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December 3
Manufacturing Shrinks in November, Gains in Housing Prices
Slow
Manufacturing contracted for a third consecutive month in November, and
with businesses still reluctant to invest heavily in an uncertain
economy, factory sluggishness is showing little sign of ending soon, a
report released yesterday indicated, Reuters reported. The Institute for
Supply Management said its index of manufacturing business conditions
was at 49.2 in November, below forecasts of 51.3 and under the 50 level
that separates expansion from contraction, the newswire reported.
Manufacturing makes up about a fifth of the economy, but carries greater
importance because so much business investment in heavy-duty capital
goods is related to factories.
In a separate report, the Commerce Department said yesterday that
spending for new construction rose 0.3 percent in October, Reuters
reported. Nonresidential construction rose for the first time since
April because of increases in the building of schools and stores, the
report said, according to the newswire. At the same time, gains in
housing prices slowed overall in the third quarter as the values of some
homes, especially in the Midwest, declined from the previous quarter, a
government agency said yesterday.
As the Credit Cycle Turns...The Worst May Be Over
After two years of record bankruptcies, a flurry of rating downgrades
and massive credit blowups, as highlighted by Enron and WorldCom, the
credit cycle is in the process of turning, Barrons.com reported. 'We've
passed the point of maximum risk,' says Margaret Patel, who manages the
$3.5 billion Pioneer High Yield Fund. Moody's Investors Service provided
some statistical evidence of that last week, reported Barrons. Its tally
of the global default rate for speculative-grade issuers fell to 9
percent in October from 9.5 percent in September, the eighth time that
the rate has declined in the last 10 months, with the trend expected to
continue. Reflecting these improving fundamentals, the rally in
high-yield 'junk' and corporate bonds continued and has shown no signs
of abating, Barrons reported. Indeed, investors' fears of credit risk
have diminished considerably, as the economy continues to strengthen,
evidenced by the stock market's rebound and companies continued
commitment to repairing their balance sheets, Barrons reported. To read
the full article, point your browser to
href='http://online.wsj.com/barrons/article/0,4298,SB1038417320719014748-sear…'>
color='#000080'>http://online.wsj.com/barrons/article/0,4298,SB1038417320719014748-sear…%
3E%28article%2Ddoc%2Dtype%3CCONTAINS%3Ebankruptcy%29%29
(subscription required).
Tort Reform Supporters Warn GOP Against Overreaching
Although prospects for passage of a pro-business agenda - including tort
reform - have improved in the 108th Congress as a result of the mid-term
election, even staunch proponents of such reforms are cautioning
Republicans not to overreach on their policy agenda,
CongressDaily reported. Because of the Senate Republicans' slim
majority, filibuster threats will dampen efforts to pass comprehensive
legislation on issues such as tort reform, the newswire reported.
However, with Republicans setting the Senate's agenda, several
pro-business bills will at least get moving through the Senate,
including changes in the way that medical malpractice, class action and
asbestos litigation is conducted. According to the newswire, Paul
Rosenzweig of the Heritage Foundation suggested that prospects for tort
reform since the election 'are better - but I'm not sure how good they
really are.' In a recent interview, he added, 'If any issue is right for
extended filibuster … and probably hold 40 votes,' it is tort
reform. Rosenzweig pegged the asbestos bill's prospects at '30 percent,'
and the same holds true for class action reform legislation. But, he
added, those odds decrease considerably if Republicans are seen as
overreaching and setting liability caps, as well as limits, on punitive
damages and attorney fees, the online newspaper reported.
UNITED
United Airlines Cuts New Deal with Union
United Airlines and its recalcitrant mechanics union said on Monday they
reached agreement on small changes to a wage cut plan that is crucial to
the carrier's frantic efforts to avoid bankruptcy, Reuters reported. The
new pact between United, a unit of UAL Corp., and the International
Association of Machinists was reached early on Monday after all-night
negotiations, United spokesman Jeff Green said. The terms of the deal
are little changed from the $700 million in wage cuts rejected last
week. But the union said UAL Chief Executive Glenn Tilton pledged to
resolve 'quality of work life' issues and clarify the airline's unpaid
vacation policy, both cited as reasons union members were unhappy, the
newswire reported. United desperately needs the wage cuts from the
mechanics in order to convince the U.S. government to guarantee $1.8
billion of a $2 billion loan that could help it avoid bankruptcy.
Airline analysts said the deal does not remove the threat of bankruptcy
from the No. 2 U.S. airline. 'If it passes on Thursday, it maybe changes
the likelihood of bankruptcy a little bit, but I still think bankruptcy
is highly likely,' said Ray Neidl, an airline analyst at Blaylock &
Partners, Reuters reported.
