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October 22, 2002
The Conference Board's Index of Leading Economic Indicators Falls
in September
The Conference Board's index of leading economic indicators fell in
September, pulled down by the stock market, CongressDaily
reported. It was the fourth straight monthly decline in the index, and
raised again the prospect of a 'double dip' into recession for the U.S.
economy. The index fell 0.2 percent to match Wall Street
expectations.
Napster Gets Loan to Fund Expenses as Sale Is Negotiated
Napster Inc. won emergency approval on Monday of a loan to fund expenses
while the chapter 11 debtor negotiates a sale of substantially all of
its assets for $5 million in cash, Dow Jones reported. Napco Acquisition
LLC is both the lender under the $200,000 loan and the prospective
purchaser. Napco Acquisition is an affiliate of an undisclosed public
company that has asked to remain anonymous until an asset purchase
agreement is signed, said Hobart G. Truesdell, the trustee overseeing
Napster's estate. A hearing to consider final approval of the loan is
scheduled on Nov. 1. 'I think absent this transaction there is serious
doubt as to whether the parties can keep this debtor alive with any
prospects of obtaining some recovery [for creditors],' said Judge
Peter J. Walsh. 'This is a precarious bankruptcy proceeding that has
a need to achieve a transaction quickly,' the newswire reported.
Under the terms of the deal, Napco Acquisition will lend Napster
$200,000 to cover day-to-day expenses for 30 days. Rick B.
Antonoff, an attorney with Greenberg Traurig, the firm representing
Napster's committee of unsecured creditors, said the money is just
enough to cover the expenses. Napco Acquisition said it hopes that by
the end of the 30-day period, it will have closed the sale. If Napco
Acquisition is unable to close a sale by then, it will lend the debtor
an additional $50,000 to cover a second 30-day period. Judge Walsh
approved the emergency loan despite concerns from the office of the U.S.
Trustee about the lack of information disclosed regarding the lender and
prospective purchaser. The U.S. Trustee also expressed concerns about a
key provision in the loan agreement that bars Napster from negotiating a
sale with other parties as long as it is in talks with Napco
Acquisition.
WORLDCOM
WorldCom Seeks to Extend Plan Deadline by Six Months
WorldCom Inc., the second-biggest U.S. long-distance phone company,
asked a federal bankruptcy judge to extend by six months a deadline for
filing a chapter 11 reorganization plan, Bloomberg News reported.
WorldCom filed the largest chapter 11 case in history on July 21, giving
the Clinton, Miss.-based telecommunications carrier the sole right to
submit a reorganization plan through Nov. 18. If it gains court approval
for its extension request, WorldCom would have the sole right to submit
a plan through the middle of May. Bondholders of MCI Communications,
WorldCom's profitable long-distance telephone unit, have said they will
likely seek a reorganization plan separate from the parent. The
bondholders have been maneuvering to gain an upper hand in the company's
reorganization, gaining concessions in court orders approving WorldCom's
bankruptcy financing and cash management. U.S. Bankruptcy Judge
Arthur Gonzalez is scheduled to hold a Nov. 15 hearing on WorldCom's
request, with objections due by Nov.6.
WorldCom Asks Judge to Approve $25 Million in Executive
Bonuses
WorldCom Inc. asked a federal bankruptcy judge to approve $25 million in
retention
bonuses for 325 executives and employees as the No. 2 U.S. long-distance
telephone company reorganizes, Bloomberg News reported. Employees
covered by the bonus proposal would get payments equal to 35 percent to
65 percent of their annual salaries, WorldCom said in a filing with the
U.S. Bankruptcy Court in Manhattan. The bonus payments would be made in
three installments and would total between $20,000 to $125,000 per
employee. 'The retention plan is an important element of our overall
strategy to retain and reward our employees for their efforts during our
reorganization,' said Greg Rayburn, WorldCom's chief restructuring
officer. 'Our employees are the strength of our business.' A hearing on
WorldCom's bonus plan is scheduled for Oct. 29 before U.S. Bankruptcy
Judge Arthur Gonzalez.
Morgan Stanley, Banks Not Liable for Sunbeam Collapse
Morgan Stanley & Co. and two other banks can't be held liable for
helping Sunbeam Corp. finance a series of acquisitions that led to the
appliance maker's spiral into insolvency, a federal bankruptcy judge
ruled, Bloomberg News reported. The maker of Mr. Coffee, Oster blenders
and Coleman camping equipment racked up much of its more than $3 billion
in debt by acquiring First Alert Inc., Signature Brands USA Inc. and
Coleman Co. under former Chief Executive Officer Al Dunlap in 1998. Boca
Raton, Fla.-based Sunbeam, the biggest U.S. maker of small appliances,
sought chapter 11 protection in February 2001.
