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November 1, 2002
Gross Domestic Product Grows Over the Summer
After a mediocre 1.3 percent growth rate in the second quarter of the
year, the gross domestic product grew at a 3.1 percent rate over the
summer, the Commerce Department reported today. Hearty consumer
spending, particularly on major items such as automobiles, fueled the
increase. But even with the sudden increase, many economists predict the
economy will grow by a slower rate during the current fourth quarter.
Even though the third quarter GDP performance was the strongest since
the economy posted a brisk 5 percent growth rate in the first three
months of this year, it was weaker than the 3.6 percent pace many
analysts were predicting.
ENRON
Enron and Units Will File Single Reorganization Plan
Enron Corp. and its units are readying a reorganization plan that will
clear the way for the insolvent energy company to pay creditors and come
out of chapter 11 bankruptcy, Bloomberg News reported. Enron attorney
Martin Bienenstock told U.S. Bankruptcy Judge Arthur J. Gonzalez
today that a single reorganization plan is the most efficient and
fastest way to distribute funds to the company's creditors, who are owed
more than $50 billion. Enron will file the proposal 'over the next
several months,' he said. A so-called substantive consolidation of Enron
would be a setback for some creditors seeking a bigger distribution from
what was the world's largest energy trader before its spiral into
insolvency last year. Bienenstock said the plan would try to settle the
issue and avoid a protracted court fight.
The once-dominant energy trader is trying to restructure as an
integrated energy company. Enron's energy trading operations were bought
in January by UBS AG, the biggest Swiss bank, for about a third of
future profits. The more valuable assets remaining at Enron include
Oregon utility Portland General Electric Co. and about 15,000 miles of
pipelines-less than half the amount the company once owned. Enron
may be sold as a functioning business in parts or emerge as a
scaled-down company.
Enron lawyer Brian Rosen told Judge Gonzalez that the company's
investment banker, Blackstone Group LP, has been marketing the company's
assets to potential purchasers and a 'more definitive auction process'
will start in mid-December.
Enron Ex-CFO Andrew Fastow Is Indicted in Fraud Case
Enron Corp.'s former chief financial officer, Andrew Fastow, was
indicted on charges he masterminded a fraud that cost investors billions
of dollars and tried to cover it up before it triggered the energy
company's collapse, Bloomberg News reported. Prosecutors accused Fastow
of enriching himself at Enron's expense through securities fraud, mail
and wire fraud and money laundering and obstructed justice in an attempt
to conceal his alleged crimes. He was indicted on 78 counts and faces up
to 20 years in prison on each of the most serious charges. Fastow, 40,
who surrendered to federal authorities on Oct. 2 when the charges were
first filed, is free on a $5 million bond. John W. Keker, Fastow's
lawyer, has said his client acted at the direction of Enron founder
Kenneth Lay, former Chief Executive Officer Jeffrey Skilling and Enron's
board of directors, and that his work was approved by company
accountants and lawyers. Fastow is due to appear in federal court in
Houston on Wednesday before U.S. Magistrate Judge Marcia Crone.
Highlands Insurance Group Seeks Bankruptcy Court Protection
Highlands Insurance Group Inc., a provider of property and casualty
insurance, sought bankruptcy protection from creditors after defaulting
on loans and reporting three straight years of losses, Bloomberg News
reported. In chapter 11 papers filed in the U.S. Bankruptcy Court in
Delaware yesterday, the Lawrenceville, N. J.-based company listed $1.64
billion in assets and $1.82 billion in debts. Late last year as the
company began a restructuring effort, the chief executive officer
resigned for health reasons, the chief financial officer took another
job and a board member resigned. Highlands was spun off from Dallas,
Texas-based energy and construction services provider Halliburton Co. in
1996. Halliburton said in March it faced at least $80 million in
asbestos liability after the Delaware Supreme Court ruled that a
Highlands policy covering damage claims had expired.
