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June 15, 2005
Study Puts Business Bankruptcy Rates Higher
Business bankruptcy rates are up to nine times higher than government
data show, according to a study released today that asserts the new
bankruptcy law might hinder entrepreneurship because it does not reflect
the true impact of small-business failures, USA Today
reported. Researchers—law professors Elizabeth Warren at
Harvard and Robert Lawless at the University of Nevada, Las
Vegas—say the study challenges a widely held perception that a
20-year rise in bankruptcies has been driven by spend-thrift consumers.
The study estimates that 19.5 percent of filings are at least partly
business-related, versus the 2.3 percent rate given by the
Administrative Office of the U.S. Courts (AOC), which compiles
statistics for the federal judiciary. That higher rate equaled as many
as 315,000 business filings in 2003, versus 37,000 reported by AOC, the
study says, the newspaper reported.
The study blames the undercount on a mid-1980s effort to simplify
bankruptcy filings, combined with the rising use of software that
changed the way attorneys completed AOC forms. The software caused many
debtors to be labeled consumers, rather than self-employed workers and
other entrepreneurs driven to court by business debt, the study says.
That’s because the software, which the study says is used by at
least 15,000 law firms, assumes debtors are consumers unless otherwise
indicated. Profs. Warren and Lawless studied more than 1,700 debtors
from courts in California, Illinois, Pennsylvania, Tennessee and Texas.
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the full story.
Consumer Prices See 1st Dip in 10 Months
Consumer prices fell 0.1 percent in May, the first decline in 10
months as energy prices retreated after a big run-up in the previous
three months, the Associated Press reported. The Labor Department
reported Wednesday that the decline in its closely watched Consumer
Price Index followed big gains of 0.4 percent in February, 0.6 percent
in March and 0.5 percent in April. Those increases had been driven by a
surge in energy costs this year as crude oil prices hit all-time highs
in early April. The moderation in inflation pressures in May helped
boost the incomes of American workers. Weekly earnings of nonsupervisory
workers after adjusting for inflation rose by 0.3 percent in May
compared to April. That gain followed three straight monthly declines.
However, workers’ weekly pay is 0.3 percent lower than it was a
year ago.
In other economic news, the Commerce Department reported that
business inventories held on shelves and backlots rose by 0.3 percent, a
slowdown from the gains of the previous several months. Analysts are
looking for inventory building, which added significantly to economic
growth in the first quarter, to slow in the current quarter.
Fed Reports Improving Household Debt Picture
Overall consumer debt was up about $88 billion at the end of the
first quarter of 2005, compared with the first quarter of 2004, but the
proportion of cardholder balances that were more than 30 days late fell
to a level not seen in 10 years, according to Moody’s
Investor’s Service—to 4.07 percent in April, down from 4.52
percent a year ago, Card News reported. Moody’s said that on a
year-over-year basis, the delinquency rate has improved for each of the
last 21 months. At the same time, overall revolving credit-card debt
declined in April by 0.6 percent, following a 0.9-percent decline in
March, according to the Federal Reserve Board. By comparison, revolving
credit-card debt grew 3.6 percent in the first quarter of 2004 and 9.1
percent in the third quarter of that year. And the amount of outstanding
revolving debt fell, too—from $796.9 billion in February to $795.9
billion in April. Many economists say the drop mainly is an indicator of
drooping consumer confidence, but the numbers probably also reflect a
growing consumer taste for home-equity lines of credit over credit
cards, the newswire reported.
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the full story.
U.S. Assumes Control of One UAL Pension Plan
The government has assumed control of the first of four pension plans
it plans to take over from bankrupt United Airlines, federal pension
insurers said on Tuesday, Reuters reported. The Pension Benefit Guaranty
Corporation (PBGC) took over the account representing 36,000 ground
workers at the No. 2 airline on May 23, a spokesman for the agency said.
At termination, the plan had $1.3 billion in assets and $4 billion in
promised benefits for total underfunding of $2.7 billion, the newswire
reported. The government says it will insure about $2.1 billion of the
shortfall. A bankruptcy court judge in Chicago approved a unique
settlement last month between the pension agency and the airline that
would result in the largest pension default in U.S. history, if
completed. Under the deal to settle federal pension claims in bankruptcy
court, United would terminate its four huge defined benefit plans
covering 120,000 current and former workers in exchange for $1.5 billion
in securities the deficit-ridden PBGC would receive to help meet its
obligations, the newswire reported. The four plans covering pilots,
flight attendants, ground workers and other employees were underfunded
by nearly $10 billion and the government will guarantee $6.6 billion in
benefits.
