January 17, 2002
Financial Services Leaders to Meet With Bush, Advisers Today
Chief executive officers from the Financial Services Roundtable —
a group comprised of top executives from 100 large banking, insurance,
and investment companies — are scheduled to meet with President
Bush and other top administration officials today, CongressDaily
reported. The White House meeting is slated to include Treasury
Secretary Paul O’Neill, Securities and Exchange Commission (SEC)
Chairman Harvey Pitt and FBI Director Robert Mueller. The
delegation is also scheduled to meet with Federal Reserve Chairman Alan
Greenspan, and then with Rep. Bob Ney (R-Ohio), who is sponsoring the
Financial Privacy and National Security Enhancement Act.
A Roundtable spokesman said the group’s congressional agenda
this session would include the bankruptcy reform legislation, which
remains tied up in a House-Senate conference committee.
“We’re going to work to see if the conferees can get
together and do the right thing,” the spokesman said. While
noting that the Roundtable wants enactment of the comprehensive package,
he emphasized the importance of also moving the bill’s netting
provisions, which are designed to strengthen and update current
statutory protections for settling financial market contracts if a party
defaults. “We’d like to see both, but if one [element]
comes across the finish line first, that’s fine with us,”
the spokesman said.
KMART
Kmart Stock Declines for Sixth Day
Investors battered shares of Kmart Corp. for a sixth straight day,
tumbling to under $2 a share yesterday, amid a series of downgrades by
credit rating agencies and growing worries that the company will file
for bankruptcy, according to the Associated Press. “The
downgrades reflect the company’s tenuous financial position and
the rapid decline in confidence in the marketplace,” credit
ratings agency Fitch Inc. said, announcing further downgrades on certain
Kmart debt. The move came amid similar actions by Standard &
Poor’s and Moody’s Investors Service, which was first to
downgrade Kmart’s debt to junk status in mid-December. Fitch said
yesterday it appears increasingly likely that the Troy, Mich.-based
Kmart will file for chapter 11 bankruptcy protection, as “weak
holiday sales have brought into question the company’s ability to
restore its competitive position.”
Kmart’s board of directors held a regularly scheduled meeting
on Monday and Tuesday to discuss its financial options. Kmart confirmed
the meeting but declined to comment on the nature of the talks or any
outcome. “The session ended Tuesday,” Kmart spokesman Jack
Ferry said. “There is nothing to report.”
Martha Stewart Not Looking to Back Out of Kmart Deal
Martha Stewart Living Omnimedia on Wednesday said it is not
currently looking to back out of its contract with embattled Kmart Corp.
should the discount retail chain find itself in bankruptcy, nor has it
approached Kmart rivals about alternative partnerships, reported
Reuters. “While we have the provision [to terminate the Kmart
contract]... we’re just not looking to that provision at this
time,” said Sharon Patrick, president and chief operating officer
of Martha Stewart Living. “We’re waiting to get
information by which we can intelligently manage our
business.”
The companies’ latest contract states that Martha Stewart
Living “can terminate [the] agreement if the other party files a
petition in bankruptcy.” The two companies have had a
business relationship since 1997, with Kmart selling Martha
Stewart-branded goods at its stores. Analysts have speculated that
Kmart, which has struggled to keep pace with rival discounters Wal-Mart
Stores Inc. and Target Corp., might declare chapter 11 bankruptcy if
trends do not improve.
ENRON UPDATE
Commerce Panel Books Enron CEO to Testify On Feb. 5
Enron Chairman Kenneth Lay will testify before the Senate Commerce
Committee in three weeks, panel sources told CongressDaily. Lay
was originally slated to testify at a Commerce hearing in mid-December,
but withdrew at the last minute. In return, he has agreed to testify on
Feb. 5. More than a half-dozen committees plan to hold hearings on
Enron’s collapse, but the Senate Commerce Committee is the first
to book Lay. The panel plans to investigate whether the energy-trading
giant illegally boosted the value of its stock to employees and
investors. Commerce Consumer Affairs, Foreign Commerce and Tourism
Subcommittee Chairman Byron Dorgan (D-N.D.) will chair the hearing.
