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October 16, 2002
Lame-Duck Session Could Breathe Life into Bankruptcy Bill
A lame-duck session would provide Congress with a narrow window to pass
a number of bills - including the bankruptcy reform conference report,
whose last and best shot at enactment this year would occur after the
November elections, CongressDaily reported. That bill was
sidelined months ago amid complaints from anti-abortion House
Republicans that the measure would single out clinic protesters unfairly
for harsh treatment in bankruptcy court. Having tallied the political
costs associated with alienating those members and a legion of
pro-family organizations that have protested the bill, House GOP leaders
decided the measure was not an appropriate pick for the pre-election
schedule. But after the elections, consideration of the bill is another
story, both supporters and opponents agree.
Although the immediate political consequences for House GOP leaders
in forcing a vote on the bankruptcy bill would be removed by waiting out
the elections, long-term consequences could ensue, sources noted. The
Republican Party would have time to mend political fences with the
anti-abortion forces by 2004, but sources speculated that a new House
GOP leadership team might not want to start its tenure with that sort of
mark on its record, even as it would face great pressure from financial
interests to pass the measure. Mindful that their leverage on the matter
will be greatly dissipated after the elections, social conservatives in
the House are contemplating a number of options. Rep. Joseph Pitts
(R-Pa.) plans to introduce an alternative bankruptcy bill, altering the
language at issue, the newswire reported. However, a Pitts spokesman
noted on Tuesday that House leaders are more apt to schedule the vote on
the pending bankruptcy measure if they are assured of a win. And while a
number of moderate Democrats have indicated they would back the bill,
other GOP members have been persuaded in recent weeks to take 'a second
look' at the conservative members' arguments against the measure, he
said.
WORLDCOM
WorldCom Wins Approval to Borrow up to $1.1 Billion
A federal bankruptcy judge approved on Tuesday WorldCom Inc.'s request
to borrow up to $1.1 billion to carry on its telecommunications business
while restructuring its debt under bankruptcy protection, the Wall
Street Journal reported. WorldCom, parent of the long-distance
subsidiary MCI and the phone and data unit Intermedia, needs the
debtor-in-possession financing to ensure its suppliers that they can do
business with the company while expecting to get paid, as well as to
assure its customers that their phone and Internet services will go on
as usual. The Clinton, Miss., company, which has 20 million residential
customers and thousands of business customers, initially sought to
borrow as much as $2 billion upon its chapter 11 filing in late July.
Thanks to its better-than-expected cash position, WorldCom then scaled
down the bankruptcy loan request in the following month.
During the weeks leading up to WorldCom's spiral into bankruptcy, as the
company was struggling with $41 billion in debt and billions of dollars
of accounting scandal, its trading partners refused to extend credit to
WorldCom and began asking for upfront cash payment. That exacerbated
WorldCom's cash needs, and the situation was eased only after Judge
Arthur Gonzalez approved on July 22 interim financing of $750 million
for the company, pending Tuesday's final hearing. After disclosing that
it improperly accounted for billions of dollars, WorldCom filed for
bankruptcy-law protection in July, unseating Enron Corp. to become the
largest such case in U.S. history. Ever since then, every major
expenditure -- such as the creditors' request to hire a forensic
accountant -- must go through the bankruptcy court's scrutiny.
Also Tuesday, creditors of WorldCom received approval from the
bankruptcy court to hire their own accountants to review the company's
scandal-plagued financial records, Dow Jones reported. FTI Consulting
Inc., the Annapolis, Md., firm specialized in providing accounting and
litigation services to troubled companies, will analyze and examine
WorldCom's accounting for acquisitions, inter-company transactions, and
evaluate the company's financial projections and business plans. The
recruitment of the accountant by the official committee of unsecured
creditors came amid concerns that the depths of the telecommunication
giant's accounting irregularities haven't been fully disclosed. And any
uncertainty about accounting could reduce the price potential bidders
may be willing to pay for WorldCom's assets.
WorldCom's Ex-CFO Sullivan Received More IPO Profits, Suit
Says
WorldCom Inc.'s former chief financial officer Scott Sullivan received
more money from preferred treatment by Citigroup Inc. in the 1999
initial public offering of a popular Internet stock than previously
disclosed, Bloomberg reported. Sullivan, indicted for fraud for helping
misstate more than $7 billion of WorldCom's expenses and reserves,
received a ``six- figure'' share of profits that WorldCom's then chief
executive officer Bernard Ebbers made on his Citigroup IPO allocations
of Rhythms Netconnections Inc. stock, the suit said. The payment, made
with a personal check from Ebbers, was cashed for the ex-CFO by
Citigroup's Salomon Smith Barney unit, the suit alleges. Salomon put the
money in Sullivan's brokerage account in violation of a policy that
banned cashing third-party checks, the suit said. The special treatment
was part of a pattern of favors by Salomon to win investment-banking
business from WorldCom executives and should have been disclosed to
shareholders, the suit said.