Dynegy Shares Fall on Speculation That Energy Company Won't
Survive
Shares of Dynegy Inc., which already have plunged 97 percent this year,
fell on speculation that the company may not survive as it attempts to
refinance debt that
matures next year, Bloomberg News reported. Dynegy fell 12 cents, or 15
percent, to 67 cents, in New York Stock Exchange composite trading,
after dropping
to 65 cents. Dynegy was once of the world's ten largest energy traders
and tried to buy rival Enron Corp. a year ago. The stock may fall to
zero because the Houston-based company's viability as a going concern is
'tenuous,' Prudential Financial analyst Carol Coale said in a note to
investors yesterday. Coale cut her rating on the stock to 'sell' from
'hold.' Dynegy is auditing its books and will have to show 'solid
ongoing operating performance' to refinance $900 million in debt due in
April and another $400 million in May, the newswire reported.
Shaky Crutches for the Elderly: Use of Credit Cards Growing Among
Seniors
Faced with reduced retirement savings due to the stock market, rising
medical costs and unexpected emergencies, elderly Americans on fixed
incomes are increasingly turning to credit cards to survive, CBS
MarketWatch reported. Seniors filing for bankruptcy carry twice the
credit card debt as filers in their forties. The average credit card
debt of those 60-years-old and older who filed for bankruptcy last year
was $35,917, compared to $18,233 among the 40- to 49-year-olds who
filed, according to the American Bankruptcy Institute. Consumer
credit counselors are seeing the number of older clients swell. And a
recent survey found the number of seniors at or near their credit limits
has risen, as has the number of seniors who have credit cards. 'As the
cost of prescription drugs is increasing, as people's retirement
portfolios have decreased significantly, expenses are still going to
remain there,' said Shelley Curran, spokeswoman for Consumers Union,
which publishes Consumer Reports. 'People are going to have no
alternative but to turn to things like credit cards.'
Financially strapped seniors are increasingly seeking help at
consumer-credit counseling agencies, CBS reported. People over-65 grew
to 17 percent of Cambridge Credit Counseling's client base this year
from 11 percent three years ago, and the number of 55-plus customers
grew to 30 percent of clients from 21 percent. Thirteen percent of
consumers aged 55 and over were very close to their total credit limit
last month, compared to 10.8 percent in September 2000, according to an
online survey of almost 3,000 people conducted by American Consumer
Opinion, a consumer survey company. And the 55-plus age group was more
likely to possess a card, with only 8.2 percent not owning a card,
compared to 17.7 percent going without plastic in the 35 to 44 age
group, in last month's survey. A separate survey found that the total
average debt of households headed by someone age 65 or older soared to
$23,000 in 2000 from $8,000 in 1992, an increase of 188 percent, and
those numbers have likely risen even higher since then, said Larry
Cohen, director of SRI Consulting Business Intelligence's Consumer
Financial Decisions division.
US Airways Seeks OK to Indemnify Officers, Directors; Plans More Job
Cuts
US Airways Group Inc. is seeking court permission to assume pre-petition
indemnification agreements with its officers and directors and to enter
similar agreements with new officers and directors, Dow Jones reported.
In court papers filed on Monday, the airline operator said it isn't
seeking to assume executive employment agreements or to implement a key
employee retention program as is common in large chapter 11
reorganizations. US Airways said it's seeking 'very modest relief to
provide minimal protection' to its officers and directors to indemnify
them for claims challenging 'difficult business decisions' that they
made in good faith and in the company's best interests as they assist in
the reorganization efforts. The indemnification agreements don't protect
the officers and directors in cases of misconduct or negligence. The
U.S. Bankruptcy Court in Alexandria, Va., has scheduled a hearing on the
matter for Nov. 7.
Bloomberg News reported that US Airways Group Inc. fired about 300
non-union workers as the seventh-largest U.S. carrier attempts to cut
more costs because of lower-than-anticipated revenue. The carrier, which
filed for bankruptcy protection in August, eliminated the administrative
and management jobs mainly at its headquarters in Arlington, Va. and
some at its Winston, N.C., customer service center, said spokesman David
Castelveter. The company also plans to lay off 239 reservations
agents in December. The job cuts come after US Airways told its pilots
union
earlier this month that it would lay off another 471 pilots, in addition
to 1,356 already notified. US Airways Chief Executive Officer David
Siegel told employees that U.S. airlines have seen revenue deteriorate
recently.
