/raid1/www/Hosts/bankrupt/TCR

/raid1/www/Hosts/bankrupt/TCR_Public/000324.MBX T R O U B L E D C O M P A N Y R E P O R T E R Friday, March 24, 2000, Vol. 4, No. 59 Headlines ACME METALS: Seeks To Retain Ungaretti & Harris AMERICAN HEALTH: Illinois HMO Suspended From Conducting Business CLARIDGE HOTEL: Files Amendment to Joint Plan of Reorganization COHO ENERGY: Modifications to Plan and Changes in CEO CROWN VANTAGE: Closes on First Installment of DIP Financing CWT SPECIALTY: Seeks To Reject Three Leases DAEWOO MOTOR: Hyundai to evaluate assets DFG ITALIA: Trustee Appointed to Investigate California Firm FRUIT OF THE LOOM: Class Action Suit Filed Against Top Officers FUJI CORP: Inventory Reduced 37% HARNISCHFEGER: Key Employee Retention Program HARNISCHFEGER: Taps The Blackstone Group INCOMNET: Debtors Respond To Comments of US Trustee KCS ENERGY: Reports Fourth Quarter and Full Year 1999 Results MARINER: Announces Executive Management Changes MEDPARTNERS: Seeks To Extend Time To Assume/Reject Leases MICHAEL PETROLEUM: Order Authorizes Use of Cash Collateral MITSUI MINING & SMELTING CO.: Speeds Up Debt Reduction MTS INC: Moody's Lowers Ratings OCELOT ENERGY: Changes Name and Moves to Jersey PACIFIC INTERNATIONAL: Zaremba Group Agreement Approved By Court PACIFIC NEVADA: Case Summary and Largest Unsecured Creditors PHYSICIAN COMPUTER: Seeks Approval of Settlement Agreements PRIMARY HEALTH SYSTEMS: Hospital Ordered Reopened SHOE CORP: Seeks To Extend Time to Assume/Reject Leases STAR NEWCO: Seeks Authority For Second Employee Severance Program ********* ACME METALS: Seeks To Retain Ungaretti & Harris ----------------------------------------------- The Acme debtors seek to retain and employ Ungaretti & Harris as special counsel for advice on financial and securities matters. The debtors request that Ungaretti be retained to provide Acme debtors advice with regard to the negotiation of a new secured syndicated term loan facility, the proceeds of which are intended to be used to pay down existing secured indebtedness, and application of a guaranty of such term loan facility by the uS government under the recently-enacted Emergency Steel Loan Guaranty Program. The debtors request that the retention be effective as of January 20, 2000. The attorneys for the firm who will be handli8ng this case charge current standard hourly rates ranging from $155 per hour to $345 per hour. AMERICAN HEALTH: Illinois HMO Suspended From Conducting Business ---------------------------------------------------------------- An Illinois-based health maintenance organization will stop doing business in Arkansas as of March 31, the Arkansas Insurance Department said. Insurance Commissioner Mike Pickens said Wednesday the American HMO/American Health Care Providers and the state Insurance Department reached an agreement for the company to stop doing business in the state. Last month, the Illinois Department of Insurance filed a petition for liquidation, alleging American Health Care Providers, the parent company of American HMO, is financially insolvent. The company's alleged financial troubles could affect about 90,000 customers, including 300 Arkansas residents, according to Arkansas Insurance Department officials. CLARIDGE HOTEL: Files Amendment to Joint Plan of Reorganization --------------------------------------------------------------- Yesterday, The Claridge Hotel and Casino Corporation, its wholly owned subsidiary, The Claridge at Park Place, Incorporated and Atlantic City Boardwalk Associates, L.P. filed its First Amended Joint Plan of Reorganization and First Amended Disclosure Statement in the United States Bankruptcy Court in Camden, New Jersey. Consistent with its Plan initially filed on January 27, 2000, the Plan proposed that the Partnership will transfer its assets, which include, principally, the land, building and furnishings of the Claridge Casino Hotel to the reorganized Claridge. The Plan provides for the holders of the Corporation's $85 million First Mortgage Notes to receive on a pro rata basis 100% of the equity of the reorganized Claridge, outstanding on the effective date of the Plan, and debt not to exceed $15 million in the form of a new ten year secured Note carrying an 8% coupon rate. The Plan provides for unsecured creditors to be paid in six equal installments over a five year period beginning on the effective date of the Plan. Total payments to unsecured creditors will not exceed $5.5 million. The Court plans to issue its opinion regarding the adequacy of the Disclosure Statement, as amended, by mid-April. Upon Court approval of the Disclosure Statement, the Plan will be submitted to creditors for a vote. On August 16, 1999, The Claridge Hotel and Casino Corporation and The Claridge at Park Place, Incorporated filed voluntary petitions under Chapter 11 of the U.S. Bankruptcy Code in order to facilitate a financial restructuring. On October 5, 1999, Atlantic City Boardwalk Associates, L.P. filed a voluntary petition under Chapter 11 of the U.S. Bankruptcy Code. The Claridge Hotel and Casino Corporation is a closely-held public corporation and is the issuer of $85 million of 11-3/4% First Mortgage Notes which are publicly traded on the New York Stock Exchange under the symbol CLAR02. COHO ENERGY: Modifications to Plan and Changes in CEO ----------------------------------------------------- Coho Energy, Inc. (OTCBB:COHO) announced on March 21, 2000 that on March 20, 2000 the United States Bankruptcy Court for