possibility that ANC could be liquidated
entirely, Gallo said, leaving nearly a quarter of the market open to its
rivals.
Adelphia Gets OK to Pay New Directors Up to $125,000 a Year
The court handling Adelphia Communications Corp.'s four-month-old
chapter 11 case has approved the company's request to pay its two new
directors each up to $125,000 a year for their services, Dow Jones
reported. Judge Robert E. Gerber of the U.S. Bankruptcy Court in
Manhattan also approved the company's agreement to indemnify the
directors for all costs and expenses resulting from actions related to
their service on the board. The company's current board members get a
$25,000 annual fee, plus $1,000 and the reimbursement of expenses for
each board and board committee meeting. The chairman of each audit
committee and the special committee receive an annual fee of $4,000 for
such service.
Trans World Entertainment to Take $5.3 Million Charge in 3rd
Quarter
Trans World Entertainment Corp. will take a $5.3 million charge in the
third quarter to write down its June 2001 investment in DataPlay Inc.,
which filed for chapter 11 bankruptcy protection on Oct. 18, Dow Jones
reported. In a press release on Monday, the music and video products
retailer said the charge will reduce third-quarter earnings per share by
13 cents, resulting in net loss per share of 34 cents to 36 cents for
the period. As the Wall Street Journal reported earlier this
month, DataPlay has spent $120 million since 1998 to develop discs about
the size of a quarter-dollar that could hold as many as 11 hours of
music and prevent copying. Three major record labels planned to release
prerecorded discs in DataPlay's format this month, the Journal
said. 'While we remain cautious about consumer spending in this current
economic environment, we are optimistic about the holiday season that
will benefit from a strong lineup of new releases and the installation
of our listening and viewing stations,' Chairman and Chief Executive
Robert J. Higgins said in a statement on Monday.
Easy Credit Hard to Find as Economy Sours
The sales pitch, 'No credit? No problem!' is now a major problem for
lenders, Reuters reported. When the economy was surging, lenders were
willing to extend credit to anyone with an urge to spend, even those
with a history of bankruptcy. Some lenders even boasted of their ability
to offer online credit card approval in 30 seconds or less. But times
have changed. The so-called subprime lending market that caters to those
with poor or thin credit histories has been brought to its knees, hit by
the twin blows of a weak economy and increased scrutiny by
regulators.
The new climate not only threatens to slow long-term growth prospects
for the consumer credit industry, led by firms such as Providian
Financial Corp. and Capital One Financial Corp., and retailers such as
Sears, Roebuck and Co. It also makes it more difficult for low-income
borrowers to get credit cards and loans for homes and cars. The changes
come at a bad time for the fragile economy, as resilient consumer
spending, which accounts for two-thirds of economic activity and has
been aided in part by easy access to credit, has helped keep the economy
afloat.
According the newswire, the number of credit card solicitations
Americans receive by mail is still on pace to set a new record,
exceeding the record 5 billion mailings from last year. But the pace of
growth is leveling off after years of rapid expansion and offers are
targeting richer borrowers. 'A year and a half ago we saw a resurgence
of gold (credit card) offers because they were being used to target less
credit-worthy customers,' said Andrew Davidson, a vice president at
BAIGlobal. 'When the economy turned last year we saw those decline and a
bigger increase in the portion of platinum (card) offers.' Platinum
cards, which are offered to customers with better credit records, now
account for eight out of 10 solicitations, he said. This is a turnaround
for the subprime lending industry, which exploded in the 1990s as
lenders were able to charge high-enough interest rates to justify
extending credit to high-risk borrowers. To read the full article, point
your browser to
href='http://www.reuters.com/news_article.jhtml?type=search&StoryID=16386…'>
color='#000080'>http://www.reuters.com/news_article.jhtml?type=search&StoryID=1638698.
United Attendants Offer to Take Pay Cut
The flight attendants' union for UAL Corp.'s United Airlines will accept
a 3.6 percent pay cut as part of a plan to save the parent company $5.8
billion over 5 1/2 years and keep the world's second largest airline
solvent, Reuters reported. United's Association of Flight Attendants
proposed in negotiations with the carrier that attendants with six or
more years of service, about 85 percent of the carrier's 24,000 active
attendants, take the cut, said AFA spokesman Jeff Zack. UAL has said it
must cut costs in order to obtain a federal loan guarantee for $2
billion that would help it avoid a chapter 11 bankruptcy filing. The
airline faces a cash crunch as debt payments of almost $1 billion come
due next month and in December, and as the carrier burns through more
than $7 million a day in cash as revenues remain weaker than expected.
Under this week's flight attendant union's proposal, the senior UAL
flight attendants would also give up a two percent pay raise in 2004,
and all UAL flight attendants would forego two lump sum payments, equal
to five percent of their previous year's pay, that are due next March
and in March 2005, the newswire reported.
Soft Revenue Has US Air Needing More Cuts
US Airways Group's woes have deepened since it filed for bankruptcy in
August, and the company told regulators last week it may need to cut as
much as $1.6 billion a year in costs, $300 million more than it has
already secured, to emerge from bankruptcy, Reuters reported. US Airways
pledged to strengthen its balance sheet by growing revenue and cutting
costs when it requested $900 million in loan guarantees from the federal
Air Transportation Stabilization Board in June. But despite US Airways'
recent success in forming a marketing alliance with UAL Corp.'s United
Airlines, a source close to the airline said its revenue growth is
coming in below target. To make up the difference-and win full approval
of the loan guarantees-US Airways told creditors this week it needs $100
million to $300 million more in annual concessions.
