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/raid1/www/Hosts/bankrupt/TCR_Public/000103.MBX T R O U B L E D C O M P A N Y R E P O R T E R Monday, January 3, 2000, Vol. 4, No. 1 Headlines BRUNO'S, INC.: Court Confirms Stand-Alone Chapter 11 Plan CASMYN CORP.: Foreign Gold Mines Excluded from Chapter 11 Filing DATAPOINT CORPORATION: Hopeful for Sale of European Operations FLORIDA COAST: Stone Container & Four M Reportedly Support Plan ENDICOTT JOHNSON: Unable to Dodge the Chapter 11 Bullet FILENE'S BASEMENT: Successful Turnaround Faces Financial Risks FRUIT OF THE LOOM: Files Chapter 11 Petitions in Wilmington GENEVA STEEL: Raises Plate Price by $20 per Ton GANTOS, INC.: Chapter 22 Filing in Bridgeport, Connecticut GANTOS, INC.: Prepetition Lenders Extend $40 Mil DIP Facility GENESIS DIRECT: Sells Catalog Businesses to GE Investment PPPII INTERSTATE MORTGAGE: State Regulators Seek Receiver JUST FOR FEET: In Talks with Potential Buyers, WWD Reports MAXIM GROUP: Covenant Violations Continue Amid Mounting Losses OMEGA HEALTHCARE: S&P Downgrades REIT's Bond Debt PAGE AMERICA: Prepackaged Liquidating Chapter 11 Plan Confirmed PAXSON COMMUNICATIONS: Lowell Paxson Holds Majority Equity Stake PROTECTION ONE: S&P Lowers Corporate Credit & Senior Note Rating SANTA FE GAMING: Reports Increased Revenues & Cash Flows in 1999 THERMATRIX: Files Chapter 11 Petition in Knoxville, Tennessee TOROTEL: Softening Product Demand Negatively Impacts Sales UNITED COMPANIES: Selling Portfolio to Bear Stearns Affiliate WILLCOX & GIBBS: Files Revised Plan of Reorganization ********* BRUNO'S, INC.: Court Confirms Stand-Alone Chapter 11 Plan --------------------------------------------------------- Bruno's, Inc. (OTC Bulletin Board: BRNOQ) announced that the United States Bankruptcy Court for the District of Delaware has confirmed the Company's plan of reorganization. An overwhelming majority of the Company's creditors voted in favor of the Company's plan of reorganization in early December. The Company anticipates that it will emerge from bankruptcy in January. "We are extremely pleased to have achieved our goal of emerging from bankruptcy as a stand-alone, debt-free company," said Bruno's President and Chief Executive Officer James A. Demme. "Despite our Chapter 11 status this past year, we managed to refurbish sixteen of our stores and acquire three new stores in Alabama. "As a leaner, more efficient company, we are now in a position to do even more to improve our competitive position and to create value for our new shareholders. Moving forward, our lack of debt and our new, long-term labor agreements will help us continue our company-wide effort to provide customers with clean, fresh, fully-stocked stores and exceptional service in the year 2000 and beyond," said Demme. The plan of reorganization provides that substantially all of the assets of Bruno's, Inc. will be transferred to a newly created corporation named Bruno's Supermarkets, Inc. The new corporation will be owned by the financial institutions that held the senior debt of Bruno's, Inc. No single financial institution will own a controlling share of the new company. Under the terms of the plan of reorganization, all general unsecured creditors will receive a cash disbursement equal to 30% of the allowed value of their claims. All distributions that would have been made to the holders of the Company's Senior Subordinated Notes will be distributed to the senior creditors in accordance with the governing subordination agreement. No distributions will be made to holders of shares of Common Stock of Bruno's. As part of the reorganization, Bruno's Supermarkets, Inc. has formed a new seven-person board of directors. The new owners have named Terry R. Peets of Balboa Island, California as Chairman of the newly formed Board. Mr. Peets has more than twenty years' experience in the food retailing industry. James A. Demme will serve as President and Chief Executive Officer and will be a member of the Board of Directors. Demme, who has the authority to appoint one board member, has selected former Bruno's CEO Ronald G. Bruno of Birmingham, Alabama to fill this position. The other board members include Alan J. Reed of Monarch Beach, California; Philip L. Maslowe of Palm Beach Gardens, Florida; Richard B. Neff of Watchung, New Jersey; and Robert L. Hockett of Wellesley, Massachusetts. All of the board members have extensive retail industry experience. Peets commended Demme for his leadership during the past two and a half years. "Jim Demme has done a masterful job of steering Bruno's through the bankruptcy process and, thanks to his efforts, the company has emerged debt-free and ready to take on the competition. I think anyone going into a Bruno's, Food World, FoodMax or Food Fair store can attest to the effectiveness of Jim Demme and his management team," said Peets. "The new owners and I are optimistic about the future of Bruno's and we look forward to a new period of profitability and growth," added Peets. Bruno's operates 152 supermarkets in Alabama, Georgia, Florida, and Mississippi. CASMYN CORP.: Foreign Gold Mines Excluded from Chapter 11 Filing ---------------------------------------------------------------- A report appearing in the December 14 edition of American Metal Market points-out that the chapter 11 proceedings undertaken by Casmyn Corp., in Agoura Hills, Calif., excludes the company's gold mining operations in Zimbabwe, which are owned by separate subsidiaries. Following a year of negotiations with creditors, Casmyn filed for chapter 11 protection, submitted a restructuring plan and anticipates achieving confirmation