December 5, 2003
Fed Watchers Seek Signal on Interest Rates
Federal Reserve officials have made it clear in a series of speeches
that they have no intention of raising interest rates when they meet in
a policymaking session on Tuesday, the Washington Post reported.
But financial analysts and investors are intensely interested in whether
the officials will signal that recent very strong economic reports may
lead them to raise rates sometime early next year.
President Bush Signs FCRA into Law
President Bush yesterday signed into law a bipartisan measure to
update the Fair Credit Reporting Act with stronger federal protections
against identity theft and a permanent extension of provisions that
pre-empt many state consumer protection laws, CongressDaily
reported. Bill supporters said those pre-emptions will provide 'uniform
national standards' for consumer protections against identity theft and
maintain efficiency within the credit reporting system. Without those
standards, 'retailers and the customers we serve could have been subject
to a confusing patchwork of new state laws, rules and regulations,'
Tracy Mullin, president and CEO of the National Retail Federation, said
. But critics said states should have the right to enact stronger
consumer protections than those provided under federal law. 'Finally,
consumers nationwide have gained important new rights to fight identity
theft and clean up credit bureau mistakes, but at the unacceptably high
price of unfair, permanent limits on state rights,' said Ed Mierzwinski,
consumer program director of the U.S. Public Interest Research
Group.
Groups Reject 'Compromise' on Class Action Measure
More than 70 consumer, civil rights and environmental groups that oppose
the bipartisan 'Class Action Fairness Act' were 'completely shut out' of
negotiations that led to last week's deal between the bill's sponsors
and three Senate Democrats who had previously voted to block action on
the measure, representatives of those groups stated,
CongressDaily reported. 'We urge you to reject this so-called
'compromise' -- it is nothing more than another bail-out for companies
that break the law,' the Consumer Federation of America, the Consumers
Union, the U.S. Public Interest Research Group, and other organizations
said in a Wednesday letter to senators. A Democratic aide said that this
characterization of the negotiations is 'just not accurate.' The aide
noted that the deal includes 'around eight to 12 changes to the bill'
that were prompted by concerns raised by consumer and civil rights
groups, reported the newswire.
Last week's deal addresses concerns that Sens. Charles Schumer
(D-N.Y.), Christopher Dodd (D-Conn.) and Mary Landrieu (D-La.) had
raised about the formula for removing class action cases to federal
court, potential 'coupon abuses' in class action settlements. Schumer,
Dodd and Landrieu were among the 38 Democrats who in October voted
against proceeding with consideration of the bill, saying that while
they agreed with the need for class action reform, they could not
support the bill in its current form. Supporters of the bill fell one
vote short of the 60 they needed to break a filibuster by Democratic
opponents, reported the newswire.
FAO SCHWARZ
FAO Files for Chapter 11, Toy Sale Starts
Retailer FAO Inc., parent of posh toy store FAO Schwarz, said on
Thursday it filed for chapter 11 bankruptcy and would begin
inventory-clearance sales in all but a handful of its stores, Reuters
reported. The move follows an announcement earlier this week that the
parent of the 141-year-old retailer hoped to sell its FAO Schwarz and
Right Start businesses but would liquidate the Zany Brainy chain. It is
the second time this year King of Prussia, Pa.-based FAO has filed for
bankruptcy. 'They used the last bankruptcy to dress up the company for
sale instead of for strategic success,' said Darrell Rigby, head of the
retail practice at consulting firm Bain & Co.
Subject to bankruptcy court approval, FAO Inc. named a joint venture
consisting of Buxbaum Group LLC, SB Capital Group LLC and Tiger Capital
Group LLC as exclusive agent to run an inventory clearance sale in all
FAO Schwarz (including its flagship Fifth Avenue store) Zany Brainy and
Right Start stores throughout the holiday season. The company said
earlier this week it hired liquidators to sell inventory of all three of
its brands, pending the outcome of its efforts to find buyers for the
FAO Schwarz and The Right Start businesses, and close a deal by Dec. 15,
reported the newswire.
