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October 23, 2002
Enron Shareholders Win Ruling Reinstating Dynegy Suit
A federal judge revived a suit by shareholders of Enron Corp. against
rival energy company Dynegy Inc. for abandoning a $23 billion merger
last November, Bloomberg News reported. Dynegy pulled out of a proposed
acquisition of Enron on Nov. 28, 2001, prompting a $10 billion suit by
Enron days later and a separate suit by its shareholders. A federal
bankruptcy judge in April blocked the shareholder suit from proceeding.
Dynegy and Enron reached a $92 million settlement in August. U.S.
District Judge Alvin Hellerstein in New York today reversed the
bankruptcy judge's ruling and reinstated the shareholder suit. He said
the alleged harm to shareholders was different from that suffered by
Enron. 'Enron was to benefit from the merger agreement by having its
debts assumed,'' Hellerstein wrote in a 13-page opinion. 'Enron
shareholders were to benefit by becoming shareholders of Dynegy. These
are distinct and separate benefits; therefore, the injuries sustained by
their loss are distinct and separate.''
US Airways Says It May Need Up to Cut Costs of Up to $1.6 Billion Per
Year
US Airways Group Inc. told creditors the struggling airline needs to cut
costs as much as $1.6 billion a year, or $400 million more than
previously revealed, to return a profit, Bloomberg News reported. Jack
Butler, U.S. Airways' bankruptcy lawyer told a meeting of creditors that
the company's target for cost savings ranges from $1.4 billion to $1.6
billion. The bankrupt airline had previously said it needs to reduce
costs by $1.2 billion annually to successfully emerge from chapter 11.
US Airways' 'financial performance has been quite weak,' since the
company's bankruptcy filing, Butler said. 'The target for costs has
increased' due to higher fuel prices and weak demand for travel, he
said. US Airways filed for chapter 11 protection from creditors owing
more than $10.8 billion in August. The company has been negotiating with
aircraft-leasing companies as part of an effort to cut costs through
creditor concessions and new labor pacts. The seventh-largest U.S.
airline already has approval from U.S. Bankruptcy Judge Stephen
Mitchell to reject leases on more than 200 planes, mainly older
Boeing Co. aircraft.
Bells Lobby FCC in Hopes of Liquidating WorldCom
The biggest players in the telecom industry, led by the regional Bell
companies, are waging a fierce lobbying battle with the Federal
Communications Commission in an attempt to prevent WorldCom Inc. from
coming out of bankruptcy proceedings washed free of its $42 billion in
debt, the Wall Street Journal reported. The Bell companies are
arguing that WorldCom should be indicted and liquidated, rather than
allowed to emerge from bankruptcy court protection with a stronger
balance sheet than any of its competitors in the telecommunications
industry, many of which have significant debt burdens. They have asked
the FCC to revoke the licenses WorldCom needs to operate, among other
measures. However, it is unclear just how influential their arguments
will be, because bankruptcy law is focused upon maximizing value for
creditors. In this case, the creditors are solidly behind the notion
that WorldCom is worth more as a company that emerges from bankruptcy to
compete free of debt in the hobbled telecom industry. The FCC, in fact,
has no particular influence in a bankruptcy case. To read the full
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United Flight Attendants Begin Talks
United Airlines' unionized flight attendants on Tuesday said they have
started to negotiate independently with management over cost-cutting
needed to avoid bankruptcy, demanding stock and profit-sharing in return
for anything they sacrifice now, Reuters reported. The flight attendants
said all labor groups at the No. 2 U.S. airline would probably need to
join in the restructuring attempt for it to work. But they said each
individual package must recognize each union's unique characteristics
and that no more concessions would be requested if bankruptcy
results.
