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October 30, 2002
Consumer Confidence Drops in October
Consumer confidence in the economy plunged in October to the lowest
level since 1993, CongressDaily reported. It was the fifth
straight monthly decline in the Consumer Confidence Index, and prompted
a drop on Wall Street, where the Dow Jones Industrial Average (DJIA)
fell by almost 130 points in early trading and the Nasdaq fell almost 30
points. At 2:30 p.m., the DJIA had dropped 130 points for the day to
8,237.52, while the Nasdaq had fallen 34 points to 1,282.28. The index,
considered an indicator of future consumer spending, dropped to a
reading of 79.4, down from 93.7 in September. The index fell past a
recent low of 84.9 in November 2001, when economic expectations were
dampened by a recession and the Sept. 11 terrorist attacks.
WorldCom Wins Approval for $25 Million Bonus Plan
WorldCom Inc. won a bankruptcy judge's approval to pay $25 million in
bonuses to 325
executives and employees that the No. 2 U.S. long-distance telephone
company wants to keep as it reorganizes, Bloomberg News reported. In
approving the request, U.S. Bankruptcy Judge Arthur Gonzalez
overruled an objection by SBC Communications Inc., a creditor that
argued WorldCom didn't supply enough information to support its
proposal. Gonzalez also said he received letters from WorldCom
shareholders 'questioning the fairness and wisdom'' of the bonus
payments. 'Paying retention bonuses magnifies the understandable
frustration'' of investors, Gonzalez said. The issue, however, is
whether the $25 million payout will 'enhance value' for creditors, he
said. Employees covered by the bonus plan will get payments equal to 35
to 65 percent of their annual salaries. Bonuses will be paid in three
installments and come from $20,000 to $125,000 per employee.
Half the bonus will be paid out in two disbursements on Dec. 1 and March
31. The rest will be paid after WorldCom wins court approval of its
chapter 11 reorganization plan. A $2.5 million pool would be used to pay
additional bonuses at management's discretion.
WorldCom will pay employees an extra 25 percent of their retention bonus
if they remain with the company and the court approves a chapter 11
reorganization plan by September 2003. If the plan is approved by
October 2003, the addition would be 20
percent of the retention bonus. Employees would get 10 percent extra if
the plan is approved by December 2003.
Gilat Satellite Networks Files for Chapter 11 in the United
States
Gilat Satellite Networks Ltd. filed for bankruptcy to shield U.S. assets
of the
satellite equipment maker from creditors while it reorganizes in an
Israeli court, Bloomberg News reported. Gilat listed $775 million in
assets and $637.2 million in debts in papers filed in the U.S.
Bankruptcy Court in Wilmington, Del. The company, based in Petah Tikva,
Israel, invoked a rarely used provision of chapter 11 designed to
protect the assets of companies that have filed for bankruptcy in
foreign courts. An Israeli bankruptcy court on Oct. 16 gave Gilat 30
more days to arrange the conversion of most of its $350 million of bond
debt into equity. The Tel Aviv court's order was issued as bond payments
came due.
'If the U.S. court grants Gilat's petition, the foreign
representative maintains control and doesn't have to deal with all the
expense and aggravation of a chapter 11,'' said Evan D. Flaschen,
a lawyer with Bingham McCutchen LLP and an expert on international
bankruptcy law. 'Meanwhile Gilat can get the benefits of chapter 11 and
the plan in Israel would apply in the United States. ''Most of Gilat's
debt is held by Israeli creditors, including $103 million owed to Bank
Hapoalim, Bank Leumi and Israel Discount Bank. Gilat asked U.S.
Bankruptcy Judge Mary Walrath to defer to the Israeli court and freeze
legal actions and debt-collection efforts against the company in the
United States. In May, StarBand Communications Inc., a satellite
Internet service provider partly owned by Gilat, EchoStar Communications
Corp. and Microsoft Corp., also sought chapter 11 bankruptcy protection
in Delaware.
Enron Sues Bank of America over $123 Million in Bank Account
Enron Corp. sued Bank of America Corp., claiming the third-biggest U.S.
bank unlawfully took more than $123 million from its bank account as the
energy company spiraled into insolvency, Bloomberg News reported. Last
November, days before Enron's bankruptcy filing, Bank of America
'effected a series of unauthorized withdrawals from an Enron bank
account that deprived Enron and its creditors of essential operating
funds,' the lawsuit said. Bank of America denied Enron access to its
bank accounts, refused to answer questions and failed to provide an
explanation until months later, the newswire reported. Enron is asking
U.S. Bankruptcy Judge Arthur Gonzalez to order Bank of America to turn
over more than $123.1 million. The Houston-based company is also seeking
punitive damages, a downgrade of the bank's claims against Enron and
legal costs.