in early 2000. DATAPOINT CORPORATION: Hopeful for Sale of European Operations -------------------------------------------------------------- On May 17, 1999, Datapoint Corporation and its wholly-owned subsidiary, Datapoint International, Inc., entered into a letter of intent for a proposed sale of its European subsidiaries which comprise substantially all of the company's operations. The European Operations represented 96% of the company's total revenue during 1999 and 98% of the company's total revenue for the three months ended October 30, 1999. Excluding the European Operations, the company's consolidated revenue and operating loss were $602 and $1,803, respectively, for the quarter ended October 30, 1999. The company believes that, based on current trends in its business and financial forecasts, absent the asset sale, there is a substantial doubt that there will be sufficient funding, from either cash flow from operations or other capital sources, to pay obligations relating to the scheduled December 1999 Debenture interest payment of approximately $2.4 million, the approximate $2.4 million June 2000 Debenture interest payment and the $5 million June 1, 2000 Debenture sinking fund payment, any interest and sinking fund payments on the Debentures which become due thereafter, and certain accounts payable from US trade creditors totalling approximately $1.2 million as of July 31, 1999 and October 30, 1999. The company believes that such U.S. trade creditors may assert certain rights against the company that they would otherwise not assert if the asset sale is consummated. Furthermore, absent the asset sale, all or a portion of such creditors may commence involuntary bankruptcy proceedings against the company. If the proposed sale of the company's European Operations is not consummated as intended, management plans to continue restructuring efforts as necessary in the future which may include the reduction of personnel, closure of facilities, disposal of subsidiaries, or the discontinuance of product lines. FLORIDA COAST: Stone Container & Four M Reportedly Support Plan --------------------------------------------------------------- Stone Container Corp., a subsidiary of Smurfit-Stone Container Corp. expects to wipe out a lawsuit and eliminate bankruptcy problems involving the Florida Coast Paper Co. LLC linerboard mill in Port St. Joe, Fla., based on a plan announced in October, reports Pulp & Paper. Both Stone Container and Four M Corp. tell P&P that they supported the proposed reorganization plan. Under the plan, Stone Container expects to pay 95 million to $100 million in cash and become the full owner of the mill. (In 1996, Stone Container and Four M paid $ 185 million to each gain 50% shares in Florida Coast Paper.) For the reorganization plan to go forward, a judge in the Delaware bankruptcy court handling the Florida Coast case must approve the deal. ENDICOTT JOHNSON: Unable to Dodge the Chapter 11 Bullet ------------------------------------------------------- One of the nation's oldest footwear firms, Endicott Johnson Inc., filed for Chapter 11 bankruptcy protection, amid weak sales during the holiday season. The Binghamton, N.Y.,-based firm, which operates 61 stores under the Father & Son name, had hoped for a turnaround, but on Tuesday the 109-year-old firm said that it will need the protections of Chapter 11 to continue operating. "The whole reason for doing this is to get time to reorganize the company," Ralph Luvuollo, interim president, tells Footwear News. "We're going to go back and review every store." The filing came just four months after E-J received a $7.5 million line of credit from Needham, Mass.,-based Paragon Capital. E-J, although it closed about 70 stores two years ago, remains a significant regional retailer, primarily in the eastern United States. FILENE'S BASEMENT: Successful Turnaround Faces Financial Risks -------------------------------------------------------------- Filene's Basement Corporation's ability to continue as a going concern is dependent upon confirmation of the company's plan of reorganization by the Bankruptcy Court, the ability to maintain compliance with debt covenants under the DIP Facility, achievement of profitable operations, maintenance of adequate financing, and the resolution of the uncertainties of the reorganization case. Filene's, a retail family clothing business, experienced significant operating losses in 1999. For the quarter ended October 30, 1999 net sales were $128.9 million, down 16.7% from last year's third quarter sales of $154.8 million, with resulting net losses in the '99 quarter of $51.8 million, while in the same quarter of '98 net losses were $0.3 million. Net sales for the thirty-nine week period ended October 30, 1999 were down 1.0% to $409.7 million from $413.8 million in the same period of 1998. Net losses resulting in the thirty-nine weeks of 1999 were $73.2 million as opposed to net losses of $0.02 million in the 1998 comparable period. The company intends to operate its business during the reorganization process and entered into a $135 million debtor- in-possession financing facility on August 23, 1999. The Bankruptcy Court approved the financing facility on September 15, 1999. However, the company's operating results and adequacy of its working capital could be adversely affected if, for any reason, the company's borrowing base was to become impaired, or portions thereof were otherwise deemed ineligible, thereby diminishing the level of available funds. The company is subject to various covenants under the new financing facility including minimum eligible inventory levels and