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December 18, 2002
Job Claim of Dismissed U.S. Trustee Denied by Agency
Panel
The Merit System Protection Board (MSPB) on Monday rejected the claim by
former Region 17 U.S. Trustee Linda Ekstrom Stanley that she was
improperly dismissed from her position in June. The MSPB found that
Stanley and other regional trustees are not 'employees' under federal
civil service rules and thus are subject to removal by the Attorney
General at any time. The MSPB lacks jurisdiction over all matters
involving federal employees and is limited to 'covered' employees. The
Justice Department asserted that Stanley occupied a position 'excepted
service,' as designated by former Attorney General Janet Reno in 1994.
Reno at that time declared that the trustee position was one of a
'confidential policy-determining…character' and thus exempt from
the due process requirements of civil service rules. Stanley claimed
before the MSPB that Reno lacked the authority to so politicize the
position when Stanley was reappointed for another five-year term in
1999. However, the MSPB found the Attorney General's plenary power in
the 1986 amendments, making the U.S. Trustee program permanent. Congress
at that time removed the words 'for cause' in the Attorney General's
power to dismiss trustees. Thus the MSPB found that Congress clearly
intended that the Attorney General have discretion to remove trustees
without granting them recourse to the civil service appeal process.
Stanley's other grounds for appeal of her dismissal, based on
discrimination due to her age and gender, were not reached due to the
resolution on the jurisdictional question. Stanley's case attracted
attention in the press when it was suggested she was removed for her
aggressive handling of the PG&E bankruptcy.
Lenders Urge Pre-emption of State Predatory Loan Laws
The lending industry is gearing up to push for a federal law pre-empting
state and municipal restrictions on so-called predatory lending
practices, CongressDaily reported. Draft legislation being
circulated by Rep. Bob Ney (R-Ohio), a member of the House Financial
Services Committee, would clamp down on lenders who use deceptive
practices such as high-cost loans with excessive fees and balloon
payments. However, consumer activists say Ney's bill makes only cosmetic
changes to federal law that they consider inadequate to protect
predatory lending targets, while pre-empting states from enacting more
protective legislation. 'It's a predatory lender's dream. It shields
lending activities we have been trying to attack, like equity stripping
and foreclosure,' said Margot Saunders, a consumer banking specialist at
the National Consumer Law Center. The Ney bill is designed as an
alternative to bills offered in the 107th Congress by retiring House
Financial Services ranking member John LaFalce (D-N.Y.) and outgoing
Senate Banking Chairman Paul Sarbanes (D-Md.) that would have demanded
greater accountability from mortgage lenders, reported the newswire.
Conseco Seeks Bankruptcy Protection to Stem Losses
Conseco Inc. filed for bankruptcy protection last night to stem mounting
losses and restructure more than $6 billion of debt incurred while the
insurance and finance company acquired smaller rivals, Bloomberg News
reported. The Conseco bankruptcy is the third-largest U.S. chapter 11
filing, after WorldCom Inc. and Enron Corp. The Carmel, Ind.-based
company listed $52.3 billion in assets and $51.2 billion in debts in
documents filed in bankruptcy court in Chicago. The bankruptcy comes 2
1/2 years after Conseco hired former General Electric Capital Corp.
Chief Executive Gary Wendt to attempt to reverse losses from its foray
into mobile-home lending. The company said in October that Wendt, who
got a $45 million signing bonus when he joined, would step down as chief
executive officer and remain chairman.
WORLDCOM
WorldCom Accepts Resignations of Sidgmore, 5 Other
Directors
WorldCom Inc., the second-biggest U.S. long-distance telephone company,
accepted
the resignations of six board members, including former Chief Executive
Officer John Sidgmore, Bloomberg News reported. New CEO Michael Capellas
also accepted the resignations of Carl Aycock, Max Bobbitt, Franceso
Galesi, Gordon Macklin and Bert
Roberts, WorldCom said in a statement from PR Newswire. Judith Areen
resigned from WorldCom's Board last week. WorldCom in July filed the
biggest bankruptcy in U.S. history after revealing it faked profits by
misreporting expenses.
WorldCom Can Pay $9 Million Owed Under Employee
Programs
The U.S. Bankruptcy Court in Manhattan on Tuesday allowed WorldCom Inc.
to pay $9 million in wages to employees under some supplemental
pre-petition incentive and compensation programs, Dow Jones reported. In
a motion filed Dec. 4, WorldCom said the programs 'represent a central
component of the compensation structure for sales force representatives,
mid-level management, customer service representatives, and other
employees and organization units.'
