Bankruptcy Veto Sparks Renewed Push by Financial Industry
The financial services industry is readying for another fight over
bankruptcy legislation next year after a version that passed in the
106th Congress was vetoed by President Clinton on Tuesday,
according to the CQ Daily Monitor. Industry interests have
spent millions of dollars lobbying the issue and had hoped Congress
would be in session this week to override the president's veto.
Officials with the American Bankers Association and the Independent
Community Bankers of America (ICBA) say they are preparing to mount
another campaign next year.
“We’re disappointed that the president elected to veto
rather than sign the bill,” said Ron Ence, Director of Legislative
Affairs of the ICBA. “The [banking] coalition will be active
next year. We will mount a very energized campaign to get it
passed and we feel President Bush is more likely to sign the bankruptcy
reform bill.” Bankruptcy overhaul proponents like the
ICBA say that with a Republican administration, the financial community
could succeed in getting a stronger bill enacted next year.
Last week the ICBA delivered a special briefing report to
President-elect Bush that outlines crucial public policy issues for
community banks. The report, titled “Community
Banking’s Issues & Answers for the Bush Administration &
the U.S. Congress,”
href='http://www.ibaa.org/'>(http://www.ibaa.org/) offers guidance
to the incoming Bush administration and the 107th Congress on
policy issues and solutions that would help preserve and strengthen the
community banking industry.
California to Mull Rate Hikes Amid Bankruptcy Warnings
California’s regulators will consider today whether to allow the
state’s two largest utilities, Pacific Gas & Electric Corp.
(PG&E Corp.) and Southern California Edison, to hike electricity
rates amid warnings that urgent action is needed to prevent a power
crisis from pushing them into bankruptcy, according to a Reuters
report. Standard & Poor’s (S&P) said yesterday that
the two utilities risk of running out of cash “within a matter of
weeks” because of the high costs they have absorbed as a result of
the state's spiraling power costs. The credit rating agency warned
that it could downgrade the debt ratings of the San Francisco-based
PG&E Corp. and the Rosemead, Calif.-based Southern California
Edison, a subsidiary of Edison International, to junk status unless
something was done in the next 24 to 48 hours to resolve the drain on
their finances. “S&P is prepared to take dramatic rating
action,” said Richard Cortright, an S&P analyst.
“The ratings are expected to drop deeply into speculative grade to
reflect the likelihood of imminent default.”
PG&E Corp. said that warnings by the credit rating agency had
raised the stakes for today’s meeting by the California Public
Utilities Commission. “Pacific Gas and Electric has
virtually exhausted its financial resources, borrowing an average of $1
million per hour to pay for the power we deliver to Californians,”
said, Gordon Smith, the utility's president. “No company can
continue to operate indefinitely under such conditions.”
A chronic shortage of electricity has led to skyrocketing wholesale
power prices this year and the utilities have run up billions of dollars
in costs which they have been unable to pass on to customers due to a
rate freeze. Standard & Poor's said those unrecovered costs
were $7.1 billion at the end of October and had risen significantly in
the past two months. California regulators could decide on
Thursday to lift the freeze and allow the utilities to raise rates,
although such a move would be strongly opposed by consumer groups.
Court Confirms ContiFinancial Plan of Reorganization
ContiFinancial Corp. said yesterday that the U.S. Bankruptcy Court for
the Southern District of New York has approved its reorganization plan
to emerge from bankruptcy, according to a newswire report. The
company’s assets will be transferred to a liquidating trust, which
will manage the assets to realize cash for distribution to
creditors. ContiFinancial Corp. is a financial services company
with headquarters in New York City. The company and its
subsidiaries filed for chapter 11 on May 17.
Oregon Financial Firm Asks Delaware Court to Block
Lawsuits
Wilshire Financial Services Group of Portland has asked a bankruptcy
judge in Delaware to block lawsuits against it by labor union trust
funds, according to a newswire report. Wilshire, which reorganized in a
chapter 11 bankruptcy in June 1999, said the union trusts are trying to
collect on debts that were discharged in the bankruptcy and that the
lawsuits violate the court's prohibition on further claims.