the Northern District of Texas confirmed, with several modifications, Coho's plan of reorganization. The modifications to the plan include the retention by the common shareholders as of Feb. 7, 2000 of 20% of any proceeds from Coho's lawsuit against Hicks, Muse as well as 40% of any net sale proceeds from the Company's Tunisia permit. The Company has also announced a change in the number of shares to be outstanding after the effectiveness of the plan. It had previously noted a possible reverse stock split to proportionately reduce the number of authorized and outstanding shares to help the Company satisfy Nasdaq listing requirements. To more efficiently effect this change, the Company amended its plan so that the change in capitalization is effective as part of the plan of reorganization. This change will entail the issuance of one share of new common stock for each 40 shares of old common stock, rather than the one-for-one exchange ratio previously planned. The change will not affect the relative percentage ownership interests among various groups of shareholders after the effectiveness of the plan. In addition to the modifications to the plan of reorganization the Company also announced that its President and Chief Executive Officer, Jeffrey Clarke, is expected to resign concurrently with the effectiveness of the Company's confirmed plan of reorganization. At that time, Mike McGovern, currently a Managing Director of Pembrook Capital Corporation and formerly the Chairman and Chief Executive Officer of Edisto Resources Corporation, is expected to be elected as the new President and Chief Executive Officer. The change in chief executive officer results from the request of the majority holders of the Company's 8 7/8% bonds and was not a decision taken by the current board of directors. The plan entails the issuance of more than a majority of the Company's stock to the bondholders. The confirmed plan, its effectiveness, and the concomitant change in the Company's management, is anticipated to occur on March 31. CROWN VANTAGE: Closes on First Installment of DIP Financing ----------------------------------------------------------- Crown Vantage, Cincinnati, announced yesterday that it closed on the first installment of its debtor-in-possession (DIP) financing in the amount of $50 million, according to a newswire report. On March 16, the Bankruptcy Court for the Northern District of California approved the company's access to the first installment of the funding under its previously announced $100 million DIP financing arranged with Morgan Guaranty Trust Co. of New York as administrative agent. Crown Vantage is one of the world's leading manufacturers of value-added papers for printing, publishing and specialty packaging. (ABI 23-Mar-00) CWT SPECIALTY: Seeks To Reject Three Leases ------------------------------------------- The debtor, CWT Specialty Stores, Inc. seeks court approval to reject three leases covering stores located in Brookline, MA, Hadley, MA and Laconnia, NH. Gordon Brothers Retail Partners notified the debtor that going- out-of-business sales at certain store locations including the three referenced herein would end as of March 19, 2000 and that the premises would be vacated. The debtors have reviewed the leases covering these three locations and determined that the store locations can not contribute positive value to the debtor's estate. DAEWOO MOTOR: Hyundai to evaluate assets ---------------------------------------- To move ahead with its bid to take over ailing competitor Daewoo Motor, Hyundai Motor plans to kick off an asset evaluation of Daewoo Motor starting from as early as next week. Hyundai, which is the nation's largest automaker, said Tuesday that the two firms are fine-tuning the details of the schedule for the asset evaluation. The Hyundai subsidiary also said the asset evaluation would cover Daewoo Motor's foreign affiliates and production plants. (Digital Chosun 21-March-2000) DFG ITALIA: Trustee Appointed to Investigate California Firm ------------------------------------------------------------ Bankruptcy Judge John E. Ryan (C.D. Calif.) has approved creditors' request to appoint a trustee to take control of DFJ Italia, a defunct Orange County, Calif., investment firm managed by two ex-convicts who allegedly lured clients with promises of big returns, the Associated Press reported. Documents filed in bankruptcy court allege that DFJ lured investors, including L.A. Rams stars and Hollywood stars, by boasting that the firm had ties to Italian royalty and connections to the European economic community. A group of five investors filed claims Monday to force the company into chapter 7, and Judge Ryan appointed Thomas H. Casey as trustee to investigate. An attorney for the investors said that there is not any evidence that the money was ever placed in suitable or appropriate investments. Federal investigators have been looking into DFJ for months amid charges that the firm ran a pyramid scheme that paid off old investors with money from new investors. (ABI 23-Mar-00) FRUIT OF THE LOOM: Class Action Suit Filed Against Top Officers --------------------------------------------------------------- Milberg Weiss announced yesterday that a class action suit has been filed in the U.S. District Court for the Western District of Kentucky on behalf of purchasers of Fruit of the Loom Inc. Class A common stock during the period between Sept. 28, 1998 and Nov. 4, 1999, the class period. The