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November 29, 2002
Student Loans
Collections and Credit Risk magazine reports that default rates
of student loans are down from their 1990 record high of 22.4 percent
primarily due to widespread loan education programs and the ability of
loan servicing companies to offer more tools and options than ever
before to help former students avoid default. But this trend is being
put to a real test in a weakened economy that offers dismal employment
opportunities for new graduates, the magazine reported. 'The next couple
of years will be a challenge,' said John E. Dean, special counsel to the
Consumer Bankers' Association and advisor to a committee of major
educational lenders in the Collections and Credit Risk article.
The payback scenario is complicated by the fact that ever-rising college
costs are forcing more debt on more students, and that the recession is
eroding parents' ability to pay,' added Dean.
Congress is slated to revisit the topic of higher education loans and
financing in early 2003. The length of loan repayment and the
flexibility of repayment terms are among points of contention expected
to be examined, according to the magazine.
Sears Profits Fall on Credit Card Debts
Sears, Roebuck and Co. saw profits drop 28 percent in the third quarter
and warned that results would not meet targets because of growing losses
from credit card debt, reported Collections and Credit Risk
magazine. Sears added $222 million to its provisions for uncollectible
credit card accounts, according to the magazine. The retailer relies on
its credit business for the bulk of its profits. For the third quarter,
Sears posted net profits of $189 million, down from $262 million in the
same period a year ago.
Bankrupt CalPX Dismisses Chief Executive
On Monday, the California Power Exchange (CalPX) board of governors
terminated the employment of its chief executive, George Sladoje, saying
his services were no longer needed, Dow Jones reported. Creditors had
recently alleged that Sladoje and the exchange's chief financial
officer, Lynn Miller, had been essentially using the estate's funds as
their personal piggy bank for two years.
The CalPX is a nonprofit public-benefit corporation chartered by the
state legislature in 1997 to run California's official day-ahead
electricity market. But the CalPX market stopped functioning in January
2001, when the state's two largest utilities could no longer pay for the
power they were buying. Federal energy regulators announced they would
take away the CalPX's license to operate, and the exchange filed for
bankruptcy in March 2001. Sladoje's total compensation in the three
months before the bankruptcy filing was $1.9 million, almost double what
he made in all of 2000.
SpectraSite Sells Wireless Network Services Unit
SpectraSite Holdings Inc.'s SpectraSite Communications Inc. unit said
its WesTower Corp. unit agreed to sell its wireless network services
division to WesTower LLC for an undisclosed sum, Dow Jones reported.
WesTower LLC is an investment vehicle owned by certain members of the
division's existing management team, including its president, Calvin J.
Payne. In a press release on Wednesday, SpectraSite said it doesn't need
to offer network services as a complementary product offering to its
tower leasing business now that it has completed its build-to-suit
contracts with wireless carriers. The company said it acquired the
network services division in 1999 to help it perform under those
contracts. The sale is expected to close on Dec. 31, subject to
customary closing conditions, including certain financing contingencies.
Company representatives weren't immediately available to say whether the
sale is related to its bankruptcy reorganization. On Nov. 15,
SpectraSite filed its voluntary chapter 11 petition, which listed assets
of $742 million and $1.8 billion in debts.
Conseco's Senior Lenders Extend Forbearance Pact
Conseco Inc. said its senior lenders have again extended, until Jan. 11,
the existing forbearance agreement that is part of its $1.5 billion
credit facility, as the troubled insurance and financial firm struggles
to restructure, Dow Jones reported. In a press release on Wednesday,
Conseco said similar agreements were also extended on the various loans
guaranteed by the company under the 1997, 1998 and 1999 Directors and
Officers Loan Programs. The Wall Street Journal reported Monday that
Conseco is negotiating a restructuring plan under which bondholders
would likely assume ownership of the company through a chapter 11
bankruptcy filing.
Conseco missed an Aug. 15 interest and principal payment and defaulted
on about $2.5 billion in debt after failing to make the payments within
a 30-day grace period. Last month, the company's lenders extended a
forbearance agreement on the $1.5 billion credit facility to Nov. 26.
Conseco said on Wednesday that it is still in talks with debt holders
regarding a financial restructuring of its balance sheet.
Genuity Files for Bankruptcy; Level 3 to Buy Assets
Genuity Inc., a data-network operator that defaulted on $3.15 billion in
loans in July, filed for bankruptcy protection and agreed to sell most
of its assets to rival Level 3 Communications Inc. for $242 million in
cash, Bloomberg News reported. Genuity, which once provided faster
Internet connections to more than 138,000 customers, was spun off from
GTE Corp. in 2000 to win regulatory approval when GTE combined with Bell
Atlantic Corp. to form Verizon Communications Inc. Genuity raised
$1.9
billion in what was then the largest initial stock sale of a U.S.
