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November 19, 2002
Business Lobbyists Regroup on Bankruptcy Overhaul Strategy
Business lobbyists have mounted a quiet last-ditch effort to persuade
senators to support the House-passed GOP version of the bankruptcy bill,
even though it is doubtful the Senate will consider the measure before
it leaves for the year, CQ Monitor reported. Lobbyists are making
the case that the House-passed version is more favorable to consumers
than similar legislation that might emerge next year in a
Republican-controlled Congress. But Senate aides say they doubt the
measure will be taken up because both parties are anxious to complete
work and go home. Senate Majority Leader Tom Daschle (D-S.D.) has
pronounced the bill dead.
If the bankruptcy measure dies this year, it is not clear how soon it
will be revived in the new Congress. Financial services companies and
retailers are likely to have other priorities in the 108th Congress.
Several trade groups said they would have to decide how much effort to
devote to it, after talking to their members.
Asked if the industry will push for a bill next year, Edward L.
Yingling, executive vice president of the American Bankers Association,
was quoted in the American Banker as saying, 'It's something the
industry will have to think through.' Part of that decision-making
process 'certainly will have to be sitting down with leadership in the
House and Senate and key supporters to see how it will play out,' he
said. 'If there is a plan to move it very quickly in the Senate, that's
one thing. If there's not that commitment, and it looks like a drawn-out
battle, people [in the industry coalition pushing for bankruptcy reform]
would think twice about devoting lobbying resources to it.'
Republican control of both houses of Congress next year, however, could
change the bill's luck. According to the American Banker, a
spokeswoman for Sen. Charles Grassley (R-Iowa), a chief sponsor of past
bankruptcy bills, said he would introduce another bill next year. Sen.
Orrin Hatch, the Utah Republican who will chair the Senate Judiciary
Committee, which has jurisdiction over the Bankruptcy Code, will also be
a key player. 'It appears that a bill minus the abortion provision
passed by the House is the only way we can pass it in Senate,' a Hatch
spokeswoman said last Friday, reported the American Banker. 'It
is clear that those who pushed the politically charged and unnecessary
provision related to abortion really don't want bankruptcy reform.'
Warnaco's Wachner Accepts about 2 Percent of $25 Million
Linda J. Wachner, once among the highest paid corporate executives,
settled her $25.1 million severance claim against Warnaco Group Inc. for
less than 2 percent
of the amount, the clothing company said, Bloomberg News reported. The
former Warnaco chairman, blamed by some investors for the company's
collapse before she was ousted last November after 14 years at the helm,
was paid about $90.1 million in salary, bonuses and stock options from
1998 through 2000. Warnaco lost about $219
million during that same period, the newswire reported. Wachner asked
U.S. Bankruptcy Judge Richard L. Bohanon to award her more than $25.1
million, saying she should be given preferred status over other
creditors. She argued that she worked for five months after the company
filed for chapter 11 in July 2001 to ease the impact of the bankruptcy.
Warnaco's lenders and other creditors fought her request. Under the
settlement, Wachner would get $200,000 in cash plus what amounts to an
unsecured $3.5 million IOU that is only worth a fraction of its face
value, Warnaco said in its quarterly report to the SEC, reported
Bloomberg. The claim is worth about 7.2 cents on the dollar, meaning
Wachner would receive about $250,000 when the bankruptcy reorganization
is concluded, according to court papers. The accord is subject to
approval by a federal bankruptcy judge.
Last month, Warnaco filed a reorganization plan that seeks to shed
more than $2 billion in debt and emerge from chapter 11 early next year.
Court approval of the plan 'is not conditioned upon or otherwise
dependent upon a resolution of the Wachner claim,'' Warnaco said in the
SEC filing, the newswire reported.