Global Crossing Wins Approval of Bankruptcy Plan
Global Crossing Ltd., the fiber-optic network operator that once had a
$38.9 billion market value, won a judge's approval of its plan to emerge
from bankruptcy, Bloomberg News reported. After six days of hearings,
U.S. Bankruptcy Judge Robert Gerber approved the company's
recovery plan, which is based on the sale of a 61.5 percent stake to
Hutchison Whampoa Ltd. and Singapore Technologies Telemedia Pte for $250
million. Global Crossing's chapter 11 petition in January was the fourth
biggest and largest ever by a U.S. telecommunications company before
WorldCom Inc.'s filing in July.
Halliburton Faces Insurance Fight After Settlement
Halliburton Co., near a $4 billion settlement that would bring an end to
a deluge of asbestos claims, now must win a legal battle with its
insurers, Bloomberg News reported. American International Group Inc.,
Equitas Ltd., Allianz AG, Chubb Corp. and at least 100 other insurers
are challenging policies they have with Halliburton that would cover the
settlement. At stake is whether the insurers will pay the second-biggest
oilfield services provider, whose subsidiaries used asbestos in
heat-resistant products and construction materials. 'Insurers deserve,
for their shareholders, to be cautious and reasonable,'' said Scott
Murray, an insurance analyst for Banc One Investment Management, which
oversees $95 billion. 'It's a problem for the entire industry.''
Forgive Us Our Debts
If the archdiocese of Boston follows through on its rumored plan to file
for chapter 11 bankruptcy protection, some of the toughest decisions and
most decisive battles will likely be fought over some of the most
fundamental questions: Who or what entity is declaring bankruptcy and
what property does it own, the National Law Journal
reported.Boston's archdiocese, which, like many across the country, has
been embroiled in a series of child-sex abuse scandals, faces lawsuits
seeking tens of millions of dollars in damages.
So far, the archdiocese has settled 86 cases for nearly $10 million.
Attorneys involved in the litigation say the archdiocese has hundreds of
millions in assets, including insurance, but that some of those assets
may be held in trust, where they would be beyond the reach of its
creditors. In an e-mail to The National Law Journal, Boston
bankruptcy lawyer Daniel M. Glosband confirmed that he has 'been
consulted by the general counsel to the Roman Catholic Archbishop of
Boston, a corporation sole, about possible ways to arrive at a global
resolution of asserted and unasserted claims arising from allegations of
sexual abuse.' To read the full article, point your browser to
color='#000080'>http://www.law.com/jsp/article.jsp?id=1039054449786.
Insilco Wins Interim OK To Tap Cash Collateral
Insilco Holding Corp. on Tuesday won interim authority to use the cash
collateral of its pre-petition lenders to fund operating expenses and
pay employees, Dow Jones reported. The debtor company, which filed for
chapter 11 bankruptcy protection on Monday, said cash collateral use is
vital to its survival. 'It is critical the debtor be allowed to use the
cash collateral to pay employees, suppliers and other expenses,' said
Scott C. Shelley, an attorney with Shearman & Sterling, the firm
representing Insilco. 'Without the use, the debtor's operations will
cease and the estate will be irreparably harmed.'
The interim order signed by Judge Kevin J. Carey of the U.S.
Bankruptcy Court in Wilmington, Del., authorizes Insilco to use the cash
collateral of its secured pre-petition lenders through Jan. 9, 2003. A
hearing to consider final approval of the motion is scheduled before
Judge Carey in Philadelphia on Jan.9. The judge will consider a motion
for bid procedures in connection with the proposed sale of substantially
all of Insilco's assets at that hearing. The debtor company will file
the bid procedures motion on Wednesday, said Pauline K. Morgan, an
attorney with Young Conaway Stargatt & Taylor, another firm
representing Insilco.
NRG Weighs Lender Proposal; Says Chapter 11 Not Definite
NRG Energy Inc.'s negotiations with creditors have 'intensified and
accelerated in recent weeks,' the embattled power generator and trader
said in a court filing late on Monday, Dow Jones reported. Creditors
have presented a counterproposal to NRG's restructuring plan, under
which the Xcel Energy unit has envisioned a prepackaged bankruptcy
filing and a surrender of equity to creditors, and the counterproposal
is under consideration by the company, NRG said.