LeapFrog Shares Slide on Suit, FAO Bankruptcy
Shares of LeapFrog Enterprises Inc. fell on Thursday after the maker of
electronic educational toys was hit with a class-action lawsuit and one
of its customers filed for bankruptcy, Reuters reported. Earlier this
week, law firm Milberg Weiss charged the company and some of its
officers with failing to warn investors of an upcoming earnings and
revenue shortfall that sent the stock price plunging more than 30
percent. In October, the company reported that several major retailers
had deferred third-quarter orders to keep inventories down. LeapFrog had
said it expected much of the lost business to be made up in the fourth
quarter. 'We have seen, in the past, companies miss quarters and
class-action lawsuits crop up,' said Natalie Walrond, an analyst with
Pacific Growth Equities. 'Usually they go on for long periods of time
and not much comes from it; it's more of an annoyance and a
distraction...we're not overly concerned,' Reuters reported.
FAO said on Tuesday it would liquidate Zany Brainy, which specializes in
educational toys. LeapFrog said sales to FAO account for a very small
percentage of its revenue, and the bankruptcy and liquidation will not
have a material impact on the company.
Saks Says not Candidate to Buy FAO Assets
Saks Inc. yesterday said it was not a candidate to acquire assets of FAO
Inc., contradicting newspaper reports that it was looking to buy the
bankrupt toy retailer. FAO said it would begin inventory clearance sales
in all but a handful of its stores. Shops that FAO had opened in Saks
department stores are not among those participating in the clearance
sales.
FAO Does Not Own Rights to Name
Retailer FAO Inc. is searching for a buyer to avoid the liquidation of
its stores, but the well-known toy store name, FAO Schwarz, is not the
company's to sell, the Wall Street Journal reported today. FAO
licenses the name from a foundation set up by heirs of FAO Schwarz's
founder, and the foundation has the right to block a transfer of the
name if a buyer does not satisfy 'first quality' standards, the report
said, citing a licensing pact. The agreement lists Saks Fifth Avenue,
Bloomingdale's and Harrods, among many others, as quality surrogates,
according to the online newspaper, and identifies Crate & Barrel,
Garden Botanika and Barneys as high quality specialty stores. The
standards detailed in the agreement appear to exclude mass merchandisers
and discounters from using the FAO banner, the Journal said.
Sandy Klein Appointed Regional Criminal Coordinator for U.S.
Trustee Program
The Executive Office for U.S. Trustees announced yesterday that Sandy
Klein has been appointed as a Regional Criminal Coordinator for the U.S.
Trustee Program (USTP) in the Central and Southern Districts of
California, the District of Arizona and the District of Hawaii. She has
been an employee of the USTP for six years, prosecuting bankruptcy fraud
cases as a Special Assistant U.S. Attorney in the Los Angeles office.
She created the 'Stop Identity Theft Now' videotape, which was
co-sponsored by the USTP and has been distributed to approximately
10,000 recipients nationwide, and she has lectured across the country on
bankruptcy fraud and identity-theft issues. She received her law degree
magna cum laude from Loyola Law School in Los Angeles, where she now
teaches as an adjunct professor, and her undergraduate degree from the
University of Lowell in Lowell, Mass.
Metromedia Fiber Founder Settles IPO Suit
Stephen Garofalo, the founder of bankrupt fiber optics company
Metromedia Fiber Networks, has agreed to pay $1.5 million to settle
charges he illegally profited from IPOs, according to New York Attorney
General Eliot Spitzer's office, Reuters reported. Garofalo is the third
of five executives to settle charges made by Spitzer last year for
so-called IPO spinning. Garofalo received shares in hot initial public
offerings from Citigroup's investment banking division in exchange for
favoring the financial services company when Metromedia gave out
lucrative investment banking business, according to the charges. Just
over $1.1 million of Garofalo's disgorged profit will be contributed to
the Litigation Trust Fund, an entity created with the approval of the
bankruptcy court in the Southern District of New York. The Litigation
Trust Fund is suing Metromedia to recoup losses suffered by its
shareholders as a result of spinning, according to Spitzer's office,
reported the newswire.
