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October 11, 2002
Chapter 12 Extension Belongs in Bankruptcy Measure
Sen. Charles Grassley (R-Iowa), a leading proponent of bankruptcy reform
legislation, has placed a hold on any measures to extend chapter 12
bankruptcy protections for farmers, CongressDaily reported. A
permanent extension of the chapter 12 bankruptcy protection is in the
pending comprehensive legislation, which remains stalled in the House.
'While I am a strong supporter of chapter 12—in fact I was the
author of chapter 12—I believe that these changes should be
enacted as part of the comprehensive bankruptcy reform conference
report,' Grassley said on Wednesday. 'Chapter 12 will be in effect until
the end of this year, and I expect that the comprehensive bankruptcy
reform conference report will be passed by the House and Senate by then.
Consequently, an extension is not necessary at this time.'
Session Headed for Another Week
After approving the Iraq resolution this week, the Senate will be in
session for at least a few days next week in order to approve a
long-term continuing resolution setting up a lame-duck session,
CongressDaily reported. Legislators from both sides of aisle
yesterday seemed resigned to the fact that a post-election session would
be necessary. The Senate is expected next week to give final approval to
election reform legislation. Senators could take up conference reports
on energy legislation, bankruptcy reform and terrorism reinsurance, if
deals can be reached on those measures.
Deferred-Pay-Plan Proposal Still Leaves Some Loopholes
Until recently, executive deferred-compensation plans largely escaped
scrutiny by regulators, the Wall Street Journal reported. That
changed after Enron Corp. filed for bankruptcy late last year, and court
documents showed that some Enron executives had withdrawn millions of
dollars from their accounts just before the chapter 11 filing. In
response, Rep. Robert Matsui (D-Calif.) is sponsoring legislation that
would make it harder for executives to withdraw money from their
deferral accounts. Bill Thomas (R-Calif.) subsequently made a similar
proposal. The legislation, however, wouldn't put a stop to most
withdrawals. Rep. Matsui says that companies have had so much leeway in
setting up the deferral plans that they are essentially giving
executives all the tax benefits of 401(k) plans without the
restrictions, such as a limit on how much can be contributed
annually.
Conseco Sees Extension of Oct. 17 Reorganization Deadline
With just a week left until the expiration of a waiver on payments on
its bank debt, Conseco Inc. said it expects to obtain an extension from
its lenders, according to a source familiar with the situation, Dow
Jones reported. The company—with about $1.5 billion of bank debt
outstanding—was due to make an interest payments beginning on
August 9. However, on that date, management announced that it was
exercising 30-day grace periods on this and other upcoming payments. It
said it would begin restructuring discussions with its debt-holders in
the interim. The first of the grace periods expired September 8, placing
Conseco in default with its bondholders and trust preferred securities
owners. On September 9, though, Conseco announced it received a waiver
from its senior lenders on certain cross-default provisions of its
credit agreements and was also given an extension of the covenant
defaults until Oct. 17. Although the company said it was aiming for a
consensual restructuring to avoid a bankruptcy filing, the source
familiar with the situation said that the more likely direction of the
discussions was on a prepackaged bankruptcy plan.
Napster Is Negotiating Emergency DIP Loan
Napster Inc. is in talks with prospective purchasers of substantially
all of its assets that would include an emergency debtor-in-possession
loan to keep the company afloat until a sale is consummated, Dow Jones
reported. The debtor company continued an emergency hearing to consider
approval of the loan on Thursday after it said it needed more time to
work out the specifics of the proposed $200,000 interim and $350,000
final loans with Napco Lending LLC. Napco Lending is the just-created
lending arm of the prospective purchaser for Napster's assets. The name
of the prospective purchaser hasn't been disclosed. Napster is in talks
with other prospective purchasers for sale deals that would include a
DIP loan, said William E. Chipman Jr., an attorney with Greenberg
Traurig LLC, the firm representing Napster's committee of unsecured
creditors. The creditors' committee and a court-appointed chapter 11
trustee are spearheading the sale effort. Chipman said Napster hopes to
submit a loan agreement next week. In the meantime, the company is
considering selling some of its hard assets to generate cash flow for
the chapter 11 estate.
SEC Seeks Second Extension to File Claim in Kmart Chapter 11
Bankruptcy
The Securities and Exchange Commission has asked the bankruptcy court
presiding over Kmart Corp.'s chapter 11 case for an additional three
months in which to file a claim against the company, Dow Jones reported.
The SEC said Kmart has agreed to the proposed three-month extension,
which would give the agency until Jan. 29, 2003, to file a claim. The
parties also agreed that the deadline could be further extended through
April 29, 2003, without court approval if they file a written agreement
with the court. Chief Judge Susan Pierson Sonderby of the U.S.