Wilshire Financial contends in the Dec. 8 filing that Capital
Consultants officials signed documents on behalf of its union clients
pledging not to pursue claims against Wilshire Financial or anyone else
connected with the company's reorganization.
Despite the ban imposed by the bankruptcy court, 28 union trusts in
recent weeks have filed three lawsuits against Wilshire Financial, as
well as against Capital Consultants and dozens of connected companies
and executives. Capital Consultants collapsed in September as the U.S.
Labor Department and the Securities and Exchange Commission filed fraud
suits in federal court in Portland accusing the company of trying to
conceal the loss of more than $200 million of client money.
Capital Consultants' stake in Wilshire Financial, which it can claim
in 2001, is worth about $9.9 million. Kenneth R. Heitz, an
attorney representing Wilshire Financial, said that Capital Consultants
got the best deal available to it and that he believes the trust
fund’s stake in Wilshire Financial could increase in value.
The only other alternative for the creditors, he said, was to force
Wilshire out of business and liquidate the assets.
Court Confirms Levitz Reorganization Plan
Levitz Furniture Inc. yesterday received confirmation of its third
amended chapter 11 plan of reorganization, according to a newswire
report. U.S. Bankruptcy Judge Mary F. Walrath's order
clears the way for the Boca Raton, Fla.-based furniture retailer to
emerge from bankruptcy after operating under chapter 11 for more than
three years. The third amended plan, filed Oct. 13, is based on
the formation of a new holding company, Levitz Home Furnishing Inc.,
which will own 100 percent of the stock in reorganized Levitz and
privately held Seaman Furniture Co. The combination of Levitz and
Seaman is expected to allow the two companies to streamline certain
operations.
On Oct. 31, Judge Walrath approved the plan's disclosure statement,
allowing Levitz to solicit plan approvals from its creditors. The plan
confirmation hearing was held Dec. 8. Upon emerging from
bankruptcy, Levitz expects Levitz Home Furnishing to enter into a
senior-secured borrowing line that will provide a maximum commitment of
$100 million and a junior secured debt line of at least $47
million. Levitz and 11 affiliates filed for chapter 11 on Sept. 5,
1997.
Brew Moon Enterprises Files For Bankruptcy,
Sells Pubs
The Boston-based Brew Moon Enterprises Inc. filed for
bankruptcy protection and last week sold four of its five
restaurant-microbreweries to a larger, Louisville, Colo.-based operator
of similar brew pubs, according to a newswire report. Rock Bottom
Restaurants Inc. on Monday assumed operational and financial management
of Brew Moon in Boston, Cambridge, Braintree, Mass. and King of Prussia,
Pa. The Brew Moon in Honolulu will not be part of the sale, and will
continue to operate.
The deal, contingent on alcoholic beverage license transfers, is
expected to close in January. Court documents for Brew Moon Hawaii
Inc. listed a $1.5 million cash purchase price for the restaurants'
assets — including alcoholic beverages, food, entertainment and
other licenses — and $300,000 in debtor-in-possession
financing. Those same court documents listed $15.17 million in
Brew Moon liabilities and just $700,000 to $800,000 in estimated
liquidation value.
Sportswear Makers Chorus Line Files for
Bankruptcy Protection
Chorus Line Corp., which owns well-known sportswear makers Chorus
Line and Carole Little, yesterday in the U.S. Bankruptcy Court in Los
Angeles filed for chapter 11, according to a newswire report. The
Vernon, Calif.-based company closed last month after creditors took
legal action to force the troubled firm to reorganize or
liquidate. The shutdown has thrown 300 employees out of work and
sent suppliers and lenders scrambling to grab what's left of a company
flattened by an estimated $70 million to $80 million in debt.
Mark Brutzkus, an attorney representing three of Chorus Line's
creditors, said company management has informed him that they are
attempting to secure financing to resurrect the closed firm. If
that proves fruitless, Brutzkus said the company would likely arrange
for an orderly liquidation of the assets.