Church Group Wants FCC To Block WorldCom
Reorganization
The United Church of Christ's lobbying arm wants regulators to consider
subjecting WorldCom Inc. to the corporate equivalent of the death
penalty in connection with accounting fraud at the company, Dow Jones
reported. The church's office of communications petitioned the FCC on
Tuesday to hold hearings that could bar the transfer of WorldCom's
critical telecommunications license to the entity that emerges from
bankruptcy court. The company is 'unfit to serve as an information age
steward,' said the Rev. Robert Chase, executive director of the group.
But WorldCom charges that Chase has been influenced by his association
with Sam Simon, founder of a consulting group that has done considerable
work for WorldCom's arch-rivals, the Baby Bell telephone companies. The
Bells have raised concerns about the competitive advantage a debt-free
WorldCom would have after it emerges from bankruptcy. Chase admits he is
friends with Simon but denies that he was influenced by him in the
matter.
Bankruptcy Reform Won't Fix Telecom
The economy is stagnating, prices are falling, capacity is
languishing--and executives are starting to grumble about the bankruptcy
system, Business Week reported. Their complaint: Rather than kill weak
companies, the law allows too many poorly managed outfits to return to
life with sharply reduced costs. The latest example: telecommunications,
where dozens of bankrupt companies are trying to remain alive, even
though there is at least 50 times too much long-distance capacity. These
unfairly advantaged competitors, the story goes, drive prices to
unrealistically low levels, prevent the reduction in capacity needed to
restore the industry's economic health--and frequently wind up going out
of business anyway.
Already, managers in some troubled industries are calling for a
reform of bankruptcy laws. But the notion that there's something
fundamentally wrong with the bankruptcy code is one most independent
economists and legal experts dismiss. While the American system does
allow too many corporate losers to limp along for way too long--and
that, in turn, results in weak pricing--there's little evidence this
hurts the economy. To read the full story, point your browser to
href='http://www.businessweek.com/magazine/content/02_42/b3804038.htm'>http://www.businessweek.com/magazine/content/02_42/b3804038.htm
ANC Rental Names President
ANC Rental Corp. named William Plamondon, 55 years old, president and
chief executive of the car-rental firm, the Wall Street Journal
reported. Mr. Plamondon, formerly ANC's chief restructuring officer,
succeeds Lawrence J. Ramaekers, 65. ANC, the owner of Alamo and National
rental brands currently operating under bankruptcy-court protection,
said Mr. Ramaekers will take on the position of chief restructuring
officer until he retires Dec. 31. Hit hard by the travel slowdown, ANC
brought rental-car industry veteran Mr. Ramaekers out of retirement
shortly after Sept. 11, 2001, to help the company with its turnaround
strategy. The company filed for chapter 11 in November, listing $6.5
billion in assets and $5.9 billion in liabilities.
ANC has since taken several steps to cut costs, including slashing its
fleet by 25 percent and consolidating its two rental brands at some
locations to reduce overhead costs. The company has combined Alamo and
National operations at airport locations across the country, despite
attempts by industry behemoths Hertz Corp. and Avis Group Holdings Inc.
to stop its dual-branding strategy by arguing in bankruptcy court that
it gives ANC an unfair competitive advantage. 'Our restructuring plan
has progressed nicely and this is the appropriate time for a
transition,' said Mr. Plamondon, a 26-year rental-car industry
executive.
GenTek Wins Emergency Authority to Tap Cash Collateral
GenTek Inc. on Tuesday won emergency authority to use up to $5 million
of its secured lender's cash collateral to pay vendors it said are
critical to its operations, Dow Jones reported. The emergency order
signed by Judge Mary F. Walrath of the U.S. Bankruptcy Court in
Wilmington allows GenTek to tap the cash collateral of JP Morgan Chase
Bank immediately. A hearing to consider interim approval of the
company's request to use cash collateral under a court-authorized budget
is scheduled for Wednesday.
