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December 6, 2002
UNITED AIRLINES
United Airlines Lurches Toward Bankruptcy
United Airlines' credit rating was slashed to 'default' grade and its
stock fell by two-thirds on Thursday as near-certain bankruptcy loomed
after the government refused to bail out the No. 2 U.S. airline, Reuters
reported. Despite months of intense lobbying by United, federal
officials said on Wednesday the airline's business plan, formulated to
win backing for 90 percent of a much-needed $2 billion loan, was
fundamentally flawed. Shares of parent UAL Corp. were halted for much of
the day as the New York Stock Exchange digested the news and prepared a
statement. When action resumed, the stock traded 66 percent lower, down
$2.07 at $1.05 a share. Meanwhile, Standard & Poor's cut its credit
ratings on United and UAL debt to 'default' grade, its lowest rating,
concurring that bankruptcy was virtually certain after the federal Air
Transportation Stabilization Board rejected the airline's bid for a loan
guarantee to support $1.8 billion of $2 billion in private financing it
hoped to get from its banks, the newswire reported. 'The (U.S.
government) decision will almost certainly lead to a chapter 11
bankruptcy filing by UAL and United as soon as United has completed
arrangements for debtor-in-possession financing,' said S&P credit
analyst Philip Baggaley, reported Reuters. Bankers, lawyers and
consultants were preparing documents for the airline to make a chapter
11 filing, probably this weekend, people familiar with the matter said.
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UAL Bankruptcy Filing Would Hit Chicago Economy
A bankruptcy filing by UAL Corp., the parent of United Airlines, the
10th-largest employer in the Chicago area with more than 18,000
employees, would be a blow to Chicago, according to The Wall Street
Journal. For years, the Chicago area has been home to a small group
of high-profile corporate donors, of which United has been a prominent
member; its name is on the $175 million United Center, which opened in
1994 and is home to the Chicago Bulls basketball team and Chicago
Blackhawks hockey team. With a United bankruptcy filing, employee wages
would most likely fall shortly thereafter, said Aaron Gellman, a
professor at the Transportation Center at Northwestern University in
Evanston, Ill. 'Sometime after that, there will probably be some very
selective reductions in service, which probably will mean more people
out of work,' he said. 'That won¹t help the Chicago economy at
all.'
Europeans Support U.S. Refusal to Bail Out United
European aviation officials applauded the U.S. government's refusal to
bail out United Airlines, saying it's about time Washington stopped
supporting its carriers, The Wall Street Journal reported.
European Union (EU) officials have voiced strong opposition to
Washington aid to the airline industry. However, the decision by the
U.S. Air Transport Stabilization Board to deny a loan-guarantee
application to UAL Corp. caused concern among European airlines about
how the world's second-largest airline might act under bankruptcy
protection, and are fearful that United will drastically slash its
prices. Despite those worries, executives at European airlines welcomed
the hard line by the board because the U.S. government has given much
more financial support to its airlines since Sept. 11, 2001, than has
been the case in Europe. Washington's billions of dollars in support has
been seen in Europe as giving U.S. carriers an unfair advantage.
While the U.S. gave its carriers $5 billion in funding to offset the
effect of Sept. 11, the EU forbade governments in its 15 member states
from giving their carriers aid other than compensation specifically for
the days immediately following Sept. 11 when their planes were grounded.
Due largely to the EU's prohibition on state support, since Sept. 11,
two major European carriers, Swissair and Belgium's Sabena, have been
liquidated. Barry Humphreys, director of external affairs at Virgin
Atlantic, said 'there is a danger' United would use a chapter 11 filing
to slash its fares. 'Chapter 11 significantly reduces the debt load,' he
said.
United Bankruptcy Could Hurt Boeing
A possible bankruptcy filing by United Airlines, its biggest customer,
poses the latest industry trouble hitting Boeing Co., according to the
Associated Press. United, whose request for federal loan guarantees was
denied Wednesday, owes Boeing Capital Corp. $1.3 billion in financing
for the purchase of roughly a dozen Boeing jets. United is current on
its payments to Boeing, but if the airline files for bankruptcy
protection Sunday as expected, the filing would give the airline 60 days
to meet the terms of its current financing agreement, negotiate a new
one, or surrender the jets to Boeing. United‹which was spun off
from Boeing in the 1930s‹has been talking with Boeing about
negotiating new financing terms and other alternatives, although no
decisions have been made, the Seattle-based aircraft manufacturer
said.
