February 3, 2004
White House Pension Proposal Gets Lukewarm Hill Reaction
A White House proposal for protecting workers' pensions when companies
switch from a traditional pension system to a 'cash balance' one is
getting mixed reviews among lawmakers and stakeholders,
CongressDaily reported. The plan would require any company
switching from a traditional 'defined benefit' plan to a 'hybrid'
version to provide the same level of benefits to employees as if the
switch had never taken place. Under current law may lose benefits during
such a switch. The government would enforce the law by imposing an
excise tax on companies that violate it, Treasury Department officials
said while unveiling the new plan. 'This proposal will make sure that
every company converting to a cash balance plan deals fairly with its
older workers,' said Treasury Secretary John Snow.
Senate Health, Education, Labor and Pensions ranking member Edward
Kennedy (D-Mass.) said the plan disadvantages sectors with aging
workforces, like manufacturing. 'This doesn't help the people who need
it,' he said. House Education and the Workforce ranking member George
Miller (D-Calif.) said the administration had backed off earlier, more
controversial regulatory proposals on cash-balance conversions. However,
the new legislative plan still might contain unfair loopholes, he
warned. 'The pension proposal contains no protections for workers in
companies that have already converted to cash balance pension plans and
in fact may permit employers to play games by using dubious interest
rate assumptions in their new plans,' he said. Miller also said
legislation should allow workers who prefer to keep their traditional
pension plans to do so, reported the newswire.
Companies Limit Health Coverage of Many Retirees
Employers have unleashed a new wave of cutbacks in company-paid health
benefits for retirees, with a growing number of companies saying that
retirees can retain coverage only if they are willing to bear the full
cost themselves, the New York Times reported. Many companies in
the last two years, including telecommunications equipment giants Lucent
Technologies and Alcatel and a big electric utility, TXU, have ended
medical benefits for some or all of their retirees and instead offered
to let them buy coverage through a group plan. This coverage is often
more expensive than many retirees can afford.
Experts expect that the trend, driven by the fast-rising cost of health
care, will continue, despite the billions of dollars that the government
will distribute to companies that maintain retiree health coverage when
the new Medicare drug benefit begins in two years. In contrast to
pension financing, companies are not obligated to set aside funds to pay
for retirees' health benefits, and the health plans can usually be
changed or terminated at the company's choosing, with no appeal
available to the retirees, reported the Times.
UAL Flight Attendants Ask Court to Review Benefits
United Airlines flight attendants on Monday asked a bankruptcy court to
investigate what they called the airline's 'scheme to defraud thousands
of retirees,' Reuters reported. United recently said it needs retirees
to pay a greater share of their medical benefits as part of the
company's plan to cut costs so it can emerge from bankruptcy. It denies
breaking any promises and said the court would ultimately determine the
outcome of the dispute if no agreement is reached.
United filed for bankruptcy protection in December 2002 and has said it
plans to emerge during the first half of this year. It is waiting to
hear from the federal government about $1.6 billion of a $2.0 billion
exit financing package arranged by J.P. Morgan Chase and Citigroup.
Association of Flight Attendants President Greg Davidowitch on Monday
said 2,500 flight attendants had elected to retire early based on
benefits that were promised as part of a restructured labor agreement
during United's ongoing bankruptcy process. The union, which represents
about 20,000 active United flight attendants, said it would continue to
fight the proposed benefit reductions in court. The union also plans to
talk to legislators in Washington, reported the newswire.
Court OKs Amerco Bankruptcy Plan
Amerco Inc., the parent of truck-rental company U-Haul International
Inc., on Monday won a federal bankruptcy judge's approval of its plan to
exit chapter 11, a company spokeswoman said, Reuters reported. Judge
Gregg Zive of the U.S. Bankruptcy Court in Reno, Nev., approved the
plan, Amerco spokeswoman Jennifer Flachman said. Reno, Nev.-based Amerco
said the plan restructures more than $1.2 billion of debt and lease
obligations and will leave shareholders whole. Flachman said Amerco
expects to emerge from chapter 11 in about one month. It sought
protection from creditors last June 20.
Weirton Avoiding Formal Contract Talks, Union Says
The Independent Steelworkers Union, which represents workers at bankrupt
steelmaker Weirton Steel Corp., on Monday said the company has been
unwilling to engage in meaningful contract negotiations for the past
month, Reuters reported. 'I have had daily phone calls and exchanged
information with the company's chief negotiator on a regular basis, but
the company has refused to sit down in formal talks with our negotiating
team,' union president Mark Glyptis said in a statement. The union said
it was willing to continue negotiations 'on any day, at any time and at
any place.' Weirton, which is exploring emerging from bankruptcy either
as a stand-alone company or through the sale of assets, said the union's
comments were not accurate. 'Since this past September we have made it
clear that Weirton Steel ... must have an industry competitive labor
agreement. We have been unable to achieve this goal,' said Weirton Steel
spokesman Gregg Warren, reported the newswire. Last week, International
Steel Group's treasurer told Reuters the company was examining the
possible acquisition of Weirton, but had not yet made an offer.
Factory 2-U Stores Inc. Receives Final Court Approval for $45
Million DIP Financing Commitment
Factory 2-U Stores Inc. announced in a press release yesterday that the
U.S. Bankruptcy Court in Wilmington, Del., has entered an order granting
final approval for the company to use the full amount of the $45 million
debtor-in-possession (DIP) financing commitment provided by The CIT
Group/Business Credit Inc. and GB Retail Funding LLC.