Bankruptcy Court in Chicago previously extended the SEC's filing
deadline to Oct. 29 from July 31. Judge Sonderby is scheduled to
consider the new request at a hearing on Oct. 30.
UAL Off 7 Percent as United Labor Solidarity Seen
Unraveling
Shares of United Airlines parent UAL Corp. plunged to a 52-week low on
Thursday after rare labor solidarity at the world's second-largest
carrier was reported to be splintering, raising fears of a chapter 11
bankruptcy filing, Dow Jones reported. Chicago's United said late on
Wednesday that it began individual negotiations with the International
Association of Machinists union to craft a plan to help the airline cut
costs, raise fresh capital and stave off bankruptcy.
According to the New York Times, United Airlines and the
machinists' union said yesterday that they would begin negotiations over
cost cuts next week. The announcement came as analysts tried to gauge
how the need to have talks on concessions with each union would affect
United's chances of avoiding a bankruptcy filing. 'A bankruptcy filing
in the next several weeks is far more likely than not,' said Jamie
Baker, analyst at J.P. Morgan Securities Inc. in New York. 'To say that
the clock is ticking towards bankruptcy is an understatement—it
has begun to chime,' said Baker, who has an underweight rating on UAL
and doesn't own the stock.
Enron Bondholders Win Right for Kopper's Surrendered $8
Million
The U.S. Securities and Exchange Commission, in a compromise reached
with creditors of Enron Corp., has agreed to distribute according to
bankruptcy rules the $8 million former executive Michael Kopper agreed
to turn over to the government agency as part of his guilty plea, Dow
Jones reported. Under the agreement, the money, to be held in a Texas
federal court in the government's fund, will be paid to investors who
bought certain Enron debt securities—totaling about $5.8 billion
in face value. Shareholders, for whom the S.E.C initially tried to claim
the money, are left out, however.
The money will first go to the indenture trustees for the bondholders
according to the seniority of their Enron notes, states the formula
outlined in the court filing late on Wednesday. The trustees then will
decide how to allocate the money among the noteholders based on an Enron
reorganization plan, which has to be accepted by its creditors and
confirmed by the bankruptcy court. Such a plan, which Enron expects to
submit to the court and begin soliciting creditors' votes for early next
year, will detail how the company wants to pay off its creditors.
Adelphia Seeks to Pay New Directors up to $125,000 a Year
Adelphia Communications Corp. has asked the bankruptcy court handling
its chapter 11 case for approval to pay two of its new directors up to
$125,000 a year, Dow Jones reported. In a filing late on Wednesday with
the U.S. Bankruptcy Court in Manhattan, the cable company also seeks
approval of an agreement that would indemnify the directors for all
costs and expenses resulting from actions related to their service on
the board. U.S. Bankruptcy Judge Robert E. Gerber is scheduled to
consider approving the request at a hearing Oct. 22. Adelphia said the
proposed scheme is consistent with the current market practices of
similarly situated businesses and reasonable in light of the nature of
the tasks the new directors will be asked to undertake.
Big City Radio Announces Denial of FCC Application
Big City Radio Inc. warned that it may have to file for bankruptcy due
to an expected default on a Sept. 15 interest payment of its 11 percent
senior discount notes due 2005, Dow Jones reported. In a press release
on Thursday, the company also said the Federal Communications Commission
denied its application to upgrade one of its' Los Angeles stations from
Class A to Class B1.
Big City Radio is considering alternatives in light of the FCC's
denial, including an appeal or a motion for reconsideration. The radio
company said it does not have sufficient cash to make the semiannual
interest payment on the senior discount notes. Big City Radio is
considering alternatives, including the sale of assets and the
restructuring of the notes, in order to avoid defaulting on the payment.
In the absence of such a move, the company said it may need to file for
bankruptcy protection.
FLAG Telecom Emerges from Chapter 11, Names Interim CEO
FLAG Telecom Ltd., which operates a global, high-speed communications
network, said on Thursday it emerged from chapter 11 bankruptcy and
named an interim chief executive officer, Reuters reported. Mark
Spagnolo, a member of FLAG's new board of directors, will serve as
interim CEO until a permanent leader is found, FLAG said. The bankruptcy
reorganization reduced FLAG's debt load and gave its creditors ownership
of the company. FLAG, which provides transport and network services to
other telecommunications and Internet companies, filed for bankruptcy in
April, just two years after raising $570 million in its initial public
offering. It was one of several high-speed network operators to buckle
under mounting debt amid the industry's glut of network capacity and
slumping demand.