Former Enron CFO Fastow to Face New Indictment, Prosecutors
Say
U.S. prosecutors said they will seek a new indictment against former
Enron Corp. Chief Financial Officer Andrew Fastow, a signal the
government may add charges or defendants in the case against the alleged
mastermind of the fraud that led to the energy trader's collapse,
Bloomberg News reported. Fastow pleaded innocent Nov. 6 to 78 counts of
fraud, money laundering and other charges. Prosecutors have told him
they plan to ask a grand jury for a second indictment, the Justice
Department's Enron Task Force said in a court filing. Lawyers following
the case say Fastow probably will be charged with securities fraud,
supported by additional facts and possibly the naming of new defendants
accused of working with him, reported the newswire.
Youthstream Media Networks Announces Resignation of Interim
CEO
Youthstream Media Networks Inc.said Jonathan Diamond resigned as interim
chief executive and a director, as the company continues creditor talks,
Dow Jones reported. The on-campus marketing and media company said in a
press release that a bankruptcy filing is probable if it fails to
conclude an arrangement with its creditors. Diamond's departure follows
the resignation of Sidney I. Lirtzman and G. Kelly O'Dea from the board.
Youthstream's shares were recently unchanged at 14 cents on Nasdaq
volume of 2 million shares. Nasdaq notified the company in late October
that its shares didn't meet certain listing requirements. In addition,
its auditors raised substantial doubt about the company's ability to
continue as a going concern in its latest annual report filed late
September.
Adelphia Unit Seeks Court OK to Sell Some Telecom Assets
A unit of Adelphia Business Solutions Inc. is seeking bankruptcy court
approval to sell assets it used in some of the telecommunications
markets it plans to exit, Dow Jones reported. The company also asked the
U.S. Bankruptcy Court in Manhattan to give it exclusive control of the
plan process in its chapter 11 case for an additional six months,
according to court papers obtained on Thursday by Dow Jones Newswires.
Adelphia Business Solutions Operations Inc. said it has agreed sell
telecommunications assets and assign some contracts and leases to
Gateway Columbus LLC for $10.7 million plus the assumption of certain
contractual liabilities.
Adelphia Business Solutions Inc., the former telecommunications unit
of Adelphia Communications Corp., is restructuring operations to 'shrink
into profitability,' according to court papers. The company's business
plan contemplates continued operations in 35 company-owned markets and
the continuation of management agreements for three other markets it
manages for its former parent, the newswire reported. Adelphia
Communications filed for chapter 11 protection June 25 amid an
accounting scandal that began in March after it revealed it had failed
to disclose it had guaranteed more than $2 billion in loans for members
of the founding Rigas family or entities they controlled.
Bankruptcy Court OKs Lernout & Hauspie SEC Settlement
The bankruptcy court handling Lernout & Hauspie Speech Products NV's
chapter 11 case has authorized the company to settle a fraud suit by the
Securities and Exchange Commission, according to a court order Dow Jones
Newswires obtained on Thursday, Dow Jones reported. L&H said in
court papers that under the settlement, without admitting or denying the
SEC's allegations, it will agree to an order prohibiting future
violations of securities statutes. The company won't make any public
statement denying the complaint's allegations or creating the impression
that the order is without factual basis.
L&H, which was based in Belgium but had substantial U.S.
operations, filed for chapter 11 in November 2000 in the U.S. Bankruptcy
Court in Wilmington, Del., and also began the equivalent of a chapter 11
proceeding in Belgium. About a year later, the Belgian court put L&H
into liquidation, and the company sold a substantial part of its speech
and language technologies business to ScanSoft Inc. In October, the
company filed a new chapter 11 liquidation plan with a U.S. bankruptcy
court that distributes proceeds from the company's previous asset sales
and liquidates any remaining assets. The court is scheduled to consider
approving a disclosure statement approving that plan for creditors at a
hearing Dec. 20.