UAL Misses Deadline For $375 Million Debt Payment
United Airlines parent UAL Corp. on Monday missed a payment of $375
million in principal of maturing secured notes, according to Wells
Fargo, the trustee for the notes, reported Dow Jones. The missed
payment, which many in the market had anticipated, takes the No. 2
airline one step closer to a possible chapter 11 bankruptcy filing. The
carrier now has a 10-day grace period to make the payment before
defaulting on the notes, the trustee said.
UAL Corp. disclosed that it is relying on grace periods to avoid
meeting a larger-than-expected $920 million of assorted debt obligations
due Monday. The parent of United Airlines also said it will rely on
grace periods in future debt obligations until its financial situation
is 'clarified' and it learns whether the government will extend loan
guarantees that would help the company raise $2 billion in fresh capital
and avoid a bankruptcy-court filing.
Metromedia Fiber Gets OK for Rules for $41.5 Million Sale
The bankruptcy court handling Metromedia Fiber Network Inc.'s chapter 11
case has approved competitive bid procedures for some of the company's
Internet exchange facilities, according to court papers, Dow Jones
reported. Subject to any competitive offers, Metromedia Fiber has agreed
to sell the assets to a unit of Switch & Data Facilities Co. for $40
million in cash and $1.5 million in senior redeemable preferred stock.
The deal provides for the sale of Internet exchange facilities and
related assets owned or used by Metromedia or its units-Metromedia Fiber
Network Services Inc. and PAIX.net Inc.
Metromedia Fiber sought chapter 11 protection on May 20, saying it had
overbuilt while expanding its businesses. To attain positive cash flow,
the fiber-optic network builder said it would seek to dispose of
unproductive properties, as well as to reject burdensome vendor
contracts and substantially reduce its debt, the newswire reported.
Under procedures approved by Judge Adlai Hardin Jr. of the U.S.
Bankruptcy Court in White Plains, N.Y., competing bids for the Internet
exchange facilities are due on Dec. 16 and an auction is scheduled for
Dec. 20.
NRG Energy Bankruptcy Still Risky for Xcel
NRG Energy Inc., the debt-laden power trading and generation subsidiary
of Xcel Energy Inc., the parent company, is on the road the bankruptcy,
Dow Jones reported. NRG is now trying to arrange a prepackaged
bankruptcy deal with creditors, under which Xcel would pay NRG $300
million and surrender all equity in the unit in return for a release of
all claims against Xcel, the newswire reported. If such an arrangement
can't be struck, or if NRG is forced into bankruptcy, the result could
be a court battle that opens the issue of Xcel's level of
responsibility. How things shake out for NRG could be of interest to
other companies in the troubled power generation and trading business,
which is expected to have a handful of restructurings if not outright
bankruptcies in its future, the newswire reported.
Adelphia Communications Wants More Time to Give Financial
Data
Adelphia Communications Corp. wants the bankruptcy court handling its
five-month-old chapter 11 case to give the company until June 23, 2003,
to provide required financial information, Dow Jones reported. The
information -- including schedules of assets and liabilities that could
help creditors and shareholders estimate what type of recovery to expect
-- originally was due around the time the cable company filed for
chapter 11 protection in late June. Judge Robert E. Gerber of the
U.S. Bankruptcy Court in Manhattan extended the deadline for filing the
information twice, most recently through Dec. 23, according to court
papers obtained on Monday by Dow Jones Newswires.
Adelphia Communications filed for chapter 11 protection on June 25 amid
an accounting scandal that began in March after it revealed that it had
failed to disclose it had guaranteed more than $2 billion in loans for
members of the founding Rigas family or entities they controlled. In
May, the company said it expects to restate previously issued financial
statements for 1999, 2000 and 2001.
WorldCom Gets OK to Assume Amended Pact with Blockbuster
WorldCom Inc. received bankruptcy court approval to assume an amended
agreement with Blockbuster Inc. under which the telecommunications giant
anticipates generating revenue of more than $250 million in 2003, Dow
Jones reported. MCI Telecommunications Corp., the predecessor in
interest to WorldCom's MCI WorldCom Communications Inc. unit, in 1997
signed a Free Flix agreement, an integrated marketing campaign between
the parties. The pact calls for MCI WorldCom to pay Blockbuster for two
different types of obligations-video rental certificates and Blockbuster
gift cards. Under a court order signed last Wednesday by U.S. Bankruptcy
Judge Arthur J. Gonzalez, the amended agreement will be extended through
Dec. 31, 2003.