A panel representing Sunbeam bondholders and other unsecured creditors
sued Morgan Stanley in July 2001, claiming the second-largest U.S.
securities firm had been warned about Sunbeam's misleading financial
disclosures before it underwrote convertible bonds in 1998. Bank of
America Corp. and First Union National Bank were also named in the suit,
which said the banks' loans helped push Sunbeam into bankruptcy. There
is no factual basis in the suit 'to support a finding that the lenders
had either actual or constructive knowledge that (Sunbeam) was insolvent
or would be rendered insolvent or that the acquisitions were valued
incorrectly,' U.S. Bankruptcy Judge Arthur J. Gonzalez wrote in a
34-page opinion on Friday. The creditors' committee 'seeks to pursue
claims that will delay resolution' of the bankruptcy case even though
'unsecured claimants, including the noteholders, have no economic stake
in the reorganization,'' Gonzalez wrote, the newswire reported.
Xcel Will Survive Possible Meltdown of NRG Unit, Analysts
Say
Xcel Energy Inc. will survive despite the uncertain future of its
beleaguered NRG unit, analysts said on Monday, because the company's
core business is fundamentally strong, Dow Jones reported.
'Third-quarter results indicate that Xcel's regulated utility businesses
continue to have solid results,' analyst Charles Fishman of A.G. Edwards
said in a research note. He noted that, excluding NRG results, Xcel
reiterated earlier estimates of earning $1.45 to $1.55 a share in 2002.
Analyst Michael Worms at Gerard Klauer Mattison & Co. said he
doesn't have any concerns about the utility's core earnings, which are
generated from regulated power companies, including Northern States
Power in Minnesota and Public Service Co. in Colorado.
The future of NRG, once considered a high-flying power producer and
trader, is uncertain, analyst Elizabeth Parrella at Merrill Lynch &
Co. wrote in a research note on Monday, the newswire reported. The
company said it is crafting a debt restructuring agreement with
creditors to resolve the future of NRG, an unregulated business that
fell out of favor with investors and lenders after the fall of Enron
Corp. NRG has struggled on the edge of bankruptcy since July, when a
downgrade of its bonds caused loan payments to come due. The NRG unit
got a reprieve on Friday when lenders said they would, for the second
time, extend the deadline on $1.3 million of cash collateral.
US Airways Seeks Court OK for Pacts to Manage Fuel Costs
US Airways Group Inc. has asked the court handling its two-month-old
chapter 11 case for authority to sign agreements to manage jet fuel
costs, Dow Jones reported. In papers filed on Friday with the U.S.
Bankruptcy Court in Alexandria, Va., the airline operator sought a court
order authorizing, but not requiring, the carrier to sign agreements
related to its jet fuel hedging strategies. The agreements would govern
swap option transactions in connection with commodities, currencies,
rates or other measures of risk, the company said. A hearing on the
request is scheduled for Nov. 7 before U.S. Bankruptcy Judge Stephen
S. Mitchell.
UAL Up 12 Percent on Optimism Company May Avoid Bankruptcy
Shares of United Airlines parent UAL Corp. rallied on Monday with the
news that the owner of the world's second-largest carrier may receive
much-needed federal loan guarantees and avoid a bankruptcy court filing,
Dow Jones reported. On Friday, the Chicago-based company said it plans
to update its application for the $1.8 billion loan guarantees after
having agreed in principle with its unions to slash $5.8 billion in
labor costs over five and a half years. UAL also reported a
third-quarter net loss of $889 million, or $15.57 a share, compared with
the year-ago loss of $1.16 billion, or $21.43 a share. UAL, which faces
nearly $1 billion in debt and interest-payment obligations in the next
two months, has said it may have to file for chapter 11 later this fall
if it can't get the government aid and raise fresh capital.
Kmart Targets Emergence from Chapter 11 in July 2003
Kmart Corp. plans to file a proposed reorganization plan with the U.S.
Bankruptcy Court by Feb. 24, before the previously extended deadline of
Feb. 28, Dow Jones reported. In a press release on Monday, Kmart said it
maintains committed to a 'fast-track reorganization' and expects to
complete the five-year business plan by the end of the year. The company
currently targets emerging from chapter 11 bankruptcy protection by next
July. 'This timeline is aggressive and will require a lot of hard work
in a relatively short period of time, but should be doable,' Chairman
and Chief Executive James Adamson said in a press release. 'I have
always believed that this company should not remain under court
protection a day longer than necessary.'