An unprecedented union coalition in September agreed to offer $5 billion
in wage cuts over five years but did not spell out which union would
give up what, instead saying it would be up to management to work out
the details. Those negotiations have been delicate and ongoing,
particularly with regard to the International Association of Machinists
(IAM). The coalition's offer came after United in August asked the labor
groups for $9 billion over six years, based on feedback on its
application for federal loan backing that deeper cost cuts were needed.
But the unions immediately balked at those figures and last week the
airline announced a compromise of $5.8 billion in wage cuts over 5 1/2
years. United said last week that talks with individual members of the
labor coalition on meeting that goal were moving forward, but had not
been resolved. The IAM and Air Line Pilots Association have also been
having their own talks. Pilots hope to have their portion wrapped up
soon.
WORLDCOM
WorldCom Posts Loss of $429 Million for July, August
WorldCom Inc., disclosing its first financial results since declaring
bankruptcy,
said it had a $429 million loss on sales of $4.87 billion in July and
August, Bloomberg News reported. In a filing with the bankruptcy court,
the second-biggest U.S. long-distance telephone carrier also said both
its WorldCom Group and MCI Group shares will have no value after the
company emerges from chapter 11 protection. WorldCom may further write
down assets, including existing goodwill and other intangible assets
currently booked at $50 billion, the company said in a statement. July's
loss totaled $331 million on $2.46 billion in sales, WorldCom said. In
August, the company had a loss of $98 million and revenue of $2.4
billion. WorldCom spokeswoman Claire Hassett said the revenue figures
for July and August aren't comparable with any previous sales
figures reported by the company. WorldCom has said it will restate
results for all of 2001 and the first quarter of this year.
WorldCom Seeks Sole Right to File Reorganization Plan Through
April 17
WorldCom Inc. is asking a bankruptcy court for more time to file a
chapter 11 reorganization plan without the threat of other parties
filing plans for the company, Dow Jones reported. The telecommunications
giant is seeking an extension of its sole right to file a plan through
April 17, 2003. If WorldCom files a plan by that date, other entities
would be further excluded from filing plans for the company through June
16 while WorldCom solicits plan votes, according to a motion filed late
Monday. The company now has the exclusive right to file a reorganization
plan through Nov. 18. WorldCom said it has devoted substantial time
responding to investigations being conducted by congressional
committees, the Department of Justice, the Securities and Exchange
Commission, a court-appointed corporate monitor, the examiner appointed
in the chapter 11 case and a special committee of the board. WorldCom,
which on July 21 filed the largest-ever chapter 11 case, cited the size
and complexity of its case as a reason to extend the exclusive periods.
To date, the motion said, the 179 WorldCom entities that filed for
bankruptcy have identified roughly 800,000 creditors and hundreds of
thousands of contracts and unexpired leases to be reviewed and analyzed.
The U.S. Bankruptcy Court in Manhattan will consider the company's
request at a hearing on Nov. 15.
Even Vulture Investors Shying Away from Corporate Bonds
The corporate bond market has become so volatile that even some of its
most sophisticated players-investors in so-called distressed debt-are
staying away, Dow Jones reported. These investors specialize in buying
cheaply the credits of companies in or near default and carrying out
extensive research to determine underlying value. They are willing to
endure bankruptcy proceedings, when necessary, in order to capture the
often substantial gains awaiting them if their valuations prove right.
But even these calculated risk-takers have been burned by current
corporate bond market conditions, suffering what one manager of a fund
investing in distressed debt described as 'precipitous' declines from
levels at which it had been bought. Citing names like Enron Corp.,
Adelphia Communications Corp., WorldCom Inc., and Kmart Corp., these
investors were caught in a 'perfect value trap,' as seemingly fairly
valued assets declined by another 50 percent after purchase, the
newswire reported.
GLOBAL CROSSING
Global Crossing Gets Court OK for Plan Disclosure
Statement
Global Crossing Ltd. won a bankruptcy court's approval of its chapter 11
reorganization plan disclosure statement, Dow Jones reported. U.S.