Peregrine Systems Creditors Object to Proposed PwC Hiring
Peregrine Systems Inc.'s unsecured creditors' committee objected to the
company's proposed hiring of PricewaterhouseCoopers as a forensic
accountant, saying Peregrine isn't allowed to hire the firm in
connection with an investigation of an audit committee of the board, Dow
Jones reported. As reported, KPMG LLP, which replaced Arthur Andersen
LLP as the software maker's auditor in early April, sought a meeting in
late April with the board's audit committee that led to an internal
investigation into the company's accounting practices and the
resignations of the company's chief executive and chief financial
officer. The committee's objection, filed with the bankruptcy court on
Wednesday, said the U.S. Bankruptcy Code states the debtor is only
authorized to hire professionals in connection with its own duties. The
Code doesn't cover investigation as one of the duties of a
debtor-in-possession, the creditors' committee said. Instead, language
of the Bankruptcy Code grants authority to the creditors' committee to
perform that sort of investigation. The U.S. Bankruptcy Court in
Wilmington, Del., will consider the proposed hiring at a hearing on Nov.
18.
EDS CEO Says Co. Has Necessary Liquidity for 2003
Electronic Data Systems Corp. (EDS) will emerge from the economic
slowdown stronger than the company entered it, Chief Executive Dick
Brown vowed on Wednesday, even as his company reported a 59 percent drop
in third-quarter net income and announced plans for up to 5,600 job
cuts, Dow Jones reported. But Brown maintained that EDS remains
fundamentally sound. Addressing concerns about the company's free cash
flow, he said it has 'the liquidity necessary' to serve its needs next
year. Several measures announced on Wednesday-including plans for
workforce reductions, sales of noncore assets and a favorable
modification of the company's U.S. Navy outsourcing contract-are aimed
at increasing liquidity and profits, Brown said. The company has
attributed its third-quarter profit shortfall and reduced outlook to a
steep slide in discretionary technology spending by customers, as well
as the impact of bankruptcy filings by US Airways Group Inc. and
WorldCom Inc., both of which were large EDS customers.
Sealed Air Appeals Ruling That Denies Motion to Dismiss
Sealed Air Corp. appealed a decision in which a judge refused to toss
out a fraudulent-transfer case and, at the same time, asked the appeals
court to review a lower court's order about an unrelated case that the
company said would bar the lawsuit, Dow Jones reported. As reported on
Tuesday, the judge presiding over W.R. Grace & Co.'s asbestos
claimants' lawsuit against Sealed Air said the lawsuit's 'unique
circumstances' require it to go forward, despite a recent court ruling
that Sealed Air contends bars the suit. U.S. District Court Judge Alfred
M. Wolin late last week ordered the fraudulent-transfer suit to proceed
to trial Dec. 2 in light of the money the parties had already spent on
the case and the fact that the conflicting higher court ruling, known as
Cybergenics, could be overturned, according to an opinion obtained late
Monday by Dow Jones Newswires. Sealed Air asked the U.S. Court of
Appeals for the Third Circuit to overturn Judge Wolin's decision to deny
a motion to dismiss the case.
Level 3 Nears Deal for Assets of Languishing ISP Genuity
Level 3 Communications Inc. is trying to finalize a deal to acquire most
of the assets of ailing Internet service provider Genuity Inc. for more
than $100 million, the Wall Street Journal reported. Level 3, a
fiber-optic-network carrier flush with capital from an investor group
that includes Warren Buffett, still is negotiating final terms. The deal
under consideration involves a complicated formula under which the price
could rise as high as $140 million based on the assets acquired and the
liabilities left behind. The deal would likely be executed through a
chapter 11 bankruptcy-court filing by Genuity, which is in default on
more than $3 billion of debt. But completing a deal will require
approval from Genuity's banks and from Verizon Communications Inc., a
shareholder and lender, which are currently at odds over Genuity's debt
default. The deal would be significant for Level 3, which along with
other carriers has suffered from a glut of fiber-optic capacity. A
number of its peers have been forced to file for bankruptcy protection.
