March 7, 2000
Bankruptcy Bill to Move Ahead Despite New Filing Data
Congress continues to push ahead with legislation to curb
bankruptcy filings, but new data suggests the problem may be fixing
itself, The Wall Street Journal reported today. Yesterday
opponents to bankruptcy reform pending in Congress cited the
announcement from the Administrative Office of the U.S. Courts on the
8.5 percent decline in total filings last year and the 8.3 percent
decline in consumer filings. Consumer Federation of America (CFA)
Legislative Director Travis Plunkett said, 'This takes the steam out of
the argument for bankruptcy reform. We've said for some time that this
problem is self-correcting.' Plunkett and other critics of the
legislation attribute the decrease in filings to a combination of
greater reluctance on the part of lenders to extend credit to high-risk
borrowers and greater awareness by consumers and businesses of how much
debt they can take on. Sen. Edward Kennedy (D-Mass.), a prime opponent
of the legislation, said, 'This is the free-market response to the
problem and ample indication that a harsh bankruptcy bill is not
needed.'
Reform legislation supporters, however, counter that the number of
filings has leveled off, but 'the plateau is still very high,' according
to Philip Corwin, an attorney with Federal Legislative
Associates, which represents the American Bankers Association. 'Compare
the rate of filings to 10 years ago, and it is [nearly three times as
high] despite a much stronger economy.' Supporters of the legislation
also say that the need to reform the system was not affected by the drop
in filings, which could increase again at any time. Sen. Charles Schumer
(D-N.Y.) said, 'The fundamental need to make sure people don't totally
escape their debt is sound policy in times of prosperity or not.'
House Leaders Still Struggling with Minimum Wage Issue
House Republican leaders continue to struggle with developing a
rule for this week's minimum wage floor debate to satisfy both moderates
and conservative, CQ Daily Monitor reported. GOP conservatives
are applying heavy pressure to ensure that a provision allowing states
the flexibility to set their own wage minimums automatically becomes
part of whatever bill is approved, without a separate floor vote. One
possibility has already been scrapped, but conservative Republicans are
now threatening to side with Democrats in opposition to the rule unless
it includes state flexibility. Meanwhile, the tax package expected to
accompany a minimum wage increase to the House floor this week is
missing a provision that business lobbyists want: a five-year extension
for the welfare-to-work credit. But the measure described more fully
yesterday by the House Ways and Means Committees includes other tax
breaks high on the lobbyists' agenda. The Senate's minimum wage package,
which is part of H.R. 833 to overhaul the bankruptcy laws, would extend
the welfare-to-work tax credit for an additional two-and-half years,
brining the total to five years. The Senate's legislation also would
provide tax breaks worth about $18.4 billion over five years and
includes provisions that businesses would like to see win acceptance in
conference, such as reduction of the federal unemployment insurance tax
and language permitting companies to deduct 80 percent, instead of 50
percent, of the cost of business meals.
Iridium Receives $3 Million from Lenders and More Time to
Find Buyer
Iridium LLC announced that it has secured $3 million from its
lenders, which will provide the satellite phone operator with 11 more
days to keep its network operating and secure a buyer, Reuters reported.
At a bankruptcy court hearing in Manhattan yesterday, the court approved
the interim financing plan proposed by the company, which expires March
17, and set a deadline for next Wednesday, March 15, for Iridium to find
new investors or a company to buy it out of bankruptcy. Last Friday,
cellular pioneer and his Eagle River investment group abandoned their
plans to buy Iridium, which filed chapter 11 last August. Iridium said
that Eagle River told the company its pull-out was not a bargaining
tactic, as some analysts had thought. Iridium attorney William
J. Perlstein of Wilmer, Cutler & Pickering said, 'We're
asking for a very small amount of money for the hope--and that's all it
is--the hope that we can find another purchaser.' He also said that
investment bank Donaldson, Lukin and Jenrette was contacting 21 firms
that had previously expressed interest in Iridium to determine whether
any would offer bids. Perlstein also said that Iridium will use its 11
days to prepare a plan for de-orbiting the company's network of 66
satellites and begin implementing the plan on March 17 if a backer is
not found. He predicted it would take six to seven months to execute the
plan in working with multiple U.S. government agencies.