PG&E Squares Off With State Regulators Over Utility
PG&E Corp. is going to court to battle for control over the
reorganization of Pacific Gas & Electric, California's largest
utility, as it struggles to avoid bankruptcy for its separate energy
trading business, Bloomberg News reported. At a trial that began
yesterday in the U.S. Bankruptcy Court in San Francisco, PG&E and
the California Public Utilities Commission will try to persuade a judge
to approve competing plans to pay creditors owed more than $13 billion
by the utility. Pacific Gas filed for chapter 11 protection in April
2001 after incurring debts during California's energy crisis. The trial
starts days after PG&E's National Energy Group power trading unit
defaulted on loans and said it may file for bankruptcy protection.
PG&E heads to court armed with a favorable court ruling and creditor
support for putting power generation and transmission units under
federal, not state, control, which could allow it to charge more for
power and sell assets more easily. The trial is expected to last until
mid December. U.S. Bankruptcy Judge Dennis Montali can approve one, both
or neither plan. If he accepts both plans, he'll have to choose between
them, taking into consideration creditors' preferences. If neither plan
is approved, both sides and third parties can submit new proposals.
Weiss Ratings: Bankruptcies Down So Far This Year
The pace of corporate bankruptcies slowed during the first nine months
of the year, according to privately held Palm Beach Gardens financial
ratings firm Weiss Ratings, the FreereRublic.com reported. Weiss
Ratings said 144 publicly traded companies filed for bankruptcy from
January through September. While the ratings firm said the figure is
high in historic terms, the number of corporate bankruptcies this year
is on pace to fall short of the record 257 bankruptcies filed in 2001.
In reviewing more than 9,000 stocks, Weiss Ratings said it found the
sectors most vulnerable to continuing bankruptcies are airlines,
Internet retail and telecommunications equipment sectors.
KMART
Kmart CEO Says Sales May Rise in December
Kmart Corp. CEO James Adamson said sales at the bankrupt discount
retailer may rise in December as shoppers buy more Martha Stewart items,
Bloomberg News reported. Sales are expected to be 'neutral to slightly
positive,'' said Adamson at a press conference in Detroit. The largest
U.S. retailer to file for bankruptcy protection said it will consider
stores' holiday sales, profitability and competition in deciding which
to shut. The company needs to win back shoppers during the Christmas
season, which is the most important time for retailers, to help with
plans to emerge from bankruptcy in July.
Troy, Mich.-based Kmart closed 283 stores and fired about 22,000 workers
earlier this year to reduce costs. The company, which now has about
1,800 stores and 220,000 workers, expects to file a reorganization plan
by Feb. 24. Kmart is expected to release December sales results when it
files a monthly operating report with the U.S. Bankruptcy Court in
Chicago in mid-January.
Kmart Seeks Court OK to Sell Michigan Property for $7
Million
Kmart Corp. has asked the bankruptcy court handling its chapter 11 case
for approval to sell its property in Troy, Mich., for $7.3 million, Dow
Jones reported. The retailer said in court papers made available on
Monday that it has agreed to sell the property to HTC Global Services
Inc., subject to any higher offers received over the next nine days.
Kmart doesn't use the property for business and has been trying to sell
it for almost 20 months, the company said. The sale would include the
property and an office building located on it. Signature Associates
Inc., which agreed to market the property for Kmart in March, had
received seven offers for it, Kmart said. Competing bids for the
property are due on Nov. 27 and an auction is scheduled for Dec. 3 at
the property. Kmart has proposed that a hearing be held on Dec. 11 to
approve the sale. As reported, the U.S. Bankruptcy Court in Chicago in
August approved competitive bid procedures Kmart can use for future
noncore asset sales.
Reliant Resources Stock Falls After Filing Says Bankruptcy
Possible
Reliant Resources Inc. had its biggest decline in a month after the
energy-trading company said it may consider filing for bankruptcy unless
it can restructure billions of dollars in debt, Bloomberg News reported.
The stock fell as much as 18 percent, the biggest decline for Houston,
Texas-based Reliant since Oct. 18. The company has lost 89 percent of
its market value this year. Reliant must persuade lenders to extend or
replace its debt, or it would 'be forced to consider other alternatives,
including a reorganization under the protection of bankruptcy laws,''
the company said on Friday in a U.S. Securities and Exchange Commission
filing. The company has $2.9 billion in loans that come due in February,
the filing said. Reliant has about $5 billion in debt slated to come due
by Sept. 30, said company spokeswoman Sandra Fruhman, the newswire
reported.
