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July 18, 2005
Grassley to Detail Pension Overhaul This Week
Senate Finance Chairman Charles Grassley (R–Iowa) this week
plans to announce the outlines of his legislation overhauling the
nation’s pension laws. Grassley hopes to mark up the bill during
the last week of July, a spokeswoman said.
Inflationary Pressures Building in U.S. Economy, Survey Says
The U.S. economy is growing at a “solid” pace, causing
inflation pressures to mount, according to a quarterly survey by the
National Association for Business Economics of its members, Bloomberg
reported. Most of the economists—60 percent—said that gross
domestic product will expand by more than 3 percent in this year’s
second half. Hiring plans also increased. At the same time, an index of
prices charged by member companies rose to a nine-year high.
“Conditions are pretty good, and the economy is prospering,”
James Meil, chief economist at Eaton Corp. in Cleveland and co-author of
the report, said in an interview. “If there is a yellow-light
signal or a warning in the survey, it shakes out on the inflation
front.”
The newswire also reported that continued strength in housing and
consumer spending suggest that the U.S. economy is growing fast enough
to warrant more interest rate increases, and economists expect Fed
Chairman Alan Greenspan to tell Congress this week. Greenspan is
scheduled to share his economic views with lawmakers on July 20 and 21
in what may be his last appearance before Congress as head of the
nation’s central bank.
Delta Shares Fall as Bankruptcy Threat Remains
Shares in Delta Air Lines Inc. and rival carriers fell on Friday as
analysts said that a rally prompted by the airline’s decision to
raise some fares had not lessened the chance that it could file for
bankruptcy, Reuters reported. Delta shares were down 11 cents, or 2.7
percent, at $3.96 in afternoon trading on the New York Stock Exchange.
On Thursday, the airline raised its caps on walk-up fares by $100 to
combat soaring fuel prices. Traditional airlines including UAL
Corp.’s United Airlines, Continental, AMR Corp.’s American
Airlines and Northwest followed suit. The move touched off a surge in
most of the airlines’ shares on optimism that the action could
help stem billions of dollars in losses amid strong competition that has
made it difficult to raise prices to offset increasing oil costs. But
analysts said that Delta, widely considered the weakest of the so-called
legacy carriers, would gain only marginally from the move and had not
significantly reduced the probability that it would be forced into
bankruptcy over the next year.
Bankruptcy Judge Approves United Airlines’ Loan Request
A federal bankruptcy judge on Friday approved United Airlines’
request for an additional $310 million in loans as the carrier works on
its plan to emerge from bankruptcy this fall, the Associated Press
reported. United, which is owned by Illinois-based UAL Corp., said the
financing is needed to provide a “stable environment” as it
works toward filing a reorganization plan with the bankruptcy court,
which the company is expected to do early next month.
ATA Airlines to Cut Maintenance, Reservations Jobs
ATA Airlines on Friday said that it planned to cut a further 450 jobs
to reduce expenses and become more competitive as it seeks to emerge
from bankruptcy protection, Reuters reported. ATA, controlled by ATA
Holdings Corp., said that it was cutting 350 maintenance and 100
reservations jobs, with the possibility of calling some of the workers
back. The cuts are a result of moves to out-source heavy maintenance and
its reservations call center, ATA said.
Northwest to Freeze Pensions in August, Switch to 401(k)s
Northwest airlines announced that it will freeze the pension plan
that covers about 3,300 salaried employees and make contributions to the
employee’s 401(k) investment accounts instead, the Associated
Press reported on Saturday. The move could make it easier for the
airline to go to the bargaining table and persuade unionized workers to
accept a similar move. The airline has said controlling pension costs is
vital for its financial health. NWA’s pension funds are
underfunded by about $3.8 billion. The pension plans require the airline
to pay a defined benefit, while the 401(k) program gives employees money
to invest for their retirements. The St. Paul Pioneer Press
reported that the freeze will be effective Aug. 31, andthat the
employees will be entitled to the pension benefits they have earned as
of that day. However, benefits under the plan will stop increasing as
they normally would with pay raises and years of service. About 70,000
current and retired employees are covered by Northwest's pension plans.
