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Fed May Leave Rates Low
Federal Reserve Chairman Alan Greenspan said yesterday the
central bank will hold its target for short-term interest rates low 'as
long as it takes' to ensure a solid economic rebound -- and is willing
to cut interest rates further if necessary, the Wall Street
Journal reported. Delivering a semiannual report on monetary policy
to Congress, Greenspan also said the slow economy should gain speed
during coming quarters, propelled by resurgent stock markets, tax cuts
and federal-spending increases. Greenspan presented the Fed's latest
forecast for economic growth this year of between 2.5 percent and 2.75
percent, a significant cut from the central bank's February forecast of
growth between 3.25 percent and 3.5 percent. Still, the Fed chairman
said policy-makers aren't inclined to take any chances. The Federal Open
Market Committee 'stands ready to maintain a highly accommodative stance
of policy for as long as it takes to achieve a return to satisfactory
economic performance,' Greenspan said in prepared testimony to the House
Financial Services Committee, reported the Journal.
Business Group Releases Guidelines On Combating ID Theft
Victims of identity theft no longer would have to complete multiple bank
forms under guidelines announced on Tuesday by the Financial Services
Roundtable, CongressDaily reported.The roundtable's group of 100
leading financial services companies would establish a single contact
for victims to report identity theft. Three lawmakers who support
legislation designed to combat identity theft and renew provisions of
federal credit reporting laws praised the industry-led initiative as a
necessary complement to a bill introduced by House Financial Services
Financial Institutions Subcommittee Chairman Spencer Bachus (R-Ala.).
'We have some momentum from both industry and government to help solve
this program,' Rep. Darlene Hooley (D-Ore.) said.
The business community has been urging Congress to pass legislation
that would pre-empt the state regulation of credit reporting. The
current bar on such state laws is part of the Fair Credit Reporting Act,
but will expire Jan. 1. Last month, the Bush administration announced
its support for renewing the pre-emption, as long as additional consumer
protections against identity theft are included, reported the
newswire.
Timing of Asbestos Bill in Senate Uncertain
An asbestos compensation bill could reach the Senate floor before
September, the chamber's majority leader said on Tuesday, but other
senators and aides were skeptical it could be scheduled that soon,
Reuters reported. Senate Republican Leader Bill Frist (R-Tenn.) said it
will be another week before the version of the bill approved by the
Senate Judiciary Committee last Thursday, with a number of amendments,
is put in final written form.
The proposal to take asbestos lawsuits out of the courts and create a
fund of up to $153 billion to pay victims narrowly passed the
Republican-run committee after three final days of lengthy debate, the
newswire reported. But neither Democrats nor Republicans are entirely
happy with the measure and both want to make changes to the bill when it
comes to the floor. 'Nobody has seen the language yet,' Frist said of
the committee-passed measure. 'Until we see that, sit down and talk
about it, it won't be formally scheduled (for floor action). It could
come up before (the August recess), or it could come up afterwards,'
Frist told Reuters in a Senate hallway. But another senior Republican
senator who abstained from the committee vote, Jon Kyl (R-Ariz.), said
September would be the earliest the bill could reach the Senate floor.
'We won't get it up in July. There's too much work to do on it,' said
Kyl, the chairman of the Senate Republican Policy Committee, reported
the newswire.
Interest Groups Fight Hard To Sway Senators On Class
Action
Interest groups on both sides of the class action reform debate
increased their efforts to sway potential Senate swing voters on
Tuesday, releasing separate analyses of the legislation's potential
impact on the residents of certain states, CongressDaily
reported. A study released by the Class Action Fairness Coalition, which
supports the Senate bill, concluded that its jurisdictional provisions
would result in most 'nationwide' class actions being moved from state
court to federal court, while most local disputes would remain in state
courts, 'where they properly belong.' 'For some time, various critics
have been saying that all these cases would be removable to federal
court under this bill,' said John Beisner, a law partner with O'Melveny
& Myers who analyzed class action cases in six states over a
five-year period. 'This study demonstrates that that's not the
case.'
Meanwhile, Public Citizen, which opposes the legislation, said on
Tuesday in a series of press releases that states with 'relatively few
residents, few corporate headquarters and few attorneys who represent
consumers in class actions would fare the worst under the bill,'
reported the newswire.
MIRANT
Mirant Asks for Court Permission to Shed Pipeline
Agreements
Mirant Corp. asked for court approval to sell agreements for natural-gas
pipeline capacity and storage it won't need as its energy-trading
business shrivels, Bloomberg News reported. Shedding the contracts will
require the approval of the Federal Energy Regulatory Commission, Mirant
said in a court document. Mirant can either take bids on its contracts
or negotiate a sale acceptable to the pipeline operator, the filing
said. Mirant didn't specify how much pipeline and storage capacity it
may sell. All of the company's contracts and operations are under
review, spokesman James Peters said, reported the newswire.
The company's lenders refused to refinance $3.1 billion in debt
because Mirant's restructuring plan would force them to share too much
collateral with holders of $1.45 billion in bonds, according to court
filings and analysts. The company listed $20.6 billion in assets and
$11.4 billion in debt in chapter 11 papers, reported the newswire.