Bankruptcy Judge Robert E. Gerber on Monday overruled all
objections to the disclosure statement that weren't either resolved or
withdrawn prior to the hearing, according to the court's order. The
judge scheduled a Dec. 4 plan confirmation hearing before the U.S.
Bankruptcy Court in Manhattan. Votes on the plan from creditors and
objections to the plan's terms must be filed by Nov. 22. As reported,
Global Crossing filed an amended plan and disclosure statement late on
Thursday, four days before the hearing. The original disclosure
statement had drawn opposition from several parties including bondholder
group Pension Benefit Guaranty Corp. and a group of retirees. Thursday's
amended disclosure statement provided more details about the
reorganization plan than the first version of the document, which was
filed with the plan on Sept. 16 with the U.S. Bankruptcy Court in
Manhattan. Also at Monday's hearing, the court extended Global
Crossing's exclusive periods for filing a reorganization plan and
soliciting plan votes. In the separate order, Judge Gerber extended the
company's plan filing exclusivity to the earlier of Jan. 21, 2003, or
two weeks after the Hutchinson purchase agreement is terminated, if that
should occur.
Global Crossing's Accounting for 'Swaps' to be
Amended
Fiber-optic carrier Global Crossing Ltd. said it can't use $1.2 billion
of future revenue from 'swap' transactions because accounting for the
controversial deals violates Securities and Exchange Commission
standards, the Wall Street Journal reported. Madison, N.J.-based
Global Crossing, which filed for chapter 11 bankruptcy court protection
in January, also said it will restate $13 million in profits from the
swap transactions, in which companies trade roughly equal amounts of
capacity, booking the sale as revenue and the purchase as a capital
expense. The announcement is the company's first public acknowledgment
that it breached accounting rules as it sold telecommunications capacity
during 2000 and 2001.
Bloomberg News reported that Global Crossing Ltd. said its net loss
narrowed to $138 million in August, from $145 million a month earlier,
as sales rose and expenses declined. Sales, which rose 2.4 percent to
$255 million from July, may be reduced by $7 million after the company
restates results for parts of 2001 and 2000 and changes the way it
accounts for revenue. Operating expenses fell to $73 million in the
quarter from July's $75 million, the company said in a monthly filing to
the U.S. Bankruptcy Court in the Southern District of New York. The
reported results include its Asia Global Crossing unit.
Agway Gets DIP Approval
Agway Inc. received bankruptcy court approval for access to the full
amount of the $125 million debtor-in-possession credit facility provided
by a group of institutions led by GE Commercial Finance, Dow Jones
reported. In a press release on Tuesday, the agricultural company said
it will use the credit facility for normal business operations,
including payments to vendors and suppliers for goods and services
received after it filed for chapter 11 bankruptcy protection on Oct. 1.
Agway said it hasn't experienced any interruption of production, service
or distribution and doesn't expect any during the reorganization
process. The company's bankruptcy filing doesn't include its Agway
Energy Products, Agway Energy Services, Agway Energy Services-PA and
Telmark units, or Cooperative Milling, its joint venture with Southern
States Cooperative.
Yellow Corp. Sees $300 Million/Year Revenue from Consolidated's
Clients
Yellow Corp. expects to pick up $300 million a year in revenue as
customers shift away from Consolidated Freightways Corp., said Yellow
Corp. Chief Executive Bill Zollars in a conference call on Tuesday, Dow
Jones reported. Consolidate Freightways, which filed for bankruptcy
protection and closed its doors in September, had about $1.5 billion in
annualized revenue when it shut its doors. Yellow Corp. is interested in
about $1 billion of that business, and it expects to get about $300
million. The Overland Park, Kan.-based trucking and transportation
management company expects to realize an incremental margin of 20
percent from that new business from Consolidated, increasing its overall
profitability, the newswire reported.
