January 13, 2006
IRS Revoking Exemptions of Credit Counselors
The Internal Revenue Service (IRS) has concluded that more than 30 credit-counseling firms—accounting for more than half of the industry's revenue—are not entitled to tax-exempt status, the Washington Post reported today. Five firms, mostly small ones, have already had their tax-exempt status revoked, while the rest have been notified of the agency's intention, according to the agency. The proposed and final revocations are the results so far of 60 audits the IRS has been conducting for more than two years into credit-counseling organizations. The audits were prompted by hundreds of consumer complaints of deceptive business practices, including high fees, high-pressure tactics and inadequate educational services. The IRS has been trying to determine if credit-counseling agencies were misusing their tax-exempt status to take advantage of financially strapped consumers. Read more.
Former Enron CEOs Ken Lay and Jeff Skilling sought to cast some measure of blame on the other for the 2001 bankruptcy of what was once the seventh-largest company in America—an implosion that wiped out 4,500 jobs and $70 billion of investors' money while Lay, Skilling, and other top executives walked away with hundreds of millions of dollars, Fortune Magazine reported today. Since that time, a SWAT team of prosecutors, FBI agents and other experts have been trying to answer the question, Whose fault was it? So far they have charged 34 defendants and obtained 16 guilty pleas -- including those from several key former Enron executives. But all that was prelude to the trial of Lay, 63, and Skilling, 52, which is set to begin on Jan. 30. If convicted, the pair, once widely acclaimed as visionaries, could spend the rest of their lives behind bars. The trial, which may last into the summer, will be a critical event in American business history. The verdict will send a clear message about the accountability of those at the very top of a company. Read more.
Equity Committee Disbanded in Winn-Dixie Bankruptcy
In documents filed with the U.S. Middle District of Florida bankruptcy court late Wednesday afternoon, and indirectly reaffirmed by the court at a hearing yesterday, the Equity Security Committee was disbanded by the case's U.S. Trustee, the Jacksonville Business Journal reported yesterday. Judge Jerry Funk declined to hear a motion previously filed by the equity committee. The motion sought to schedule a hearing to discuss appointing an examiner to independently investigate the reasons behind Winn-Dixie's filing for bankruptcy. "At this point, we obviously can't proceed with this hearing if the committee is disbanded," he said. "And the court will take no action on scheduling a conference." Counsel for both Winn-Dixie and the company's creditors have previously stated the existence or nonexistence of an equity committee would not affect the company moving toward a reorganization plan.
Airlines
New Judge Gets Delta Bankruptcy Case
The judge overseeing Delta Air Lines Inc.'s bankruptcy case is permanently stepping away from the case, days after the court announced she was taking a medical leave of absence, the Associated Press reported yesterday. On Monday, the court announced that Judge Prudence Carter Beatty, 63, would leave the case for two months as she goes on medical leave. Yesterday, a court official said the case was reassigned to Judge Adlai Hardin. Reached at her home yesterday, Beatty declined to comment. A Delta spokesman, Anthony Black, said the carrier does not expect changes behind the bench to slow the bankruptcy process. Read more.
UAL, Creditors End Plan Dispute
Bankrupt UAL Corp., parent of United Airlines, said yesterday that it has resolved disputes with its unsecured creditors' committee over elements of its reorganization plan, Reuters reported yesterday. The resolution helps pave the way for United to gain court approval of its plan next week. UAL said the agreement between the No. 2 U.S. carrier and its unsecured creditors will be reflected in an amended plan, to be filed with the U.S. Bankruptcy Court in the Northern District of Illinois ahead of a confirmation hearing, set to begin on Jan. 18. United's plan drew about 50 objections in mid-December. The airline still faces other objections to the plan over from labor groups that believe a proposed stock ownership plan would overcompensate top executives.
In other news, UAL CEO Glenn Tilton could receive stock and options worth $15 million, base pay of more than $600,000 annually and a bonus that could double his salary when the carrier emerges from bankruptcy next month, according to company documents. Tilton will get 545,000 restricted shares and 822,000 options, or just more than 1 percent of the $1.9 billion in equity United intends to issue, if a bankruptcy judge approves. Read more.
Meanwhile, top management at United Airlines agreed yesterday to accept a smaller stake in the company - 8 percent instead of the 15 percent initially sought- to win creditor approval for a plan to emerge from bankruptcy, the New York Times reported today. It has not been determined how the reduced stake will be split among about 400 executives, according to Jean Medina, a spokeswoman for United. A provision that called for Glenn F. Tilton, chief executive of United and its parent company, UAL, to receive stock valued at $15 million drew heated objections earlier this week from unions that represent workers who have made large pay concessions to help United survive. Under the agreement, reached with the unsecured creditors' committee in United's three-year-old bankruptcy case, the management group could receive up to 10 million shares, or 8 percent of the 125 million shares to be issued.
Northwest Pilots Vote to Freeze Pensions
Northwest Airlines Corp. pilots voted overwhelmingly to approve a freeze in
their pensions as the company shifts to a plan based on employee
contributions, their union said yesterday, the Associated Press reported
yesterday. The airline and pilots' union have both supported the freeze as a
way to shore up the bankrupt carrier's pension plan, which promises workers
a fixed amount when they retire. The Air Line Pilots Association told
members that current law would have required Northwest to contribute $1.8
billion to the pilot pension plan by 2008. That risked forcing Northwest to
resort to a federal bailout of the plan, which would significantly reduce
what pilots receive. Under the new plan, pilots and the company will
contribute a portion of their salary to a retirement account, with no
promise for a fixed payout. Nearly 82 percent of the pilots who cast ballots
voted in favor of the freeze. The airline is still negotiating other
concessions from pilots, as well as flight attendants and ground workers. If
no deal is made, the Eagan-Minn.-based airline will ask a bankruptcy court
judge for permission to reject its union contracts at a trial set to begin
Jan. 17. The unions for all three groups have said they may strike if that
happens.