SGL Carbon's Chapter 11 Dismissed in Delaware
The Bankruptcy Court for the District of Delaware overseeing
the bankruptcy case of SGL Carbon Corp., one of German-based SGL Carbon
AG's North American subsidiaries, entered an order dismissing the
company's voluntary chapter 11 effective March 15, according to a
newswire report. The court acted in accordance with an appeals court
decision issued in late December. The dismissal of the case will have
virtually no impact on the civil suits filed against SGL Carbon in the
United States. More than 96 percent of all claims in he Untied States
have now been settled out of court, and the dismissal will not affect
these settlements.
Bonwit Teller Announces Closing of Last Store
Bonwit Teller announced yesterday that it is closing its last
store after nearly a century in business, according to the Associated
Press. The one-time Fifth Avenue retailer was rescued from bankruptcy in
1990 by the Pyramid Cos., but Bonwit Teller did not open its store
yesterday in the Pyramid-owned Carousel Center mall in Syracuse, N.Y.
Pyramid said the store, which employs 60 people, will begin a
going-out-of-business sale on Thursday and that that 62,000-square-foot
store will be replaced by a collection of new 'lifestyle' stores. The
Pyramid Cos. bought Bonwit Teller out of bankruptcy in 1990 for $8
million in cash, and its plans to expand the Bonwit Teller store name
throughout the company's two dozen malls and a new flagship store in
Manhattan never materialized. Founded in 1902, Bonwit Teller was the
first retailer in the United States to import designer clothing from
Europe and the first U.S. retailer to open a designer section for men in
its stores.
Moody's Bankrupt Bond Index Down in 1999, but Telecom Is
Up
The bonds of issuers that have filed for bankruptcy but whose
debt continues to trade in the secondary markets posted a aggregate -1.9
percent return in 1999, although telecommunications credits returned a
strong 58 percent on average, Moody's Investors Service reported
yesterday. Moody's Bankrupt Bond Index (MBBI) struggled throughout 1999
as a result of strong supply coupled with weak demand from relatively
risk-adverse investors, but has posted an annualized total return of
17.4 percent since 1981 and may be set to rebound in 2000, according to
analysts. Moody's David Hamilton said, 'If default rates hold steady or
move lower in 2000, then slower supply and reinvigorated investor demand
could lead to higher trading volumes, firmer prices and stronger returns
for investors in these types of distressed securities.' The number of
bankruptcies by U.S. corporation increased sharply in 1999, and as a
result, the number of issuers included in Moody's index increased 131
percent. The par value of debt included rose 190 percent, to more than
$16.8 billion, the largest increase since the 1990-1991 debt debacle.
Two of the 10 largest bankruptcies of the last decade included in MBBI
occurred in 1999: Transamerican Energy Corp., number four with $1.5
billion of debt included in MBBI, and Iridium LLC, which is number nine
with $1.1 billion. The increase in filings was widely distributed across
industrial sectors, but economic factors led some sectors to be more
heavily weighted. 'Weak prices caused by deflation in commodity markets,
in particular, had disastrous consequence for the oil and gas, shipping
and steel industries,' Hamilton said. The telecommunications industry
also represented a large proportion of activity in MBBI, but unlike
sectors impacted by macroeconomic factors, entrepreneurial risk was the
dominant factor behind telecom bankruptcies.
Grand Court Lifestyles Fails to Make Payments, May File for
Bankruptcy
Grand Court Lifestyles Inc., Boca Raton, Fla., reported that it
failed to make interest payments due March 1 on certain debt obligations
and rent, according to a newswire report. As a result of the failure to
make payments of about $13.6 million aggregate principal amount of debt,
the company is now in default. The company said that although none of
its creditors have attempted to exercise any remedies against it, and
although it will initiate discussions with creditors to renegotiate the
terms of its debt obligations, the company is likely to file for
bankruptcy protection. The company has suspended sales of partnership
interests in Syndications, which historically is the company's primary
source of revenue.