But with Mr. Buffett's backing, James Crowe, the chief executive of
Level 3, is trying to ensure that Level 3 not only survives, but becomes
a consolidator in the troubled telecommunications industry. To date,
potential buyers have been wary about wading into the telecom-industry
carnage and bidding aggressively on multiple assets, although several
have made tentative moves. If Genuity opts to file for bankruptcy
protection, it would be required by law to seek higher offers from other
bidders.
Ryan Beck Refuses to Take on Gruntal Customer Grievances
Dozens of investors with grievances against former Gruntal & Co. LLC
are in the lurch now that the brokerage firm has filed for chapter 11
bankruptcy protection, Dow Jones reported. Not only are all arbitration
actions against Gruntal on hold due to the chapter 11 filing on Tuesday,
but the firm that bought its brokerage operations six months ago, Ryan
Beck & Co., is disavowing responsibility for any of Gruntal's legal
liabilities. Gruntal, now known as GFinancial LLC, and affiliate GCO
Services LLC said in the chapter 11 filing in Manhattan that recent
litigation had prompted the entities to wind down their businesses
through bankruptcy protection. To read the full article, point your
browser to
href='http://online.wsj.com/article/0,,BT_CO_20021101_001365-%3Cbr%3E'>
color='#000080'>http://online.wsj.com/article/0,,BT_CO_20021101_001365-
search,00.html?collection=autowire%2F30day&vql_string=bankruptcy%
3Cin%3E%28article%2Dbody%29 (subscription required).
Union Acceptance Files for Bankruptcy Protection:Warehouse Unit
Not in Filing
Union Acceptance Corp. filed for chapter 11 bankruptcy protection in an
effort to address its 'liquidity issues,' Dow Jones reported. In a press
release on Thursday, the automobile-finance company said it believes
that its assets and future cash flows will be sufficient to pay all
obligations. The company also reported a third-quarter loss of $35.5
million, or $1.14 a share, compared with a loss of $23.8 million, or 77
cents a share, a year ago. The company expects debtor-in-possession
financing to be implemented in the next few days, which will enable the
company to continue receivable acquisitions. Union Acceptance is
suspending receivable acquisitions until new funding arrangements are
available. The company is seeking court approval of continued funding
for its payroll and vendors. Union Acceptance said its surety provider
'has not indicated a willingness to support future term securitizations
in the present environment.' As a result, the company is 'exploring
other arrangements for disposition of the held for sale portfolio.' The
chapter 11 proceeding doesn't include Union Acceptance's warehouse
funding and securitization units.
Failure of Financing Deal May Ground National Airlines
The failure of a $2 million financing deal threatens to kill Las
Vegas-based National Airlines' chapter 11 bankruptcy reorganization plan
might ground the struggling airline, the Associated Press reported.
'We've said in the past that unless we are able to successfully
negotiate a deal to reorganize, the reality is we would shut the airline
down,' said Dik Shimizu, spokesman for the airline. 'That said, we
continue to operate our business as usual,' Shimizu said, adding that
there were no immediate plans to stop flying. National filed for
bankruptcy in December 2000. Company executives and lawyers are trying
to cobble together lending and financing agreements to keep their fleet
of 18 leased planes flying to 12 U.S. cities. Craig Hansen, lead
attorney for the airline, said at a bankruptcy court hearing on
Wednesday that an aircraft leasing company had pulled out of a $2
million deal to lease one more plane to National. A U.S. Bankruptcy
Court judge in Las Vegas had given tentative approval last month to a
$112 million financing package that would have included a $2 million
letter of credit from the unnamed aircraft leasing company. The credit
would serve as collateral in a complicated loan agreement with Foothill
Capital Corp., a subsidiary of Wells Fargo & Co. Shimizu said the
failure to obtain a $2 million letter of credit loomed large because
financing deals are intertwined. Another hearing is scheduled for Nov.
15.
Boeing Confirms Company May Cut 767 Workforce by Half
Boeing Co. may cut the employment of its 767 jet-assembly line by half,
the Associated Press reported. A Boeing factory manager told workers on
Wednesday that based on his estimate of next year's 767 production, he
expects employment on the line to drop from about 1,400 people to 700,
said company spokesman Craig Martin. But Martin said nothing has been
decided yet, and the company won't know for a few weeks what actions it
will need to take as the worst downturn in the commercial airline
industry continues. He added that workers taken off one line may be
moved to another production line. Boeing announced last year it would
slash jet production by half and cut up to 30,000 jobs by the end of
2002, citing weak demand by airlines struggling from the terrorist
attacks and the slow economy. Since then, the Chicago-based aerospace
company has laid off 25,640 people, eliminated many more jobs through
attrition, and expects to end the year at its target of 30,000 cuts.