Bush’s own economic team considered whether Enron’s demise
would adversely affect the broader economy, the White House said
yesterday. White House National Economic Council Director Lawrence
Lindsey, who once performed consulting work for Enron, headed the
inquiry. It was conducted alongside a similar study by the Treasury
Department following calls by Enron officials to Treasury Secretary Paul
O’Neill. Lindsey has stated he had no conversations with Enron
officials during this period.
Congressional Investigators Say Auditor Knew of Accounting
Warnings in August
A senior auditor fired for destroying documents in the Enron affair
knew in August that a company whistle-blower was warning about the
energy giant's financial practices that eventually led it to its
bankruptcy, congressional investigators said, the Associated Press
reported. The auditor underwent several hours of questioning
Wednesday by congressional investigators.
The whistle-blower, Enron executive Sherron Watkins, told a friend
and former colleague at Arthur Andersen on Aug. 20 about her concerns,
which focused on outside partnerships used by Enron executives to keep
hundreds of millions of dollars off the company’s books. A
meeting took place on Aug. 21 and Andersen’s chief auditor for the
Enron account, David Duncan, participated. The meeting took place
the day before Watkins detailed her concerns in a letter to Enron
Chairman Kenneth Lay. Committee investigators questioned Duncan
for several hours on Wednesday in what committee staffers said was a
valuable information-gathering session that provided many leads to
investigators. Yesterday’s disclosures by the Committee are
significant because of Duncan’s subsequent involvement in
destroying documents relating to Enron. He was fired this week by
the firm and four others were either suspended or demoted.
Treasury Calls for Accounting Changes
A top Treasury Department official who was contacted by Enron said
yesterday that corporate leaders must get serious about overhauling the
nation’s outdated financial disclosure rules, the Associated Press
reported. Peter Fisher, a Treasury undersecretary in charge of financial
markets, told the American Council of Life Insurers in Boca Raton, Fla.,
that he had devoted the past eight years to spearheading government
reviews conducted after previous financial disasters, only to see his
recommendations gather dust because of industry’s reluctance to
make changes. “If we don’t make real progress soon, then I
fear that the financial catastrophes of recent years will continue to
haunt our financial markets and questions will continue to be raised
about our system of investor-based capitalism on which our economy
depends,” he said. The Bush administration disclosed on Friday
that Fisher was one of several top administration officials who received
phone calls from Enron executives last fall as the company was
collapsing. Fisher took no action to help the company, however.
NYC, Florida Pension Funds Join Forces In Enron Suits
Florida and New York City’s pension plans have joined forces
in an attempt to become co-lead plaintiffs in the consolidated
shareholder class action lawsuits against Enron Corp., its executives
and directors as well as Arthur Andersen LLP and some of its partners,
Dow Jones reported. Attorneys for the Florida State Board of
Administration, which oversees Florida employees’ and
teachers’ pension plans, and New York City Pension Funds made the
request to be named co-lead plaintiff Monday. With combined losses
of about $410 million, the New York City and Florida pension funds are
two of 17 plaintiffs seeking the lead role. This is the second
combination of plaintiffs seeking the plum lead plaintiff spot.
Amalgamated Bank, the Regents of the University of California, Deutsche
Asset Management, HBK Investments, and the Central States Pension Fund
are seeking to be named lead plaintiff as a group. They have combined
losses of about $249 million, according to published reports.
Florida State Board officials have said funds under their management
lost about $300 million last year as Enron filed for bankruptcy.
U.S. District Court Judge Melinda Harmon has set a Jan. 22
deadline for plaintiffs to state the reasons they oppose others who wish
to be lead plaintiff. The potential lead plaintiffs have until
Jan. 28 to reply to the opposition briefs.
Enron Field Name Could Change
A bankruptcy judge is expected to decide whether the new Astros ballpark
will no longer be known as Enron Field, News2Houston reported. The
Houston Astros said that Enron Corp. is current on its $3.3 million
yearly payment, but won’t say for how long. A bankruptcy
judge could rule not to release the million-dollar price tag for
Enron’s naming rights to the Houston ballpark. Enron struck a $100
million deal for the naming rights of the ballpark. Gallery Furniture
owner Jim McIngvale said that he might be interested in putting his
company’s name on the ballpark.
