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December 23, 2002
Best of Times for Treasuries, Worst for
Bankruptcies
The U.S. Economy avoided tipping into a double-dip recession in 2002 as
the Federal Reserve held short-term interest rates at four-decade lows
for most of the year and slashed them for a 12th time in November,
Barron's reported. The upheavals in the credit markets
contributed to the Fed's decision to lower its target for the overnight
federal-funds rate to just 1.25 percent. These developments were
triggered by spectacular bankruptcies and scandals that were topped by
WorldCom. The online newspaper reports that seven of the biggest
bankruptcies ever took place this year, with Conseco filing just last
week. To read the full article, point your browser to
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Enron Officials, Lenders Must Face Investor Suits, Lawyer
Says
Former Enron Corp. executives and lenders including Citigroup Inc. and
J.P. Morgan Chase & Co. must face lawsuits by shareholders and
employees seeking $29 billion in damages over the energy company's
collapse, a federal judge ruled, according to a lawyer for investors,
Bloomberg News reported. William Lerach, a lawyer for the plaintiffs,
said he was told by shareholder lawyers in Houston that U.S. District
Judge Melinda Harmon concluded securities- and pension-fraud claims that
executives with the help of lenders manipulated the company's books to
hide debt and inflate earnings, have enough merit to proceed.
The decision would mean that investors and employees can force Enron,
its lenders, ex-accountants and lawyers to turn over internal documents
that may shed more light on the collapse of what was once the world's
largest energy trader. Enron filed for bankruptcy protection last
December after its shares had lost $68 million in value from their peak
in August 2000.
Amerco Continues Talks with Bondholders
Amerco executed term sheets with two financial institutions for up to
$650 million in connection with a debt restructuring, Dow Jones
reported. In a press release on Friday, the parent company of the U-Haul
moving and storage rental service said it continues to negotiate
standstill agreements with certain lenders and bondholders. Amerco
defaulted on $100 million in bonds in October after it was unable to
complete a $275 million debt offering that was intended to pay the
maturity. Moody's Investor Service said at the time that Amerco may file
for bankruptcy protection but the company has said the speculation is
unfounded, reported the newswire. Amerco expects the debt restructuring,
including the new financing will be in place by the time its fiscal year
ends on March 31, 2003, reported Dow Jones.
PBGC Reaches Agreement on Former Global Crossing Plan
A federal agency that protects private-sector pensions said on Friday it
reached agreement on a retirement plan once sponsored by a unit of
Global Crossing Ltd., Dow Jones reported. The Pension Benefit Guaranty
Corp. (PBGC) said the agreement involves maintaining the pension plan
formerly sponsored by Frontier Corp. That Global Crossing unit was sold
last year to Citizens Communications Co. of Middletown, N.Y. Under the
deal announced on Friday, Global Crossing will transfer the former
Frontier plan to Citizens as agreed to at the time of the 2001 sale,
PBGC said. As a result of the agreement, the federal agency will
withdraw an earlier request to terminate the pension plan and have
itself named as trustee, reported Dow Jones.
UNITED AIRLINES
United Air Case Pits Employee Stock Rights Against Company's
Future
State Street Bank, the trustee of United Airlines' employee stock option
program wants to sell the stock so it can reap $37 million in proceeds
for workers before the market value diminishes, Dow Jones reported. But
doing so would trigger an ownership change for the company and prevent
United Airlines from gaining $1.4 billion in tax writeoffs, reported the
newswire. The issue of maintaining value for employee stock option plans
clashing with the interests of cash-starved debtor companies has emerged
with the current wave of large U.S. bankruptcy filings such as Enron
Corp., WorldCom Inc. and Polaroid Corp. G. Ray Warner, the
scholar-in-residence at the American Bankruptcy Institute, said
the United Airlines case is on the leading edge of this conflict, and it
presents issues in law that have yet to be settled. To read the full
article, point your browser to
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28article%2Ddoc%2Dtype%3CCONTAINS%3Ebankruptcy%29%29.
United Names Executive Leadership Team
UAL Corp. charged Chief Financial Officer and Executive Vice President
Jake Brace with the task of leading the airline holding company out of
chapter 11 bankruptcy protection, as part of the creation of a new
leadership team, reported Dow Jones. In a press release on Friday, the
parent company of United Airlines said Brace will continue to oversee
the company's financial functions, but also be in charge of the
financial restructuring of the Chicago-based concern.
The team also includes Fran Maher, senior vice president, general
counsel and corporate secretary, who is responsible for all of United's
and UAL's legal affairs. In the chapter 11 process, she works closely
with Brace, who has overall responsibility, and oversees the development
and execution of the complex legal strategies, reported the newswire.