Kmart unveiled details last week of its post-chapter 11 plan, which
involves a green and blue logo, sleekly designed signs, better lighting,
lower shelves and wider aisles to encourage shoppers to buy more.
Laboring under chapter 11 bankruptcy court protection since Jan. 22,
Kmart can't afford to remodel every store just yet and, instead, plans
to study a single prototype store. Remodeling all of its current stores
would take Kmart roughly five years, the company projected. Kmart said a
key part of its operating plan has been to use promotions aggressively
to win back customers lost after it filed for bankruptcy court
protection. Kmart also said it had $1.51 billion available under its $2
billion debtor-in-possession facility as of Sept. 25, the newswire
reported.
Kaiser Aluminum Seeks Court OK to Sell Pipeline for $3
Million
Kaiser Aluminum Corp. has asked the bankruptcy court handling its
eight-month-old chapter 11 case to grant it authority to sell a pipeline
for $3 million in cash, Dow Jones reported. According to papers filed
with the U.S. Bankruptcy Court in Wilmington, Del., the aluminum
products maker has agreed to sell 11.09 miles of a 13-mile pipeline to
Sorrento Pipeline Co., an affiliate of Enterprise Products Operating
L.P. A hearing on the sale request is scheduled for Oct. 29 before U.S.
Bankruptcy Judge Judith K. Fitzgerald. No objections have been
filed. Kaiser Aluminum said the sale will generate revenue that will be
used to benefit its bankruptcy estate. Kaiser Aluminum and some
affiliates filed for chapter 11 on Feb. 12, after facing significant
near-term debt maturities during an unusually weak aluminum market and
becoming increasingly burdened by asbestos litigation and growing
obligations for retiree medical and pension costs. The company listed
assets of $3.3 billion and debts of $3.1 billion in court papers.
Bethlehem Steel Posts Loss; Sees $1.5 Billion Charge
Bankrupt steelmaker Bethlehem Steel Corp on Monday reported a narrower
third-quarter loss, but said it may take a charge of $1.5 billion at the
end of the year to cover its pension costs, Reuters reported. Bethlehem
Steel, which was driven into bankruptcy in part due to hefty retiree
health care and pension costs, said in a statement that its pension plan
is about $3.2 billion underfunded at today's market. If the market
remains weak, Bethlehem will have to take a $1.5 billion charge to
equity at year-end. The company has a total of more than $6 billion of
underfunded pension and post-retirement obligations. In order to emerge
from bankruptcy, the company said it will need to reduce or eliminate
its underfunded pension and health care costs, and is in talks with the
steelworkers' union to achieve a new labor agreement.
Allegheny Gets Approval to Borrow Up to $2 Billion
Troubled integrated utility Allegheny Energy Inc. said on Monday it
received regulatory approval to borrow up to $2 billion after defaulting
on some of its key credit agreements earlier this month, Reuters
reported. An Allegheny spokeswoman said the company is in talks with its
bank lenders to restructure $1.3 billion in existing unsecured
financing. The restructured financing would likely be secured by power
plants owned by Allegheny Energy Supply. The company, which is also
seeking access to additional borrowing capacity, is the latest victim of
a slump in power trading and a collapse in credit since Enron Corp.
filed for bankruptcy last year. Allegheny's credit problems have been
exacerbated by a recent string of downgrades by the three major rating
agencies.
Sun Capital Explores Section 363 Acquisition of Mars Inc.
Sun Capital Partners Inc., a Boca Raton, Fla.-based private equity firm
that has gobbled up a score of distressed companies over the last two
years, is reviewing due diligence on bankrupt Mars Inc. for a possible
§363 acquisition, the Deal.com reported. Fort Lauderdale,
Fla.-based Mars Inc. will seek court approval on Friday, Oct. 18, in
West Palm Beach, Fla., of §363 auction procedures. If approved, the
auction will be held in the latter part of next week. In a 363 sale, an
acquirer buys a bankrupt company's assets, but not its liabilities. If a
buyer for Mars's assets doesn't step forth, the company already has an
existing stalking-horse agreement with Newton, Mass.-based Great
American Group to liquidate them, the online newspaper reported. The
music company filed for chapter 11 protection in the U.S. Bankruptcy
Court for the Southern District of Florida on Sept. 27, listing $165.9
million in assets and liabilities of $129.3 million. Mars secured a $60
million debtor-in-possession financing facility from Congress Financial
Corp., its principal lender, at the time to fund its business
operations. The music company rolled about $35 million of the senior
bank debt owed to Congress into the DIP facility. Since securing the
DIP, Mars has been making payments to Congress Financial on the
facility.
