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November 18, 2002
Overnight House Maneuvering Fails to Save Bankruptcy
Senate Majority Leader Tom Daschle (D-S.D.) on Friday indicated the
Senate would not take up a newly revised bankruptcy bill, passed by the
House in the early morning hours before adjourning, CongressDaily
reported. Asked about the bill's status, Daschle said: 'Well, the House
Republicans killed bankruptcy for this year. It's as simple as that.' He
added: 'Even if I wanted to take it up, it would never pass. It would be
subject to a filibuster,' the newswire reported. The House tried, for a
second time, early on Friday to pass a bankruptcy reform bill, after
failing late on Thursday to approve a rule to take up a compromise
conference report brokered with the Senate. That rule was defeated by
the defections of pro-life Republicans objecting to the Schumer
amendment. Daschle decried the House's overnight tactics, saying: 'We
had a compromise that was the product of virtually years of work, and
months of intense work over the course of the last five or six months.
You had Republicans and Democrats who recognized the fragile nature of
this compromise, and yet the Republicans defeated it,' the newswire
reported.
Industry lobbyists and Senate staff predicted the measure would be
back on Congress's agenda next year. However, one lobbyist noted that
the business community's 'ardor' had been somewhat cooled by this year's
poor experience, and the fact that House GOP leaders are accusing
business interests of failing to deliver the needed votes. As for next
year, Daschle was skeptical. 'You know, this [year's bankruptcy bill] is
a classic example of bipartisanship, and it failed. So I don't know how
it would - how it could be more successful next year,' he said,
according to the newswire.
Separately, CongressDaily reported that last-minute objections to
legislation to create a Homeland Security Department will keep the
Senate in session into this week, dashing hopes that Friday would be the
final day of the lame-duck session. Daschle said he hopes the Senate's
final day in session would be Tuesday, although Minority Leader Trent
Lott (R-Miss.) said votes on a number of remaining issues could force
the session to 'slop over into Wednesday.' The House is scheduled to
reconvene at noon next Tuesday for a pro forma session, but legislators
are expected to return only if the Senate makes significant changes to
homeland security legislation.
UNITED AIRLINES
UAL Encounters Obstacles to Federal Loan Guarantee
UAL Corp., parent of United Airlines, is fighting an uphill battle to
get a $1.8 billion federal loan guarantee that the airline says is
essential if it is to avoid filing for bankruptcy protection before the
end of the year, the Wall Street Journal reported. The staff of
the Air Transportation Stabilization Board is scrutinizing the company's
business plan skeptically, and the betting among Bush administration
insiders familiar with the board's thinking is that the board, which has
three voting members, eventually will reject the application or set
conditions so onerous that UAL will reject them. The board, however, has
yet to make even a tentative decision.
The Chicago-based company, the nation's No. 2 airline, had hoped to get
the green light for the loan guarantee soon so it could raise $2 billion
in fresh capital and stay out of bankruptcy court. But the company is
burning through more than $7 million in cash a day, and it faces a $375
million debt repayment on Dec. 2. United said in a recent federal filing
that without the loan guarantee, and the cost reductions that it has to
make to get the guarantee, it doesn't expect to be able to have
sufficient liquidity to support its obligations through year end. It
recently succeeded in postponing $500 million in additional debt coming
due in the next few weeks.
United Air Expects Revenues to Rise by $90 Million a Year, Will
Cut Jobs and Flights
United Airlines, working to fend off a bankruptcy-court filing, said it
expects to boost revenue by $90 million a year by deepening its
trans-Atlantic marketing relationship with Star Alliance partner
Lufthansa, the Wall Street Journal reported. UAL Corp.'s United
also is continuing to try to generate new funding and concessions,
including payment deferrals, from its vendors, lessors, lenders and
aircraft manufacturers, people familiar with the matter said. Last week,
UAL bought some time by persuading a German bank to extend $500 million
in debt that was due this month and next to 2007. But any fresh
assistance is contingent on UAL's receiving $1.8 billion in federal loan
guarantees, these people said, according to the online newspaper.