Weyerhaeuser in 2,416 Asbestos Claims
Forest products giant Weyerhaeuser Co. on Tuesday said it is named as a
defendant in 2,416 asbestos claims but does not expect these to have a
material impact on its finances, Reuters reported. A spokesman for the
Federal Way, Wash.-based company said 1,429 of the claims were filed by
sailors who claim they were exposed to asbestos while serving on a
Weyerhaeuser vessel during World War II. A smaller number of claims
relate to fire doors the company manufactured at a Marshfield, Wis.,
facility that has since been sold. On average, such claims have been
settled for $5,800. An explosion of asbestos-related legal claims have
battered the stock prices of many well-known manufacturing names in the
United States, pushing several into bankruptcy. Shares of Weyerhaeuser
rival Georgia-Pacific Corp., for example, have been hammered by investor
fears about its asbestos liability. Atlanta-based Georgia-Pacific said
last week that as of Sept. 29, it had about 66,300 unresolved claims
pending against it.
Conseco Seeks Sale or Investors in Finance Unit
Conseco Inc. said on Tuesday it was looking to sell, or get new
investors for, its consumer finance unit, as the troubled insurance and
loan firm looks for ways to raise cash, Reuters reported. The unit,
Conseco Finance, has hired bankers Lazard Freres and Credit Suisse First
Boston to pursue various alternatives for the unit, the company said,
including selling all or part of it, or attracting new investors. A
breakup of Conseco looks likely, as creditors and management wrangle
over the fate of the firm, which analysts say is teetering on the verge
of bankruptcy. The firm was delisted earlier this year and faces a
barrage of shareholder lawsuits. Conseco Finance, acquired as Green Tree
Financial in 1998, comprises three parts-manufactured housing loans,
mortgage services and consumer loans. Tuesday's move is Conseco's second
attempt to sell off the unit, which played a large part in Conseco's
downfall.
States Could Not Collect Overpayments from Bankrupt Providers
A bankruptcy court's orders that prevented state Medicaid agencies from
collecting overpayments from two bankrupt health care providers did not
violate the Eleventh Amendment to the U.S. Constitution, and were within
the scope of the Bankruptcy Code's automatic stay provisions, Health
cch.com reported. Upon motions filed by the providers, the
bankruptcy court issued orders placing an automatic stay on any
proceedings against the providers' assets. The bankruptcy court,
however, did authorize limited recoupment of overpayments pertaining to
the time period before the providers filed their bankruptcy petitions.
In re Sun Healthcare Group, Inc., D. Del., Sept. 27, 2002.
Dow's Union Carbide Asbestos Trial Nears Close
Dow Chemical Co.'s Union Carbide unit failed to warn and protect workers
from asbestos exposure at the company's plants, Bloomberg News reported.
The plaintiffs, who include about 2,000 contract workers, family members
and laborers who used Union Carbide building products, claim they were
sickened by asbestos exposure. Union Carbide lawyers argued the company
employed 'cutting edge'' standards and that plaintiffs never showed any
violations of federal workplace safety rules. Verdicts and settlements
in asbestos cases have driven at least 56 companies into chapter 11
bankruptcy and may cost U.S. companies and insurers $200 billion, the
consulting firm Towers Perrin has estimated.
Geneva Steel Says Potential Lender Backed Out of Financing Plan
Geneva Steel LLC said it won't continue operations past Nov. 15 after a
potential lender declined to file a loan guarantee for the bankrupt
steel mill, leaving it with no access to cash collateral, Bloomberg News
reported. Geneva Steel, which filed for bankruptcy protection in
January, will have to pursue a liquidation agreement with its secured
lenders. 'Absent further agreement with the company's secured lenders
for access to cash collateral, the company will lack sufficient
liquidity to continue its limited operations beyond November 15,'' the
company said in a statement. The company, whose parent Geneva Steel
Holdings Corp. also sought chapter 11 bankruptcy protection in
September, had been working with potential lenders to secure a $250
million loan to repay its existing $108.4 million loan and to finance
its electric arc furnace strategy. More than 15 steelmakers, including
Bethlehem Steel Corp. and LTV Corp., have filed for bankruptcy
protection since the beginning of 1998 because of competition from
lower-priced steel made in Brazil, Eastern Europe and Asia.