Homes.com to Emerge from Bankruptcy
At the end of October, Homes.com will get a confirmation from the
bankruptcy court on its reorganization plan, which will allow the
company to emerge from bankruptcy protection, Realtytimes.com
reported. In a remarkable turnaround, the online company, which filed
for chapter 11 in March 2001, has gone from owing $32 million to
positive cash flow in less than 18 months. Says CEO Tom Orsi, 'We have
generated over $3 million in cash. We are going into the confirmation
hearing with more than $2 million in usable cash, and we'll use $1.2
million to pay off administrative claims and some small claims and
interest to one of the secured creditors.' Homes.com may be the first
dot-com to exit bankruptcy without being acquired. According to
Webmergers.com, between January 2001 and June 2002, there were 862
Internet company shutdowns and bankruptcies.
S&P Comments on PG&E Corp. Loan Renegotiation
Utility holding company PG&E Corp.'s renegotiation of the terms of a
$420 million loan averted the declaration of a default under the loan's
previous terms, Reuters reported. The renegotiation is a favorable
development for PG&E and its wholly owned regulated utility
subsidiary, Pacific Gas & Electric Co. The new terms remove previous
ratings triggers and events of default tied to unregulated PG&E
National Energy Group Inc. PG&E currently has about $190 million of
liquid unrestricted cash and investments. As a holding company, it lacks
meaningful prospects for the infusion of additional liquidity given the
financial difficulties facing its principal subsidiaries, Pacific Gas
& Electric and PG&E National Energy Group. If an event of
default and acceleration of the loan occurred, the default and its
consequences might have complicated or prolonged Pacific Gas &
Electric's emergence from bankruptcy.
Kaiser Group Files to Swap $40 Million Notes for Preferred
Stock
Kaiser Group Holdings Inc. is offering to issue up to $40 million in new
8.25 percent senior notes due 2007 in exchange for the same amount of
outstanding redeemable cumulative preferred stock, Dow Jones reported.
According to a registration statement filed late on Friday with the
Securities and Exchange Commission, the preferred stock was issued in
December 2000 as part of the company's reorganization plan under chapter
11 of the bankruptcy code. The company said it's pursuing the exchange
offer to have a more tax-efficient capital structure because interest
payable on the exchange notes is tax-deductible. Because of the
company's operating losses in prior years, the deductibility of such
dividends hadn't been a concern, but now the company said it expects to
have taxable income, perhaps in calendar year 2002 and more certainly in
calendar year 2003.
Is Bankruptcy Good for the Airlines?
The chief executives of the nation's largest airlines have marched up to
Capitol Hill in the last few weeks seeking more financial aid for an
industry expected to lose at least $7 billion this year, the New York
Times reported. They offer what seems a compelling rationale:
Multiple airline bankruptcies could leave a huge dent in the already
fragile economy. 'Aviation is a fundamental prop to the economy,' said
Leo F. Mullin, chief executive of Delta Air Lines. 'Aviation affects 10
percent of our national income, and affects travel and tourism.
Suppliers are dependent on it. Enormous industries are dependent on it.'
But many economists and industry experts say the executives are being
alarmist, with some insisting that multiple bankruptcies might even make
the industry - if not the overall economy - stronger in the long run. To
read the full article, point your browser to
href='Xcel%20Surviving%20Possible%20Meltdown%20of%20NRG%20Unit,%20Analysts%20Say'>http://www.nytimes.com/2002/10/20/weekinreview/20WONG.html?tntemail0.
Banks to Let Adelphia Communications Creditor Groups See
Documents
Three banks have agreed to allow two creditor groups to examine
documents relating to loan agreements involving Adelphia Communications
Corp. and entities controlled by the founding Rigas family, Dow Jones
reported. By Oct. 31, Wachovia Bank N.A., Bank of America N.A. and Bank
of Montreal will try to produce as many non-privileged documents as
possible to committees representing Adelphia's unsecured creditors and
shareholders, according to an agreement filed Monday with the U.S.
Bankruptcy Court in Manhattan, which is presiding over Adelphia's
four-month-old chapter 11 case, the newswire reported. The documents
will relate to loan agreements, under which Adelphia or its affiliates
agreed to guarantee loans the banks made to the Rigas-controlled
entities. The documents would also relate to the issuance, purchase,
sale or underwriting of Adelphia securities and any investment-banking
relationships between the parties, according to Dow Jones.