United disclosed details of a business plan that it has given to the
federal Air Transportation Stabilization Board, which is considering the
loan guarantee, the New York Times reported. United said that it
expected to post an operating profit for 2004 and would begin repaying
$1.8 billion in loan guarantees in 2005. The loans would be repaid by
2007. Included in the plan is another 9,000 job cuts. In the plan,
United said that it would defer aircraft deliveries through 2005, and
delay deliveries of some aircraft as late as 2009. Largely as a result
of that action, United said it would reduce capital spending from an
average of $2.4 billion in each of the last seven years, to $450 million
in 2003 and $400 million in 2004. The airline also said that it expected
to have reduced the number of its employees to 74,000, from about 83,000
by 2004, from more than 100,000 before the Sept. 11 attacks.
Atlantic Coast Down 11 Percent on Concerns of Exposure to
UAL
A UAL Corp. bankruptcy would hurt Atlantic Coast Airlines Holdings Inc.,
Dow Jones reported. That's the view on Friday from Credit Suisse First
Boston (CSFB), which lowered its investment opinion on Atlantic Coast
while noting that the carrier derives the bulk of its capacity from UAL.
Many people fear UAL, parent of United Airlines, could be the next major
airline to declare bankruptcy. Shares of Atlantic Coast fell 17 percent
as a result of CSFB analyst James Higgins's decision to cut his rating
to underperform from outperform. Also feeling the effects of CSFB's
actions on Friday was Skywest Inc., which fell nearly 50 percent after
CSFB cut its investment rating, citing its exposure to UAL. CSFB said
UAL generates about 50 percent of Skywest's revenues, with 'more stable
Delta generating the remainder - SKYW's exposure is material.' With the
uncertainties over a possible UAL bankruptcy, which could happen as
early as December, CSFB said it sees little up-side for the next several
months.
Enron Sues Dynegy in Bankruptcy Court for $230 Million
Enron Corp. on Friday moved to recover about $230 million from hometown
rival Dynegy Inc., setting in motion a dispute whose outcome could
greatly impact Enron's ability to repay creditors, Dow Jones reported.
At issue is a so-called master netting agreement, entered into between
the two companies less than a month before Enron's bankruptcy filing, on
Dec. 2. Such pacts, common in the energy industry, are designed to allow
counterparties -- usually more than two -- to 'net' their contract
requirements, allowing positive balances from one transaction to be
offset by a negative balance on another.
Enron's action on Friday was in response to a Dynegy motion last month.
The Dynegy motion seeks bankruptcy court approval to enforce an
arbitration clause contained in the agreement that would allow Dynegy to
reach out of court the final settlement amount under the contract. In a
filing with the U.S. Bankruptcy Court for the Southern District of New
York, Enron says that Dynegy's request is an attempt to obtain a result
'in an arbitration favorable to the Dynegy counterparties that would be
prohibited' under the Bankruptcy Code. Judge Arthur Gonzalez,
presiding over Enron's chapter 11 proceeding, will hear the case on
Thursday.
Judge Limits Rigases' Insurance Request to $300,000 Each
A federal bankruptcy judge ruled on Friday that former Adelphia
Communications Corp. Chief Executive John Rigas, his three sons, and two
other criminally charged former company officers can tap the cable TV
company's insurance to help pay their legal bills, Dow Jones reported.
But Judge Robert Gerber, who is overseeing Adelphia's bankruptcy
proceeding in New York, limited the amount of insurance money they are
currently entitled to withdraw to $300,000 each. Meanwhile, Judge Gerber
also granted Adelphia's request to halt, pending the conclusion of the
criminal proceeding, a lawsuit in which the company's insurers are
seeking to rescind its directors-and-officers coverage.
Med Diversified Suffers Court Setback Against National
Century
Efforts by Med Diversified Inc. to regain control of its future accounts
receivable were thwarted by Judge Algenon Marbley in Federal Court for
the Southern District of Ohio, giving National Century Financial
Enterprises (NCFE) some breathing room for its efforts to resolve its
dire financial condition, Dow Jones reported. Matt Kairis, an attorney
at the firm of Jones Day, representing NCFE, said Judge Marbley ruled on
Thursday evening that the commitment by Med Diversified to turn over all
of its accounts receivable to National Financial remains in effect
despite the current inability of the finance company to provide funding
at this time.
