|
September 24, 2002
Anti-Abortion Lobbyists Tying up Bankruptcy Overhaul Bill (New
York Times)
An article in today’s New York Times discusses the debate
between two lobbying groups on Capitol Hill, credit card companies and
anti-abortion campaigners, over the fate of a bill to overhaul the
nation's bankruptcy system. The credit card industry has been lobbying
for years for the legislation, which would make it harder for people to
escape their credit card debts in bankruptcy. But on the brink of
victory in Congress, where overwhelming, bipartisan majorities in both
the House and Senate support the measure, credit card lobbyists have
been opposed by anti-abortion supporters trying to block the final vote.
To read the full article, point your browser to
href='http://www.nytimes.com/2002/09/24/politics/24BANK.html?tntemail0'>http://www.nytimes.com/2002/09/24/politics/24BANK.html?tntemail0
Academics Debate Bankruptcy Bill
Todd Zywicki, Associate Professor of Law, George Mason University School
of Law and Lawrence Ausubel, Professor of Economics, University of
Maryland, presented contrasting views on the future of bankruptcy reform
at Monday's policy forum hosted by the Cato Institute. The debate
focused on the House-Senate conference committee legislation to overhaul
the nation's bankruptcy laws. In particular, the legislation would
introduce means testing to the federal Bankruptcy Code and direct
wealthier debtors into chapter 13 repayment plans instead of allowing
them to eliminate their debts under chapter 7. Supporters of the bill
argue that the current system provides a windfall to many debtors by
making it attractive to file for bankruptcy and point to the record
number of bankruptcies in recent years as evidence of a system badly in
need of repair. Thus, Prof. Zywicki argued that personal bankruptcies
will likely hit 2 million in the next two years and that the current
system is unable to police the fraud and abuse associated with
bankruptcy filings. He argued that the bill would preserve bankruptcy
relief for those who need it and prevent bankruptcy abuse. He noted that
the bill is supported by a bipartisan majority in Congress and that it
is consistent with the principles of 'personal responsibility.'
Prof. Ausubel, on the other hand, called the legislation a very
'anti-consumer bill' and argued that it would place undue burdens on
low-income debtors by making it more difficult for them to obtain a
'fresh start' through the bankruptcy system. He argued that the current
bill simply erects barriers for consumers and discourages them from
seeking the protection provisions of the bankruptcy bill. 'It pretends
that by limiting the symptoms (increase of bankruptcy filings) it
addresses the cause (consumer debt),' stated Prof. Ausubel. 'It is an
illusion that by limiting the bankruptcy protection we will somehow
solve the problem of consumer insolvency. Most debts will continue to be
uncollectable,' added the economist. He also noted that there are two
alternatives for the 'hopelessly overextended consumer' - to file a
formal bankruptcy or informal bankruptcy - non-repayment without
searching for legal protection. Prof. Ausubel pointed out that the bill,
in its current form, would drive people underground to informal
bankruptcies. It will lead to a modest reduction in the number of
bankruptcy filings. He called the bill 'a poster child of campaign
reform,' written by lobbyists for Master Card, VISA and supported by
financial institutions' campaign contributions.
'It is not the case that being pro-bankruptcy is pro-consumer, '
responded Prof. Zywicki. He noted that it is necessary to understand
better consumer credit markets and empower consumer choice. Lobbyists
for the American Bankers Association and Credit Union National
Association noted that they do not believe that the bill is
'anti-consumer' but that it 'just roots out' the abuse.
Economic Indicators Dropped in August, Index Shows
The New York-based Conference Board reported yesterday that its Index of
Leading Economic Indicators dropped 0.2 percent to 111.8, in August, a
0.1 percent larger decline than experts expected, reported
CongressDaily. The index also dropped 0.1 percent in July, the
newswire reported. The index, which measures the overall direction of
the U.S. economy, had seven of its 10 indicators decline in August, the
Conference Board said, reported CongressDaily. The Conference
Board's announcement came as the Dow Jones Industrial Average fell by
more than 160 points in early trading yesterday. The Federal Reserve
Board will meet today, but is not expected to further cut interest
rates, which stand at 40-year lows this year, the newswire reported.