Vanguard Airlines Talking to New Investor
Bankrupt Vanguard Airlines Inc. has made some progress in talks with a
potential new investor to revive the low-cost carrier, but it is still
more likely to face liquidation, Chief Executive Scott Dickson said on
Friday, Reuters reported. 'We are still holding discussions with a
potential investor and yesterday we had some significant progress with
our potential investor,' Dickson told Reuters, adding that he hoped
something would be resolved early next week. Kansas City, Mo.-based
Vanguard has been preparing for liquidation since it sought bankruptcy
protection in July, while looking for an investor to restart the airline
at the same time, Dickson said. Lawyers for Vanguard told the U.S.
Bankruptcy Court for the Western District of Missouri last week that
liquidation is more likely than a return to flying and that remains
true, Dickson said. However, Vanguard does not expect to file a
liquidation plan any time soon, the newswire reported.
Angeion Reorganization Plan Gets Bankruptcy Court OK
Angeion Corp. received bankruptcy court approval for its reorganization
plan, which includes a 1-for-20 reverse stock split and emergence from
chapter 11, Dow Jones reported. The maker of non-invasive
cardio-respiratory diagnostic systems filed for chapter 11 bankruptcy
protection in June. In a press release on Monday, Angeion said it
emerges from chapter 11 with no corporate debt, shareholders' equity of
about $20 million and more than $4 million of cash and marketable
securities on its balance sheet. Under the terms of the reorganization
plan, the holders of the company's 7.5 percent senior convertible notes
due April 2003 agreed to convert the debt to equity. The noteholders and
other holders of certain unsecured claims will receive a pro rata share
of 95 percent of replacement common shares to be issued under the plan.
On Oct. 25, the conversion took place and all outstanding notes have
been cancelled. The transaction was implemented as a voluntary chapter
11 bankruptcy for the purpose of enabling Angeion to retain unimpaired
utilization of a net operating loss carryforward of more than $125
million.
Enron's Portland General Says Interest Costs to Rise
Portland General Electric Co. said its annual interest costs will
increase
1.5 percent after the U.S. utility, owned by Enron Corp., bought an
insurance policy for a $100 million bond issue, Bloomberg News reported.
The 5.67 percent bonds, issued today through a private placement and
maturing in October 2012, will be used to lower
short-term debt, refinance long-term obligations and pay general
corporate expenses, the newswire reported. Spokesman Scott Simms
declined to further comment on the insurance policy for the bonds. The
issue follows the private placement of $150 million in bonds at 8.125
percent on Oct. 10, and shows that Portland General continues 'to be
identified separately from bankrupt Enron,' Simms said. Enron, which
filed what was then the largest-ever bankruptcy on Dec. 2, bought
Portland General in 1997 for $3 billion. It's seeking a buyer for the
utility, which is not insolvent.
PricewaterhouseCoopers to Pay $21.5 Million to Resolve Anicom
Suits
PricewaterhouseCoopers LLP agreed to pay $21.5 million to resolve
lawsuits by Anicom Inc. shareholders and creditors, who accused the
accounting firm of acting recklessly by certifying the company's
financial statements during the years leading up to its January 2001
bankruptcy-court filing, the Wall Street Journal reported. The
payment is among the larger settlements to date over an alleged audit
failure by PricewaterhouseCoopers, which currently is under regulatory
scrutiny related to its prior audits for Tyco International Ltd. In May
2001, the firm agreed to pay about $51 million to settle a class-action
shareholder lawsuit that accused it of botching some previous audits of
MicroStrategy Inc.'s financial statements. As in the MicroStrategy case,
PricewaterhouseCoopers settled the Anicom litigation without admitting
wrongdoing.
The $21.5 million payment will be divided among Anicom's bankruptcy
estate and its secured lenders and shareholders, including the State of
Wisconsin Investment Board, which held Anicom shares and is lead
plaintiff in the securities litigation over Anicom's collapse in a
federal district court in Chicago. The plaintiffs' claims against
several former executives remain pending. An attorney for the Wisconsin
board, Ken McNeil of the Houston law firm Susman Godfrey LLP, said
Monday's settlement 'will now let us focus trial preparation on the
primary target -- the officer and director defendants who typically have
primary responsibility for misstated financial statements.'
Conseco Course Unclear; Latest Downgrade Doesn't Help
With the clock for its survival ticking, beleaguered Conseco Inc. still
doesn't appear to have a clear action plan, but sources agree the
company will either have to find major new investors or choose among
several other key alternatives, Dow Jones reported. Determining a course
may have been made more difficult on Friday, however, when Moody's
Investors Service joined the ranks of those downgrading the company's
unsecured debt, cutting it to Ca from Caa2. Moody's analysts said they
think Conseco will file a pre-arranged bankruptcy, but such a filing
would require the consent of debtor and equity groups, which aren't yet
talking to each other. The company recently received a reprieve until
Nov. 26 from its bankers on certain cross default provisions and
covenant defaults. It also announced on Oct. 22 that it approved a plan
to seek investors for its Conseco Finance unit, although it said at the
same time it hired Lazard Freres LLC and Credit Suisse First Boston to
pursue alternatives. Those alternatives include selling off the three
operations of the finance unit -- mortgage services, consumer finance
and manufactured housing finance.
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