Calpine Sells PG&E Note for $133.4 Million
Calpine Corp said on Thursday it has sold to institutional investors its
right to payments under a note receivable from bankrupt utility Pacific
Gas & Electric for $133.4 million in cash, Reuters reported. The San
Jose, Calif.-based power producer did not disclose in a statement the
amount of the note receivable although it previously stated in a filing
with the U.S. Securities and Exchange Commission that it had entered
into an agreement to sell it at a discount of about $25 million. San
Francisco-based Pacific Gas & Electric, a unit of PG&E Corp.,
filed for bankruptcy protection in April 2001 although the utility has
targeted the end of the first quarter of 2004 for its exit from chapter
11.
NRG Energy Plans $2.2 Billion Financing
U.S. power company NRG Energy Inc. is preparing a $2.2 billion debt
financing package to help it emerge from bankruptcy, Reuters reported.
Minneapolis-based NRG, the energy trading unit of U.S. power company
Xcel Energy Inc , won approval of its reorganization plan last month
from the U.S. Bankruptcy Court for the Southern District of New York.
The financing package, expected to launch next week, will include about
$1.2 billion in loans and $1 billion in high-yield bonds, the person
said. Credit Suisse First Boston and Lehman Brothers are arranging the
sales. NRG has said it expects to exit bankruptcy as an independent
company by the end of the year, Reuters reported. The energy trader
filed for chapter 11 bankruptcy protection in May, after running up $9.2
billion in debt during a decade of aggressive expansion into unregulated
power generation and trading.
Delta Pilots Offer to Take 9 Percent Pay Cut
Pilots at Delta Air Lines Inc. have offered to take a 9 percent pay cut
-- much less than the airline requested earlier this year -- to help the
carrier rein in costs, according to a pilots union memorandum, Reuters
reported. Talks are progressing again between the airline and the union,
which represents about 8,500 Delta pilots, after falling apart over the
summer. But a considerable gap between the pilots' proposal and Delta's
request could signal trouble, one analyst said. In April the airline
asked the pilots to take a 22 percent cut in hourly pay and give up
scheduled 4.5 percent raises for 2003 and 2004. 'While the market may
respond positively to the simplistic notion of labor progress at Delta,
the inadequacy of the pilots' proposal highlights that serious,
protracted negotiations lay ahead,' JP Morgan airline analyst Jamie
Baker said yesterday, Reuters reported.
WEIRTON STEEL
Weirton Steel Gets $5.6 Million Loan From West Virginia Authority
The West Virginia Economic Development Authority voted on
Thursday to grant a $5.6 million loan for Weirton Steel Corp.,
supplementing a guaranteed loan package approved by the federal
government last month, the Associated Press reported. The amount the EDA
has agreed to back is about $11 million less than what Weirton had
originally sought, but company officials have said all help is welcome
as they try to emerge from chapter 11 protection by the end of the
month. The five-year loan is to be repaid with a 4.25 percent interest
rate.
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Weirton Steel Expects To Endure End of Tariff Program
Bankrupt Weirton Steel Corp. is disappointed President George W.
Bush repealed the temporary tariffs on imported steel, but says the move
won't hurt the company as much as it once expected. In a press release
on Thursday, the steelmaker said industry forecasters see the steel
business improving in 2004 and possibly through early 2005. The company
noted economic conditions, such as an increase in ocean freight rates,
have improved from two years ago and are more favorable to the domestic
steel business. If Weirton can meet its restructuring goals, it could
emerge from bankruptcy proceedings in time to take full advantage of an
upswing in the marketplace. Weirton filed for chapter 11 bankruptcy
court protection May 19.
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ENRON
Banks Knew of Enron Fraud, Examiner Says
Bank of America Corp. and Royal Bank of Canada, but not UBS AG, knew of
fraud in transactions they helped now-failed energy company Enron Corp.
set up, a bankruptcy examiner concluded yesterday, according to Reuters.