Icahn, Forstmann Hold Talks to Try to End Battle over XO
Financiers Carl Icahn and Theodore J. Forstmann have held talks to
settle their months-long battle for control of XO Communications Inc.,
the Wall Street Journal reported. While a peace pact is far from
certain, the talks are aimed at allowing Forstmann's leveraged-buyout
firm, Forstmann Little & Co., to walk away from a joint offer it
made with Telefonos de Mexico SA to restructure XO, which filed for
chapter 11 bankruptcy-law protection in June. In exchange, Icahn and
other XO creditors would receive a payment, the size of which is being
negotiated but which could be as much as $25 million, the online
newspaper reported.
The settlement talks between Icahn and Forstmann mark another chapter in
a tug of war between the two takeover firms over XO, a Reston, Va.,
provider of Internet and phone services to small and midsize businesses.
Forstmann's leveraged-buyout shop has $1.5 billion invested, and last
January, the Forstmann firm and Telmex agreed to invest $800 million for
an 80 percent ownership stake in a restructured XO. Icahn, who owns XO
bonds with a face value of $750 million and has amassed 84.7 percent of
the $1 billion in XO bank debt, would settle at the right price, said a
person familiar with the situation, and he has been lobbying bondholders
to accept a settlement plan, reported the Wall Street Journal. If
the talks between Forstmann and Icahn don't lead to settlement, people
familiar with the matter said the next likely step is new litigation
over the merits of the Forstmann-Telmex deal.
Honeywell Settles Lawsuit Involving Asbestos Claims
Honeywell International Inc. is among the companies that have settled
asbestos claims in a West Virginia lawsuit, Dow Jones reported. Company
spokesman Michael Holland declined to disclose how many claims were
involved in the settlement, the terms of the settlement or why the
Morristown, N.J., company settled. The trial is proceeding this week in
Charleston, W.Va., after the failure of an attempt by defendants to gain
a stay of the trial by the U.S. Supreme Court. The case has involved
about 8,000 asbestos claims against 250 defendants, including companies
such as Exxon Mobil Corp. and Owens-Illinois Inc.
There are an additional 116,000 claims against a former Honeywell unit,
North American Refractories Co., a maker of high-temperature bricks and
cement products. About 7 percent of the claims against North American
Refractories also name Honeywell, which sold the unit in 1986, Holland
said. North American Refractories filed for chapter 11 bankruptcy
protection in January and the reorganization plan includes a trust that
would receive the asbestos claims.
PEREGRINE
Peregrine Seeks Court OK for Retention, Severance
Program
Peregrine Systems Inc., which filed for chapter 11 bankruptcy protection
Sunday amid investigations into its accounting practices, has sought
court approval to provide retention and incentive bonuses to some key
employees and to assume employment agreements with its chief executive
and chief financial officer, reported Dow Jones. Other 'first-day
motions' include a request by the company for interim approval of a $110
million debtor-in-possession loan facility from BMC Software Inc, the
newswire reported. Peregrine is also seeking approval of competitive bid
procedures through which others could try to top BMC's $350 million
offer for the assets of its Peregrine Remedy Inc. software business
unit. U.S. Bankruptcy Judge Judith K. Fitzgerald hadn't yet
scheduled a hearing on the motions as of Monday afternoon. A company
spokeswoman for the company told Dow Jones Newswires earlier Monday that
she believed the hearing would likely be scheduled for Tuesday.