maximum loans outstanding to eligible inventory ratios. FRUIT OF THE LOOM: Files Chapter 11 Petitions in Wilmington ----------------------------------------------------------- Fruit of the Loom, Ltd. (NYSE: FTL) announced that it and certain of its U.S. subsidiaries have filed voluntary petitions with U.S. Bankruptcy Court for the District of Delaware to reorganize under Chapter 11 of the U.S. Bankruptcy Code. The Company said that it initiated the reorganization to obtain working capital and implement a financial and operational restructuring. Bank of America, N.A., has agreed to provide a new $625 million secured debtor-in-possession credit facility. Bankruptcy Creditors' Service, Inc., announced publication of FRUIT OF THE LOOM BANKRUPTCY NEWS, tracking this multi-billion dollar restructuring effort. A free copy of the first issue of FRUIT OF THE LOOM BANKRUPTCY NEWS is available at: http://www.bankrupt.com/fruit.txt GENEVA STEEL: Raises Plate Price by $20 per Ton ----------------------------------------------- Geneva Steel, USX-U.S. Steel Corp., Bethlehem Steel Corp and Birmingham Steel Corp. are among the companies that have announced price increases in recent months. This month, report The Deseret News and the Associated Press, Geneva announced its plate prices were increased by $20 per ton in December. The increase is the second price hike in less than three months for the beleaguered Utah County company. Geneva filed for Chapter 11 bankruptcy protection in February, and reported $120 million in losses for the first half of 1999. GANTOS, INC.: Chapter 22 Filing in Bridgeport, Connecticut ---------------------------------------------------------- Gantos, Inc. (Nasdaq: GTOS) announced that it filed a voluntary reorganization petition under Chapter 11 of the U.S. Bankruptcy Code last weeek. The petitions were filed in the U.S. Bankruptcy Court for the District of Connecticut at Bridgeport. The company's executive offices are located in Stamford, Connecticut. Arlene Stern, Chief Executive Officer, said: "The decision to file a Chapter 11 bankruptcy petition was a difficult and painful one. Reorganization provides the most orderly, structured means for us to concentrate on operating our stores. The reorganization will enable Gantos to continue in the ordinary course of its operations, while at the same time providing senior management with the necessary time to assess and restructure its debt in an effort to emerge from Chapter 11 as a stronger and more competitive retailer. Our goal is to make this reorganization invisible to our customers, and to ensure that our vendors and suppliers are reimbursed in a timely manner for all merchandise and services provided to Gantos while it is in Chapter 11." Stern commented: "Stores remain open and all normal customer services and store policies, including credit card purchases and payments, billing adjustments, merchandise returns and gift certificates, will continue as usual." Stern stated: "We anticipate that a creditors committee will be appointed shortly and we will work closely with this committee and other key creditors to reorganize and restructure the company's obligations as quickly as possible." She continued: "We believe that this process will enable us to focus on the future, to preserve the operations of our stores for everyone's benefit, and to concentrate on our primary goal of selling merchandise, without disruption." Gantos, Inc. is a specialty retailer of quality women's wear and accessories. The Company currently operates 117 stores in 24 states. GANTOS, INC.: Prepetition Lenders Extend $40 Mil DIP Facility ------------------------------------------------------------- Gantos, Inc. (Nasdaq: GTOS) announced that it has negotiated a $40 million debtor-in possession (DIP) credit facility with its current lenders, Foothill Capital Corporation and Paragon Capital, LLC, to fund its operations during the voluntary reorganization period. Gantos filed a voluntary reorganization petition under Chapter 11 of the U.S. Bankruptcy Code on December 28, 1999 (U.S. Bankruptcy Court for the District of Connecticut at Bridgeport, Case No. 99-51806-AHWS). The DIP credit facility contains similar terms to Gantos' pre- filing credit facility with its lenders, including similar borrowing base calculations. The judge presiding over the filing, Chief U.S. Bankruptcy Judge Alan H.W. Schiff, approved of Gantos' use of the DIP credit facility on an interim basis through January 18, 2000. It is expected that final approval by the U.S. Bankruptcy Court of the DIP credit facility will be received on January 18, 2000. Arlene Stern, Chief Executive Officer, said: "The financial support from Foothill and Paragon will provide Gantos with sufficient availability to continue in the ordinary course of its operations, while senior management assesses and restructures its debt in an effort to emerge from Chapter 11 as a stronger and more competitive retailer. The DIP credit facility will help ensure that there will be no disruption to our customers and that our vendors and suppliers will be reimbursed in a timely manner for all merchandise and services provided to Gantos while it is in Chapter 11." GENESIS DIRECT: Sells Catalog Businesses to GE Investment PPPII --------------------------------------------------------------- Genesis Direct, Inc., announced that its ProTeam.com, The Voyager's Collection and The Edge Company Catalog businesses will be sold to GE Investment Private Placement Partners II ("GEPPPII"), a private equity fund and the highest bidder at a bankruptcy auction that took place at the United States Bankruptcy Court for the