Student Loan Burden Slows Spending
Some 67 percent of Americans with outstanding student loans say those
loans keep them from making major purchases, including homes and cars, a
survey by the Cambridge Consumer Credit Service reveals, Collections
and Credit Risk reported. Of those surveyed, 20 percent say student
loans are a major burden, while 47 percent say loans pose a major burden
to spending. Of the entire U.S. public, 18 percent report having
outstanding student loans, while 82 percent do not have such loans.
Students are graduating with larger loan bills than ever, creating a
financial straitjacket that can take decades to escape. Seniors at
four-year universities are leaving school with an average of $13,000 in
student loans. In addition, students also leave school with credit card
debts at higher interest rates. Some experts fear debt could worsen
should the economy continue to lag.
Microsoft Objects to Kmart ISP Sale
Microsoft Corp. asked the court handling Kmart Corp.'s chapter 11 case
to block Kmart from transferring license agreements to the buyer of its
Internet-service operations, the Wall Street Journal reported.
Aspects of the sale have also been opposed by the state of Illinois, the
state of Washington and the company's lenders. Kmart and its
BlueLight.com LLC unit agreed to sell the assets related to their
dial-up Internet access and e-mail services business to NetBrands Inc.,
a wholly-owned subsidiary of United Online Inc., for $8.4 million.
Microsoft said Kmart intends to transfer some Microsoft-licensed
software to the proposed buyer as part of the sale. The Redmond,
Wash.-based software giant contends that the licenses Kmart has relate
to copyrighted materials that can't be assigned without Microsoft's
consent. A hearing is scheduled for Wednesday in the U.S. Bankruptcy
Court in Chicago.
The Executive Office for United States Trustees Moves to New
Office
The Executive Office for United States Trustees is relocating, effective
Nov. 4, 2002. The office's new address will be 20 Massachusetts Ave.,
N.W., Suite 8000, Washington, D.C., 20530. Telephone and fax numbers
will remain the same.
General Electric Puts Exposure to US Air, United at $4.4
Billion
General Electric Co. said its exposure to troubled airline companies US
Airways Group Inc. and United Airlines-including loans, leases and
guarantees and commitments under airline financing programs--is $4.4
billion, Dow Jones reported. The company disclosed the information in a
10-Q filing with the Securities and Exchange Commission on Tuesday. US
Airways, which filed for reorganization in bankruptcy in August, and
United Airlines, which is considering a bankruptcy filing, are two of
General Electric's major airlines customers. General Electric said it
has been in discussions with both airlines and has made a provision for
probable losses. The loans, leases and guarantees made to US Airways and
United are secured by individual aircraft or pools of aircraft engines,
the newswire reported.
NewPower Holdings Seeks OK to Use Funds to Pay Enron Claim
NewPower Holdings Inc. is asking a bankruptcy court for the authority to
use funds in a segregated account to pay an amount owed to Enron Corp.
and some Enron affiliates, Dow Jones reported. The company owes the
Enron creditors a principal amount of $28 million for a promissory note.
That note is secured by liens on nearly all the assets of NewPower and
subsidiaries New Power Co. and TNPC Holdings Inc. When Enron filed for
bankruptcy last December, several commodity purchase agreements between
NewPower and some Enron units were terminated or accelerated, the
newswire reported. The Enron creditors-consisting of Enron Corp., Enron
North America Corp., Enron Power Marketing Inc. and Enron Energy
Services Inc.-and NewPower negotiated a settlement of claims against
each other. The settlement, approved in a New York court on March 28,
calls for NewPower to pay the Enron creditors about $98 million. Enron
and the units received more than 70 percent of that amount by setting
off about $70 million of NewPower's funds that were securing contracts.
The U.S. Bankruptcy Court in Newnan, Ga., on Friday scheduled a hearing
on the matter for Nov. 15. NewPower on Oct. 8 filed a chapter 11
liquidation plan that calls for about $147 million to be distributed
among the creditors of the company and its units. NewPower Holdings and
its two units filed for bankruptcy protection on June 11. The parent
company listed total assets of about $231.8 million and total debts of
roughly $78.9 million as of March 31 in its chapter 11 filing.
Judge Lets Asbestos Creditors' Suit Move, Cites Costs
The judge presiding over W.R. Grace & Co.'s asbestos claimants'
lawsuit against Sealed Air Corp. said the lawsuit's 'unique
circumstances' require it to go forward, despite a recent higher court
ruling that appears to bar it, Dow Jones reported. Using the equitable
powers granted to judges under the Bankruptcy Code, U.S. District Court
Judge Alfred M. Wolin late last week ordered the fraudulent transfer
suit to proceed to trial on Dec. 2. He pointed to the $16.7 million the
parties had already spent on the matter and the fact that the
conflicting higher court ruling, known as Cybergenics, could be
overturned, according to an opinion obtained late on Monday by Dow Jones
Newswires. The Cybergenics ruling said creditor groups can't
bring certain lawsuits against third parties on behalf of a company's
bankruptcy estate. The ruling came down Sept. 20, just days before the
Sealed Air suit had been scheduled for trial. Judge Wolin delayed the
trial while the parties suggested ways to proceed in light of the
ruling. He ultimately ordered the suit to proceed forward as is.