Internet company.
'This transaction represents the best outcome for the key constituencies
of both Genuity and Level 3,'' said Paul R. Gudonis, chief executive
officer of Genuity, in a statement.
'Both companies, as well as Genuity's largest customers and creditors,
have signed agreements supporting the transaction.''
Allegheny Energy Units Get More Time to Review Results
Troubled power trader Allegheny Energy Inc. on Wednesday said two
subsidiaries trying to avoid default received more time to review their
third-quarter financial results, Reuters reported. The extensions apply
to waivers on credit agreements with bank lenders, the company said. The
waivers are for subsidiaries Allegheny Energy Supply Company LLC, and
Allegheny Generating Co., and were extended to the end of the year.
Hagerstown, Md.-based Allegheny Energy Inc. delayed filing its
third-quarter results earlier this month in order to review prior
earnings that had turned up errors.
At the time, cash-strapped Allegheny received waivers through Nov. 29
from two lenders, ending technical default for the two subsidiaries, the
newswire reported. Like many power marketers and traders, Allegheny has
been stung by sharply lower wholesale power prices, increasingly
stringent credit requirements, and probes by regulators into finances
and trading practices since Enron's bankruptcy, which has sent investor
confidence and its share price plummeting since the beginning of the
year.
Napster Asset Sale to Roxio Approved by Court
Napster Inc. won a bankruptcy judge's approval to sell its assets to
Roxio Inc.,
ending the defunct music-swapping web site's quest to find a buyer since
it filed for chapter 11 protection in June, Bloomberg News reported.
Roxio, a maker of software for copying compact discs, will pay $5
million in cash for the assets, including the Napster name, to expand
its digital media services. It also will issue 100,000 warrants to
finance the purchase. U.S. Bankruptcy Judge Peter Walsh approved
the sale at a hearing in Delaware. Bertelsmann AG's offer to buy Napster
was rejected in September by Judge Walsh, who said conflicts of interest
by Napster Chief Executive Konrad Hilbers had tainted the transaction.
After that, another deal failed because the buyer was unable to secure
financing, reported the newswire.
Medinex Systems Files for Bankruptcy
Medinex Systems Inc. on Wednesday filed for chapter 11 bankruptcy
protection in the U.S. Bankruptcy Court in Boise, Idaho, reported Dow
Jones. In a Form 8-K filed Wednesday with the Securities and Exchange
Commission, the health care technology solutions provider said it would
continue to operate its business as a debtor-in-possession, according to
the newswire.
The company dismissed President, Chairman, Chief Executive and Chief
Financial Officer Anthony J. Paquin and appointed Colin Christie
president and CEO earlier this month. Maureen Cantley was appointed
interim chief financial officer and corporate secretary and R. Scot Haug
was appointed nonexecutive chairman, reported Dow Jones. The company
also dismissed Executive Vice President Kelly McCarthy Paquin and
accepted the resignation of director Robert Gober, the newswire
reported. According to its third-quarter report, the company had
$335,000 in assets and $1.99 million in liabilities.
DSL.net Agrees to Buy Network Access Assets for $14
Million
DSL.net Inc., a provider of high-speed Internet access to businesses,
agreed to
buy certain assets from bankrupt rival Network Access Solutions Corp.
for $14 million, gaining 13,000 new subscriber lines, Bloomberg News
reported. DSL.net's offer to pay $9 million in cash and a $5 million
note for Network Access's network assets and subscriber lines was
accepted by the company and its creditors' committee, DSL.net
spokesman Joe Tomkowicz said. Network Access filed for chapter 11
bankruptcy protection in June. The purchase will give DSL.net 13,000 new
lines to customers who subscribe to high-speed Internet services,
Tomkowicz said.
DSL.net currently has 22,000 customer lines, and its offer must be
approved by a bankruptcy court in Delaware, the newswire reported.
Med Diversified Files for Chapter 11 Bankruptcy Protection
Med Diversified Inc, a provider of home health-care services, filed
for bankruptcy after its primary financing source, National Century
Financial Enterprises Inc., collapsed, Bloomberg News reported. Med
Diversified said it filed for chapter 11 protection in U.S. Bankruptcy
Court in New York and intends to keep operating
during reorganization. The Andover, Mass.-based company's primary
subsidiaries, Chartwell Diversified Services and Tender Loving Care
Health Care Services, also filed for bankruptcy.