Federal-Mogul Asks Court to Extend Deadline for Plan
Federal-Mogul Corp., the largest maker of engine bearings and seals,
asked a federal bankruptcy judge to extend by four months a deadline for
submitting a plan to complete its chapter 11 reorganization,
Bloomberg reported. Thousands of asbestos lawsuits coupled with
slowing sales for auto parts led Federal-Mogul to seek chapter 11
protection in October 2001. A bankruptcy judge has twice extended
Federal-Mogul's exclusive period, which is set to end on Nov. 1.
'Maintaining exclusivity will prevent significant negative effects,'
Federal-Mogul said in the filing in U.S. Bankruptcy Court in Wilmington,
Delaware. A loss of customer confidence in the continuation of the
debtors' business and uncertainty among suppliers to and employees of
Federal-Mogul might result if the request isn't granted, the filing
said. U.S. District Court Judge Alfred Wolin is scheduled to consider
Federal-Mogul's extension request at a hearing on Oct. 30. The deadline
for objections is Oct. 17.
Allegheny Air Pilots Ratify Pact on US Airways Plan
Pilots at US Airways Group Inc.'s Allegheny Airlines and Piedmont
Airlines ratified restructuring agreements under which the employees
will grant concessions that will enable US Airways to cut expenses, Dow
Jones reported. US Airways Group filed for chapter 11 bankruptcy on Aug.
11. Under its restructuring plan, the carrier must reduce annual labor
costs by $840 million in order to get a $900 million federal loan
guarantee on a $1 billion private loan. Several other employee groups,
including pilots of US Airways, have already approved concessions
agreements. US Airways pilots agreed to let the airline reap $465
million in annual savings through 2008. The agreement with Allegheny
Airlines covers its 375 pilots, while the one with Piedmont covers 412
pilots.
Advanced Tissue to Sell Venture Stake
Advanced Tissue Sciences Inc. filed a chapter 11 petition on Thursday
and said it plans to sell its stake in the Dermagraft joint venture to
Smith & Nephew PLC, Dow Jones reported. Advanced Tissue said it
filed a §363 motion to allow the free and clear sale of its
interest in Dermagraft to Smith & Nephew, its partner in the joint
venture, in a manner that would assure uninterrupted availability of
Dermagraft and TransCyte to doctors and patients as well as human
collagen for Inamed Corp. The company said it continues to be pleased
with the clinical performance of Dermagraft for the treatment of
diabetic foot ulcers and TransCyte for burns, but its forecasts indicate
ongoing significant financing requirements to bring the joint venture to
profitability. Advanced Tissue's board is still assessing details of the
restructuring plan and has retained an independent firm to analyze the
value of the company under alternative approaches to business
opportunities and capital structure.
Viasystems Gets Interim OK To Borrow $10M Under DIP Loan
A bankruptcy court gave Viasystems Group Inc. and its Viasystems Inc.
unit interim court approval to borrow $10 million under a $37.5 million
debtor-in-possession loan from some of their pre-petition lenders, Dow
Jones reported. In a recent order obtained by Dow Jones Newswires, Judge
Allan L. Gropper of the U.S. Bankruptcy Court in Manhattan said
the funds can be used as working capital and for general corporate
purposes. The companies, which filed for chapter 11 Oct. 2, have said in
court papers that the funds are 'critical' to demonstrate they have
enough liquidity to operate during their reorganization case, maintain
operations and bring about a restructuring under their pre-packaged
plan. Judge Gropper will consider approving the full $37.5 million
amount at a hearing Oct. 25. The one-year loan, from a group of
pre-petition lenders led by JPMorgan Chase Bank, has a letter of credit
subfacility of up to $10 million, according to court papers. Judge
Gropper also gave the companies interim approval to use cash subject to
the liens of their pre-petition lenders. The lenders, also led by
JPMorgan Chase, are owed more than $525.2 million, according to Judge
Gropper's order.
Federal Judge to Rule Soon on Andersen/Baptist Appeal
The last remaining court appeal standing between thousands of elderly
investors in the failed Baptist Foundation of Arizona and nearly $200
million of Arthur Andersen LLP's money likely will not delay the
distribution of funds, Dow Jones reported. After learning that Maricopa
County, Ariz., Superior Court Judge Edward Burke has scheduled a Nov. 25
hearing on the plan to divide up the proceeds from the settlement of
various cases against Andersen, U.S. District Court Judge Earl Carroll
said at a hearing on Thursday, 'That does suggest I should do something
before Nov. 25.' He expressed concern about not 'interfering' with the
case in Burke's court. The federal appeal, filed by former BFA director
Lawrence Swain Hoover, challenges Bankruptcy Court Judge George
Nielsen's July 12 ruling that the settlement is fair and equitable. The
bankruptcy court's approval of the settlement, and therefore Carroll's
rejection of Hoover's appeal, is necessary before investors can be paid
any money.
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