The report by Harrison Goldin, which addressed transactions involving
so-called special-purpose entities, also found that auditor KPMG LLP
committed 'negligence' in work it did for Enron. Goldin concluded that
the banks and KPMG, because of their actions, should have their claims
against Enron subordinated to those of other creditors. In contrast, he
said UBS was unaware of fraud in various SPE transactions, and thus
should not have its claims subordinated.
Enron Examiner Billed Estate for $100 Million
Lawyers who worked on transactions for Enron Corp. were clearly paid
well, but it turns out investigating those transactions pays much
better, the New York Law Journal reported. The investigation
headed by Neal Batson, the examiner appointed by the court overseeing
Enron Corp.'s chapter 11 bankruptcy, has resulted in billings to the
Enron estate of more than $100 million since it started in the summer of
2002. By comparison, Houston law firm Vinson & Elkins billed Enron
about $42.8 million in 2000, its most lucrative year as regular outside
counsel to the former energy trading giant. The investigation, which
produced more than 4,000 pages in four reports, is almost certainly the
most expensive inquiry of its nature in U.S. history. Read the full
article at
href='http://www.law.com/jsp/article.jsp?id=1069801691295'>http://www.law.com/jsp/article.jsp?id=1069801691295.
Asbestos Industry Claims Against Court Clerk Dropped
Attorneys for a major asbestos maker have withdrawn their claim that a
New York Supreme Court clerk in Manhattan helped backdate amended
asbestos complaints at the behest of plaintiffs' firm Weitz &
Luxenberg, the New York Law Journal reported.
Saying a former Weitz & Luxenberg employee and key witness now
asserts that the documents in question were not asbestos-related,
attorneys for G-I Holdings have notified Southern District of New York
Judge Robert W. Sweet that they were withdrawing their claim of
common-law fraud against the firm. Read the article at
href='http://www.law.com/jsp/article.jsp?id=1069801691350'>http://www.law.com/jsp/article.jsp?id=1069801691350.
International Multifoods Plans Restructuring
International Multifoods Corp., the maker of Hungry Jack pancake and
Pillsbury cake mixes, on Friday said it retained consulting firm
Deloitte to help it restructure and cut costs, Reuters reported. The
company also said that President and COO Dan Swander, who joined the
company in November 2001 after it acquired some Pillsbury businesses,
would leave in February. Gary Costley, chairman and chief executive
officer, has assumed overall responsibility for operational activities,
the Minneapolis-based company said. International Multifoods said that
the organizational review, under which Deloitte will help identify ways
to trim costs and improve productivity, is expected to be completed by
the end of its fiscal year in February 2004. The company said the review
is likely to result in 'restructuring actions,' but provided no details,
reported the newswire.
ST Telemedia Pays Global Crossing Creditors $200 Million
Singapore Technologies Telemedia said on Friday it had would put $200
million into Global Crossing to ease its transition from bankruptcy,
raising its total investment in the telecoms company to $450 million,
Reuters reported. ST Telemedia, an unlisted unit of state-owned
conglomerate Singapore Technologies, got regulatory approval in October
to buy 61.5 percent of the bankrupt U.S. fibre optic network operator
for $250 million.
Global Crossing's creditors were promised payment in the form of senior
secured notes when ST Telemedia received the go-ahead to buy the
majority stake, reported the newswire.
Cerberus to Submit New Offer for Air Canada
New York-based buyout firm Cerberus Capital Management LP expects to
submit a new offer in the coming days to take up an equity stake in Air
Canada, according to court papers, Reuters reported. In a report to the
court presiding over Air Canada's restructuring under bankruptcy
protection, the court-appointed monitor for the insolvent airline Ernst
& Young said Cerberus will make the offer before December 12. In the
meantime, Air Canada is asking the court to approve a friendly offer
from Hong Kong-based businessman Victor Li to provide the Montreal-based
airline with C$650 million ($500 million) of equity in return for a 31
percent stake in a restructured version of the carrier, reported the
newswire.
