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October 7, 2003
U.S. Credit Card Chargeoffs Rose in August
The credit performance of U.S. consumers continued to weaken in
August 2003, according to Moody's Credit Card Credit Indexes for August
2003, which track $380 billion of U.S. bank credit card loans backing
securities. Compared with this time last year, more loans were written
off as uncollectible, the rating agency said in a statement. Despite
this deterioration, cardholder payments classified as delinquent
stabilized somewhat, improving slightly on a year-over-year basis for
the first time since December 2002. Also, for the third consecutive
month, cardholders repaid a larger percentage of their outstanding
debt.
In August 2003, the chargeoff rate rose to 6.88 percent, up
substantially from 6.05 percent a year ago. The chargeoff rate has risen
in 10 of the last 11 months. Weakness in the job market and
year-over-record-year increases in bankruptcy filings remain drivers of
the long-standing trend of increases in the chargeoff rate, according
the agency.
More Americans Offered Option of Paying Rent with Plastic
More than 1,000 properties consisting of about 350,000 rental units
nationwide now accept Visa for rent payments, up 43 percent from a year
ago, the credit card association reported, CBS MarketWatch
reported. For property owners and managers, plastic payments offer
cost-savings on the administrative end: no more phone calls to residents
when the rent is late. For renters, paying by debit card may be more
convenient than writing a check, and some property managers even offer
monthly automatic payments. But paying by credit card offers renters an
additional perk: A way to ramp up their access to the discounts and
benefits available through rewards programs. Consumer advocates agree
that rewards such as frequent flier miles and retailer discounts can be
substantial.
For its part, Visa says the program doesn't force consumers into using
credit cards. 'The point here is that consumers have choice,' said
Camille Lepre, a Visa spokeswoman. 'Consumers have options. A debit card
works just like a check, except more convenient, and if you want to use
a credit card and you find that it works for you to get additional
rewards points, that's an option that you have,' she said. About $40
billion of monthly household bills were charged to Visa cards last year,
a 26 percent jump from the year earlier, including payments for services
such as cable, cell phones and Internet access, even insurance premiums,
Lepre said. Read the
href='http://cbs.marketwatch.com/news/story.asp?siteid=mktw&dist=nwhreal&guid…'>full
article.
U.S. Record Stores Get No Satisfaction from Stones
The British band Rolling Stones snubbed U.S. record stores late last
week by selecting Best Buy Co. Inc. as the only seller of its new DVD,
'Four Flicks,' for four months, Reuters reported. As the music industry
reels from plunging sales due in part to Internet piracy, they also are
facing heightened competition from mass merchants like Best Buy and
Target Corp. that control about 55 percent of U.S. music sales.
Increasingly, the mass market vendors are entering into exclusive deals
with top bands such as U2 and the Eagles, though the exclusive sales
windows for those acts lasted weeks rather than months.
Such deals are short-sighted and hurt not only traditional retailers,
but the music industry as a whole, said Clark Benson, chief executive
officer of Almighty Institute of Music Retail, which helps record labels
work with music stores. 'The more that a mass merchant like Best Buy
ends up having an exclusive, the more it hurts these pure-play record
stores,' Benson said. 'Those stores are the ones where people are really
getting turned onto new stuff, not the mass merchants.' Benson said over
1,100 chain and independent record stores have closed in 2003, making it
hard for consumers to stumble upon the new music that is the industry's
lifeblood and future.
Torrance, California-based Wherehouse Entertainment Inc., which had 339
stores a decade ago, will soon be down to 111 after filing for
bankruptcy protection in January. The 95-store Tower Records chain of
Sacramento, Calif. is flirting with bankruptcy, reported the
newswire.