Judge OKs Clergy Sex Abuse Claims in Ariz.
A bankruptcy judge approved 30 clergy sex abuse settlement claims
Tuesday against the Diocese of Tucson. Nearly $9.8 million would be paid
in an initial distribution, the Associated Press reported. The 30 cases
involving 25 sex abuse victims and five parents drove the diocese to
seek chapter 11 bankruptcy protection last September shortly after the
Archdiocese of Portland, Ore., became the first in the nation to do so.
Creditors must approve the plan; U.S. Bankruptcy Judge James Marlar, who
approved the settlement, would then have to confirm it, possibly next
month.
The diocese’s proposed reorganization plan calls for at least a
$15.7 million settlement trust for clergy sex abuse victims, though
attorneys said it’s possible the final amount could reach $20
million to $22 million. The trust would be funded by insurance
settlements, parish contributions and proceeds from a real estate
auction. A hearing will be held June 30 to consider objections filed by
other claimants who did not file suit before the diocese’s
bankruptcy filing.
GE, US Airways Restructure Lease, Finance Terms
US Airways Group Inc. and General Electric Co. have modified an
aircraft lease and financing agreement struck last year to keep the
carrier airborne during its restructuring, bankruptcy court documents
showed on Tuesday, Reuters reported. Without new terms from its largest
creditor and aircraft financier, US Airways said it would not be able to
conclude its bankruptcy successfully and complete its planned merger
with America West Airlines. The agreement accelerates a reduction in
aircraft rental rates, extends the timeline for credit line payments and
speeds the return of certain mainline jets to GE, the newswire reported.
It also proposes to shift financing and delivery of certain
Brazilian-made Embraer regional jets from US Airways to Republic Airways
Holdings Inc., a US Airways equity partner. The restructured deal with
GE requires US Airways to file its bankruptcy reorganization plan by
June 30, which the airline says it plans to do, and step out of court
protection by Oct. 31. The new agreement with GE must be approved by a
bankruptcy judge. A hearing on the plan is scheduled for June 23.
Kaiser, United Steelworkers in Five-year Deals
Kaiser Aluminum Corp. and the United Steelworkers on Tuesday said 800
union members at multiple plants have ratified new five-year labor
deals, starting on July 1, Reuters reported. The deals cover staff at
plants in Ohio, Oklahoma, Virginia and Washington. The current deals,
both sides said, either expire later in 2005 or are linked to the timing
of Kaiser’s emergence from chapter 11 bankruptcy protection.
Alabama Pension Fund to Get $49 Million in Enron Suit
Alabama’s state pension fund will receive $49 million to settle
a lawsuit against five investment banks over the collapse of energy
trader Enron Corp., court papers show, Reuters reported. The sum, agreed
to on Monday, represents about 86 percent of the $57 million that the
Retirement Systems of Alabama said it lost on Enron stock and bonds,
according to J. Michael Rediker, the fund’s lead lawyer. “I
regard the settlement as an excellent recovery for a state pension
fund,” said Rediker, a partner at Haskell Slaughter Young and
Rediker LLC in Birmingham, Ala. A hearing to approve the Alabama
fund’s Enron settlement is set for June 27 before Judge Melinda
Harmon of the U.S. District Court in Houston, court papers show.
JP Morgan to Pay $2.2 Billion to Enron Shareholders
JP Morgan Chase & Co. said on Tuesday it had agreed to pay $2.2
billion to investors of collapsed energy firm Enron Corp in what lawyers
said could end up being the largest-ever U.S. securities settlement,
Reuters reported. JP Morgan Chase, the No 3. U.S. bank, announced its
settlement just four days after Citigroup Inc. said it would pay $2
billion to Enron stock and bond investors who accused the banks of
helping Enron in a huge accounting fraud. The Citigroup settlement with
lead plaintiff, the board of regents of the University of California,
had been expected to trigger settlements from some of the other 11
financial firms involved with Enron, which collapsed in December 2001.
Neither Citigroup nor JP Morgan Chase admitted any wrongdoing in
agreeing to settle the Enron suit, but both said they wanted to put
outstanding litigation behind them.
RoomStore Emerges from Bankruptcy
Richmond, Va.–based RoomStore Inc., has emerged from
Heilig-Meyers Company’s chapter 11 bankruptcy protection as a
65-store chain operating in Virginia and six other states. Backed by $35
million in working capital from Bank of America, the company provides a
wide selection of coordinated home furnishings in complete room packages
at value-oriented prices.