CenterSpan Closes Acquisition of Scour Assets
Peer-to-peer software developer CenterSpan Communications yesterday
said it that closed its $9 million acquisition of Scour Inc., the online
company that was sued for copyright infringement by the music and film
studios, according to a newswire report. CenterSpan won an auction
in the U.S. Federal Bankruptcy Court in Los Angeles last week for the
assets of Scour, paying $5.5 million in cash and $3.5 million in
stock.
Scour filed for bankruptcy in October. It has about $4 million in
debt, but has said it could be liable for up to $250 billion in damages
from the copyright infringement lawsuit. A group of Scour's
creditors, including companies such as Oracle Corp., are due to receive
$4 million, but payments are not expected to be made until the middle of
2001.
PNV Inc. Files for Chapter 11
PNV Inc., a provider of bundled telecommunications, cable television and
Internet services, yesterday said it filed a voluntary chapter 11
petition, according to a Reuters report. The Coral Springs,
Fla.-based company said several entities were currently considering
buying its assets. According to PNV, the asset sale will allow the
company to maximize its value for the benefit of stakeholders.
Berkshire Hathaway to Buy Manville
Johns Manville Corp., the building-products maker that has been
searching for a buyer for nearly two years, said yesterday that it would
be acquired by Berkshire Hathaway Inc. for $1.92 billion, according to a
newswire report. The deal comes less than two weeks after Johns
Manville canceled a $2.3 billion takeover by buyout firm Hicks, Muse
Tate & Furst Inc. and Bear Stearns' merchant banking unit. The
companies mutually agreed to abandon that deal due to weak financing
markets and a softening economic outlook. Johns Manville will
become a wholly owned subsidiary of Berkshire Hathaway and will stay
headquartered in Denver.
Johns Manville was nearly destroyed by asbestos litigation in the
1980s and filed for bankruptcy in 1982 as it faced thousands of
health-related lawsuits. While in bankruptcy, the company halted
asbestos production and created a trust fund to handle all
asbestos-related claims. Manville was a $1.8 billion
building-products giant and the largest U.S. industrial company to ever
seek chapter 11 protection from creditors when it filed for
bankruptcy. Manville emerged from bankruptcy in November 1988 with
an historic but complex reorganization plan that created the independent
trust to pay asbestos health claims. The unique case represented
the first time a Fortune-500 size company was owned almost totally by a
health trust organization set up by the bankruptcy court. The
142-year-old company is now a major producer of fiberglass wall
insulation and also makes other products used in roofing and
flooring.
Ventas Receives Waiver on Amended Bank
Agreement
Ventas Inc. yesterday said that it received a waiver under its existing
long term amended credit agreement extending the deadline for the
effective date of the reorganization plan for its primary tenant, Vencor
Inc., according to a newswire report. “Obtaining this waiver
gives Ventas valuable flexibility so that we can remain focused on
helping the Vencor reorganization proceed to completion,” said
Ventas President and CEO Debra A. Cafaro. “It synchronizes
the terms of our credit agreement with Vencor's announced schedule for
emerging from bankruptcy, which could occur as early as the first
quarter of 2001.”
Ventas' amended credit agreement had contained a provision that would
have made it an event of default if the Vencor effective date did not
occur by Dec. 31. The waiver extends that deadline until March
31. The Louisville, Ky.-based Ventas has the option to further
extend the deadline by which the Vencor effective date must occur for up
to three additional months through June 30. The U.S. Bankruptcy Court
set March 1 as the confirmation hearing date for Vencor’s
reorganization plan.
Tower Tech Files Bankruptcy
Tower Tech filed for chapter 11 bankruptcy protection Tuesday in
Oklahoma City, according to a newswire report. The Oklahoma
City-based company said it hopes to continue operations while paying
suppliers on normal terms for goods delivered and services provided
after the chapter 11 filing. “The company has not been
able to meet its financial obligations for some time now and has
attempted to restructure its finances out of court,” said Chief
Executive Robert Brink. “Unfortunately, the company's debt
load has prevented it from raising the amount of new funding needed to
accomplish an out-of- court restructuring. Given this, filing for
protection under chapter 11 was the best option.”