J.P. Morgan's Harrison, Other Directors Sued Over Enron
Deals
J.P. Morgan Chase & Co. Chairman and CEO William Harrison, and the
bank's board of directors were sued by a shareholder alleging they
mismanaged the company in its dealings with Enron Corp., Bloomberg News
reported. The lawsuit, filed in federal court in New York, was brought
by a stock owner on behalf of the second-largest U.S. bank. It seeks a
court order voiding the election of J.P. Morgan's board members and a
declaration that the officers breached their fiduciary duty to the bank,
the newswire reported. The complaint also seeks monetary damages.
Harrison and the board members are accused in the suit of helping Enron
structure the off-balance-sheet partnerships and other special-purpose
entities that helped Enron hide its debt from investors, Bloomberg News
reported. Analysts working for the bank also issued positive reports on
the company while insiders knew that Enron's financial situation was
deteriorating, the suit says. The suit says the conduct of Harrison and
the board members 'has irreparably damaged the reputation of J.P. Morgan
and caused a massive diminution in the value of J.P. Morgan.''
Mechanics Reject UAL's Plan to Stave Off Bankruptcy Filing
UAL Corp.'s struggle to avoid filing for bankruptcy-court protection
next month took a new blow when mechanics voted early on Thursday to
reject pay cuts that are vital to United Airlines' request for
government financial aid, the Wall Street Journal reported. The
nation's second-largest airline faces bankruptcy if it cannot secure a
$1.8 billion federal loan guarantee. The company had promised the
federal panel deciding the issue that it would cut $5.2 billion in labor
expenses over 5½ years, a plan that could collapse without the
participation of the airline's 13,000 mechanics. The panel may well deny
the loan guarantee either way, but the mechanics' vote makes UAL's case
much harder to make, according to the Journal.
United has said that without speedy receipt of the government aid from
the Air Transportation Stabilization Board it will be forced to file for
chapter 11 bankruptcy-court protection in the coming days or weeks. UAL
faces a crucial $375 million debt repayment on Monday, although it could
buy time by invoking a 10-day grace period before a default. The company
will try to reach a new agreement that meets the mechanics' approval
during that time.
Kmart Holders Group Suing PricewaterhouseCoopers for Auditing
Role
A group of Kmart Corp. shareholders is suing the retailer's auditor,
PricewaterhouseCoopers, saying it chose to 'recklessly disregard'
numbers that would have indicated Kmart's financial collapse, the
Associated Press reported. The claim, filed on Nov. 1 in Detroit federal
court, says the auditor has had a long relationship with the Troy,
Mich.-based discount retailer and therefore should have known Kmart was
headed toward bankruptcy, the newswire reported. Kmart filed for chapter
11 bankruptcy protection on Jan. 22, following a stock dive and
disappointing holiday sales. The suit alleges Kmart paid the company
approximately $13 million in fees in fiscal 2000. Only 10 percent of
that was for auditing and the rest came from consulting work and other
fees. The firm says it is accountable for opinions on Kmart's financial
statements from 2000 and 2001, but that the lawsuit fails to allege that
those opinions were misleading. Congress is investigating the role of
Kmart's board in the bankruptcy. The FBI and the Securities and Exchange
Commission also are investigating, the newswire reported.
Multi-Link Telecom LLC Files for Chapter 11 in Indianapolis
Multi-Link Telecommunications LLC said it filed a voluntary chapter 11
petition in the U.S. Bankruptcy Court in Indianapolis, according to a
Form 8-K filed on Wednesday with the Securities and Exchange Commission,
Dow Jones reported. The company's bankruptcy petition listed up to
$500,000 in assets and up to $10 million in debts. The filing said the
debtor is a wholly owned unit of Multi-Link Telecommunications Inc.,
which is looking to sell the unit to Instaphone Inc., the newswire
reported. If the sale to Instaphone is not made, the parent company
intends -- subject to creditor support -- to operate the unit over a
two-year period to generate enough cash to partially pay the unit's
creditors, the SEC filing said.
WorldCom, EDS Matter Must Wait for District Court Ruling
A bankruptcy judge said on Wednesday that a district court in New York
must first settle an issue tied to an agreement between WorldCom Inc.
and Electronic Data Systems Corp. before the bankruptcy court can
consider other motions by the two firms in WorldCom's chapter 11 case,
Dow Jones reported. Judge Arthur J. Gonzalez of the U.S.
Bankruptcy Court in Manhattan signed the order, saying his court will
consider the other motions within 10 days of the U.S. District Court for
the Southern District of New York ruling on a motion by Electronic Data
Systems to withdraw references in prior court filings related to an
outsourcing agreement, the newswire reported.
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