National Century Files for Bankruptcy Protection
National Century Financial Enterprises Inc., which arranged at least
$3.35 billion
in financing for health-care providers, filed for bankruptcy after its
debt ratings were cut and investors balked at extending credit,
Bloomberg News reported. The bankruptcy comes two days after the FBI
raided the Dublin, Ohio, offices of the medical finance company.
National Century's collapse may limit the ability of more than 100
health-care companies to meet expenses. Large investors, including
Pacific Investment Management Co., that bought some of the bonds also
face losses. David Coles, acting chief executive of closely held
National Century and managing director of New York restructuring firm
Alvarez & Marsal, said the chances that the company will emerge
from bankruptcy are 'remote.'' He also said the company had 'sufficient
liquidity at this point to get us through mid- to late-December.''
National Century buys medical bills from health-care providers and
packages them into so-called asset-backed bonds, which are then sold to
investors. The bills bought by the company provided its clients with the
money needed to meet expenses, including payroll costs. National Century
filed for bankruptcy protection in the U.S. Bankruptcy court in
Columbus, Ohio, according to electronic court documents. The case was
assigned to Judge Donald Calhoun Jr.
Conduits Expose ING, CSFB to $725 Million in National Century
Debt
ING Bank N.V. and Credit Suisse First Boston (CSFB) have combined
exposure of $725 million to bankrupt medical receivables financing
company National Century Financial Enterprises (NCFE) via off-balance
sheet securitization programs, according to a Moody's Investors Service
official, Dow Jones reported. Dutch banking giant ING funded $500
million in National Century debt via an asset-backed commercial paper
conduit it administers while CSFE funded $225 million for a similar
program, Jay Eisbruck, managing director at Moody's, told Dow Jones
Newswires. Including the ING and CSFB conduit exposure, NCFE has
approximately $4 billion in outstanding securitized debt. NCFE filed for
chapter 11 bankruptcy protection in the U.S. Bankruptcy Court for the
Southern District of Ohio on Monday.
Xcel Energy Posts $2.07 Billion 3rd-Quarter Loss on NRG
Xcel Energy Inc. posted a third-quarter loss of $2.07 billion as the
Minneapolis-based
utility owner wrote down the value of assets at power-generation unit
NRG Energy, which expects to seek bankruptcy protection, Bloomberg News
reported. The loss was equal to $5.22 a share, compared with net income
of $272.9 million, or 79 cents, in the year-earlier period, Xcel said in
a filing with the U.S. Securities and Exchange Commission. Revenue fell
15 percent to $2.54 billion from $2.98 billion. Xcel has proposed paying
$300 million to NRG and relinquishing shares in the unit in exchange for
a release of all claims by debtors, then asking a bankruptcy court to
approve the
agreement, the filing said. Without an agreement, debtors could force
the unit into bankruptcy protection, asking that the court make Xcel
responsible for NRG's debt, the filing said.
XO COMMUNICATIONS
Icahn to Control XO Communications
Reston, Va.-based XO Communications Inc., won the bankruptcy court's
approval for its proposed restructuring plan that gives financier Carl
Icahn a controlling position in a reorganized company, the Wall
Street Journal reported. XO, a phone and Internet services provider
for businesses, filed for bankruptcy-court protection in June, joining a
parade of telecommunications carriers burdened by heavy debt loads amid
a prolonged industry slump. Under the plan, Icahn, who holds a large
portion of XO's debt, is in line to swap that for an 80 percent stake in
new XO stock. Overall, the restructuring pact provides that holders of
XO bank debt will receive 95 percent of the equity in reorganized XO and
$500 million in junior secured debt. Bondholders and senior unsecured
lenders will receive the remaining 5 percent and warrants for 10 percent
of the company. Shareholders are wiped out in the plan, the newswire
reported.