NII Holdings Reorganization Fails to Win Confirmation
NII Holdings Inc. on Tuesday failed to win confirmation of its proposed
chapter 11 reorganization plan after a judge found the document violated
certain provisions of the Bankruptcy Code, Dow Jones reported. In a
preliminary ruling, Judge Mary F. Walrath of the U.S. Bankruptcy Court
in Wilmington said NII Holdings must resolve several issues before it
can hope to win confirmation of the plan that calls for the company to
emerge as a streamlined going concern. NII Holdings will submit
resolutions to the issues by Friday. A hearing to consider confirmation
will reconvene on Oct. 28, if necessary. Judge Walrath found the plan
had three problems. First, the plan can't be confirmed with a provision
that allows only some of its Class 6 creditors to designate the
reorganized company's directors. Under the proposed plan, NII Holdings's
parent Nextel Communications Corp., which is also a Class 6 creditor, is
able to designate the directors. Another Class 6 creditor, Cordillera
Communications Corp., cannot. 'I don't think it's appropriate to give
Nextel or any other member of Class 6 the right to designate directors
without giving all the members of the class that right,' Judge Walrath
said.
Judge Walrath also found that certain releases granted to interested
parties that protect them from litigation aren't acceptable. NII
Holdings had proposed to release all of its current and former officers
and directors from any and all claims. Judge Walrath said the releases
should only pertain to officers and directors who were with the company
during some portion of its time in chapter 11. Finally, Judge Walrath
said she couldn't confirm the plan until NII Holdings produces evidence
that it received enough creditor votes in support of confirmation to
satisfy requirements under the Bankruptcy Code. The judge ruled earlier
on Tuesday that several votes in favor of confirmation couldn't be
counted because the debtor violated the Bankruptcy Code's solicitation
guidelines. NII Holdings said it does, indeed, have the requisite votes
and will submit evidence demonstrating that fact.
Xcel Could Pay Up To $400 Million in an NRG Insolvency
It's possible Xcel Energy could end up paying a maximum of about $400
million related to its NRG Energy Inc. unit's potential insolvency, Dow
Jones reported. That amount includes up to $300 million the Minneapolis
company told rating agencies it would be willing to put into NRG to
ensure its investment grade rating in May, before NRG was downgraded to
junk. 'It's open to debate whether we owe that money or don't,' Xcel
Chief Financial Officer Richard Kelly told Dow Jones Newswires on
Tuesday. 'I'm hoping we can come to some negotiated settlement (with the
banks) as part of global solution.' The other part of Xcel's exposure to
NRG is about $100 million in fuel and marketing guarantees to creditors,
established after the credit downgrade so that NRG could continue to buy
coal and natural gas to fire its power plants, Kelly said. 'I haven't
given up hope that we can get some kind of consensual agreement and
don't have to go through the (bankruptcy) courts,' said Xcel's Kelly.
'But maybe I'm being overly optimistic.'
Banks Get a Chunk of Bankrupt Firms
A curious thing is happening on the way out of bankruptcy court, the
Charlotte Observer reported. Banks are becoming the primary
owners of companies that do everything from provide Internet service to
make fabric. Just last month, telecommunications firm Teligent Inc.
exited bankruptcy protection as a private company wholly owned by
financial institutions. Days later, Greensboro, N.C. textile maker
Guilford Mills Inc. emerged with 90 percent of its shares owned by
banks. And if Sunbeam Corp.'s reorganization plan wins final approval,
Charlotte's Bank of America Corp. and Wachovia Corp., along with Morgan
Stanley & Co., will own all the stock in the maker of toasters,
coffee makers and other small appliances. To read the full story, point
your browser to
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