December 42003

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December 4, 2003

Two Reports Indicate Recovery Is Taking Hold

The growing economy has produced two statistics reinforcing the
impression that a typical recovery is finally taking hold two years
after the last recession, the New York Times reported. That was
the message from the Bureau of Labor Statistics, in its final revision
of the productivity growth rate in the third quarter, and from the
Institute for Supply Management in its November survey of corporate
activity outside manufacturing. 'The numbers we are seeing all seem to
be suggesting that the ice is breaking in the job market, that
employment is picking up,' said James Glassman, senior domestic
economist at J. P. Morgan Chase & Company, the Times
reported. Productivity grew at a 9.4 percent annual rate, the largest
quarterly increase since the second quarter of 1983. The manufacturing
survey, released on Monday, showed a sharp improvement in manufacturing
activity and the first positive hiring plans since September 2000,
reported the newspaper.

Retailers Off to Mixed Holiday Start

U.S. retailers gave a mixed report on the start of the vital holiday
shopping season today, with Wal-Mart Stores Inc. posting average results
while some high-end chains like Nordstrom Inc. looked strong, Reuters
reported. Analysts had forecast that upscale retailers might do better
than discounters amid signs of a rebounding U.S. economy. The Friday
after Thanksgiving generated about $7.2 billion in sales, according to
ShopperTrak, which measures retail sales.

Wal-Mart said its November sales were strongest in the first half of the
month, supporting analysts' view that Thanksgiving holiday weekend
demand was weaker than expected. J.C. Penney Co. Inc. said its November
same-store sales fell 0.8 percent from a year ago, although its
reporting period ended on Nov. 22 and did not include what it called
'strong sales' for the Thanksgiving weekend. But upscale stores such as
Nordstrom Inc. reported better results. The department store chain
reported a 7.4 percent increase in November same-store sales, compared
with a 1 percent decline a year earlier, reported the newswire.

Pension Fix Entangled in Feud Between Fitzgerald, Airline

A feud between Sen. Peter Fitzgerald (R-Ill.) and United Airlines
interfered with Senate efforts to strike a pension deal last week,
CongressDaily reported. Prior to adjournment last Tuesday, Senate
staff worked to overcome hurdles to the pension provisions, including
objections by Budget Chairman Don Nickles (R-Okla.) and Sen. Jon Kyl
(R-Ariz.) to language favored by airlines and other industries that
would allow companies with underfunded pension plans to defer most
scheduled accelerated payments for two years.

Senators had crafted compromise language on the so-called deficit
reduction rules when Fitzgerald raised a late objection. The language --
which would allow companies to defer up to 80 percent of accelerated
payments to their plans as long as this amount did not exceed their
pension liabilities in the current year -- would provide a large benefit
to United Airlines. He claimed that without the legislative pension
relief it sought, United would not be able to make payments to fund the
airport expansion, a charge that United has denied.

Companies seeking pension relief are weighing a fallback plan to move
through the Senate a two-year provision that would change the formula
companies use to calculate their pension contributions. That language,
which would replace the 30-year Treasury rate with a corporate bond
rate, has already passed the House as a stand-alone measure. However,
one Senate GOP aide said that option, which would require moving the
House bill under unanimous consent rules, would likely stir objections,
reported the newswire.

Bush Poised to Act on Steel Tariffs, Aid Producers

President Bush is expected to announce as early as today plans to halt
most tariffs on steel imports and is finalizing measures to try to
cushion the blow to struggling U.S. producers, Reuters reported.
Administration sources said Wednesday that the White House would pledge
to vigorously enforce U.S. anti-dumping laws and may change the way
duties are assessed to allow the government to impose stiffer penalties
against foreign violators. Thomas Danjczek, president of the Steel
Manufacturers Association, said the industry was bracing for the worst
even as it held out hope Bush would keep the tariffs in place. 'We'll be
disappointed, but not surprised, if the decision is to terminate the
tariffs,' Danjczek said, reported the newswire.

Enron Tower Sold to Houston Group for $55 Million

A group led by a Houston cardiologist has won the bidding to buy Enron
Corp.'s headquarters, Reuters reported. Enron spokesman Mark Palmer on
Wednesday said the 50-story, oval-shaped tower in downtown Houston was
purchased for $55.5 million in an auction on Tuesday, the second
anniversary of Enron's filing for chapter 11 bankruptcy. The building is
owned by a syndicate of banks led by J.P. Morgan Chase & Co., which
bought it in the 1990s for $285 million and leased it back to Enron.
Enron had moved into the building in 1986, Palmer said, reported the
newswire.

U.S. Hedge Funds Feed on Europe's Distressed Debt

U.S. hedge funds are entering the European market for distressed debt,
fund managers and analysts said on Wednesday, Reuters reported. Some
speak of a tripling of U.S. players in Europe's distressed debt market
in the past 18 months. 'In the last 12 months, I would say around 10
U.S. distressed-asset investors have opened up offices in London, and
more than 30 already established U.S. high-yield players have set up
distressed-asset desks,' said Peter Young, managing director at Bank of
America's International Special Situation Debt Group. The distressed
asset class has increased in Europe since the 2000 downturn in sectors
such as telecommunications and utilities, and analysts identify more
opportunities lining up in Germany, where corporate failures are rising.
'In the last year we've expanded our distressed-debt desk in London, and
our exposure to European distressed debt has risen by more than 100
percent,' said Peter Schoenfeld, chairman of P. Schoenfeld Asset
Management, reported the newswire.