Court Sets Plan to Assure Mirant Counterparties
Mirant Corp. said yesterday that several of its counterparties have
signed on to a program that will help the company continue operating
without interruption, Reuters reported. The program, which was ordered
by the bankruptcy court, authorizes all obligations under Mirant's
trading and marketing contracts to be honored as long as the
counterparties do not terminate them because of the chapter 11
filing.
Southern Co. Says It May Owe $16 Million for Mirant
Guarantees
Southern Co. may lose about $16 million from energy-trade guarantees for
Mirant Corp., Bloomberg News reported. The Atlanta utility owner had
guaranteed $29 million in trades for Mirant, company spokeswoman Laura
Varn said. The $16 million is the estimated market value of Southern's
potential losses under the contracts, she said. Shares of Southern fell
41 cents to $28.50 at 1:12 p.m. in New York Stock Exchange composite
trading. Mirant shares fell $1.55, or 77 percent, to 46 cents in
electronic trading, before trading of the company's shares was halted by
the New York Stock Exchange, reported the newswire.
Hughes's DirecTV Latin America Avoids Bankruptcy Trustee
A bankruptcy judge refused to appoint a trustee to run Hughes
Electronics Corp.'s DirecTV Latin America unit, rejecting a request by a
creditor alleging 'incestuous
relationships'' precluded managers from being objective, Bloomberg News
reported.
Unsecured creditor Raven Media Investments LLC had asked the court to
appoint a trustee to oversee the Fort Lauderdale, Fla.-based company's
operations, saying there were conflicts of interest. U.S. Bankruptcy
Judge Peter Walsh in Wilmington,
Del., denied the request at a hearing yesterday. 'Even if a trustee were
appointed, Hughes was going to be an 800-pound gorilla,'' Walsh said. It
would be a 'mistake to bring an uninformed trustee into the case to try
to run the company.''
DirecTV Latin America filed for bankruptcy in March after falling
Latin American currencies last year reduced sales when converted to U.S.
dollars. The company also lost subscribers as Latin American economies
shrank. Hughes provided the loan for the unit to operate during the
bankruptcy, reported the newswire.
Altria Falls After Adverse Ruling
Altria Group Inc. shares sank on Tuesday, after an appellate court ruled
a judge did not have the authority to slash the $12 billion bond its
Philip Morris USA unit must post while appealing a verdict that it
deceived smokers about the safety of 'light' cigarettes, Reuters
reported. The appeals court decision on Monday spurred worries on Wall
Street about whether Altria could keep raising its dividend. Philip
Morris USA, which believes the trial judge did have the authority to
lower the bond in April, plans to appeal the ruling to the Illinois
Supreme Court, according to the newswire.
Analysts had mixed thoughts over whether or not the state's high court
would accept a petition from the company on the appeal bond in the
Price vs. Philip Morris case and said the timing of any final
outcome in the case is unclear. Shares of Philip Morris USA parent
Altria Group Inc. plunged as much as 7.5 percent in trading on the New
York Stock Exchange. The stock, which dragged down the Dow Jones
industrial average, has been under pressure since the ruling in the case
in March, reported the newswire.
Enron Should Pay Refunds on Some Power Trades, FERC Judge
Says
Enron Corp., whose energy-trading license was revoked for gaming U.S.
West markets, should refund $32.5 million from questionable transactions
in Texas and New
Mexico, a Federal Energy Regulatory Commission judge said, Bloomberg
News reported. The recommendation stems from a commission probe of
accusations that El Paso Electric Co. let Enron market power under a
plan to inflate prices. El Paso Electric has agreed to a proposed
settlement in which it would refund $15.5 million and be barred from
selling power at market-based rates through Dec. 31, 2004, reported the
newswire.
US Airways Explores Ways to Create Liquidity for New Stock
US Airways Group Inc. is exploring ways to create liquidity for its new
stock in addition to the possibility of listing on a national exchange,
Bloomberg News reported. The new stock is to be issued to employees and
unsecured creditors as part of the company's plan of reorganization as
laid out in the company's chapter 11 bankruptcy proceedings, US Airways
said in a statement on PR Newswsire. The Arlington, Va.-based carrier
exited bankruptcy in April.
WORLDCOM
WorldCom's May Sales Fell Slightly
WorldCom Inc. said its sales dropped by less than 1 percent to $2.03
billion in May from April, Bloomberg News reported. Operating income was
$116 million, compared with $114 million in the prior month, Ashburn,
Va.-based WorldCom said in a statement distributed by PR Newswire. The
company reports results monthly to the New York bankruptcy court
overseeing its reorganization.
How Hilco Helps MCI Unload Its Properties
The most 'untapped' source of capital for companies in financial
straits is their real-estate holdings, says Mark Smith, managing partner
of Ernst & Young LLP's real-estate advisory practice, the Wall
Street Journal reported. To read the article discussing how Hilco
Real Estate LLC helps MCI sell its properties, point your browser to
href='http://www.wsj.com%20/'>www.wsj.com (subscription
required).
