October 152003

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October 15, 2003

Frist To Continue On Asbestos, But Cautious About Prospects

After receiving industry response about how much it would be willing
to pay for a system to replace the asbestos-litigation framework, Senate
Majority Leader Bill Frist (R-Tenn.) said on Tuesday he plans to
continue working toward salvaging asbestos legislation this year,
CongressDaily reported. However, Frist was cautious about the
chances for success. 'It's still way too early to tell,' he said. 'We're
working on it a bit every day.'

Industry stakeholders did not discuss the 'final offers' they had
submitted to Frist's office. But congressional sources indicated neither
side had moved very far from its original position. Frist had asked
insurers and defendant companies in asbestos lawsuits to submit their
'bottom line' offer of what they would agree to pay into an asbestos
trust fund. After attempting to reach agreement on the financing,
leaders had hoped to turn to legislative provisions and broader
negotiations.

Senate leaders are trying to craft a compromise based on the bill
that the Judiciary Committee approved. But that measure failed to win
the support of key stakeholders, including insurers, many Democrats and
labor unions. Senate Judiciary ranking member Patrick Leahy (D-Vt.) said
he is encouraged by the ongoing efforts and still hopes negotiations can
produce a bill this year, reported the newswire.

PBGC Deficit Grows As Legislators Fear Taxpayer Bailout

New figures show that the Pension Benefit Guaranty Corp. (PBGC) is
plunging into deepening financial trouble, prompting lawmakers to
express fears that taxpayers may ultimately end up picking up the tab
for the pensions of the 20 percent of private sector employees with
defined benefit retirement plans, CongressDaily reported. PBGC's deficit
has grown to a record $8.8 billion as of Aug. 31, PBGC Executive
Director Steven Kandarian told the Senate Aging Committee at a hearing
yesterday.

Senate Aging Committee Chairman Larry Craig (R-Idaho) said he was
worried that taxpayers might end up bailing out the troubled traditional
pension system in the same way that they had to bail out the savings and
loan industry in the 1980s. 'Of course, the details of the pensions and
the S&L situation differ in many ways,' he said. 'But the result
could eventually be the same if we do not engage in thoughtful
consideration of the issues at hand.' To view the hearing, point your
browser to
href='http://aging.senate.gov/index.cfm?Fuseaction=Hearings.Detail&Hearin…'>http://aging.senate.gov/index.cfm?Fuseaction=Hearings.Detail&HearingID=….

Fed Official Sees Job Improvement, Sustained Expansion

Cautiously optimistic Federal Reserve Board Member, Ben Bernanke, said
yesterday that economic growth could rise above predictions and that
firms should start hiring workers again in the near future,
CongressDaily reported. Bernanke, a former chairman of Princeton
University's economics department, told the Senate Banking Committee
that he also expects the Fed to maintain an 'accommodative' interest
rate policy until the stubborn jobless rate situation improves.
Eventually, he said he foresees a 'sustained expansion without
inflation' like the recovery from the 1990-1991 recession.

Bernanke noted most forecasters see a 4 percent growth rate in the
gross domestic product next year. But he added, 'There are also
reasonable scenarios under which growth next year might be higher than
the 4 percent consensus' if rebuilding of inventory stocks are rapid and
there is an improved growth among trading partners. On unemployment, 'a
reasonable expectation is that firms will need to add significant
numbers of workers within the next several quarters,' Bernanke said. On
monetary policy, he said, the Fed 'can afford to maintain its
accommodative stance for a considerable period, certainly until a
sustainable recovery in employment is under way and disinflationary
risks have been correspondently reduced,' he said, reported the
newswire.

Aurora Foods, Pinnacle to be Combined in Bankruptcy Plan

Aurora Foods Inc., maker of Duncan Hines cake mixes, and Pinnacle Foods
Corp., which sells Vlasic pickles, will be combined as part of Aurora's
plan to file for bankruptcy protection and reduce debt, Bloomberg News
reported. J.P. Morgan Partners LLC, which owns Pinnacle, and J.W. Childs
Equity Partners LP, which owns 66 percent of Aurora, will contribute
$83.8 million to the company, St. Louis-based Aurora said in a
statement.

C. Dean Metropoulos, Pinnacle's chief executive, said he will try to
increase sales for the combined company. Aurora, which has had $596.3
million in total losses since 1999, said in July it planned a chapter 11
filing. Holders of Aurora notes due in 2007 and 2008 will exchange their
debt for new shares of the combined company, giving them a 42 percent
stake. J.P. Morgan Partners and J.W. Childs Equity Partners will get a
49 percent stake. Senior loans will be paid in full in cash, reported
the newswire.

Federal-Mogul Property Damage Claimants Seek Own Committee

A creditor that claims property damage from Federal-Mogul Corp.
products is asking the U.S. Bankruptcy Court in Wilmington, Del., to
appoint an official committee of asbestos property damage claimants in
the company's chapter 11 case. Property damage claimant Lon Morris
College sought to have an official committee appointed in 2002, but was
denied. A second motion, filed Oct. 6 by Jacksonville College, said that
since the previous motion, a bar date was set for filing property damage
claims and more than 2,000 claims were filed by 800 claimants,
'representing hundreds of millions of dollars.' As a result,
Jacksonville College and other creditors asked the U.S. Trustee's Office
— which is generally responsible for appointing official
committees in chapter 11 cases — to form a committee of property
damage claimants. But despite a 'seemingly positive response from the
(trustee) over one month ago, no action has been taken,' the motion
said.