Grace Comments On Proposed Sealed Air, Fresenius Deals
W.R. Grace & Co. said it wasn't a party to asbestos liability
agreements that Sealed Air Corp. and Fresenius Medical Care AG recently
made, so it can't predict how they may ultimately affect Grace's plan of
reorganization, Dow Jones reported. On Friday, Sealed Air and Fresenius
announced separately that they had reached agreements in principle with
representatives of the asbestos creditors' committees to settle claims
of fraudulent transfer in the chapter 11 proceedings of Grace, the
newswire reported. Sealed Air agreed to pay $512.5 million in cash, plus
9 million in shares, to settle asbestos-related claims stemming from the
company's 1998 acquisition of Grace's Cryovac packaging business. German
medical-services company Fresenius said it had agreed in principle to
settle claims against it arising from the Grace bankruptcy. Fresenius
agreed to pay $15 million to the Grace bankruptcy estate, according to
Dow Jones. W.R. Grace sought chapter 11 bankruptcy court protection in
April 2001 after receiving more than 325,000 asbestos personal-injury
claims.
Ocean Power Corp. Files for Chapter 11 Bankruptcy
Ocean Power Corp. filed for chapter 11 bankruptcy protection on Sunday
with the U.S. Bankruptcy Court in New York City, citing reduced
available financing from capital markets, according to court papers Dow
Jones Newswires obtained on Monday. An exhibit to the company's
bankruptcy petition listed total assets of about $1.5 million and total
debts of just more than $24 million. The filing in Manhattan said Ocean
Power had roughly 56.2 million common shares outstanding as of Sept. 24.
Ocean Power said the recent bankruptcy of subsidiary Sigma
Elektroteknisk AS in Norway also contributed to the company's decision
to file the chapter 11 petition. Through bankruptcy, the company will
seek to protect and preserve its intellectual properties and maximize
the value of its assets.
J.P. Morgan Seeks $1 Billion Payment As Enron Case Kicks Off
J.P. Morgan Chase & Co. went to court on Monday seeking to recoup
about $1 billion from a group of insurers over complex transactions with
Enron Corp., Dow Jones reported. J.P. Morgan attorney John Callagy said
the bank was willing to extend $1 billion in financing to Enron, to be
repaid through future delivery of gas, because it shared the risk with
11 insurers through instruments known as surety bonds. But last year,
soon after Enron filed for bankruptcy and defaulted on the contracts,
the insurers refused to pay on the surety bonds, claiming J.P. Morgan
may have deliberately camouflaged bank loans to Enron as commodity
transactions, reported the newswire. That claim is 'simply false,'
Callagy told nine jurors and U.S. District Judge Jed S. Rakoff in
Manhattan. Instead, 'the insurers wanted to push their Enron losses off
to Chase.' The insurers, including Chubb Corp. and CNA Financial Corp.,
made commitments in the form of surety bonds of about $1.1 billion, of
which J.P. Morgan Chase's share is about $965 million, Dow Jones
reported.
Bethlehem Steel Seeks To Help Unit Restructure $70 Million
Loan
Bethlehem Steel Corp. is seeking bankruptcy court approval to guarantee
a $70 million loan restructuring by one of its non-bankrupt units,
reported Dow Jones. The request has been opposed by the Pension Benefit
Guaranty Corp., which says the deal would unfairly leave the unit on the
hook for its parent's $450 million debtor-in-possession loan, the
newswire reported. The request has also been opposed by the U.S. Trustee
administering Bethlehem Steel's 14-month-old chapter 11 case, according
to court papers obtained Monday by Dow Jones Newswires. A hearing on the
request is scheduled for Thursday before Judge Burton R. Lifland of the
U.S. Bankruptcy Court in Manhattan.
National Century Misses Payments on Asset-backed Debt
National Century Financial Enterprises Inc. failed to pay investors $8.3
million in interest due yesterday on its bonds, a first for the
health-care financial company that filed for bankruptcy protection last
month, Bloomberg News reported. The skipped payment increases the
possibility that investors won't recover their money after buying debt
that had the highest credit ratings as recently as October. Investors,
from Credit Suisse First Boston to an investment pool run by the state
of Arizona, bought $3.3 billion of National Century debt backed by
payments on medical bills. The Dublin, Ohio-based company filed for
chapter 11 bankruptcy on Nov. 18 after the FBI raided its offices and
Moody's Investors Service slashed the ratings on $3.3 billion of the
asset-backed bonds by 12 levels to below investment-grade. National
Century, through units, bought medical bills and packaged them into
bonds, pledging their income stream to investors.