Claims Against WorldCom's Directors Denied

A federal judge on Tuesday dismissed claims accusing the audit committee
of WorldCom Inc.'s board of directors of abandoning their oversight
responsibilities amid the telecommunication company's massive fraud, the
New York Law Journal reported. Southern District of New York
Judge Denise Cote, in the consolidated class actions brought by
investors over the collapse of WorldCom's stock price and ultimate
bankruptcy, said allegations against four of the directors 'reveal at
most an Audit Committee that accepted too readily the reports given to
it by management,' an internal audit committee, and outsider auditor,
Arthur Andersen. The board's audit committee was 'anemic in its
oversight function,' she said. To read the full article, point your
browser to
href='http://www.law.com/jsp/article.jsp?id=1069801684556'>http://www.law.com/jsp/article.jsp?id=1069801684556.

Delta Air's Pilots Offer 9 Percent Pay Cut

The union representing pilots at Delta Air Lines has offered a 9 percent
cut in wages to help the airline get its costs closer to those of its
rivals, the Wall Street Journal reported. The proposal from the
Delta unit of the Air Line Pilots Association is a sign of progress in
the talks between the company and its only major union group. Talks
between the airline and the union broke down in July over what the union
called 'philosophical differences.' On Wednesday, in a memorandum to
members, the union's negotiating committee said talks were on track
again, adding: 'Your negotiating committee has seen enough progress in
these areas to justify further negotiations,' reported the online
newspaper.

Seitel Asks for Court Auction to Decide Fate of Company

Seitel Inc. will file a motion on Wednesday outlining rules for an
auction of the company to be conducted by the bankruptcy court
overseeing its chapter 11 case, Seitel chief executive told DBR. The
seismic data company's CEO, Larry Lenig, said the auction will put a
fair value on Seitel, which is now the object of a tug-of-war between
Warren Buffet's Berkshire Hathaway Inc. and a shareholder group that
says the company has what it takes to emerge from bankruptcy as a
stand-alone public company. 'What it says is that Seitel clearly is
valuable and the question is whether it's the value that's in the
Berkshire plan or some other number,' the CEO said, referring to the
dispute that has two competing plans of reorganization vying for
confirmation in bankruptcy court.

PG&E

PG&E Sees Court Ruling Not Hurting Utility Unit

PG&E Corp.'s CEO on Wednesday said that an unfavorable court ruling
last month would not hurt plans for the company's utility unit to emerge
from bankruptcy by the end of the 2004 first quarter, Reuters reported.
'It has certainly been introduced into the rhetoric, but I don't think
it has been introduced into the fact base at all,' CEO Bob Glynn said
following a presentation at a financial conference organized by Lehman
Brothers. Last month, the Ninth Circuit Court of Appeals set aside a
lower-court decision and ruled that the utility unit, Pacific Gas &
Electric, does not have the right to sidestep state law and create new,
less-regulated companies to end its bankruptcy. The San Francisco-based
utility's original bankruptcy reorganization plan envisioned the
break-up of the utility into several parts, some moving from stricter
state to less rigorous federal oversight. That scheme drew opposition
from state regulators, who proposed a rival plan, Reuters reported.

More Restructuring Proposals for Pacific Gas Expected
Today

California Public Utilities Commission board members Loretta Lynch and
Geoffrey Brown will likely issue alternative plans on reorganizing
bankrupt PG&E Corp. utility Pacific Gas & Electric Co. by the
end of the day on Thursday, according to Brown and Lynch's advisor.
Lynch will issue an alternative that would keep customer rates at
current levels through 2004 and aims to repay all debt in 2005 - a model
that was used to rescue Edison International utility Southern California
Edison from insolvency, said Lynch energy advisor Mike Campbell. Brown's
plan would shorten the repayment period on a regulatory asset that
Pacific Gas has proposed using in a settlement agreement with commission
staff. The settlement plan would have the asset repaid from rates over
nine years; Brown would like to shorten the repayment to five years in
order to lower total financing costs, he said in an interview on
Wednesday.

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Air Canada Gets Sweeter Catering Deal from Cara

Cara Operations Ltd. has agreed to a less profitable catering agreement
with Air Canada, a month after the insolvent airline repudiated its
previous contract with Cara, both companies said on Wednesday, Reuters
reported. Cara, owner of the Swiss Chalet and Harvey's restaurant chains
as well as the Second Cup coffee-shop chain, said it will now reconsider
plans to privatize the company given the renewal of the catering
agreement with the airline. The new agreement with Air Canada will run
until November 2009, as the previous one did, but Cara said its terms
could reduce its annual profit by 3 Canadian cents to 7 Canadian cents a
share, reported the newswire.

Bankruptcy Court Extends Avianca Restructure Date

A U.S. bankruptcy judge has granted Colombian airline Avianca another
deadline extension, this time for 60 days, to present a restructuring
plan, the court said on Wednesday, Reuters reported. The decision
follows earlier extensions, for 45, 60 and 32 days, as Colombia's
carrier prepares a plan to keep itself in the air. In March, Avianca and
its U.S. subsidiary filed for chapter 11 bankruptcy protection in the
United States, hurt by high fuel costs and slack demand stemming from
the political and economic crises in Venezuela and Argentina, as well as
Colombia's own guerrilla war, Reuters reported.