US Airways Subcontracts Work
US Airways Group Inc. said on Monday that it will outsource heavy
maintenance on 10 of its airplanes to an Alabama company, which prompted
the airline's mechanics' union to file for a temporary restraining order
that would prevent the move, Reuters reported. US Airways said 10 of its
Airbus narrow body aircraft are due for their first round of mandatory
heavy maintenance checks this fall, but said it does not have the
facilities or equipment to perform the work. The Arlington, Va-based
airline, which emerged from bankruptcy on March 31, will outsource the
maintenance to ST Mobile Aerospace Engineering Inc, based in Mobile,
Ala. The International Association of Machinists (IAM), the union that
represents US Airways' mechanics, called the decision to subcontract the
work unjustified, and said it violated the mechanics' collective
bargaining agreement. US Airways said it would work with the IAM to
decide whether heavy maintenance on the Airbus airplanes could be done
by the airline's own mechanics in the future, reported the newswire.
Mesa Makes Unsolicited Bid for Atlantic Coast Air
Atlantic Coast Airlines Inc. on Monday received an unsolicited offer to
be bought out by Mesa Air Group Inc., little over two months after it
said it would start a new low-cost airline, Reuters reported. In a
letter to Atlantic's chief executive Kerry Skeen, which was made public,
Mesa's Chairman and Chief Executive Jonathan Ornstein said his firm was
proposing an all-share offer, which would value Atlantic at around half
a billion dollars. Mesa has proposed swapping 0.9 of its own shares for
each Atlantic share, which based on Mesa's current share price values
each Atlantic share at $10.14. Atlantic shareholders would own around 49
percent in the combined group while Mesa shareholders would own 51
percent. Mesa's offer, however, based on its previous closing price,
valued Atlantic at $11.30 just when the approach was made public.
Atlantic has yet to respond to the approach. Mesa's offer comes against
the background of Atlantic's recent failure to reach a contract with UAL
Corp.'s United Airlines on payment for Atlantic's regional feeder
service, reported the newswire.
Shaw Group Settles Dispute with Xcel Unit
Construction company Shaw Group Inc. on Monday said it agreed to settle
claims against NRG Energy Inc. related to the cancellation of the
LSP-Pike Energy LLC power plant project in Mississippi, Reuters
reported. Shaw's Stone & Webster unit, the construction contractor
on the project, has been in litigation with NRG and its parent company,
Xcel Energy Inc., since October 2002. Precise terms of the settlement
were not disclosed, but Shaw said it will receive an allowed claim of
$35 million in the pending bankruptcy case of NRG. Shaw also retains
ownership of materials and equipment from the Pike project, excluding
turbines, as well as the project site. Litigation between the companies
will be dropped as a result of the settlement, Shaw said, reported the
newswire.
Sierra Pacific Asks FERC to Mediate in Enron Dispute
Sierra Pacific Resources said it would ask the U.S. Federal Energy
Regulatory Commission to intervene in a contract dispute with Enron
Corp. in a move aimed at blocking creditors of the fallen energy giant
from demanding immediate payment of $336 million. Walt Higgins, Sierra
Pacific chairman, said his firm doesn't have 'nearly enough cash' and
could be pushed into bankruptcy court if it was obliged to pay up. With
its credit already valued at below-investment grade, Sierra Pacific
can't easily raise cash. Higgins accused Enron's creditors of trying to
'scrape the last dollar from a utility that already was flim-flammed by
Enron' during the Western U.S. energy crisis of 2000-2001.
The demand by the Nevada utility holding company marks the third time
this year that FERC has been asked to mediate between an energy supplier
that is under bankruptcy protection and utilities with which it is
seeking to terminate contracts. In this case, Enron is arguing it should
be paid $336 million for contracts that were signed at the height of the
crisis, even though Sierra Nevada won't receive any electricity in
exchange for the payment.
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Copyright (c) 2003 Dow Jones & Company, Inc. All Rights Reserved
Lockheed Martin Opposes Terms of Loral Space's Asset Sale
Lockheed Martin Corp. on Monday objected to terms of Loral Space
& Communications Ltd.'s proposed sale of its North American
satellite fleet, according to court papers. In an objection filed in
bankruptcy court Monday, Lockheed Martin said the sale agreement calls
for Loral to pay less then required under a contract with Lockheed
Martin.