District of New Jersey on December 14 and December 17, 1999. Under the sale terms, GEPPPII will purchase the assets of ProTeam.com and The Voyager's Collection for $7.7 million and the assets of The Edge Company Catalog for $2.6 million plus the assumption of certain liabilities up to $400,000. The transactions are expected to close in January 2000. This follows Genesis Direct's recent sale of certain assets of the Company's Carol Wright catalog business to Dr. Leonard's Healthcare Corp. for $3.8 million on December 7, 1999. In addition, the Debtors will receive a royalty from sales by Dr. Leonard's of Carol Wright merchandise. The royalty is projected to be payable in 2003 in the amount of approximately $2.2 million. The assets sold consisted of customer and mailing lists, catalog artwork, service and trademarks, and its 800 and 888 telephone numbers. Additionally, the Company has requested Bankruptcy Court approval for the sale of Carol Wright's warehouse and office equipment to B & J Partnership for $750,000. This transaction is also expected to close in January 2000. All of the above pending sales are subject to the satisfaction of various conditions, including the execution of definitive asset purchase agreements and the entry of final orders of the Bankruptcy Court. The proceeds generated by these sales will be used to repay the Company's secured credit facility, administrative expenses associated with the bankruptcy filing, and, to the extent possible, fund payments to the Company's pre-petition creditors. The Company does not anticipate that these sales will generate any funds for distribution to its shareholders. With the sale of the remaining businesses to GEPPPII, Genesis Direct will no longer have any ongoing business operations. INTERSTATE MORTGAGE: State Regulators Seek Receiver --------------------------------------------------- Peter O'Connell and John G. Ed, writing for the Las Vegas Review-Journal, report that Nevada state regulators asked a judge Tuesday to appoint a receiver to liquidate the assets of Interstate Mortgage Group, claiming the troubled lender's owner failed to disclose his ties to a company that received loans. In the lawsuit filed in District Court, the state Financial Institutions Division alleges that the company's president, David Ferradino, breached his obligations to investors. The action marks the state's first big mortgage company collapse since 1997 failure of Harley Harmon Mortgage Co., which had about $22 million in outstanding loans. Many of those investors still are waiting in hopes the receiver will recover some of their funds. Interstate, however, is several times as large with a loan portfolio that totaled $140 million in November. Many of the 1,000 investors in Interstate are retired people who were attracted by the high interest rates and the relative security that real estate collateral provides. Harmon and Interstate Mortgage are so-called 'hard-money' lenders that provide builders, developers and others with loans backed by real estate. The interest rates generally are higher than banks charge, but loan approval can be obtained quickly, something frequently essential to closing a hot deal. JUST FOR FEET: In Talks with Potential Buyers, WWD Reports ---------------------------------------------------------- WWD reports that Just For Feet is in talks with at least two serious buyers for the bankrupt athletic footwear and apparel chain. Helen Rockey, chief executive officer, told WWD Tuesday a week ago that there are two potential buyers currently in the "due diligence" stage. She said that the company has been working with its financial advisor, Wasserstein Perella & Co. Inc., on possible strategic options. A credit source told WWD that because of continued difficulties and lackluster sales in the athletic footwear and apparel sector, there was a good chance that Just For Feet would likely end up liquidating, with other chains coming in to cherry pick the better locations. But according to Rockey, that's not likely to happen. The CEO noted, "There are an additional two interested parties that may be more serious in the future." They have not reached the so- called due diligence phase of the process, however. She declined to say who was sniffing through the chain's books. Rockey said, however, that the four parties noted are American companies representing retailers and big-box chains in the sporting goods sector. She also disclosed that there has been some interest expressed from several international sporting goods stores. Rockey couldn't pinpoint a time frame for when an official bid might be made, but hinted that an announcement could come before yearend. Holiday sales at Just for Feet are down from last year, Rockey said. "That was expected, since we were unable to get a full complement of new merchandise because of our financial condition." MAXIM GROUP: Covenant Violations Continue Amid Mounting Losses -------------------------------------------------------------- The Maxim Group, Inc. and subsidiaries are engaged in retail and commercial sales of floor covering products throughout North America through a network of company-owned retail stores and a network of franchisees. The company is also engaged in the sale of franchises for the retail floor covering industry and other related products and services to its franchises. Substantially all of the assets of Image Industries, Inc., a wholly owned manufacturing subsidiary of Maxim, were sold on January 29, 1999. Image was engaged in the manufacturing of residential carpet and plastics recycling. As of November 6, 1999 and January 31, 1999, the company was