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Regulator Says Deloitte Touche Hid Truth On Reliance Insurance

Deloitte Touche Tohmatsu, the nation's second-largest accounting
firm, contributed to the worst insurance failure in U.S. history by not
telling state regulators about its client's poor financial condition,
the Pennsylvania Insurance Department alleged in a court filing.

The Associated Press reported that Deloitte signed off on an audit in
February 2000 that said Reliance Insurance Co. had enough cash reserves
to stay in business, but less than a week later its accountants told an
investment partnership that Reliance had a 'seriously deficient' $350
million shortfall, according to the department's filing in Commonwealth
Court last month. State Insurance Commissioner Diane Koken began
liquidating Philadelphia-based Reliance Insurance in late 2001 after
determining that the company, formerly headed by financier and 1980s
corporate raider Saul Steinberg, couldn't be reorganized.

Citigroup, J.P. Morgan Must Defend an Enron Lenders Suit

Citigroup Inc. and J.P. Morgan Chase & Co. must face trial on
charges that they 'aided and abetted'' bankrupt energy trader Enron
Corp. in structuring off-the-books partnerships that defrauded two
European banks, a judge ruled, Bloomberg News reported. Milan,
Italy-based UniCredito Italiano SPA and Warsaw, Poland-based Bank Polska
Kasa Opieki SA, or Bank Pekao, sued Citigroup and J.P. Morgan in New
York federal court last year.

The two European banks lent money to Enron through syndicated credit
facilities administered by Citibank and J.P. Morgan, the court said.
They charged that the defendant banks structured and participated in
Enron partnerships that sought to

hide losses and artificially boost the company's profits to maintain a
high share price. The two European banks allege that the banks'
participation in those transactions 'contributed to Enron's collapse,
and thus its inability to meet its obligations under the credit
agreements,'' U.S. District Judge Laura Taylor Swain wrote in a 34-page
opinion, reported the newswire.

Acterna Emerges from Bankruptcy

Acterna Corp., which makes communications testing equipment, said today
it completed its reorganization and emerged from chapter 11 bankruptcy
protection, Reuters reported. The Germantown, Md.-based company named a
new five-member board. Under the plan, effective today, senior secured
debtholders will receive 100 percent of the company's equity through a
debt-for-equity swap. Acterna said it is emerging as a privately held
company with long-term debt of about $190 million.

United Pilots Committee Selects New Top Officers

The pilots union at bankrupt United Airlines on Tuesday said its leaders
elected new top officers after a tumultuous two-year term that included
steep pay cuts for pilots during an ongoing restructuring, Reuters
reported. Mark Bathurst, a United A320 captain based in Los Angeles, was
elected chairman of the union's master executive council by its voting
members and will succeed Paul Whiteford on Jan. 1, the Air Line Pilots
Association said.

The carrier in December filed the largest bankruptcy in aviation history
and remains under protection from creditors. Pilots approved wage cuts
and work rule changes totaling $1.1 billion per year for the
restructuring. The pilot concessions were part of $2.56 billion per year
in labor cost cuts that United secured from workers after months of
heated negotiations, reported the newswire.

Delta Halves Net Loss, Sells Planes to Cut Costs

Delta Air Lines Inc. on Tuesday said it cut its quarterly net loss in
half as revenue firmed on a slight improvement in summer travel demand
and lower costs, Reuters reported. The Atlanta-based airline also said
it would sell some aircraft and delay delivery of others to cut expenses
further, but analysts said the picture at Delta is not likely to improve
dramatically unless it extracts wage cuts from its pilots. 'Delta has
not yet achieved a competitive cost structure, a problem that is
primarily related to our pilot costs,' Delta Chairman and Chief
Executive Leo Mullin said on Tuesday. Mullin said Delta's pilot costs
are 80 percent higher than those at AMR Corp.'s American Airlines, and
said they put Delta at a $1 billion per-year disadvantage to its rivals.
'

Loral Creditor Group Objects to Intelsat Deal

The unsecured creditors' committee for Loral Space & Communications
Ltd. on Tuesday objected to the bankrupt satellite maker and operator's
$1 billion agreement to sell some assets to Intelsat, saying it believes
other players would make better offers, Reuters reported. In a
bankruptcy court paper filed a day before the bidding deadline for an
auction of Loral assets, the group said proceeding with an agreement to
sell Loral's North American satellite fleet to Intelsat would be
'completely inappropriate.' The objection follows Loral's rejection last
week of a competing $1.85 billion offer from EchoStar Communications
Corp. to buy all of Loral's assets.

The group said it believes EchoStar has not made its final offer and the
other bidders including numerous industry and financial players, many of
whom have contacted the committee, would make bids providing higher
value to Loral. Loral filed for bankruptcy in July with a total of $3.06
billion in debt. It said it expected the Intelsat deal to reduce its
secured debt, reported the newswire.