The U.S. Bankruptcy Court in Manhattan, which is overseeing the Loral
case, scheduled an Oct. 20 auction for Loral's assets. The court set
Oct. 15 as the deadline for parties to submit bids for the assets, and a
hearing to consider court approval of the winning bidder is scheduled
for Oct. 22.
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Copyright (c) 2003 Dow Jones & Company, Inc. All Rights Reserved
Oregon Bill Curbs Credit Scoring by Insurers
A bill signed into law last week by Gov. Ted Kulongoski bans insurance
companies from using policyholders' credit information to raise
premiums, Portland Business Journal reported. Senate Bill 260
also prohibits insurers from canceling or refusing to renew existing
policies because of credit history problems. 'Use of credit scoring by
insurers is controversial all across the country,' Gov. Kulongoski said
in a prepared statement. 'This bill stops potential abuses by making it
clear that insurance companies can't raise premiums or cancel a person's
policy based on his or her credit history. Existing policyholders should
be judged and their premiums set based on their claims history--not
their credit history.'
Most automobile and homeowner insurers now use credit scoring or
insurance scoring when determining whether to issue a policy and how
much to charge. The law will allow insurers to continue using credit
information when deciding whether to issue a new policy, but only if
they can document that it helps them predict future claim costs and
price their products fairly for consumers. At the same time, they must
demonstrate that credit information is used as part of an evaluation
system that also relies on other actuarially relevant factors. The law
also requires insurers using credit history to file their scoring models
with the Department of Consumer & Business Services, reported the
Business Journal.
Amerco Files Reorganization Plan with Court
Amerco Inc., the parent of truck rental company U-Haul International
Inc., said today that it filed a reorganization plan that would let it
make full payment to creditors without diluting shareholder interest,
Reuters reported. The company said it filed its plan with the U.S.
Bankruptcy Court, District of Nevada. A court hearing is scheduled for
Nov. 18, 2003, the company said.
Reno, Nev.-based Amerco said in August it won support for a
reorganization plan from its revolving bank lenders, led by J.P. Morgan
Chase & Co. Inc., and holders of the $100 million of notes issued by
its Amerco Real Estate Co. unit. Amerco sought chapter 11 protection
from creditors on June 20, reported the newswire.
Republic Engineered Seeks Chapter 11 after Blackout
Steel supplier Republic Engineered Products LLC said on Monday that it
filed for bankruptcy protection from creditors after its lenders refused
to give it additional funding following an blast-furnace explosion and
fire related to the Aug. 14 northeast U.S. blackout, Reuters reported.
The Fairlawn, Ohio-based company had about $452 million of assets and
$448 million of liabilities on July 31, its chapter 11 filing with the
U.S. Bankruptcy Court for the Northern District of Ohio shows.
In a court filing, Chief Executive Joseph Lapinsky said seeking court
protection was 'the most effective way to continue to operate (our)
businesses and survive as going concerns' as falling steel prices and
rising competition hurt revenue. Republic said it is in talks with
lenders to obtain debtor-in-possession financing to run its business
during bankruptcy, reported the newswire.
Middle Americans Worry About Finances Today
Middle Americans-the three-fifths of all American households with
incomes between $20 000 and $80 000-increased their personal wealth from
1995 to 2001 mainly through more prudent financial behavior, according
to research released yesterday by the Consumer Federation (CFA) of
America and Providian Financial. Despite these economic gains, today
about one-half of middle Americans are worried about their financial
condition.
'The good news is that more middle Americans built greater personal
wealth during the late 1990s,' said Stephen Brobeck, CFA executive
director. 'The bad news is that this wealth is not sufficient to meet
major emergencies, let alone provide for a comfortable retirement.' Read
the full
href='http://www.consumerfed.org/AmericaSaves-ProvidianPressRelease100603.pdf'>report.
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