Peregrine: Suit Says Andersen Crafted Improper
Accounting
In addition to disclosing the potential sale, Peregrine System's lawsuit
against Arthur Andersen blames the audit firm for much of Peregrine's
problems, Dow Jones reported. Andersen was Peregrine's auditor from 1996
until April 2002. The lawsuit seeks more than $250 million in alleged
damages. The 19-page complaint filed in San Diego Superior Court not
only alleges that Andersen failed to notify Peregrine's directors about
questionable bookkeeping, but that Andersen and Daniel Stulac, the
partner overseeing Peregrine's audits, promoted improper accounting,
reported the newswire. Arthur Andersen, which was found guilty of
obstructing justice in the collapse of Enron Corp., vowed to defend
itself. The embattled firm's accounting practices have come under
scrutiny at a number of other companies, including Qwest Communications
Inc. Founded in 1981, Peregrine filed for chapter 11 in Delaware on
Sunday because it couldn't overcome cash-flow and accounting problems.
The company is being investigated by the Enforcement Division of the
Securities and Exchange Commission and was subpoenaed by the Justice
Department last month.
United CEO Names Task Force to Recommend Changes
United Airlines CEO Glenn Tilton has created a task force to recommend
ways to make the financially ailing carrier more competitive besides
cutting labor costs, the Associated Press reported. The move came as
Tilton awaited a financial proposal from the company's five unions,
which worked through the weekend to try to complete the joint plan.
Tilton told employees that experts from outside the company, whom he did
not identify, will join United officials in examining non-labor costs
and issues of productivity and competitiveness.
Union coalition leaders, meanwhile, continued working on their proposed
financial plan. United says major concessions are needed to secure a
$1.8 billion government loan guarantee and avoid bankruptcy. Tilton said
he was keeping in contact with the unions regarding the proposal. 'It's
fair to say that a dialogue remains open and constructive,' he said.
ADELPHIA COMMUNICATIONS
Adelphia Communications Loses Bid for Dismissal of Ex-Unit's
Suit
Adelphia Communications Corp. has lost its bid for the dismissal of a
lawsuit filed against it by a former unit over the rights to $9.3
million in insurance proceeds, Dow Jones reported. In an order made
available to the public Monday, Judge Robert E. Gerber of the
U.S. Bankruptcy Court in Manhattan declined to dismiss the suit filed by
former unit Adelphia Business Solutions Inc., the newswire reported. In
a second order, Judge Gerber denied Adelphia Communications' request to
stay the suit pursuant to the Bankruptcy Code's automatic stay
provisions. Judge Gerber, who is presiding over separate chapter 11
cases for both companies, didn't explain his decisions in the one-page
orders. Trial dates for the lawsuit weren't immediately available.
Adelphia Business is seeking a finding that $9.3 million under shared
director and officer liability insurance policies should be reserved for
its own directors and officers. The company, which was spun off from its
former parent in January, said it paid about 19 percent of the insurance
premiums and should be entitled to this amount of the $50 million in
available coverage.
Adelphia Gets Court OK for Buffalo Sabres License Pact
Adelphia Communications Corp. received approval from the U.S. Bankruptcy
Court in Manhattan to enter into a license agreement that will allow it
to broadcast and distribute Buffalo Sabres hockey games, Dow Jones
reported. The move was approved Friday by Judge Robert E. Gerber, who is
handling the cable company's three-month-old chapter 11 case. The new
license agreement will give Adelphia radio, terrestrial and satellite
television broadcast distribution rights in Western New York and part of
the surrounding area for the next five years. The license agreement
would be with Niagara Frontier Hockey L.P., a limited partnership that
holds the franchise for the Buffalo Sabres.
Biotech Company Gliatech Auctioning Assets
Gliatech Inc., a biotechnology company that filed for bankruptcy court
protection in May, said Monday it has hired an investment adviser to
sell key assets, the Associated Press reported. Gliatech said it expects
the auction of its Adcon gel and solution, used to prevent surgical
scarring, will be completed by November. Adams Harkness & Hill Inc.
will handle the auction. Gliatech, which is selling the assets to pay
creditors, pleaded guilty in April to providing false or incomplete
information to the Food and Drug Administration. The company was fined
the maximum $1.2 million. An FDA audit of Gliatech clinical trial
procedures in 2000 found that some information in a follow-up study of
the gel's effectiveness were different from original results in a way
that seemed to favor the product.