not in compliance with a certain restricted payment covenant contained in the Indenture pursuant to which the company's $100,000,000 91/4% senior subordinated notes were issued. During the three month period ended October 31, 1998, the company's restricted payments exceeded that allowed under the Indenture. As of November 6, 1999 and January 31, 1999, the company was not in compliance with the terms of the Indenture and as a result, the trustee or the holders of not less than 25% of the aggregate outstanding principal amount of the Senior Notes may declare all unpaid principal plus any accrued interest of all of the Senior Notes due and payable. As of December 17, 1999, Maxim's available borrowings under its Senior Credit Facility plus cash on hand were not sufficient to repay the Senior Notes if such Senior Notes were declared due and payable. Total revenues decreased 20.3% to $198.8 million for the three months ended November 6, 1999 from $249.6 million for the three months ended October 31, 1998. Net losses in the 1999 period were $7,123 whereas the same period of 1998 had shown a net gain of $2,254. Total revenues increased 34.4% to $593.9 million for the nine months ended November 6, 1999, from $441.8 million for the nine months ended October 31, 1998. However the company experienced net losses of $10,614 in the 1999 nine month period, while in the same period of 1998 the company's net losses were $18,028. OMEGA HEALTHCARE: S&P Downgrades REIT's Bond Debt ------------------------------------------------- Standard & Poor's lowered its corporate credit rating on Omega Healthcare Investors Inc. to double-'B'-plus from triple-'B'- minus. Ratings on the company's senior unsecured notes and cumulative preferred stock were also lowered. The outlook is revised to stable. The ratings acknowledge both the troubled situation for the majority of Omega's healthcare operators and the trust's near-term maturing debt obligations. Ann Arbor, Mich.-based Omega is a US $1.1 billion healthcare REIT that focuses mainly on skilled nursing facilities. The trust has investments (equity and mortgage) in 241 facilities throughout 29 states, including 27 healthcare operators. The credit quality for the majority of Omega's healthcare operators has deteriorated since the time of the initial rating largely due to the revised Medicare reimbursement rates. Its largest operator, Sun Healthcare Group, representing 24% of Omega's total investments, filed under Chapter 11 of the Bankruptcy Reform Act in September 1999. While Omega has successfully reached an agreement with Sun regarding 50 of its 54 leases that have since been ratified by the bankruptcy court, the trust still has exposure to other troubled operators, including Integrated Health Services Inc. (16% of investments), Mariner Post-Acute Network Inc. (6%), and Advocat Inc. (11%). The troubled situation for these operators is exemplified by both Integrated and Mariner, who have recently defaulted under their respective public debt obligations, and Advocat, who recently announced its need to restate its financial statements, the results of which are currently uncertain. Given that Omega may need to renegotiate its agreements with these operators, Standard & Poor's expects that the trust's currently strong facility level coverages (averaging close to 1.7 times (x) before management fees) may not be sustainable, and the trust may have to release at lower rates and/or sell select facilities operated by these distressed healthcare providers. The company is exposed to near-term debt maturities, with both its US $81.6 million privately placed notes (unrated) and US $200 million of its total unsecured bank facilities (US $117 million currently outstanding) due in 2000. Omega has laid out a plan to sell several assets to meet maturing note obligations, and it is currently in discussions with its bank group to extend the unsecured revolver. While management's plan to meet these obligations appears to be viable, Standard & Poor's expects the company's coverage measures (2.9x debt service and 2.4x fixed charge) will be negatively impacted by both the expected higher cost for the renegotiated bank revolver and the potential restructuring of certain lease/mortgage agreements. OUTLOOK: STABLE Standard & Poor's anticipates that Omega's management will continue to appropriately respond to the challenging environment for healthcare providers by working to renegotiate lease/mortgage agreements prior to potential bankruptcy filings. The trust also has access to unencumbered equity investments of about US $600 million (cost basis) that could be tapped as source of additional financing to meet maturing debt obligations, Standard & Poor's said. PAGE AMERICA: Prepackaged Liquidating Chapter 11 Plan Confirmed --------------------------------------------------------------- On December 21, 1999, the U.S. Bankruptcy Court for the Southern District of New York confirmed the Prepackaged Liquidating Chapter 11 Plan (the "Plan") for Page America Group, Inc. and its wholly-owned subsidiaries ("Page America"). The Plan provides for the dissolution and liquidation of Page America, and the distribution of its assets to the holders of its Subordinated Notes, Series One Preferred Stock and Common Stock. Page America will mail notices of the court order confirming the Plan to all its creditors and equity holders, together with letters of transmittal, which provide instructions for receiving distributions under the Plan. Page America previously provided paging, messaging and information products and services through networks it owned and operated as radio common carriers