The agreement, which hasn't yet been approved by U.S. Bankruptcy
Judge Robert E. Gerber, comes one and one-half months after the
shareholder committee sought court authority to examine the banks, along
with the company and former auditor Deloitte & Touche LLP about the
loans and other matters. According to Monday's agreement, the unsecured
creditors' committee had also notified the banks it wished to examine
documents relating to the loans. The banks and the committees said in
Monday's agreement that they will discuss a schedule for taking
depositions after Oct. 31. The banks also said they would produce as
many other requested documents as possible by Nov. 15.
Global Crossing to Reduce 2001 Sales by $19 Million
Global Crossing Ltd., the bankrupt fiber-optic network operator, will
restate
results for the first nine months of 2001, cutting sales by $19 million
and assets and liabilities by $1.2 billion each, Bloomberg News
reported. Global Crossing, which sought bankruptcy protection in
January, said its net loss will widen by $13 million, according to
a company statement. For the first nine months of 2001, Global had
reported a net loss of $4.77 billion on sales of $2.44 billion. The
company's assets and liabilities were each $25.5 billion.
Creditors Dispute Liability for Conseco's Stock Loans
Long before WorldCom Inc. made loans totaling $415 million to then-CEO
Bernard Ebbers, insurance and finance company Conseco Inc. guaranteed
$557.6 million of bank loans that enabled 170 Conseco executives and
directors to load up on its now nearly worthless shares, the Wall
Street Journal reported. Now, this perk hangs over both the Conseco
executives and directors who borrowed the money and the troubled company
itself, as it struggles with its creditors to hammer out a restructuring
plan.
A dispute has broken out over who should take the hit for the loan
obligation, said several people involved in the matter. Should the
employees and directors, some of whom could face personal bankruptcy as
a result? Should Conseco -- which means, indirectly, its bondholders who
are likely to control the company after a chapter 11 bankruptcy
restructuring? Should the banks that made the loans? Or should the pain
be shared? So far, Conseco's bankers and bondholders are at odds over
the issue, which needs to be resolved for Conseco to restructure a total
of more than $4.5 billion of holding company debt, the guaranteed loans
included, the Journal reported.
PG&E National Energy Gets Extension for Credit Renewal
A group of lenders granted PG&E Corp. a second extension on a $431
million loan, enabling the energy giant to keep its power trading
affiliate out of bankruptcy protection, the Associated Press reported.
PG&E has been negotiating for a loan extension from 16 lenders since
Aug. 22, when lenders granted the corporation until Monday to settle
debts for its unregulated trading affiliate, PG&E National Energy
Group, said Brian Hertzog, a corporation spokesman. The affiliate now
has until Nov. 14 to pay, so long as it avoids making payments on
certain construction projects and pays interest by the month instead of
by the quarter on the loan, the corporation announced in a
statement.
Neon Communications Reorganization Rejected by Court
Neon Communications Inc. on Monday failed to win confirmation of its
proposed reorganization plan after a bankruptcy judge said he wouldn't
confirm the plan unless the company changed its release provision, Dow
Jones reported. Chief Judge Peter J. Walsh of the U.S. Bankruptcy
Court in Wilmington agreed with an objection filed by the office of the
U.S. Trustee which said the plan couldn't be confirmed with the current
provision. At issue is a provision that would release Neon
Communications' officers and directors from all claims. Initially, Neon
Communications proposed to release the officers and directors and any
professionals that have worked with Neon Communications from all claims
for an indefinite period of time. By the end of the hearing on Monday,
the debtor agreed to limit the provision to the current officers and
directors but didn't specify a change in the timetable.
The major remaining issue is whether or not equity holders have agreed
to release the officers and directors from claims. Neon Communications
said the equity holders that have representatives on its board gave
their consent when the board voted to file the plan prior to the
debtor's chapter 11 filing. Judge Walsh said he would need to hear from
those equity holders before confirming a plan with that provision. The
hearing will likely go forward in early to mid-November.
Berkshire Hathaway Has 34.58 Percent Comdisco Holding Stake
Berkshire Hathaway Inc. said it holds a 34.58 percent stake in Comdisco
Holding Co. after clarifying the number of shares it was issued under
Comdisco's reorganization, Dow Jones reported. According to Monday's
filing, a unit of Berkshire Hathaway was issued 286,060 shares, not
305,364 shares, pursuant to the reorganization. On Oct. 11, Berkshire
Hathaway said it held a 35.04 percent stake, with beneficial ownership
of 1.47 million common shares. Comdisco Holdings, a technology services
company, emerged from chapter 11 bankruptcy in August with a plan to
sell off remaining assets over three years.
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