Judge Wolin said that despite the Cybergenics ruling, prohibiting
some creditor group lawsuits on behalf of a company's bankruptcy estate,
the asbestos claimants' suit should go forward because of cost issues
and because the ruling could be overturned later on appeal. Judge Wolin
based his decision on Bankruptcy Code §105-a rarely-used provision
that allows judges to issue any order needed to carry out the provisions
of the Bankruptcy Code.
Dow Jones reported that the court handling W.R. Grace & Co.'s
chapter 11 case has approved the company's request to amend its
employment agreement with Chairman and Chief Executive Paul Norris. The
request was granted by Judge Judith K. Fitzgerald, according to
an order obtained on Tuesday by Dow Jones Newswires. The amended
agreement entitles Norris, whose base salary under the original contract
is at least $875,000, to receive a retention bonus equal to 130 percent
of base salary at the end of 2003 and 2004, according to court papers.
The parties' original contract provided for a retention bonus for 2001
and 2002, but not 2003 or later.
MW Medical Seeks Holder OK of 1-For-25 Reverse Stock Split
MW Medical Inc. is seeking shareholder approval of a 1-for-25 reverse
split of its common stock, according to a preliminary proxy filed late
Monday with the Securities and Exchange Commission, Dow Jones reported.
The board is seeking the split to make the company more attractive as a
target for a merger or reverse acquisition. MW Medical said its
operations are at a standstill and its stock price is trading at 1 cent
a share. The company said that after emerging from chapter 11
bankruptcy, it's seeking additional funding or other business
relationships. While there aren't any such business relationships or
funding yet, the company said it believes a large number of shares may
hurt any such relationship and that a smaller number of outstanding
shares would better attract funding sources and merger partners, the
newswire reported. The shareholders meeting is scheduled for Nov.
22.
Asia Global Crossing to Make Interest Payments on $408 Million in
Debt
Asia Global Crossing Ltd., the fiber-optic network operator
majority-owned by bankrupt Global Crossing Ltd., said it will pay
interest on $408 million of debt, after earlier saying it may delay
payment, Bloomberg News reported. Asia Global Crossing said in a
statement that it paid the trustee, Bank of New York Co., about $27.3
million. The company had said on Oct. 15 it would use a 30-day grace
period for making payments due that day. That was the second time the
Bermuda-based company said it may put off paying interest on its 13.375
percent senior notes maturing in 2010. The company is looking for ways
to raise cash and avoid bankruptcy after 59 percent owner Global
Crossing last December refused to lend it $400 million and in January
filed for chapter 11 protection from creditors. Both companies suffered
as demand plunged for the 27-nation telecommunications network they
share.
Buckeye Steel Castings to Sell Ohio Plant
Negotiations with lenders on a financial deal to reopen Columbus,
Ohio-based Buckeye Steel Castings have failed and the 121-year-old plant
will be put up for sale, the Associated Press reported. Company
President Joe Harden said on Monday he was hopeful a buyer could be
found that will put the plant and its 700 employees back in business.
Otherwise, the plant could wind up being liquidated in pieces to the
highest bidders, he conceded. Buckeye Steel closed abruptly two weeks
ago after a short-term financing deal with a group of lenders expired.
The lenders refused to release any more money and froze Buckeye's
accounts. Bank of America, the lead bank in the lending group, has set a
Nov. 4 sale date for Buckeye and its assets. But Harden said it will
take longer for potential bidders to prepare offers. Buckeye is one of
just three companies that makes undercarriages for railroad cars and one
of them is in bankruptcy, Harden said. He's sure that demand for the
company's product will increase once the economy improves.
BellSouth Files Motion to Dismiss Supra Bankruptcy
BellSouth Corp. asked a bankruptcy court to dismiss a chapter 11 filing
by Supra Telecom, in which it is involved in a dispute about service
fees, Dow Jones reported. In a press release, the Atlanta
telecommunications company said it filed motions with the U.S.
Bankruptcy Court, Southern District of Florida, asking the court to
dismiss Supra's filing. BellSouth also asked the court to order Supra to
pay BellSouth a $26.2 million deposit to secure payment of services
provided during the bankruptcy proceedings. The telecommunications
company said Supra owes it more than $100 million from a previous
contract and uses $450,000 of BellSouth services a day. If the court
were to delay a decision on the motion by 20 days, BellSouth said it
would be exposed to $9 million of expenses it doesn't believe will be
paid. Last week, Supra said it was seeking chapter 11 bankruptcy
protection and a reorganization after BellSouth threatened to terminate
its service contract. The company has accused BellSouth of overbilling
and denying it revenue to which the company is entitled.
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