ANC Rental Gets Extension of Exclusive Plan Period
ANC Rental Corp. won a 120-day extension of the periods during which it
has the exclusive right to file a reorganization plan and solicit plan
acceptances, Dow Jones reported. The debtor company will use the time to
negotiate a reorganization plan with its committee of unsecured
creditors and to continue consolidating operations at airports
nationwide. Since filing for chapter 11 bankruptcy protection on Nov.
13, 2001, ANC Rental has been consolidating its Alamo and National
rental car chains into single locations at the airports in an effort to
cut overhead costs. The order signed on Monday by Judge Mary F. Walrath
of the U.S. Bankruptcy Court in Wilmington grants ANC Rental the
exclusive right to file a plan through March 8, 2003, and the sole right
to obtain votes for the plan through May 7 of next year. ANC Rental's
previous exclusive periods were set to expire Nov. 8 and Jan. 7, 2003,
but were preserved until Judge Walrath ruled on the extension
request.
Bondholders File Lawsuit Regarding Qwest Debt Plan
An unofficial committee of bondholders of a Qwest Communications
International Inc. unit filed suit to block a debt exchange launched by
the company last month in a bid to reorganize some of its debt outside
of bankruptcy, according to Dow Jones Newswires. The committee filed a
complaint in the U.S. District Court for the Southern District of New
York seeking a preliminary and permanent injunction to enjoin Qwest's
offer, which would exchange $12.9 billion in existing notes issued by
unit Qwest Capital Funding Inc. for new notes, the committee's legal
counsel Fried, Frank, Harris, Shriver & Jacobson said Thursday in a
written statement. A Qwest spokesman called the committee's position
'completely without merit' and said Qwest would vigorously oppose any
attempt to delay completion of the offer.
Members of the committee now hold in excess of $4 billion of the
$12.9 billion of bonds subject to the exchange. The committee has also
been in contact with other bondholders who have aggregate holdings in
excess of $3 billion, which would bring together holders for more than
half the bonds subject to the offer. 'From what I understand, it's a
very coherent group,' said a Qwest bondholder who said he had been in
contact with the law firm and said the other bondholders feel the Qwest
offer is coercive. The bondholders, who claim Qwest has refused offers
to negotiate, argued in the court filing that the offer breaches Qwest's
fiduciary duties to noteholders. 'By initiating their coercive exchange
offer at a discount to the face value of the current notes, by causing
earlier maturities to be unilaterally pushed out for up to three years,
by failing to disclose any of the material facts regarding Qwest's
current financial and business condition, by eliminating liabilities of
Qwest [and its directors and officers] and by improving the equity at
the expense of the noteholders, defendants have breached their fiduciary
duties to the noteholders,' the document says. Qwest is under
investigation by the SEC and Department of Justice and has restated some
results. The offer expires Dec. 20.
American Paper Gets Two Bids
At least two bidders are vying for the assets of bankrupt American Paper
Group Inc., a manufacturer of church-offering envelopes and other
religious products, TheDeal.com reported. MWM Dexter Inc., an Aurora,
Mo.-based producer of church bulletins and related products, is seeking
to become the stalking-horse bidder and has offered a bid of $12.9
million in cash, along with various assumed leases and other
liabilities. The debtor has until Dec. 13 to determine a stalking-horse
bidder. Our Sunday Visitor Inc. also has submitted a bid for the assets,
according to court documents. Bids are due Jan. 6, 2003. An auction is
set for Jan. 8. Judge William T. Bodoh in the U.S. Bankruptcy
Court for the Northern District of Ohio in Youngstown will hold a sale
hearing Jan. 9. American Paper received court approval for $1.1 million
in debtor-in-possession financing from agent and lender Heller Financial
Inc., a unit of GE Capital Corp. American Paper filed for chapter 11
protection Nov. 6, listing assets of $30 million and debts of $52.9
million.
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