'At present, it is not clear whether it will be necessary for NRG to
commence a chapter 11 case in order to consummate the yet to be agreed
upon restructuring,' NRG said in the filing, made Monday with the U.S.
Bankruptcy Court for the District of Minnesota. NRG made the filing in
response to a petition filed by former executives seeking to pull the
unit involuntarily into bankruptcy, reported the newswire.
UNITED AIRLINES
UAL, Seeking to Trim Costs, Wants to Redo Regional
Deals
United Airlines parent UAL Corp. wants to save $70 million to $80
million a year by renegotiating agreements with regional-airline
partners Air Wisconsin, Atlantic Coast Airlines Holdings Inc. and
SkyWest Inc., Dow Jones reported. The bankrupt airline, the nation's
second-largest carrier, has also asked two regional airlines it doesn't
now work with to submit bids on regional business.
A United spokesman on Tuesday confirmed the cost-savings goal, which was
filed with the bankruptcy court last week by United's attorney, James
Sprayregen. But United said it couldn't comment further on plans for
cost-cutting at United Express. In the court brief, United said one
United Express partner had already agreed to freeze its 2002 fees at
2001 levels, and to retire high-cost turboprop planes, which should save
United $23 million this year, reported the newswire.
UAL Workers' 401(k) Manager: Company Stock Is of Little
Value
The head of Aon Fiduciary Counselors Inc., which manages the equity
portion of UAL Corp.'s employee 401(k) retirement plans, said on Tuesday
much of the value of the airline company's equity will be wiped out even
if it emerges from chapter 11 bankruptcy court protection, Dow Jones
reported. 'In a bankruptcy, even if the company successfully
reorganizes, the stock that existed before the bankruptcy would be worth
little, if anything,' Nell Hennessy, president of Aon Fiduciary
Counselors, a unit of Aon Corp., told Dow Jones Newswires. Aon Fiduciary
sold all of the 12.7 million UAL shares it had held for UAL employees
ahead of the United Airlines parent's Dec. 9 chapter 11 filing. The
Chicago firm was named the independent fiduciary to manage the United
Airlines stock fund, an investment option in UAL's 401(k) plans, in late
September, after UAL warned in August that a chapter 11 filing was a
possibility, reported the newswire.
Bankrupt UAL Paying Advisers $13,000 an Hour
UAL Corp., parent of bankrupt United Airlines, is racking up fees from
lawyers, consultants and public relations firms at a cumulative clip of
$13,000 per hour, according to the Chicago Tribune, reported Dow Jones.
The company has said it expects to emerge from chapter 11 financial
reorganization in 18 months. At the current rate, that could cost UAL
$100 million in adviser fees, according to legal observers, the
newspaper reported.
UAL Workers' Trust Manager Can't Trade Shares, Judge
Orders
State Street Bank & Trust Co., the manager of UAL Corp.'s employee
stock ownership plan, lost a bid to sell its remaining shares in the
parent of United Airlines, Bloomberg News reported. U.S. Bankruptcy
Judge Eugene Wedoff said he will consider the request at a hearing on
Dec. 30, and until then barred any selling. UAL sought a trading freeze
on large shareholders last week when it filed the largest airline
bankruptcy ever. Suspending trading would prevent any ownership shift of
the company that might affect its tax liability, UAL said in court
documents.
UAL Seen Needing to Take Fast Action to Slash Its
Costs
As airline experts digest UAL Corp.'s bankruptcy filing, they have come
to the conclusion that United Airlines has only about two months to
slash its outsize costs and set the carrier's course toward liquidation
or emergence from court protection, the Wall Street Journal
reported. 'It's clear they must reduce their cost of operation almost
immediately if they are to survive,' said Bill Rochelle, a partner and
airline bankruptcy expert at the law firm Fulbright & Jaworski.
Without success 'in the next few weeks' on lowering aircraft leasing,
financing costs and cutting labor expenses, 'their cash could run
perilously low,' Rochelle said, reported the online newspaper.
If cash runs too low, or UAL doesn't meet the other rigorous covenants
in its $1.5 billion interim financing package, the lenders could demand
repayment of the first $800 million, withhold the second part of the
funding or sell the collateral, pushing the carrier into liquidation,
reported the Journal. The first milepost occurs in late February,
by which time UAL must not exceed a specific negative cumulative
cash-flow figure set out in the loan agreement, according to the
newspaper. To meet that requirement, the company will have to
dramatically reduce its loss rate, reported the Journal.