NCFE is the nation's largest provider of health care financing --
serving between 100 and 200 middle market health care providers. Subject
to agreements with these providers, NCFE forwards funds to the health
care facilities to meet their payrolls and expenses. In return, NCFE
obtains the right to the providers' billings, which it collects from
insurance companies or government programs. Jim Nickell, spokesman for
NCFE, also wouldn't comment on bankruptcy reports -- saying only that
the company is working with bondholders to develop strategies on how to
keep the company going. He said 112 employee have been released since
its problems surfaced -- leaving 215.
WorldCom Names Capellas Its New Chairman, CEO
WorldCom Inc. ended a week of speculation by naming former
Hewlett-Packard Co. (HP) President Michael D. Capellas its new chairman
and chief executive, the Wall Street Journal reported. At a news
conference, Capellas said WorldCom, which is in chapter 11 bankruptcy
proceedings, is fundamentally strong at its roots, adding that he has no
plans to break up the company. He also said he won't rebuild WorldCom's
management team, although he will add some 'familiar' people to the
company. Capellas stepped down as HP's president last Monday. Prior to
working at H-P, he served as chairman and chief executive of Compaq
Computer Corp., which H-P acquired earlier this year.
Conseco Delays Filing, Warns of $1.8 Billion Loss
Teetering on the edge of bankruptcy protection, Conseco Inc. said it
expects to report a $1.8 billion loss for the third quarter and will
delay its filing of the period's financial results, the Wall Street
Journal reported. The insurance and finance company also said on
Friday that it plans to record a noncash charge of $700 million to write
down the carrying value of securitization trusts in its long-troubled
Conseco Finance Corp. unit as it continues to review the value of those
interests. Conseco acknowledged earlier this year that it might seek
chapter 11 bankruptcy protection if it can't hammer out a deal with its
creditors to restructure more than $4.5 billion of holding-company debt.
Conseco's financial problems date to 1998, when it acquired Green Tree
Financial Corp., a mobile-home lender now known as Conseco Finance. The
acquisition saddled Conseco with much of its current debt, and as the
economy soured, so did its lending business. Defaults climbed and
Conseco was unable to generate enough cash to service its debts.
Roxio to Buy Napster Assets
Santa Clara, Calif.-based Roxio Inc. signed a definitive agreement to
acquire the assets of Napster Inc. for about $5 million in cash and
100,000 warrants, Dow Jones reported. The digital media software company
said it will receive all of Napster's intellectual property including
its technology patent portfolio, but won't assume any of Napster's
liabilities, including pending litigation. If the bankruptcy court
approves the deal, the transaction should close on Nov. 27, the newswire
reported. The company said the purchase will expand its role in the
'digital media landscape' and said it would provide a more specific
outline of how Napster will expand Roxio's role in the industry after it
closes the deal.
XO Communications Wins Court OK for Reorganization Plan
XO Communications Inc. won the bankruptcy court's approval on Friday for
its proposed restructuring plan that gives financier Carl Icahn a
controlling position in a reorganized XO, Dow Jones reported. Under the
plan, Icahn, who holds a large portion of XO's debt, is in line to swap
that for an 80 percent stake in new XO stock. Overall, the restructuring
pact provides that holders of XO bank debt will receive 95 percent of
the equity in reorganized XO and $500 million in junior secured debt.
Bondholders and senior unsecured lenders will receive the remaining 5
percent and warrants for 10 percent of the company. Shareholders are
wiped out in the plan. XO, a phone and Internet services provider for
businesses, filed for bankruptcy-court protection in June, joining a
parade of telecommunications carriers burdened by heavy debt loads amid
a prolonged industry slump. The approval of the plan on Friday capped
five months of negotiations among the company, its creditors' committee,
Icahn, and an investment group led by Forstmann Little & Co, the
newswire reported.