UAL's United Seeks $25 Million in Insurance Suit Against AIG
Unit
United Airlines sued to force an American International Group Inc. (AIG)
unit to honor a $25 million insurance policy covering losses from the
Sept. 11 terror attacks, Bloomberg News reported. United says it lost
almost $1.2 billion because of the 2001 attacks in New York, Washington,
D.C. and Pennsylvania. The airline, in a federal court lawsuit filed
yesterday, said AIG's Insurance Co. of the State of Pennsylvania refuses
to abide by a business interruption policy it issued.
Chicago-based UAL has said it expects to exit bankruptcy as early as
the fourth quarter. The company had a first-quarter loss of $1.3
billion. Chief Executive Officer Glenn Tilton said in May that UAL is
seeking a $1.8 billion federal loan guarantee that
would help attract lenders and fund the restructuring, reported the
newswire.
XO to Lay Off 500, Close Some Offices
Reston, Va.-based XO Communications Inc. plans to shut down some of its
offices and lay off 500 people, or about 10 percent of its workforce, by
the end of the year as it tries to consolidate its operations, the
firm's chief executive said yesterday, the Washington Post
reported. At the same time, XO plans to hire 300 more people to work in
sales by late August throughout its organization, said Carl J. Grivner,
XO's chief executive. The cuts will come from other divisions such as
finance, marketing and human resources, he said. 'We want to see
double-digit revenue growth' at the same time that the firm trims
expenses and improves network operations, Grivner said, the online
newspaper reported.
These moves come as XO Chairman and owner Carl C. Icahn is bidding to
acquire the assets of Global Crossing Ltd. Global Crossing said it is
trying to complete a previously signed deal with Singapore Technologies
Telemedia and has accused Icahn of improperly interfering with the
regulatory approval process for that deal, the Post reported.
Midwest Express Unions Ratify Concessions
Union pilots and flight attendants at Midwest Express Holdings Inc. on
Tuesday ratified cost cuts the company has said it must have to avoid
bankruptcy, leaving airplane payments as the last major part to
complete, Reuters reported. Midwest Express has said bankruptcy would be
unavoidable if it cannot also complete a restructuring of agreements
with 11 lessors or lenders to lower payments on 38 airplanes by a
self-imposed late Tuesday deadline. The air carrier is expected to
update the status of the restructuring some time on Wednesday. Pilots
for Midwest Airlines and regional carrier Skyway Airlines joined Midwest
Airlines flight attendants in voting overwhelmingly to accept cuts. Both
pilot agreements will run to 2008, reported the newswire.
MIRANT, LORAL
Bankruptcy May Claim Victims Beyond Mirant, Loral
The U.S. telecom and energy sector meltdown claimed two more major
victims recently, and they are unlikely to be the last big bankruptcy
casualties, despite hopes that the worst may be over, Reuters reported.
Energy company Mirant Corp. late on Monday filed for chapter 11
bankruptcy protection, while satellite maker and operator Loral Space
& Communications Ltd. followed in its footsteps on Tuesday
morning.
Some analysts who monitor credit quality say more bankruptcies may come.
Some companies have avoided collapse only by the grace of interest rates
falling to four-decade lows. 'Even though the refinancings have taken
place and the money that is cheap has saved a lot of companies from
bankruptcy, they still have to do business,' said Chester
Salomon, a bankruptcy lawyer and partner at Salomon Green &
Ostrow, Reuters reported. 'And that's the question ... will some
companies fail because they just can't meet the competition?' reported
the newswire. In the energy sector, for example, low interest rates have
given a number of struggling companies access to cheaper capital and
allowed them to keep afloat by refinancing their debt. But that could
simply mean delaying a default in coming years when interest rates rise,
said John Bilardello, managing director of global industrial ratings at
Standard & Poor's, Reuters reported.
Others, like Robert Grossman, chief credit officer at Fitch Ratings,
point to positive indicators. Liquidity levels and cash flow have
improved to their best levels in the past two years as companies bend
over backward to slash capital spending and conserve cash, Grossman
said, Reuters reported. 'Most of the correction has happened,' said
Grossman. 'I don't think there will be that much more deterioration, but
the improvement will be based on improving business conditions,'
reported the newswire.
Mirant, Loral Bondholders May Benefit as Recovery Rates
Rise
Investors in bonds of companies that file for bankruptcy are recovering
more of the value of their holdings, fanning hopes of higher returns for
holders of debt of Mirant Corp. and Loral Space & Communications
Ltd., Bloomberg News reported. Bond investors recovered an average of 33
cents on the dollar on defaulted debt in the first half of the year, a
50 percent rise from 22 cents at the end of 2002, according to data from
Fitch Ratings. The rise was accompanied by a decline in defaults and
bankruptcy filings, and an increase in demand for the riskiest debt.
Climbing average recovery values reflect investor expectations that
the assets corporations in default may have to sell will fetch higher
prices, and that companies' cash flow is poised to improve, said
Mariarosa Verde, head of U.S. credit market research in the United
States at Fitch Ratings in New York. 'If investors believe that cash
flow prospects have improved for the broader high-yield market, they are
also likely to believe that prospects have also improved for distressed
and defaulted issuers,'' she said. 'That's driving up recovery values,''
she added, reported the newswire.
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