Energy Company Sues Andersen
A Tulsa, Okla.-based energy company has sued Arthur Andersen LLP, the
accounting firm that issued audits for Enron Corp., and experts predict
that Andersen will soon face a rash of similar lawsuits accusing it of
complicity in Enron’s collapse, reported the Associated
Press. With so much money at stake and potential victims including
shareholders, employees and clients of Enron, most experts believe the
anticipated avalanche of lawsuits will be lumped together into a few
cases and granted class action status. Lawyers for Samson
Investment Co. filed a suit against Chicago-based Andersen on Tuesday,
claiming it “recklessly disregarded evidence of questionable
financial transactions between Enron and its insiders.”
Andersen’s exposure to litigation could be the largest ever for an
accounting firm because Enron’s bankruptcy was among the largest
in history, said Mark Cheffers, chief executive of
AccountingMalpractice.com.
Calpine Lowers Its Growth Estimates
Zapped by plunging energy prices and the fallout from Enron
Corp.’s bankruptcy, power generator Calpine Corp. said yesterday
it wouldn’t grow as rapidly or make as much money as it projected
a few weeks ago, reported the Associated Press. The San Jose,
Calif.-based company still plans to spend $3 billion to finish building
27 power plants this year and next, but will shelve work on 34 other
plants until electricity prices rebound. The delay will reduce
Calpine’s planned investment this year by $2 billion as the
company tries to whittle its debt to raise its credit rating. With
electricity prices falling, Calpine also warned it will report 2001
earnings slightly below Wall Street’s expectations and suffer a
decline in income during the upcoming year.
Guilford Mills Says It Might Be Forced to File for
Bankruptcy
Textile maker Guilford Mills Inc. warned yesterday that it could be
forced to seek chapter 11 bankruptcy protection if it cannot refinance
$270 million in debt by the end of the week, reported the Associated
Press. As the Greensboro, N.C.-based company reported a wider
fourth-quarter loss, officials also said it would be in default under
its senior loan agreements and could be forced to file for bankruptcy if
new arrangements aren’t made with the lenders before
tomorrow’s deadline. Guilford Mills treasurer Mark Cook said the
lenders, which include Wachovia Corp., have extended the refinancing
deadline several times as the company struggles to compete against
stiffer import competition and reduced demand for its products.
Some McLeodUSA Bondholders Balk at Exchange Offer
McLeodUSA Inc., which warned it may face bankruptcy, said on Wednesday
that bondholders owning $956 million of its senior notes declined to
tender their holdings in the local telephone and data services
company’s exchange offer and would not support its
recapitalization plan, reported the Associated Press. McLeodUSA
Inc. said it extended until Jan. 30 the expiration date of its exchange
offer for its outstanding senior notes and negotiations with an ad hoc
committee of bondholders. About $82 million in senior notes have
been tendered. Cedar Rapids, Iowa-based McLeodUSA was one of
several emerging voice and data services companies hurt by the slowing
economy, competition and a marked tightening of capital markets.
The company last year scrapped plans to build a national data network,
cut about 1,600 jobs, or 15 percent of its workforce, and recorded
billions of dollars in restructuring charges. Last month,
McLeodUSA’s board approved a plan, subject to bondholder approval,
that would retire $2.9 billion in debt for $560 million in cash, plus
about 14 percent of the company’s common stock after
recapitalization.
Earlier this month, The Wall Street Journal reported that
investment firms Hicks, Muse, Tate & Furst Inc. of Dallas, and Apax
Partners of London, jointly bid $550 million to $600 million for
McLeodUSA Inc.’s directories business, topping Forstmann’s
bid. In order to complete the current recapitalization plan
outside of the bankruptcy courts, at least 95 percent of the holders of
about $2.9 billion of senior notes must support the plan. McLeodUSA said
there were no assurances its negotiations with the bondholders committee
would result in a transaction, “acceptable to both the committee
and the company.”
Judge Lets PG&E Continue Plan
A federal bankruptcy judge decided yesterday to allow Pacific Gas &
Electric Co. (PG&E) to continue through June as the sole designer of
a plan to emerge from its $13.2 billion bankruptcy and pay its thousands
of creditors, the Associated Press reported. U.S. Bankruptcy Judge
Dennis Montali allowed PG&E to continue as the sole designer of a
plan to emerge from its $13.2 billion bankruptcy and pay its thousands
of creditors. However, Montali decided to give the state Public
Utilities Commission (PUC) about a month to prove they have a
“sensible” plan worthy of competing with
PG&E’s.