XO Communications Secures New Contract with JetBlue
Airways
JetBlue Airways Corp. renewed its telecommunications services contract
with XO Communications Inc., now in the midst of a bankruptcy
reorganization, Dow Jones reported. JetBlue and XO Communications agreed
to the initial contract in 1999.
In a press release on Monday, XO Communications said it will continue to
provide telecommunications services, including local, long distance and
data services for JetBlue's call center operations in Utah. XO
Communications, which filed for bankruptcy protection in June, won court
approval last week for its proposed restructuring plan that gives
financier Carl Icahn a controlling position in a reorganized
company.
UAL Plans to Cut $1.3 Billion in Salaries over Five Years
UAL Corp. unveiled a plan to cut $1.3 billion in wages for its nonunion
salaried and management employees over the next five and a half years,
the Wall Street Journal reported. The nation's No. 2 airline
faces a Dec. 2 deadline in its fight to avoid a bankruptcy-court filing.
But the parent of United Airlines is facing an uphill battle to get a
$1.8 billion federal loan guarantee it says it needs to avoid filing for
bankruptcy-court protection before year's end. In the meantime, UAL is
moving ahead with its financial-recovery plan, which aims to return the
struggling carrier to profitability by cutting $2.5 billion in expenses
each year. United on Monday said it will cut the wages of nonunion
employees, excluding officers, by between 2.8 percent and 10.7 percent.
The airline also plans to forgo merit salary increases in 2002. If the
forgone merit raises are included, the salary reductions range from 5.2
percent to 15.3 percent, UAL said. In return, the airline plans to issue
stock options to employees participating in the financial-recovery
program. Based on the number of shares outstanding and other
commitments, this amounts to about 52 million shares. The company
already has about 66.2 million shares outstanding.
US Airways Confirms the Retirement Systems of Alabama
US Airways Group Inc. designated the Retirement Systems of Alabama as
equity sponsor for the company's reorganization plan, Dow Jones
reported. In a press release on Monday, the airline said Retirement
Systems was the only equity investment bid placed by the Nov. 15 court
deadline. As announced in September, Retirement Systems agreed to invest
$240 million for 37.5 percent ownership stake in a restructured US
Airways. The percentage of equity ownership is subject to change based
upon agreements in the final organization plan. US Airways filed for
chapter 11 bankruptcy on Aug. 11. It expects to file its disclosure
statement and plan of reorganization in mid-December 2002. The company
expects to emerge from chapter 11 in first quarter of 2003.
Exlservice Management, 2 Other Firms to Buy Exlservice
Exlservice Inc.'s management joined with Oak Hill Capital Partners L.P.
and Financial Technology Ventures to acquire Exlservice from parent
company Conseco Inc., Dow Jones reported. An Exlservice spokesman said
the company is trying to separate itself from Conseco to continue as an
ongoing entity. Conseco earlier this year acknowledged it might have to
seek chapter 11 bankruptcy protection unless it can reach a financial
restructuring with creditors. Exlservice's current management group will
remain in place, and continue to hold a significant ownership interest
in the company, Exlservice said in a press release on Monday.
WORLDCOM
WorldCom Keeps Sole Right to File Plan Through April 17
WorldCom Inc.'s deadline to file an exclusive reorganization plan has
been extended to April 17, Dow Jones reported. If WorldCom files a plan
by that date, other parties would be excluded from filing plans for the
company through June 16 while WorldCom solicits plan votes. Prior to the
extension, the company had the sole right to file a reorganization plan
through Monday.
WorldCom Bondholder Seeks Giuliani at Helm
A WorldCom Inc. bondholder wants the bankrupt telecommunications company
to tap former New York City Mayor Rudolph Giuliani as chairman, a source
familiar with the situation said on Monday, Reuters reported. David
Matlin leads a bond-investor group backed by Credit Suisse First Boston
that has spent more than $300 million for more than 10 percent of
WorldCom's debt. Matlin plans to press the U.S. Bankruptcy Court to
accept a reorganization plan that would have Giuliani as chairman, the
source said, reported the newswire. Matlin's group recruited Giuliani in
August to help raise as much as $1.3 billion in a new fund to buy up
more WorldCom debt. Matlin is not convinced that Michael Capellas, whom
WorldCom named on Friday as its chairman and chief executive officer, is
the right person to lead WorldCom over the long haul, the source said,
Reuters reported.