UAL also put executive Vice President of Operations Pete McDonald in
charge of operational and customer service excellence. Executive Vice
President of Strategy Doug Hacker will concentrate on innovative
strategic planning. Sara Fields, senior vice president-People Services,
will work on employee support and development, while Rosemary Moore will
work on effective communication, reported the newswire.
Separately, the Wall Street Journal reported that United Airlines
said it laid off 646 mechanics due to reductions in flight schedules.
The carrier is expected to seek further cost cuts from unions
representing mechanics, pilots and flight attendants.
US AIRWAYS
US Air, Lender Agree to Return of $36.6 Million of November
Payment
US Airways Group Inc. is asking a bankruptcy court to approve an
agreement under which a unit of General Electric Co. would return $36.6
million of a payment the airline made last month under a pre-petition
credit agreement, Dow Jones reported. According to a motion filed with
the court on Thursday, US Airways around Nov. 18 made a scheduled
principal amortization payment of roughly $37.8 million to General
Electric Capital Corp., as required under the credit agreement.
The motion said the airline and the General Electric entities 'have been
involved in extensive negotiations prior to and following' US Airways'
bankruptcy filing in connection with a restructuring of the airline's
debts to General Electric, reported the newswire. The focus of those
talks has been to reach 'a global settlement of all open issues' between
the parties. When US Airways filed for bankruptcy on Aug. 11, the
outstanding principal amount of the pre-petition credit facility was
$389 million, according to the motion. While a settlement hasn't been
finalized, the parties have recently signed a non-binding summary of
terms and conditions, reported the newswire. The airline is asking the
U.S. Bankruptcy Court in Alexandria, Va., to approve the motion on an
interim basis at a hearing on Dec. 27. It asked the court to consider
approval of a forthcoming global settlement at the airline's Jan.16,
2003, hearing, reported Dow Jones.
US Air's Renewed Viability Faces Significant
Challenges
US Airways Group Inc. faces several hurdles before it can emerge from
bankruptcy-court protection, according to its reorganization plan filed
late on Friday in U.S. Bankruptcy Court in Alexandria, Va., the Wall
Street Journal reported. The parent of the nation's seventh-largest
airline said in the filing it must secure final approval of a government
loan guarantee that would back a $1 billion loan to fund US Airways'
exit from chapter 11. Receipt of that aid would enable the company to
tap the last $200 million of its interim financing package provided by
Retirement Systems of Alabama, a pension fund. To read the full article,
point your browser to
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28article%2Dbody%29.
WorldCom Ex-CFO Fails to Link Ebbers to Fraud
WorldCom Inc.'s former finance chief, Scott Sullivan, has given federal
prosecutors a broad outline of discussions he had with the company's
former CEO Bernard Ebbers about the company's fraudulent accounting
practices, according to people familiar with the matter, the Wall
Street Journal reported. But people who have been briefed on the
discussion say that Mr. Sullivan's outline, known as a 'proffer,' about
his discussions with Mr. Ebbers falls far short of helping prosecutors
to directly link Mr. Ebbers to the company's accounting
improprieties.
The proffer comes as something of a blow to federal prosecutors, who had
hoped to garner information from Mr. Sullivan that would enable them to
build a case against Mr. Ebbers. Mr. Sullivan's inability to link Mr.
Ebbers to fraudulent accounting in a way that can be independently
corroborated also could result in a much harsher plea deal for Mr.
Sullivan -- should he decide not to go to trial, the newspaper reported.
WorldCom has disclosed it inflated profits by at least $9 billion during
the past three years. The Clinton, Miss., telecommunications company
filed for protection under chapter 11 of the U.S. Bankruptcy Code in
July, reported the Journal.
Focal Communications Allowed to Tap Banks' Cash Collateral
Focal Communications Corp. on Friday won interim authority to use the
cash collateral of its secured lenders to fund operations and pay
employees, Dow Jones reported. 'Without immediate and ongoing access to
the cash, the debtor cannot pay current and ongoing operating expenses,'
the debtor company said in its motion. 'The debtor has an urgent and
immediate need for cash to continue to operate its business, ' reported
the newswire.
The order signed by Judge Kevin J. Carey of the U.S. Bankruptcy
Court in Wilmington, Del., grants Focal Communications the authority to
use the cash collateral through Jan. 23. A hearing to consider final
authority to use the cash collateral is scheduled for the same day,
reported the newswire. The voice and data communications company filed
for chapter 11 bankruptcy protection on Wednesday, listing assets of
$561 million and liabilities of $609.3 million, according to Dow Jones.
The debtor company said on Friday that it intends to file a
reorganization plan by Dec. 27. 'This company has every intention of
moving through chapter 11 quickly and efficiently,' said Laura Davis
Jones, an attorney with Pachulski Stang Ziehl Young & Jones, the
firm representing Focal Communications, the newswire reported.