GenTek will use the funds to make payments to vendors that have recently
shipped or are shipping goods to the debtor company, said Mark S. Chehi,
an attorney with Skadden Arps Slate Meagher & Flom, the firm
representing the debtor. GenTek filed for chapter 11 bankruptcy
protection on Friday. In its motion, GenTek said 'it would be
devastating to the business operations and prospects for a successful
reorganization if, immediately after commencing the chapter 11 case,
GenTek was not authorized to use the cash collateral.' The company added
that maintaining the confidence of its vendors is essential to its
ability to reorganize successfully.
Atlantic Express Gets DIP; Appeal Likely from Creditors
A bankruptcy court has granted Atlantic Express Transportation Corp.
final approval of its debtor-in-possession loan with Congress Financial
Corp, Dow Jones reported. The ruling from the U.S. Bankruptcy Court in
Manhattan Oct. 8 would allow Atlantic Express to 'roll up' about $110
million of prepetition claims. This would mean that the prepetition
debts would be turned into a postpetition claim, and the lender's rights
wouldn't be subject to the automatic stay of the bankruptcy code. The
approval is likely to trigger an objection from the official committee
of unsecured creditors. Counsel for the group told Dow Jones Newswires
on Oct. 4 that it would appeal the terms of the agreement if the court
gave its approval.
When it filed for bankruptcy Aug. 16, Atlantic Express owed Bank of New
York about $120 million principal on the notes. The company was unable
to make its Aug. 1 interest payment on the notes, the financing motion
said. Atlantic Express Transportation, based in Staten Island, N.Y.,
filed for chapter 11 bankruptcy protection with more than 60 of its
affiliates. The companies said they have consolidated assets of $312.4
million, excluding goodwill, and debts of $330.6 million. Atlantic
Express Transportation had $298.7 million in assets and $257 million in
debts as of March 31, according to court papers.
Birmingham Steel Posts $222.7 Million Loss for Year Ended June
30
Birmingham Steel Corp. reported a net loss of $222.7 million, or $7.09 a
share, for the year ended June 30, Dow Jones reported. In fiscal 2001,
the company posted a loss of $197 million. Birmingham Steel said in
Tuesday's filing that results for the prior-year period have been
restated to reflect its special bar quality business and Cartersville,
Ga., facility as discontinued operations. Birmingham Steel filed for
chapter 11 on June 3, listing assets of $487.4 million and liabilities
of $681.1 million. In mid-September, the company won confirmation of a
reorganization plan that contemplates the sale of substantially all of
its assets to Nucor Corp. in a deal valued at $615 million. Birmingham
Steel said in Tuesday's filing that it expects the sale to close before
the end of the year.
Netia Holdings: Nasdaq Decides to Delist ADSs
Netia Holdings S.A. reported that the Nasdaq Listing Qualifications
Panel decided to delist Netia's American depository shares on Tuesday,
Dow Jones reported. In a press release on Tuesday, the company said it
is considering requesting a review of this decision by the Nasdaq
Listing and Hearing Review Council. The Nasdaq Listing Qualifications
Panel determined that the continued listing was no longer appropriate
due to the substantial length of time during which Netia has failed to
comply with the minimum net tangible assets/shareholders' equity
requirement and its ongoing restructuring proceedings. In February,
Netia filed with the Manhattan bankruptcy court under Bankruptcy Code
Section 304, which allows a U.S. bankruptcy court to prohibit and stay
actions against both a company involved in a proceeding outside the U.S.
and its property. The move will allow the company to reorganize its
capital structures in lieu of a liquidation.
Lucent Investors Still Worried about Bankruptcy
Lucent Technologies Inc.'s repeated job cuts and financial warnings have
left investors wary about whether the telecommunications equipment maker
can avoid bankruptcy and straighten itself out, Reuters reported.
'People had taken it for granted that Lucent had enough cash to stumble
through the next year or so,' said Shawn Campbell, analyst with Northern
Trust Corp.'s asset management arm, one of Lucent's largest shareholders
at the end of June with about 13.6 million shares. 'If things do not
improve in the end market, then these guys could potentially go
bankrupt. There's not much room for error.' Company executives dismiss
bankruptcy fears, however. 'We do not see (bankruptcy) as a
possibility,' Lucent Chief Executive Patricia Russo said in a recent
interview. 'We have more than enough cash to fund the needs of this
business.'