Asia Global Crossing Ltd. Files for Chapter 11, to Sell
Assets
Undersea cable operator Asia Global Crossing Ltd. filed for chapter 11
on Sunday and plans to sell its assets to a consortium led by China
Netcom Corp. and restructure more than $750 million in debt, Dow Jones
reported. Asia Global Crossing Ltd. listed assets of $2.28 billion and
debts of $2.61 billion in its chapter 11 filing. The filing was made in
the U.S. Bankruptcy Court in Manhattan. Asia Global Crossing Ltd. unit
Asia Global Crossing Development Co. also filed for chapter 11 on
Sunday. Asia Global Crossing Ltd. had announced late on Sunday that it
signed a definitive agreement to sell substantially all of its
operations and assets to Asia Netcom, a new company organized by China
Netcom (Hong Kong) and expected to include Newbridge Capital and
Softbank Asia Infrastructure Fund as co-investors. Published reports
have valued the deal at $270 million.
World Kitchen Restructuring Plan Approved
WKI Holding Company Inc., the parent of glass and bakeware maker World
Kitchen Inc., on Monday said a U.S. Bankruptcy Court approved its
reorganization plan, Reuters reported. The approval, by Judge Jack
Schmetterer of the U.S. Bankruptcy Court for the Northern District of
Illinois, allows the company and its debtors to begin to solicit
shareholder votes to approve the plan. Under terms of the plan, WKI's
funded debt will be reduced by about $443 million to $368 million,
providing the company with more financial flexibility to implement its
business strategy. The terms of the restructuring include the conversion
by WKI's bank group of $186 million of its debt into equity, conversion
by an affiliated lender of 100 percent of its separate $25 million
credit facility claims into equity, and the conversion of $200 million
of senior subordinated bondholders' claims into equity.
Geneva Steel to Work with Secured Lenders on
Reorganization
Geneva Steel LLC, a unit of Geneva Steel Holdings Corp., plans to work
with its secured lenders to formulate a plan of reorganization that is
acceptable to the lenders, Dow Jones reported. The plan will likely
provide for a liquidation of Geneva Steel LLC either in place or in
parts, the company said in a press release. Geneva Steel LLC, a producer
of steel plate, hot-rolled coil, pipe and slabs, filed for chapter 11
bankruptcy protection in January due to its liquidity crisis resulting
from adverse market developments and the requirements of its secured
lenders. The company said no potential lender for its business plan had
filed an application for a federal loan guarantee under the Emergency
Steel Loan Guarantee Act. The company's agreement with its secured
lenders for continued access to cash collateral had established Nov. 15
as the deadline for filing an application. However, Geneva Steel's
secured lenders have agreed to permit the use of additional cash
collateral through April 19 to fund the company's limited operations
during the time necessary to formulate the reorganization plan.
Shares Decline on Wal-Mart Outlook and War Concerns
Wall Street pulled back yesterday as investors tried to extend six weeks
of blue-chip gains but were stymied by war concerns and a tepid outlook
from Wal-Mart Stores, the Associated Press reported. Analysts said
investors had little significant economic news to digest, resulting in
light trading volume and somewhat exaggerated price swings. Selling to
cash in profits from October's big rally also depressed the market.
Stocks received help last week from stronger-than-expected retail sales
and consumer sentiment, raising hope of continued consumer spending,
which accounts for about two-thirds of economic activity. 'I think what
the market feared, as far as retail sales going into the holiday, is not
going to happen,' said Scott Wren, equity strategist for A.G. Edwards
& Sons. 'People are still going to be out there spending money. I
think that's one reason why we've been able to hang on to these levels
in the Dow.' But analysts caution that terrorism concerns and a war with
Iraq continue to weigh on investors and will probably limit gains in the
coming weeks, particularly now that the better-than-expected earnings
reports are largely complete, the newswire reported.
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