Bankruptcy Tangles Enron's Future
An article in the Washington Post examines how the bankruptcy
process may influence Enron's future-- whether to sell off its
big-ticket assets and close its doors or try to limp on as a vastly
smaller natural-gas-pipeline company, repaying creditors as much as it
can. To read the article, point your browser to
href='http://www.washingtonpost.com/wp-dyn/articles/A857-2002Dec2.html'>
color='#000080'>http://www.washingtonpost.com/wp-dyn/articles/A857-2002Dec2.html.
A separate article in the Wall Street Journal addresses the
challenges faced by Enron's new CEO Stephen F. Cooper as he tries
to steer the company through bankruptcy. To read the article, point your
browser to
href='http://online.wsj.com/article/0,,SB1038871923596810033-search,00.html?c…'>
color='#000080'>http://online.wsj.com/article/0,,SB1038871923596810033-search,00.html?c…%
3E%28article%2Dbody%29 (subscription required).
US Court Approves Enron Metals Payment
Navan Mining PLC said Tuesday that the agreement with Enron Metals and
Commodities Corp. (EMCC) in respect of the full and final settlement of
all amounts due has now been approved by the bankruptcy court for the
Southern District of New York, Dow Jones reported. In addition to the
cash payment to EMCC of $2 million which had been placed in escrow
pending the court approval, Navan has issued and allotted to EMCC at par
14,343,268 new ordinary shares of 15 pence, equivalent to $3.4 million.
EMCC has agreed that it will not dispose of the New Navan shares for a
period of six months from the date of the court approval.
Level 3 to Get Genuity's Deals, Which May Cut Purchase Price
Level 3 Communications Inc. will assume a significant portion of Genuity
Inc.'s long-term operating agreements when it completes its acquisition
of the bankrupt Internet backbone company, executives said on Monday,
the Associated Press reported. In a conference call with analysts, Level
3 Chief Financial Officer Sureel Choksi said the value of the agreements
could reduce the $242 million price tag on the companies' purchase
agreement. 'Perhaps the most significant potential adjustment to the
purchase price is tied to the value of Genuity's operating agreements
that Level 3 ultimately assumes,' he said. 'These agreements consist
primarily of multiyear network capacity contracts with third-party
vendors,' the newswire reported.
Genuity, which operates one of the key components of the infrastructure
that supports the Internet, filed for bankruptcy protection last
Wednesday as part of an agreement that will transfer its assets to
Broomfield, Colo.-based Level 3 for $242 million, reported the
Associated Press. Under the agreement, Level 3 would operate Genuity as
a separate business. The plan is subject to approval by a U.S.
Bankruptcy Court judge and regulatory authorities.
Williams Gets $180 Million from Leucadia
Williams Cos. received an anticipated $180 million cash payment from
Leucadia National Corp. for Williams' largest claims related to the
chapter 11 filing of its former telecom unit, Williams Communications
Group Inc., Dow Jones reported Leucadia purchased the claims from
Williams as part of an agreement reached in July. The plan, approved by
U.S. Bankruptcy Court Judge Burton R. Lifland in October, gives Leucadia
a 44 percent stake in the wholesale carrier for $330 million.
Leucadia agreed to pay Williams Communications $150 million to lower
bank debt and to give its former parent, Williams Cos., $180 million for
its approximate $2.3 billion in debt. Bondholders, who are owed about
$2.5 billion, would get the remaining 55 percent stake. Current
shareholders would be wiped out. A spokesman for Williams Cos. said the
$180 million cash payment had been held in escrow until all conditions
of the agreement with Leucadia were satisfied.
UPC Seeks Bankruptcy Protection in Debt Restructuring
United Pan-Europe Communications NV filed for bankruptcy protection in
the United States and the Netherlands as it proceeds with plans to hand
control of Europe's second-largest cable-TV operator to bondholders,
Bloomberg News reported. The company started a chapter 11 filing in the
United States and Dutch moratorium proceedings in the Netherlands, UPC's
parent, UnitedGlobalCom Inc., said in a statement on PR Newswire. UPC
amassed debt and losses as it acquired cable-TV networks and invested in
improving its television and Internet services. The company said in
September it would hand bondholders control in return for more than 5.2
billion euros ($5.2 billion) of debt. The filings won't affect UPC's
day-to-day business, the statement said. UPC expects to emerge from its
reorganization in March 2003. UnitedGlobalCom, UPC's biggest creditor,
will own about 66 percent of UPC, up from 53 percent now, the statement
said, the newswire reported.
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