Tower Tech reported that its total liabilities numbered $34.79
million on Aug. 31, with current maturities of long-term debt accounting
for $23.66 million. Current assets totaled $10.2 million, while
the firm's total assets were $30.08 million. Tower Tech said that
it expects to receive debtor-in-possession (DIP) financing from an
undisclosed investor group that has provided financing to the company on
previous occasions.
BroadcastAmerica Asks a White Knight Investor to Help Fend Off
Foreclosure
BroadcastAmerica.com is seeking a new financial partner while it fends
off a foreclosure attempt by another investor according to the
Portland Press Herald. A hearing yesterday in the U.S.
Bankruptcy Court in Portland may help sort out a dispute between the
Portland Internet company and a white knight investor it had hoped would
rescue it from bankruptcy proceedings. The dispute reached a
crisis when two key telecommunications vendors, RealNetworks and
Worldcom, sought to cut off service to BroadcastAmerica. Disconnection
would cut off BroadcastAmerica.com from the web, effectively preventing
it from conducting business.
Roger Clement, BroadcastAmerica’s attorney, said he has been
working to set up the new financing deal with a company he declined to
name. He said the deal would give the investing company a majority
stake in BroadcastAmerica and allow the Portland-based company to pay
its bills and fend off the foreclosure attempt. The investment
would be enough “to pay all of our bankruptcy operating payments
and emerge from chapter 11 a financially healthy company,” Clement
said.
BroadcastAmerica filed for protection from creditors last month,
saying it needed time to work out a financing deal with the white
knight, SurferNETWORK.com, that could keep it operating. But the
deal has turned sour and BA Funding wants a federal bankruptcy judge to
give it the assets of BroadcastAmerica. The company claims that it has
advanced BroadcastAmerica $847,000 since Nov. 7, but the Portland
company has failed to make payments to vendors, prepare for future
payrolls or provide financial documents to BA Funding.
Lightyear, Vartec Offer $21.4 Million for Bankrupt NETtel
On Jan. 8, the U.S. Bankruptcy Court in Washington, D.C. will determine
whether or not to accept the $21.4 million bid made for the bankrupt
NETtel at a bankruptcy auction earlier this month, according to a
newswire report. The winning bid came from telecom firms
Dallas-based VarTec Telecom Inc. and Lightyear Communications of
Louisvillle, Ky. The two joined in the bid for all of NETtel's
assets. The minimum acceptable bid set by the courts was $20
million. VarTec and Lightyear said they are interested in
acquiring NETtel's network, as well as equipment and leases.
NETtel's network delivers multiple data and voice services over a single
dedicated T-1 connector, as well as some digital subscriber
lines.
Bank Seeks $550 Million to Prevent Federal-Mogul From Filing for
Bankruptcy
Chase Manhattan Corp. is trying to raise $550 million for Federal-Mogul
Corp. to keep the maker of Champion spark plugs from filing for
bankruptcy, according to a newswire report. Chase arranged a $1.75
billion credit line in 1998 for the Southfield, Mich.-based auto-parts
maker and would be among the biggest losers if mounting asbestos claims
push the company to seek court protection from creditors. The $550
million in loans would add to the earlier credit line, for which
Federal-Mogul provided no collateral. Chase is asking the company's
other U.S. lenders to put up $200 million, institutional investors to
inject $150 million and European banks to add a further $200
million.
Should Chase fail to raise the new money, Federal-Mogul “will
have little choice but to seek bankruptcy protection sooner rather than
later,” said Premila Peters, a fixed-income analyst with KDP
Investment Advisors. As of Sept. 30, Federal-Mogul provided a
total reserve for all of its subsidiaries and businesses with potential
asbestos liability of about $1.3 billion
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