Conseco Finance Gets Court OK for $87 Million Interim DIP
Conseco Inc.'s Conseco Finance Corp. unit on Friday received bankruptcy
court approval of an $87 million interim debtor-in-possession loan and a
separate $9 million working capital loan, Dow Jones reported. Rulings on
the two matters came after a day of disagreements between the company
and several parties, including representatives of the U.S. Trustee's
office. Conseco Finance's motion regarding bidding procedures was
continued until Jan. 6, though the court singularly approved the $30
million breakup fee included in the motion after a request by the
current leading bidder, CFN Investment Holdings LLC.
Meanwhile, Conseco Finance attorney Richard L. Wynne confirmed
that the unit had heard from 'three or four' serious new bidders. Among
the bidders, he said, was Bear Stearns and General Electric Corp.'s
General Electric Capital unit. Conseco Finance attorney James H.M.
Sprayregen said the company 'is hoping for a very active bidding
process,' reported the newswire. Of the $87 million in interim
debtor-in-possession financing approved for the Conseco Finance unit,
$60 million will be used to repay U.S. Bank for a pre-petition credit
facility, leaving a $27 million revolving loan as the central piece of
Friday's order. The remainder of the debtor-in-possession financing will
become available to the company upon entry of a final order, Dow Jones
reported.
As Delta Cuts Costs, Pilot Pay Is Likely to be Its Next
Target
The nation's third-largest airline plans to slash $2.5 billion in costs
by the end of 2005, beyond $1 billion in reductions already achieved,
the Wall Street Journal reported. It has cut seating capacity by
about 15 percent since Sept. 11, 2001, unveiled plans to eliminate as
many as 8,000 jobs on top of more than 10,000 jobs already pared and
announced controversial cuts in pension benefits for most employees.
Absent from Delta Air Lines' cost-cutting spree, however, is its pilots'
salaries, reported the Journal. Delta's more than 9,000 pilots
fetch the highest pay in the industry, and that wage gap is likely to
grow as rival UAL Corp.'s United Airlines pushes for labor concessions
as part of its reorganization under chapter 11 bankruptcy proceedings.
'Absent a change in pilot economies -- either wages or work rules --
Delta's ability to lower its costs is severely handicapped,' says Jamie
Baker, an analyst with J.P. Morgan in New York, reported the
newspaper.
Uniroyal Technology Reaches Deal to Extend $10 Million DIP
Loan
Uniroyal Technology Corp. said on Friday it reached a deal that allows
it to continue funding its operations through an interim $10 million
debtor-in-possession loan, Dow Jones reported. CIT Group/Business Credit
Inc. agreed to extend the loan through Jan. 16, 2003, said Jeffrey M.
Schlerf, an attorney representing Uniroyal Technology. A hearing to
consider final approval of a $15 million loan is scheduled for that
day.
Friday's agreement represents the third extension of the interim loan,
which was initially approved by Chief Judge Peter J. Walsh of the
U.S. Bankruptcy Court in Wilmington in October. Also on Friday, Uniroyal
Technology won a one-month extension of its exclusive periods to file a
reorganization plan and solicit plan acceptances. The debtor company has
until Jan. 28 to file a plan and March 21 to get votes for the plan,
reported the newswire.
Viskase Receives Court Approval of Chapter 11 Bankruptcy Plan
Viskase Cos., whose founder invented artificial meat casings in the
1920s, received court approval of its bankruptcy reorganization plan
just a month after filing for chapter 11 protection, Bloomberg News
reported. On Nov. 13, Viskase filed a bankruptcy plan that was already
approved by the majority of its bondholders. Viskase owed $163 million
in senior notes, which came due in December 2001, and the manufacturer
said bankruptcy was necessary because it couldn't retire or refinance
its debt. Under the plan, holders of outstanding senior notes would
receive $60 million in new senior notes plus a majority share of new
common stock. The plan was confirmed by U.S. Bankruptcy Judge John D.
Schwartz, reported Bloomberg.
American Pad Files for Chapter 11, Gets Commitment for $40
Million
American Pad & Paper LLC, inventor of the legal pad, filed for
bankruptcy protection from creditors for the second time in three years,
Bloomberg News reported. The company filed for chapter 11 in the Eastern
District of Texas bankruptcy court, it said in a statement distributed
by Business Wire. The company received a commitment for $40 million of
debtor-in-possession financing to fund operations until it emerges from
bankruptcy.
Stores Hope Procrastinators Will Rescue Christmas Sales
In what is becoming a time-honored tradition, many shoppers postponed
their holiday shopping until the last minute, even though retailers cut
prices deeper and earlier than ever before, the Wall Street
Journal reported. Back in November, amid a burst of early-bird
shopping, some forecasters predicted a 2 to 3 percent gain in same-store
sales for the season. But many lowered their projections as sales in
early December sputtered. Now, retailers are hoping a flood of frazzled
shoppers will help compensate for the decidedly mediocre results so far.
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