The company intends to utilize the DIP financing commitment to help
fulfill its business obligations during the chapter 11 process and
ensure that its stores are well stocked with merchandise. This financing
will be available to supplement the company's cash flow from its ongoing
195 stores and the expected proceeds from inventory clearance sales at
44 stores slated for closure as well as the company's cash reserves.
Factory 2-U voluntarily filed a petition to reorganize under chapter 11
of the U.S. Bankruptcy Code on Jan. 13, 2004, in order to implement a
comprehensive operational and financial restructuring of its
business.
Lay's Last Months at Enron Probed
Federal officials are exploring whether there are grounds to bring
criminal charges against former Enron Corp. Chairman Kenneth Lay
regarding what he knew about the energy company's financial problems in
the months before its collapse, the Wall Street Journal reported.
The critical period under examination began in August 2001, when Jeffrey
Skilling unexpectedly quit as Enron's CEO after only six months in the
top job.
Lay resumed the chief executive post that he had held for 15 years and
remained there through the company's collapse in the fall of 2001 and
eventual bankruptcy-court filing that December. Federal officials are
comparing what Lay knew in those final months to his upbeat public
remarks about the company's condition, reported the online newspaper.
Lay has denied any wrongdoing during his tenure at Enron. He and his
representatives have said that his public remarks about the company in
the last half of 2001 were made in good faith and that he was unaware of
the scope of some of the problems facing Enron.
Oglebay Norton Skips Payment, Bankruptcy an Option
Oglebay Norton Co., which has for several months been trying to
restructure its finances, on Friday said it will skip an upcoming
interest payment and may need to seek bankruptcy protection, Reuters
reported. The Cleveland-based producer of minerals and industrial
materials said it will not make the payment on its 10 percent senior
subordinated notes maturing in February 2009. It said it is in talks
with its lenders and bondholders. 'The company may be unable to
accomplish its goals outside the protection of bankruptcy laws,' Oglebay
said in a statement. 'In that event, shares of the company's common
stock will likely have little or no value.' Chief Executive Michael
Lundin said Oglebay has 'sufficient liquidity' to operate, and that the
situation does not hurt its ability to pay employees and vendors or
serve customers, reported the newswire.
Bankruptcy Risk Lingers at U.S. Power Producers
Some U.S. power producers that avoided bankruptcy in 2003 by refinancing
debt could still struggle to survive over the next decade as $65 billion
of loans come due, Standard & Poor's said on Monday, Reuters
reported. Excess generating capacity, energy-efficient customers and
burdensome debt loads will weigh on profits and keep some energy
producers in a precarious position for years, S&P said in a report.
'The energy merchants must find a way to reduce their crushing debt
burdens and do so fairly quickly if they are to survive,' S&P credit
analyst Peter Rigby said in the report, reported the newswire. But Rigby
says that task is proving formidable. Although energy merchants have
been selling assets for the past two years, many still carry too much
debt to be strong competitors, he said, Reuters reported.
Lenders to Ailing Firms Discover a New Reality
In the wake of the Parmalat scandal, investors are discovering that the
rules have changed when it comes to fixing financially troubled
companies, the Wall Street Journal reported. According to the
article, until the past few years, banks usually worked together to try
to keep companies from collapsing into bankruptcy to protect their own
interests. And, in the event of a filing for protection under bankruptcy
law, banks would often work together to 'prepackage' the filing to get
the best deal for themselves. But new financial markets, especially
those that provide lenders with insurance against loan defaults, have
created a world in which banks no longer find themselves holding common
interests. To read the full article, point your browser to
href='http://www.wsj.com/'>www.wsj.com (subscription required).
Gadzooks Files for Bankruptcy
Gadzooks Inc. today filed for bankruptcy after the struggling clothing
retailer suffered a weak holiday shopping season, according to court
records, Reuters reported. Gadzooks, a Dallas-based chain of more than
400 stores aimed at teenage girls, filed for chapter 11 protection in
the U.S. Bankruptcy Court for the Northern District of Texas. Its filing
listed total debt of more than $42.5 million and assets of about $84.6
million.
Judge Refuses to Step Aside in Asbestos Case
A federal judge refused on Monday to remove himself from overseeing five
bankruptcy cases involving companies sued by people exposed to asbestos,
the Associated Press reported. Some of those involved sought to have the
judge, Alfred M. Wolin of United States District Court, step aside,
claiming some of his advisers had a 'blatant conflict,' while others,
including two of the companies, said he should stay. Judge Wolin had
appointed five advisers with expertise in asbestos cases, two of whom
are advocates for asbestos victims in a pending bankruptcy before
another federal judge in Newark. Judge Wolin addressed the issue in a
100-page opinion directed at the parties involved and the Court of
Appeals for the third circuit in Philadelphia, which is to decide the
issue. A three-judge panel of the appellate court heard arguments on
Dec. 12 in the case, but Judge Wolin declined to participate. Lawrence
Robbins, a lawyer for Kensington International, a financial institution
that is owed money from one of the bankrupt companies and is seeking to
have Judge Wolin removed, disagreed with the ruling. The five companies
that are in bankruptcy opposed recusal, as did lawyers for asbestos
victims. They said the judge can filter any information from the
advisers that is not objective and that delaying the cases to assign a
new judge would harm the bankrupt companies and people suffering from
asbestos-related problems, reported the newswire.
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