In a Securities and Exchange Commission filing on July 1, the airline
said current pension law would require it to pay $800 million in 2006
and $1.7 billion in 2007 to its pension. “Failure to obtain
pension funding relief will also cause the company to consider chapter
11,” it wrote in the filing.
IRS Revokes Tax-Exempt Status of Four Credit-Counseling
Agencies
The Internal Revenue Service has revoked the tax-exempt status of
four credit-counseling agencies and is challenging the status of another
“two handfuls,” an agency official said yesterday, the
Washington Post reported. The revocations are part of a
federal and state crackdown on nonprofit credit-counseling agencies
after hundreds of consumers complained about deceptive and fraudulent
marketing practices, including high fees, high-pressure tactics and
inadequate educational services.
href='http://www.washingtonpost.com/wp-dyn/content/article/2005/07/16/AR20050…'>Read
the full story at washingtonpost.com.
Enron Settles Price-Gouging Claims with Three Western States
Bankrupt energy company Enron Corp. has agreed to pay $47.5 million
in cash, in a settlement that could eventually top $1.5 billion, to
resolve claims that it gouged California and other western states during
the 2000–2001 energy crisis, according to an Associated Press
report on law.com. The settlement will end market manipulation and
price-gouging claims against the once high-flying Houston-based company,
California Attorney General Bill Lockyer said Friday. The agreement
requires approval by the bankruptcy court and the Federal Energy
Regulatory Commission. In addition to the cash payment, Enron will
provide California with an unsecured claim for $875 million in the
energy company's bankruptcy proceedings. Oregon and Washington would be
entitled to $22.5 million each from that unsecured settlement. The
settlement also calls for the company to pay a $600 million penalty to
the three states. All of the payments, except for the cash settlement,
represent unsecured claims, which often generate payments of only a
fraction of the face value. The final payment amounts will depend on
what is left after Enron’s secured creditors are repaid as part of
the bankruptcy proceedings. About $65 billion in claims are awaiting
settlement in Enron’s bankruptcy case, company officials said.
Bankruptcy Law Changes Toughen Rules for Companies Seeking
Protection
Changes in corporate bankruptcy law could create a rush to the
courthouse by ailing companies in search of easier treatment, Gannett
News Service reported. Starting Oct. 17, new deadlines and creditor
protections in the law will make bankruptcy reorganizations harder and
more expensive for companies seeking protection under chapter 11. The
changes are part of the Bankruptcy Abuse and Consumer Protection Act
signed into law in April. New restrictions on personal bankruptcies have
garnered the most attention, but bankruptcy experts say that new rules
designed to prevent foot-dragging and financial abuse in corporate
bankruptcies could have widespread impact. In general, says Boston
bankruptcy lawyer Jon Schneider, “there’s probably going to
be a raft of filings in September to avoid this new law.”
Under the new rules, fewer companies going into chapter 11 will ever
come out, experts say. “Taken together, these changes will doom
some companies to fail in chapter 11,” says New York lawyer D.J.
Baker of Skadden Arps, who is representing supermarket chain Winn-Dixie
in its reorganization. Bankruptcy lawyer James Sprayregen of Kirkland
& Ellis in Chicago predicts the new rules will make it harder for
companies to raise enough financing in bankruptcy.
href='http://www.shreveporttimes.com/apps/pbcs.dll/article?AID=/20050716/NEWS…'>Read
the full story at shreveporttimes.com.
Money, Suits Key Issues in Metabolife Bankruptcy
As the proposed bankruptcy sale of Metabolife International heads
towards a September closing, attorneys representing a multitude of
stakeholders sparred in court on Friday about how the company’s
money should be divided, the San Diego Union-Tribune
reported. The three owners of the San Diego–based dietary
supplement firm contend that a potential pool of more than $70
million—$23.5 million from the anticipated sale, $10 million in
existing company cash and $40 million in potential
insurance—should be ample to pay off hundreds of personal injury
claims pending against the maker of the now-defunct ephedra diet pill,
Metabolife 356. In a motion filed in court, attorneys representing
shareholders Michael Ellis, Michael Blevins and William R. Bradley
calculate that Metabolife has already settled 182 lawsuits for an
average of
$62,000 each—or a total of $11.3 million. At that rate, the cost
of settling an estimated 350 additional lawsuits would be about $22
million, leaving significant assets remaining, they argued. Metabolife,
faced with falling sales and mounting legal problems, filed for chapter
11 bankruptcy protection on June 30.
href='http://www.signonsandiego.com/news/business/20050716-9999-1b16metabo.ht…'>Read
the full story at signonsandiego.com.