SpectraSite Holdings Files Expected Chapter 11
Reorganization
SpectraSite Holdings Inc. filed for chapter 11 and will submit a
reorganization plan this week, Dow Jones reported. The expected filing,
which was first announced earlier this month, is part of a
recapitalization plan to which the company agreed with its bondholders.
Under the agreement reached with beneficial holders of about 66 percent
of its senior notes, the company said the plan will further reduce its
consolidated annual interest expense by about $200 million. SpectraSite
Holdings also amended its agreements with Cingular and SBC
Communications Inc. Under the amendment, SpectraSite will transfer its
interest in 545 SBC towers to Cingular, reduce its future sublease
commitment with SBC by 294 towers and extend the closings for the
remaining SBC towers through the third quarter of 2004. The chapter 11
plan involves a restructuring of only the debt and equity securities of
SpectraSite Holdings, which is a holding company without any business
operations of its own. As previously announced, SpectraSite will name a
new board after it emerges from chapter 11. The board will consist of
Chief Executive Steve Clark and four members of the senior noteholder
committee.
Oakwood Homes to File for Chapter 11
Prefab homebuilder Oakwood Homes Corp. said on Friday it will file for
chapter 11 bankruptcy protection, due in part to poor performance of
some loans to homebuyers, Reuters reported. The Greensboro, N.C.-based
builder of homes that are made in a factory and shipped to the site said
the agreement in principle it has reached with creditors representing
nearly 40 percent of its senior unsecured debt and guarantee obligations
would hand control of the company to debtholders. As part of the
restructuring, Oakwood said that on Thursday it closed five
manufacturing plants and its loan origination operations in Texas. It
plans to close 75 retail locations, principally in the Deep South,
Tennessee and Texas, which are highly competitive markets and have been
negatively affected by its tightening of retail credit standards over
the past 18 months.
'Our filing is largely driven by the continued poor performance of loans
we originated in 2000 and before, as well as the deteriorating terms in
the manufactured housing asset-backed securitization market into which
we sell our loans,' said Myles Standish, Oakwood president and chief
executive, in a statement, the newswire reported. As part of plan to
restructure its balance sheet, Oakwood said it expects to file a
voluntary petition for relief under chapter 11 of the U.S. Bankruptcy
Code with the United States Bankruptcy Court in Wilmington, Del. Oakwood
said it expects to emerge from bankruptcy in a matter of months.
PG&E Bankruptcy Trial to Weigh Rival Rescue Plans
The $13 billion Pacific Gas & Electric Co. bankruptcy case goes to
court today after 19 months of preliminary courtroom skirmishing between
California's biggest utility and state energy regulators, Reuters
reported. Pacific Gas & Electric, owned by San Francisco-based
PG&E Corp. and the California Public Utilities Commission have
prepared rival plans they claim will pay off creditors and restore the
utility to financial health. The utility, which delivers gas and
electricity to about 13 million Californians, sought federal bankruptcy
protection in April 2001, a victim of California's and the power
industry's ill-fated attempt to deregulate the electricity market. But
PG&E and the regulators have plotted very different plans to get the
nearly century-old company back on its feet. It's now up to U.S
Bankruptcy Judge Dennis Montali to rule which way is most feasible.
Analyst's View On Halliburton Asbestos Case Stirs Debate
A forecast by a Morgan Stanley equity analyst of an imminent settlement
of the asbestos liability of oil services titan Halliburton Co. is too
optimistic, say others who follow the company, Dow Jones reported. These
analysts believe that too little time has elapsed since the
asbestos-driven filing for bankruptcy protection in February by
Harbison-Walker, a former subsidiary of Halliburton's Dresser Industries
unit. Asbestos cases are very complex and can take years to wind their
way through the courts before final resolution, they say. On Thursday,
Morgan Stanley analyst Ole Slorer changed his recommendation on
Halliburton to overweight from equal. Halliburton has asbestos claims
based on its refractory business and its engineering and construction
lines, as well as through its Dresser connections. Harbison-Walker filed
for bankruptcy protection in February 2002, at which time it had more
than 200,000 pending asbestos claims. Halliburton continues to pursue a
global resolution of its asbestos liabilities, said a company
spokeswoman. But it can't provide an update on the status of its
efforts, she said.
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