under licenses from the Federal Communications Commission. The New York office of the law firm Stroock & Stroock & Lavan LLP represented Page America in this matter. PAXSON COMMUNICATIONS: Lowell Paxson Holds Majority Equity Stake ---------------------------------------------------------------- Lowell W. Paxson, Chairman of the Board of Paxson Communications Corporation, now beneficially owns 31,051,282 shares of common stock in the company, representing 50.1% of the outstanding shares of Paxson Communications. Mr. Paxson holds sole voting and dispositive rights to the total number of shares shown. In a series of transactions beginning on December 6, 1999, Mr. Paxson effected the sale of 500,000 shares of Class A common stock in the company held in the name of Paxson Enterprises, Inc. and Second Crystal Diamond Limited Partnership, each of which is controlled by Mr. Paxson. The price ranged from $11.2793 to $11.5975 per share. All of the sales were accomplished through OTA Limited Partnership as broker. PROTECTION ONE: S&P Lowers Corporate Credit & Senior Note Rating ---------------------------------------------------------------- Standard & Poor's lowered its corporate credit and senior note ratings on Protection One Alarm Monitoring Inc. to double-'B'- minus from double-'B' and its subordinated and convertible note ratings for the company to single-'B' from single-'B'-plus. The preliminary senior/subordinated ratings on the company's shelf filing are lowered to double-'B'-minus/single-'B' from double-'B'/single-'B'-plus. The ratings for Protection One are removed from CreditWatch with negative implications, where they were placed on Aug.17, 1999. The downgrade is based on deteriorating operating performance resulting in weaker credit protection measures and uncertainty associated with the strategic intentions of its majority owner, Western Resources Inc., for its stake in Protection One. Ratings reflect a highly leveraged financial profile and near- term operational challenges somewhat offset by some modest implied support from Western Resources. Culver City, Calif.- based Protection One is the second largest security alarm company in the U.S., providing monitoring and related security services. Operating performance deteriorated considerably in 1999 as new management struggled to stem rising customer attrition rates and higher operating costs, while revamping its customer acquisition strategy. Consequently, the subscriber base declined and growth and profitability have slowed, causing majority equity owner Western Resources to reevaluate its investment in Protection One and explore options including divestiture of certain operations or a sale of its 85% stake in the company. Still, Protection One is one of the leading alarm monitoring companies in the U.S. and Europe with over 1.5 million subscribers. The company's profile also benefits from a large recurring revenue stream, which comprises over 80% of sales. Moreover, Western Resources has demonstrated its near-term commitment to Protection One through the assumption of the lenders' obligations under Protection One's revolving credit facility by Westar Capital, a subsidiary of Western Resources, in December 1999. Operating margins are likely to decrease in the near term due to rising costs to increase staff, improve service levels and enhance its information systems capability. Therefore debt protection measures, which are currently modest for the rating, with debt to last 12 months ended September 1999, earnings before interest, taxes, depreciation, and amortization (EBITDA) of nearly 5x, are likely to erode further in the near term. Still, management is pursuing the sale of non core assets to increase liquidity and the assumption of its credit facility, which expires in June 2000, by Westar Capital aids near-term financial flexibility. OUTLOOK: NEGATIVE Uncertainty associated with Western Resources intentions for its majority ownership stake in Protection One and the challenge of stabilizing operating performance leave the rating susceptible to further downgrade, Standard & Poor's said. SANTA FE GAMING: Reports Increased Revenues & Cash Flows in 1999 ---------------------------------------------------------------- Santa Fe Gaming Corporation (the "Company") (OTC Bulletin Board: SGMG), a diversified gaming company headquartered in Las Vegas, announced results for the fiscal year ended September 30, 1999. For the year ended September 30, 1999, the Company reported net revenues of $125.6 million, a $12.8 million increase over revenues in fiscal 1998. The increase is primarily the result of improved operating results at the Santa Fe Hotel, which increased revenues by $8.6 million, or 12.0%, to $80.1 million and at the Pioneer Hotel and Gambling Hall (the "Pioneer"), which increased revenues by $4.1 million, or 10.1%, to $44.8 million. Earnings before interest, taxes, depreciation, amortization, rents, corporate expenses, reorganization expenses and other nonrecurring charges for the 1999 fiscal year increased to $30.9 million, a $3.8 million, or 14.2%, increase over cash flow in fiscal 1998. Pioneer Hotel Inc. and Pioneer Finance Corp. ("PFC") (a direct and indirect wholly-owned subsidiary, respectively, of the Company) incurred reorganization expenses in connection with the restructuring of PFC's 13 1/2% First Mortgage Bonds due December 1998 ("13 1/2% Notes") including the costs associated with the voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code. The increase is primarily the result of the improved operating results at the Santa Fe Hotel, which increased cash flow by $1.5 million, or 7.3%, to $22.1 million and at the Pioneer, which increased cash flow by $2.0 million, or 31.1%, to $8.6 million. Operating income for fiscal 1999 was $11.6 million versus operating income of $7.8 million in fiscal 1998, excluding $2.4 million in reorganization expenses in fiscal 1999 and a $44.0 million impairment loss recorded in the fourth quarter of fiscal 1998. The Company reported a net loss of $19.9 million or $3.21 per common share in fiscal 1999 compared to a net loss of $63.9 million or $10.31 per common share in fiscal 1998. In connection with the audit of the Company's financial statements, the Company's independent auditors' report expresses an unqualified opinion and includes an explanatory paragraph relating to the Company's ability to continue as a going concern. The auditors' report indicates that the Company's inability to meet the repayment terms of PFC's 13 1/2% Notes, its net losses and its stockholders' deficiency raise substantial doubt about its ability to continue as a going concern. The audited financial statements do not include any adjustments that might result from the outcome of such uncertainty. In November 1999, Sahara Las Vegas Corp. ("SLVC"), an indirect wholly-owned subsidiary of the Company, sold real property in Henderson, Nevada and the Company and certain affiliates entered into certain agreements with the buyer for total consideration of $37.2 million. SLVC, the Company, Santa Fe Hotel Inc. ("SFHI") and members of the family of Paul W. Lowden, majority stockholder of the Company, entered into non-compete agreements and the Company and SFHI granted rights of first refusal with respect to the Santa Fe Hotel assets and securities. In connection with the agreements referenced above, the Company expects to report a pre-tax gain on sale of assets in the quarter ending December 31, 1999 of approximately $12.9 million or $2.08 per common share, subject to reimbursement of certain costs and net of costs incurred since October 1, 1999. In December 1999, SLVC and the Company amended the terms of the SLVC Notes due December 15, 1999. As amended, the SLVC Notes provide for, among other items, interest at 12% per annum, payable on June 20, 2000 and at maturity on December 14, 2000. THERMATRIX: Files Chapter 11 Petition in Knoxville, Tennessee ------------------------------------------------------------- Thermatrix Inc. (OTC:TMXI.OB) announced its election to undertake a reorganization under Chapter 11 of the US Bankruptcy Code to protect its business, customers, suppliers, employees, and shareholders' investments. The Company believes that the appointment of administrative receivers in the UK by Wexford Management LLC, on December 15, 1999, while engaged in ongoing negotiations over arrangements to repay, by March 31, 2000, the $5.7 million debt assumed by Thermatrix with the acquisition of Wahlco Environmental Systems, Inc. earlier this year, leaves it with no alternative but to seek protection while implementing its previously announced debt restructuring plan. That plan, which is at an advanced state, is based on a combination of a new and larger credit facility, income associated with a strategic technology agreement, as well as the sale of selected assets, and will result in the settlement of the Wexford debt in the Chapter 11 proceeding. "We are taking this carefully considered step to permit the previously announced debt restructuring of the Company to proceed unhindered," said John T. Schofield, Chairman, President and Chief Executive Officer. "We have worked diligently to integrate Wahlco Environmental Systems, Inc. into Thermatrix. As a result, the Company is poised to achieve a solid, profitable performance in FY2000, supported by a record backlog and high credibility with its customers, both domestically and overseas. The last seven days have seen a series of actions arising from the appointment of administrative receivers in the UK by Wexford that threaten the very basis of shareholder value, customer service and employee loyalty. As a result we have adopted this most prudent course of action as the appropriate response to the circumstances the Company is facing. This action is essential to preserve the integrity of the business, as well as meet our commitments to all constituent parties with whom the Company trades," he said. Thermatrix is an industrial company primarily serving the global market of continuously operating facilities for a variety of industries that include the refining, chemical, steel, pharmaceutical, pulp and paper, electric utilities, co- generation plants, and industrial manufacturers. Thermatrix provides a number of air pollution control solutions, including its unique flameless thermal oxidation technology, as well as a wide range of engineered products and services. Thermatrix is currently focusing its development activities on the application of its flameless thermal oxidation technology to treat emissions from diesel engines, both mobile and stationary. TOROTEL: Softening Product Demand Negatively Impacts Sales ---------------------------------------------------------- Torotel specializes in the custom design and manufacture of a wide variety of precision magnetic components, consisting of transformers, inductors, reactors, chokes and toroidal coils. Approximately 97% of Torotels sales are derived from domestic customers. In the six months ended October 31, 1999, net sales decreased 42% from $2,877,000 to $1,663,000 due to less demand for Torotels magnetics products. The decrease in demand is the result of fewer ongoing Department of Defense programs for missile systems, and a cyclical decline in the