Still, with some airlines in bankruptcy, on the verge of bankruptcy or
continuing to bleed billions of dollars in losses, Boeing earlier this
month acknowledged that more job cuts are on the way. 'The industry
ain't getting any better, and airplane orders aren't picking up all that
much,' Martin said.
WilTel Names Chief Executive
WilTel Communications Group Inc. has named the head of its fiber-optic
network as chief executive of the telecommunications company that
recently emerged from bankruptcy, the Wall Street Journal
reported. Tulsa, Okla.-based WilTel said on Thursday that Jeffrey K.
Storey is the board of directors' choice to replace Howard Janzen, who
resigned after the company emerged from chapter 11 on Oct. 15. Mr.
Storey will also serve on the board. WilTel, formerly Williams
Communications Group Inc., filed for bankruptcy on April 22, claiming
assets of $5.99 billion and debts of $7.15 billion. After
reorganization, the company has a new board, new ownership and bank debt
whittled to $375 million. Storey joined Williams Communications in 1999,
serving first as vice president of the company's local access services
division. Previously, he held management positions at Cox Communications
and Southwestern Bell. Mr. Janzen, an engineer, had led Williams
Communications since its 1995 formation as a subsidiary of Tulsa-based
energy giant Williams Cos. and led it through its April 2001 public
spinoff.
California City Files Plan to Take Over SoCal Edison Power
Lines
Seeking to reduce electricity rates, the City of Corona, Calif., filed
with a state agency late on Wednesday a plan for how it might take over
electricity distribution within city boundaries from Edison
International unit Southern California Edison, Dow Jones reported.
Barring a mutual agreement between the utility and Corona, the city
would pursue the use of eminent domain to condemn SoCal Edison's power
lines and substations and effectively control distribution, assistant
city manager Beth Groves said. SoCal Edison was not aware of Corona's
plans until Wednesday, but its distribution assets are not for sale,
said Charley Wilson, utility spokesman. The city's preliminary estimate
is that it would cost between $70 million and $130 million to purchase
SoCal Edison's distribution assets, though a court will ultimately
determine their value, Groves said. Corona is considering a municipal
bond offering to finance the purchase, she said. A court will often
allow a property takeover to proceed while the valuation is being worked
out, said Steve Greenwald, attorney at Davis Wright Tremaine in San
Francisco. One glitch for Corona, however, might be its difficulty in
selling municipal bonds without knowing what the assets will cost, he
said. Corona estimates it could begin operations as a new municipal
utility in late 2003 or early 2004, Groves said.
Telewest Defaults on Bonds, Nears Agreement on Debt
Telewest Communications Plc said it defaulted on two bonds as it nears
an agreement with creditors aimed at handing bondholders control of the
United Kingdom's second-biggest cable-television company, Bloomberg News
reported. The company in September agreed to give bondholders 97 percent
of the equity in a transaction that will cut debt to about $2 billion.
Telewest, whose investors include U.S. billionaire John Malone,
accumulated 5.4 billion pounds of debt building networks and buying
rivals at the height of the Internet boom in a bid to compete with
British Sky Broadcasting Group Plc. Telewest is 'close to reaching an
agreement' with its lenders and bondholders, it said in a statement. The
company expects to make another statement about the negotiations by the
end of the month. Current Telewest shareholders, who have seen their
investment drop 99 percent this year, will receive the other 3 percent
of the company. Malone's Liberty Media Corp. was Telewest's biggest
shareholder with 25 percent and also owns about 10 percent of the bonds.
Woking, England-based Telewest in March 2001 signed a 2.25 billion-pound
loan with a group of banks including Canadian Imperial Bank of Commerce,
Toronto-Dominion Bank, J.P. Morgan Chase & Co. and The Bank of New
York Company Inc.
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