Bankruptcy Judge Approves Havens Steel Plant Sale
A federal bankruptcy judge on Friday approved the sale of Havens
Steel Co.’s plant in Ottawa, Kan., setting the stage for the
liquidation of the Kansas City steel fabricator, the Kansas City
Star reported. Schuff Steel Co. of Phoenix, which has been
running the Ottawa plant since the beginning of the month, acquired the
facility for $4.5 million, according to a court order signed by U.S.
Bankruptcy Judge Jerry Venters. Schuff Steel emerged last month as the
leading candidate to buy Havens’ Ottawa plant, which had been the
company’s only operational facility for many months. Havens had
been leasing the Ottawa facility to Schuff while the bankruptcy court
gave other companies an opportunity to make a higher offer, but no new
bidders emerged, according to bankruptcy documents. Havens Steel filed
for bankruptcy protection from creditors in March 2004 after it was
crippled by soaring steel prices. When it filed, the company reported it
had about $38.8 million in assets and about $40 million in liabilities.
In addition to about $17.2 million in secured debts owed to Commerce
Bank and St. Paul Fire and Marine at the time, the company listed just
over $22.9 million in unsecured debt, according to the Star
report.
Oregon Gov. Signs Bill Increasing Bankruptcy Exemptions for First
Time in 12 Years
Oregon Gov. Ted Kulongoski signed Senate Bill 273 last week, which
increases the homestead and vehicle exemptions allowed under state law
when Oregonians are served with judgments or file bankruptcy under the
U.S. Bankruptcy Code, MedfordNews.com reported. The bill will provide
relief to thousands of Oregonians who file bankruptcy as a last resort
due to job loss, uninsured medical expenses and other unfortunate
circumstances. The homestead exemption will increase from $25,000 to
$30,000 for a single debtor, and from $33,000 to $39,600 for joint
debtors. The vehicle exemption will increase from $1700 to $2150,
regardless of filing status. “This is the first time in 12 years
either of these exemptions has seen an increase,” said Walker. The
previous increase was in 1981, when Oregon adopted its own exemptions
separate from federal law to ensure consistency in which standards were
being used. Oregon still has some of the lowest exemption levels among
the 12 western states.
Offer Made for Rhodes Chain
Richmond-based The RoomStore, which emerged from bankruptcy-court
protection last month, has signed a letter of intent to buy 50 of the 65
stores operated by Atlanta-based Rhodes for $38.8 million, the
Richmond Times-Dispatchreported. Joining in its bid are
Hilco Merchant Resources and Hilco Real Estate, companies specializing
in liquidating stores and retail locations. The 50 stores are in
Florida, Alabama, Georgia, Tennessee, North Carolina and South Carolina.
Rhodes, which filed for Chapter 11 bankruptcy protection in November,
had been a unit of Richmond-based Heilig-Meyers Co. from late 1996 until
July 1999. The RoomStore also had been a division of Heilig-Meyers, once
the nation’s largest furniture chain, which filed for bankruptcy
protection in 2000. Heilig-Meyers shut down all of its operations except
for The RoomStore, which became an independent company. Rhodes followed
up by asking the U.S. Bankruptcy Court for the Northern District of
Georgia to permit an auction next month to see if there are any higher
bids. A hearing is scheduled for July 25.
Manufacturing Sector Displays Unexpected Vigor
While employment keeps declining at American factories, they are
cranking out more products than ever, and they are running closer to
capacity than they have in half a decade, the Wall Street
Journal reported today. In the past year, the growth in output of
high-tech equipment, machinery and aerospace products has outpaced
overall economic growth. Even production of motor vehicles is growing at
a healthy pace, expanding by 8.5 percent in the past 12 months as
foreign auto makers have increased output in the United States to win
market share, the newspaper reported. Production of some consumer
products—like food and toiletries—is also rising. Industrial
production rose 0.9 percent in June, the largest increase in nearly a
year and a half, according to the Federal Reserve.