At Montali’s order, the PUC will provide an outline of an
alternate plan by Feb. 13. Alan Kornberg, an attorney representing
the PUC lacked details of the state’s proposal, but said some
creditors would be paid using millions of dollars in cash PG&E
already has on hand.
Billionaire Loses in Pan Am Bankruptcy
Billionaire Micky Arison lost an appeal yesterday over the final debts
owed after the dust settled in the Pan Am airline bankruptcy, according
to the Associated Press. Arison, generic drug millionaire Phillip
Frost and former ambassador Charles Cobb were among those who offered
money to keep Pan Am flying. The others promised to pay Arison if
he had to cover some Pan Am debt under a complicated series of repayment
agreements and letters of credit. But the Third District Court of
Appeal ruled that they weren’t required to pay Arison after he
paid $5.4 million to NationsBank, the airline’s primary lender,
when he was not obliged to do so.
Northern Nevada Casino Files for Bankruptcy
State Line Silver Smith Casino Resorts filed for chapter 11
bankruptcy protection in the U.S. Bankruptcy Court in Reno last week,
blaming slower business and an expensive renovation, according to the
Associated Press. The $50-million renovation effort in 1998
stretched the finances of the properties in Wendover, Nev. Michael
Devine, chief executive officer, said that filing for bankruptcy
protection would allow the company to restructure its debt and continue
operating.
Sportsman’s Park Financial Troubles Not to Impact
Thoroughbred Racing
Amid a Chicago radio station’s report on Monday that
Chicago National Speedway, the auto racetrack that shares a dual-purpose
oval with Sportsman’s Park, is planning to file for bankruptcy,
Charles Bidwill III, chairman of the board of the speedway and president
of the National Jockey Club Inc., said the media reports of bankruptcy
were based on “rumor, half-truths, and misinformation,” the
Thoroughbred Times reported. Bidwill said the speedway is
moving forward with plans for the 2002 auto-racing season and stressed
that the auto racetrack division at Sportsman’s did not affect the
horse racing division. “I would like to make clear that any
issues regarding the Chicago Motor Speedway division of
Sportsman’s Park do not in any way impact our Thoroughbred racing
division, the National Jockey Club,” Bidwill said.
“Sportsman’s Park in 2002 will present a 46-day season of
live racing opening March 1 and continuing through May 4.”
Fort Rucker Contractor Files For Bankruptcy; Shaw Agrees to Acquire
IT Group
A company chosen to operate parts of Alabama’s Fort Rucker filed
for chapter 11 bankruptcy protection and sold most of its assets on
Wednesday, but the Army hadn’t decided whether to revoke the
contract, according to the Associated Press. In addition to
requesting chapter 11 bankruptcy protection, the Pittsburgh-based IT
Group agreed to sell most of its assets to the Shaw Group, a Baton
Rouge, La.-based company that specializes in engineering and building
power plants, for $105 million.
Last September, the Army awarded IT Group a $60 million contract to
handle maintenance, airfield support, equipment repair, supply
operations and logistics at Rucker, site of the Army’s Aviation
Center. The Army had hoped to save as much as $7 million through
privatization. The company was scheduled to begin work on Jan.
27. The Army official who overseas Fort Rucker contracts said,
according to federal law, that bankruptcy protection alone isn’t
enough to void a contract. It wasn’t clear yesterday whether
the asset sake to Shaw in addition to the bankruptcy action would affect
the Army’s stance.
Last month, IT Group laid off more than 400 workers after discussions
with lenders failed to produce a deal to restructure its finances.
The company said it was suffering from an acute cash shortage. IT
Group said its joint ventures and a Canadian subsidiary, Roche Limited
Consulting Group, are not included in the bankruptcy reorganization, but
are included in the proposed sale to Shaw. IT Group and its
subcontractors were involved in anthrax emergency support services last
fall, including work performed at mail processing facilities in Trenton,
N.J., and a post office and the Hart Senate Office Building in
Washington.
More Bankruptcy Headlines
For more bankruptcy stories, point your browser to ABI’s
‘Bankruptcy Thursday’ at
href='/bankruptcythursday/index.html'>http://www.abiworld.org/bankruptcythursday/index.html.