aerospace industry. In recent years, sales of the potted coil assembly for the Hellfire II missile system accounted for about 25% of Torotel Products total sales; however, future sales of the potted coil assembly will be significantly lower and limited only to the number of Hellfire II missiles sold to foreign countries by the prime contractor(s). As a result of this factor, plus the lower demand for magnetics products, lower sales are expected in fiscal year 2000. The consolidated pretax loss decreased from $154,000 in the same period of 1998 to $56,000 in the six months of 1999. In the three months ended October 31, 1999 net sales decreased 32% from $1,285,000 to $874,000 due to less demand for Torotels magnetics products. The consolidated pretax earnings increased from a loss of $54,000 in the comparable period of 1998, to a profit of $20,000 in the period ended October 31, 1999. UNITED COMPANIES: Selling Portfolio to Bear Stearns Affiliate ------------------------------------------------------------- United Companies Financial Corporation (OTC:UCFNQ), which has been operating in chapter 11 reorganization since March 1, 1999, announced that it signed a letter agreement for the sale of substantially all of the assets related to its mortgage servicing, whole loan portfolio and residual interests to EMC Mortgage Corporation, a wholly-owned subsidiary of The Bear Stearns Companies, Inc., for an aggregate purchase price of approximately $895 million subject to adjustments. Cash on hand and certain other assets are not included in the sale. The transaction is subject to the negotiation and execution of definitive documentation, which is expected to be completed in January 2000. The sale is further subject to the approval of the United States Bankruptcy Court and the submission of higher or better offers pursuant to bidding procedures to be established by the Bankruptcy Court, as well as the satisfaction of certain other conditions. The letter agreement also provides that United Companies may bifurcate the proposed transaction and sell its whole loan portfolio to another bidder or accelerate the sale of the whole loan portfolio to EMC. On June 1, 1999, United Companies sold its loan origination platform to Aegis Mortgage Corporation. Since that time, United Companies has continued to service a multi-billion dollar portfolio of home equity and manufactured housing loans while developing strategies to address its financial difficulties. "The EMC transaction will allow the Company to move closer to completing its reorganization efforts. We believe that this transaction, and the Bankruptcy Court approval process, will maximize the value of United Companies," said Lawrence J. Ramaekers, Chief Executive Officer of United Companies. United Companies is a specialty finance company that services non-traditional consumer loan products. WILLCOX & GIBBS: Files Revised Plan of Reorganization ------------------------------------------------------ Willcox & Gibbs, Inc. said that it has filed with the Bankruptcy Court a revised plan of reorganization and disclosure statement in its Chapter 11 bankruptcy case, changed from the versions filed in November 1999. The revised plan provides for the following treatment of creditors and interest holders: -- Secured creditors are unimpaired. -- Holders of Series B Notes (and certain general unsecured creditors as described below) will receive a pro rata share of 95% of the common equity of the reorganized Willcox & Gibbs. -- General unsecured creditors, including trade creditors, may elect to receive one of the following: -- For claims of $1,000 or less (and claims voluntarily reduced by the holder to $1,000), forty cents for each dollar of allowed claim, payable in cash on the effective date of the plan. -- For larger claims, the holder may elect one of the following: -- Cash equal to 25% of the allowed claim, but not more than a payment of $3,000. -- A pro rata share, together with holders of Series B Notes as described above, of 95% of the common equity of reorganized Willcox & Gibbs. -- Trade creditors may elect, instead of the two options for general unsecured creditors above, to receive 100% of their allowed claims in cash paid over seven years without interest, so long as any such trade creditor provides normal trade credit terms to Willcox & Gibbs after emergence from reorganization proceedings and Willcox & Gibbs accepts such terms. -- Holders of existing common stock of Willcox & Gibbs will receive a pro rata share of 5% of the common equity of Willcox & Gibbs and warrants to purchase additional shares. Willcox & Gibbs' disclosure statement has been approved by the Bankruptcy Court, subject to the Company making final arrangements for post-reorganization bank financing and revising the disclosure statement to describe the terms of such financing. A hearing on confirmation of the plan of reorganization has been scheduled for February 22, 2000. Willcox & Gibbs is the largest distributor in North America of replacement parts, supplies and ancillary equipment to manufacturers of apparel and other sewn products. ********* A listing of Meetings, Conferences and Seminars appears each Tuesday in the TCR. Bond pricing, appearing each Friday, is supplied by DLS Capital Partners, Dallas, Texas. ********* S U B S C R I P T I O N I N F O R M A T I O N Troubled Company Reporter is a daily newsletter, co- published by Bankruptcy Creditors' Service, Inc., Trenton, NJ, and Beard Group, Inc., Washington, DC. Debra Brennan, Yvonne L. Metzler, Edem Alfeche and Ronald Ladia, Editors. Copyright 2000. 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