British Airways Calls Bankruptcy Suggestion 'Ludicrous'
British Airways Plc (BA), Europe's third-largest airline, today dismissed as ludicrous an actuary's suggestion that the carrier would need to declare bankruptcy to clear its pensions deficit, Reuters reported today. "This is the most ludicrous proposal imaginable to resolve our pension deficit. It will come as no surprise to those people living in the real world that this is not an option under consideration,'' BA said in a statement. BA was responding to comments from Donald Duval, chief actuary of pensions adviser Aon Consulting, who said the airline may need to go into bankruptcy to restructure, a path followed by several U.S. carriers. "We are one of the most profitable airlines in the world, our half-year operating profit was £437 million ($771.8 million)," BA said. "We have nearly £2 billion cash in the bank. We want to find an acceptable solution to the pensions deficit that secures pensions for our staff and the future of our business.''
Brazil's Varig Wins Bankruptcy Extension
Brazil's struggling airline Viacao Aerea Rio-Grandense SA, or Varig, said
yesterday that it paid $56 million to U.S. aircraft leasing companies and won an
extension of its bankruptcy protection, the Associated Press reported
yesterday. A New York court extended protection to Varig until March 17,
when Judge Robert Drain will assess the progress of the company's
restructuring plan, Varig said in a statement. The company will present the
plan to creditors on Jan. 31, Varig said. Burdened with debts of more than 7
billion reals ($3.1 billion), Varig sought local bankruptcy court protection
in June; leasing companies filed separate cases in New York. The airline announced the sale of its maintenance subsidiary VEM to the
Portuguese airline TAP for $72.2 million.
Mirant Returns to NYSE after Leaving Bankruptcy
For the third time in the last five years, a chief executive officer of Atlanta-based Mirant Corp. rang the opening bell on the New York Stock Exchange, the Atlanta Journal-Constitution reported yesterday. The hand on the bell Wednesday, though, belonged to Edward Muller and not former Mirant CEO Marce Fuller, who rang the exchange open for the first time back in 2000, when the energy company was just minted. Muller's turn with the bell marks the end of one era for the independent power company and — as the company is now emphasizing — the beginning of a new one. On Wednesday, the company's new stock began trading again on the NYSE for the first time in 2 1/2 years, at prices almost 20 times higher than its old stock commanded over the counter less than two weeks ago. It closed at $24.98 per share. Read more.
Funds Distribution in BSI Bankruptcy Proceedings at 98.5 Percent
Joseph Myers, a partner and managing director of Clear Thinking Group LLC and Liquidating Trustee for BSI Holding Co. Inc. (formerly known as Bob's Stores), today announced that final disbursements of 13.5 percent have been sent to BSI's general unsecured creditors, a press release on PRNewswire said yesterday. This brings the total distribution issued in the case to 98.5 percent, far higher than the anticipated 40-70 percent return. Myers credited the increased return rate and expedient distribution of claims to the work performed by Jay Indyke and his team at New York City-based Kronish Leib Weiner & Hellman LLP, counsel to the trustee and the creditors committee. He also acknowledged the cooperation of several other firms involved in the matter. Read more.
Bank of New England Distribution Announced
Dr. Ben Branch, the chapter 7 trustee for the bankruptcy estate of Bank of New England Corp. (BNEC), announced that, as a result of a court-approved mediation session held on Nov. 22, 2005, an agreement in principle was reached between representatives of the holders of each of the senior debt securities and the junior debt securities of BNEC, BankruptcyData.com reported today. Pursuant to the agreement, a partial settlement of an ongoing dispute with respect to the distribution of the remaining estate funds to holders of debt securities will be funded by a distribution by the chapter 7 trustee of the sum of $25 million, of which 50 percent will be paid to the indenture trustees for the senior debt securities and 50 percent will be paid to the indenture trustees for the junior debt securities. All remaining amounts in dispute between the senior debt securities and the junior debt securities will continue to be subject to the ongoing dispute and the partial settlement will have no effect or prejudice with respect to that dispute. The agreement is pending court approval.
Musicland Files for Chapter 11
Musicland Holding Corp., the parent company of Sam Goody music and Suncoast
video stores, filed for chapter 11 protection yesterday, the Associated
Press reported today. Musicland has sustained years of losses at its
mall-based stores, which were battered by competition from superstores such
as Circuit City and its one-time owner, Best Buy, as well as the slump in
the music business. Its sales have plunged 42 percent, from $1.89 billion in
1999 to an estimated $1.1 billion in 2005. The company last made a profit in
2001. The Minnetonka, Minn.-based retailer operates more than 800 Sam Goody,
Suncoast Motion Picture Co. and Media Play stores. It said chapter 11 would
enable it to exit some unprofitable leases. Madden said the Sam Goody and
Suncoast chains would continue to operate and it was too early to specify
how many stores will close. It listed assets of $371.5 million and debts of
$485.6 million in its filing with the U.S. Bankruptcy Court in the Southern
District of New York. Read more.