For United, Liquidation Is a Very Real Possibility
A Wall Street Journal article examines why it is possible that
United could end up being liquidated. To read the full article, point
your browser to
href='http://online.wsj.com/article/0,,SB1039629683641692233-search,00.html?c…'>
color='#000080'>http://online.wsj.com/article/0,,SB1039629683641692233-search,00.html?c…%
3E%28article%2Dbody%29.
Adelphia Business Gets Court OK Of Bid Rules for $11 Million
Sale
The court handling Adelphia Business Solutions Inc.'s chapter 11 case
has approved procedures that one of the company's units will use to sell
some telecommunications assets, Dow Jones reported. Subject to better
offers received at the auction, the unit has agreed to sell the assets
and assign some contracts and leases to Gateway Columbus LLC for $10.7
million plus the assumption of contractual liabilities. Judge Robert
Gerber of the U.S. Bankruptcy Court in Manhattan approved the
auction procedures on Monday, according to court papers obtained on
Tuesday, reported the newswire. Adelphia Business has been in chapter 11
since March 27.
Mosaic Group Initiates Court-supervised Restructuring
Mosaic Group Inc. is voluntarily initiating a restructuring of its debt
obligations and capital structure, Dow Jones reported. In a news
release, the company said it's seeking court orders to proceed with the
restructuring under the Companies' Creditors Arrangement Act in Canada.
Certain of Mosaic's U.S. subsidiaries plan to file voluntary petitions
for reorganization under chapter 11 of the U.S. Bankruptcy Code on
Tuesday in the U.S. Bankruptcy Court for the Northern District of Texas
in Dallas, it said. Mosaic Group said Mosaic Data Solutions Inc. and
Mosaic InfoForce LP won't begin bankruptcy proceedings. If the court
orders in Canada being sought are granted, and upon commencement of the
U.S. Subsidiaries' chapter 11 proceedings, the businesses will continue
to operate with little interruption while a restructuring plan is
developed, the company said, reported Dow Jones.
FAO to File for Bankruptcy Unless Lender Eases Terms
FAO Inc., the owner of FAO Schwarz and Zany Brainy toy stores, will file
for bankruptcy protection if its lender doesn't relax borrowing
restrictions, Bloomberg News reported. Wells Fargo Retail Finance LLC,
the company's lender, was asked to relax recently imposed conditions,
FAO said in a statement. Rapid deterioration of its ability to get
financing from alternative sources prompted the request, the company
said, reported the newswire.
FAO, formerly called Right Start, needs to reorganize its business as
slumping sales forced it to cancel orders for the rest of the holiday
season to prevent excess inventory. FAO said yesterday its loss widened
to $23.7 million in the quarter ended Nov. 2 after its acquisition of
the FAO Schwarz and bankrupt Zany Brainy chains, reported Bloomberg. FAO
also projected a loss for the year, reported the newswire.
Hayes Lemmerz Files Recovery Plan to Pay Creditors
Hayes Lemmerz International Inc., an auto-wheel maker that sought
bankruptcy last year, filed a plan to exit court protection next year by
paying creditors with new notes and stock, Bloomberg News reported.
Under the proposed plan, Hayes Lemmerz would pay creditors with $425
million in notes as well as common stock in the reorganized company,
court papers say, reported the newswire. The company would emerge with
$650 million in debt. It listed $2.65 billion in debt in its chapter 11
petition. The Northville, Mich.-based company filed for protection after
struggling with debt from acquisitions and slow sales as car
manufacturers cut production, reported Bloomberg. The company also had
to restate earnings because of accounting errors.
XTO Energy Finalizes Settlement With Enron
XTO Energy Inc. reached a final claims settlement with bankrupt energy
trader Enron Corp.'s North America unit, agreeing to pay Enron $6
million to settle all obligations, Dow Jones reported. In a press
release on Tuesday, XTO said it expects to recognize a $2 million gain
on the settlement and record additional gas revenue of $14 million
relating to delivery contracts with Enron. The energy company will
record the gas revenue gains in the fourth quarter of 2002. XTO said the
bankruptcy court overseeing Enron's chapter 11 filing granted final
approval to the agreement settling all outstanding claims between the
companies.
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