WorldCom Seeks OK to Sign $150 Million Secured Surety Bond
Pact
WorldCom Inc. is seeking bankruptcy court authorization to sign a
secured bond agreement with a unit of American International Group Inc.
so WorldCom can secure its performance and obligations under some of its
contracts, Dow Jones reported. According to a motion filed late Friday,
WorldCom requires about $150 million in surety bonds a year. The company
doesn't currently have a bonding facility, and the proposed pact calls
for the American International Group subsidiary to issue up to $150
million in surety bonds, reported Dow Jones.
WorldCom has posted $75 million in permit bonds, and said it expects it
will require $20 million to $30 million more of permit bonds for new
facilities over the next 12 months, the filing said. If the company
fails to post the required bonds, it wouldn't be able to bid on
government and other large enterprise contracts, and would be
effectively shut out of that market, the filing said, the newswire
reported. WorldCom said it plans to secure the bond amounts solely with
a letter of credit, which would be issued under the company's
debtor-in-possession financing agreement. The agreement also provides
for a premium rate equal to 2 percent of the bond amount fully earned
for performance bonds, and 1.5 percent of the bond amount a year on
permit bonds. The U.S. Bankruptcy Court in Manhattan will consider the
proposed surety bond pact at a hearing on Oct. 1. Objections are due
Thursday.
Separately, WorldCom filed another motion late Friday that asks the
court to approve procedures under which the company can settle some of
the claims against its estate without prior approval from the court. A
hearing on that matter is slated for Oct. 8, with objections due Oct.
3.
Judge Orders Creation of Equity Panel in Exide Technology
Case
A bankruptcy judge Monday ordered the U.S. Trustee's office to appoint
an official committee of equity security holders in the Exide
Technologies chapter 11 case, Dow Jones reported. Judge John C.
Akard of the U.S. Bankruptcy Court in Wilmington said a committee is
necessary to ensure adequate representation of the equity holders in
Exide's reorganization process. Judge Akard also found that there is no
evidence the debtor is insolvent. 'If old equity is given a voice in the
major decisions in the drafting of a plan, it is quite likely there will
be a recovery for equity holders,' Judge Akard said. 'If a committee is
not formed, the likelihood for any recovery for old equity is slim.'
Judge Akard based his ruling on three points-the debtor failed to prove
it is insolvent, equity holders wouldn't be adequately represented
without a committee and the costs of funding such a committee could be
borne by the estate. In his decision, Akard said that while the value of
the nondomestic operations hasn't been demonstrated, 'the evidence is
that the debtor conducts substantial business and has substantial value
in these assets.' Akard said it is possible a sale of the nondomestic
operations could result in a substantial recovery to equity holders.
United Unions to Offer Deal Soon
Unions at UAL Corp.'s United Airlines were expected to offer a
cost-cutting plan to management by the end of Monday to help the carrier
turn itself around and win short-term loans, Reuters reported. The five
unions, working together in a recently formed coalition, had initially
set Sept. 19 as their target to come up with what they term an
'alternative framework' to help the No. 2 U.S. airline recover
financially. But that deadline passed with no agreement reached.
United in late June asked the government to back $1.8 billion of a $2.0
billion loan, but the Air Transportation Stabilization Board said more
concessions from labor were needed than what the airline outlined.
Separately, United said in a regulatory filing late Friday it would not
make $190 million in payments to pension funds but would instead use
credits from a previous surplus. United faces a fourth-quarter debt
payment of nearly $900 million, primarily on enhanced equipment trust
certificates backed by aircraft.
Thanks for visiting
Today's Bankruptcy Headlines. New articles are posted here
each business day.
|