Ames Department Stores Wins Interim OK to Borrow Under New
Loan
The court handling Ames Department Stores Inc.'s chapter 11 case has
given the company interim approval to borrow under a new $100 million
debtor-in-possession loan, Dow Jones reported. Judge Robert Gerber of
the U.S. Bankruptcy Court in Manhattan on Tuesday authorized the
liquidating discount retailer to borrow up to $30 million of the new
funds. Judge Gerber will consider approving the full amount of the loan,
which Kimco Funding LLC is providing, at a hearing Oct. 23, according to
a court order. Kimco had provided the company with a $55 million term
loan earlier in its chapter 11 case. Ames said in court papers that it
needs the new loan to successfully finish winding down operations. The
company's chapter 11 bankruptcy petition listed assets of $1.9 billion
and debts of $1.56 billion as of Aug. 4, 2001.
United Seems Headed for Bankruptcy
A year ago this week Jim Goodwin, the former chief executive of United
Airlines, wrote a letter to employees warning that 'we are in nothing
less than a fight for our life,' the Financial Times reported.
'Clearly this bleeding has to be stopped - and soon - or United will
perish sometime next year,' he said. The message outraged union leaders,
who dubbed it the 'Chicken Little letter' for its alarmist tone, and
caused UAL's stock price to drop 10 per cent to about $17 at the
time.
United's shares have since plunged to $1.72, valuing the 76-year-old
company at $98m, one-fourteenth the size of Jet Blue, an airline
start-up founded three years ago. Unfortunately for United, some
employees, who hold 55 per cent of the company, remain unwilling to
embrace financial reality. Last week, after a period of lengthy talks on
wage cuts as part of a coalition of United's unions, the International
Association of Machinists broke away and said it would negotiate any
deal separately.
For investors there is a worrying element of déjà vu in the
recalcitrance of the machinists union, which has long had a record for
militancy. It was the IAM's rejection of pay cuts of $261m that forced
US Airway's decision to file for bankruptcy in August. Many expect
United to follow suit. Michael E Levine, a law professor at Yale and a
former senior airline executive, says: 'The short answer is they must
file for bankruptcy. The only question is whether they can manage the
politics of a bankruptcy well enough to avoid liquidation. There is no
way they can negotiate the set of costs they need to, outside
bankruptcy.' To read the full story, point your browser to
href='http://news.ft.com/servlet/ContentServer?pagename=FT.com/StoryFT/FullSt…'>http://news.ft.com/servlet/ContentServer?pagename=FT.com/StoryFT/FullSt…
Casino's Bankruptcy Move Argued
U.S. District Bankruptcy Judge Edward Gaines is expected to rule by
Thursday on a motion to move part of the President Casino's chapter 11
filing to St. Louis, the Sun Herald reported. At a hearing on
Tuesday, attorneys for Sun America, MacKay Shields LLC, the Missouri
Gaming Commission and the city of St. Louis argued that the venue for
the bankruptcy case involving President Casino Inc. and President
Riverboat Casino Missouri should be changed. In July, the President
Casino and President-Missouri filed for chapter 11 in Biloxi. Casino
officials said they filed the cases in Biloxi, since the President
Broadwater Hotel had earlier filed for bankruptcy in the same court.
The July bankruptcy filing was due to problems at the President's St.
Louis riverboat, which defaulted on a $25 million bond issue. A few
weeks later, seven subsidiaries followed the President Casino in filing
for bankruptcy as a way of straightening out debt.
Attorneys for Sun America and MacKay Shields, which holds $60 million of
the bond debt the President owes, said the two cases should be moved to
St. Louis because so many people involved in the case live in the city.
The President's corporate headquarters are in the city, and most of the
company's senior management, creditors and the 845 riverboat casino
employees live in the city. James O'Mara, an attorney for the President,
told Gaines it wouldn't make sense to change the venue because President
Casino Inc. owns shares of all the companies.
Maverick Tube Buys LTV Tubular Unit Assets
Maverick Tube Corp. said it has signed a definitive agreement to acquire
LTV Corp.'s Steel Tubular Products unit for $110 million in cash, Dow
Jones reported. Maverick, a maker of tubes used by the energy industry,
said in a press release on Tuesday that the deal is contingent on
completing a collective bargaining agreement with the United Steel
Workers of America, which represents about 300 employees at four of LTV
Tubular's plants. The deal also needs bankruptcy court approval. LTV
Corp. has been operating under bankruptcy protection since December
2000. Maverick, which expects the deal to close by the end of the year,
said it would fund the acquisition by drawing down on its revolving
credit facility, which is being expanded to $185 in connection with the
deal. After the deal closes, the company expects to have total debt of
$120 million, with an additional $60 million available under the
expanded credit facility.
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