Great American Life to Pay $11.2 Million to Dallas Couple
A state court jury awarded a Dallas couple $11.2 million in
damages against Great American Life Insurance Co. on the couple's claims
of fraud and misrepresentation against the Cincinnati-based insurer,
according to a newswire report. Jack and Kathran Martin, who had been
managing general agents for Great American and had built a network of
150 sub-agents, accused the company of fraudulently terminating its
business relationship with them, thus depriving them of their sales
commissions generated by the sub-agents. The jury found that the
insurance company fraudulently misrepresented reasons for terminating
the Martins and awarded them $2.8 million in actual damages and $8.4
million in punitive damages. An attorney for the couples said that the
jury saw that it was a 'simple case of right and wrong.' In 1994, the
Martins encountered some financial difficulties and considered filing
for bankruptcy. But first they called Great American's general counsel
to determine whether their filing would affect their relationship with
the company. Their attorney said Great American assured them it would
not, but after they filed Great American terminated them. The couples'
attorney said, 'They [Great American] used the bankruptcy as a pretext
to steal their 150 sub-agents. They simply wanted to cut the Martins out
of their override commission.' The Martins filed suit against the
company in 1996.
ARM Financial Group Closes Transaction with Western and
Southern Life Insurance
ARM Financial Group Inc., which filed for chapter 11 protection
in December in the District of Delaware, announced that it has closed
the transaction whereby The Western and Southern Life Insurance Co.
acquired ARM's insurance subsidiaries, Integrity Life Insurance Co. and
National Integrity Life Insurance Co., according to a newswire report.
The court approved the sale last week with the purchase price of about
$119 million. ARM is continuing with the liquidation or dissolution of
its remaining assets.
Primary Health Systems to Sell Cleveland Clinic
Primary Health Systems Inc. (PHS) announced yesterday that it
is phasing out operations at Mt. Sinai Medical Center-Easter and St.
Michael Hospital and that both will close on or about March 31,
according to a newswire report. PHS also said that it has entered into
an agreement to sell the Mt. Sinai Integrated Medical Campus to the
Cleveland Clinic Foundation. The transaction is subject to approval by
the court overseeing PHS' chapter 11 case.
Public Notice for Reappointment of Pennsylvania Bankruptcy
Judge
The current term of office of David A. Scholl, U.S. Bankruptcy
Judge for the Eastern District of Pennsylvania at Philadelphia, is due
to expire on Aug. 26, 2000. The U.S. Court of Appeals for the Third
Circuit is considering the reappointment of Judge Scholl to a new term
of of office and has determined that he appears to merit reappointment
subject to public notice and opportunity for public comment. Upon
reappointment, the incumbent would continue to exercise the jurisdiction
of a bankruptcy judge as specified in title 28, U.S. Code; title 11,
U.S. Code; and 122, 98 Stat. 333-346. In bankruptcy cases and
proceedings referred by the district court, the incumbent would continue
to perform the duties of a bankruptcy judge that might including holding
status conferences, conducting hearings and trials, making final
determinations, entering orders and judgments, and submitting proposed
findings of fact and conclusions of law to the district court.
Members of the bar and the public are invited to submit comments for
consideration by the Court of Appeals regarding the reappointment of
Judge Scholl to a new term of office. Please not that the Court of
Appeals procedures provide that 'the circuit executive shall not
disclose the identity of any person who requests confidentiality, but
shall provide the incumbent bankruptcy judge with a general description
of the source and nature of the comments.'
All comments should be directed to the following address: Office of
the Circuit Executive, Toby D. Slawsky, Circuit Executive, 22409 U.S.
Courthouse, 601 Market St., Philadelphia, PA 19106-1790. Comments must
be received no later than Friday, April 14.
Thanks for visiting Today's Bankruptcy
Headlines. New articles are posted here each business
day.