complaint charges the company's two top officers with violations of the Securities Exchange Act of 1934 and that during the third and fourth quarter of 1998, the company told investors that it was materially reducing levels of finished goods and raw materials inventory by curtailing production for several days in each of those quarters, and that the company expected strong sales growth in 1999-2000. On April 21, 1999, Fruit of the Loom reported its first quarter 1999 results, including a loss of $.13 per share. The company then re- forecast 1999 sales, projecting better results in the second half of the year. In November, the company revealed a loss of $166.4 million, or $2.49 per share, for the third quarter of 1999. The firm filing the suit said the loss was not only due to the company's poor and out-of-control operations, but also a massive $60 million write-off of over-valued and non-existent inventory, a $20 million loss on cotton futures contracts and a $10 million charge for a loss on a supply contract from a previously sold facility. In December, Fruit of the Loom ran out of money and filed chapter 11. (ABI 23-Mar-00) FUJI CORP: Inventory Reduced 37% -------------------------------- Fuji Corp. (8860) expects to report real estate inventory of about 22.1 billion yen as of March 31, down 37% or 12.8 billion yen from a year ago. The midsize housing developer's inventory has fallen to roughly half the 44.1 billion yen peak reported at the September 1991 midterm. As a result, interest-bearing liabilities are also expected to contract to about 23 billion yen as of the end of this fiscal year, compared with the peak of 46.5 billion yen. Fuji was carrying losses mainly on properties acquired up to 1992. It has been selling properties at a loss until now, but this fiscal year it will take a write-down of about 4.2 billion yen on the value of remaining properties, eliminating unrealized losses. Anticipating interest rate increases, the developer also plans to further reduce interest-bearing liabilities. (Nikkei 22-March-2000) HARNISCHFEGER: Key Employee Retention Program --------------------------------------------- The Debtors ask Judge Walsh to approve four changes to their Key Employment Retention Program. First, the Debtors want to define change of control for purposes of the KERP in the same way that COC is defined in the Debtors' current KERP agreements with some modifications in light of the current "Chapter 11 environment." Second, the Debtors want to add two employees to the list of current employees with whom they may enter into COC agreements. Third, the Debtors want to clarify their authority, and establish procedures for the Debtors to identify employees covered under the Stay/Emergence and Severance components of the KERP. Fourth, the Debtors want approval of the Annual Incentive Plan component of the KERP for fiscal year 2000. The Debtors argue that the first amendment is warranted because they are unable to agree with the creditors' Committee on a new definition of change of control. While the Debtors and the Committee agree "in principle on the definition," they have not agreed "on the exact language of the definition." The Debtors' proposed language is similar to their prepetition agreements, but adds a lengthy paragraph specifically dealing with confirmation of a reorganization plan in Bankruptcy. The second amendment is necessary because the Debtors want to add two employees to their COC agreement list: Alan Jordan, Senior Vice-President of the Rolls Division of Beloit; and Bob Harrison, Senior Vice-President of the Pulping Division of Beloit. The Debtors assert that both of these employees are essential to the divestiture of Beloit, but were inadvertently left off the list of current employees with whom they are permitted to enter into COC agreements. The Creditors' Committee agrees to this amendment. The third amendment is necessary to confirm the Debtors' authority to change from time to time the employees who may be covered under the Stay/Emergence and Severance components of the KERP. The debtors will notify the Committee ten days before they implement any such changes. The fourth amendment is necessary because the Debtors and the Committee do not agree on the exact performance goals and compensation percentages that can be awarded under the KERP's Annual Incentive Plan. The Debtors' proposed amendment provides a formula that specifies the exact percentage of the covered employees' salary that can be awarded as a bonus if the Debtors achieve specified financial goals. For P&H Mining, the target level is $64,100,000. For Joy, the target level is $56,600,000. For HII, the target level is $104,700,000. These targets all apply for the fiscal year beginning November 1, 1999. The Debtors argue in their motion that these KERP amendments are necessary to retain crucial employees and to maintain employees' morale and confidence. Judge Walsh finds the modification appropriate, provided that: -- any change in the Stay/Emergence and Severance components of the Employee Retention Program be subject to the Committee's consent, and within the maximum amount of aggregate expenditures approved under the Amended Order; -- for an employee to receive compensation under the CEO Discretionary Fund and/or the Employee Retention Program, the employee must waive any claim for severance or COC payments arising under a prepetition employment agreement or a COC Agreement entered into with any Debtor. (Harnischfeger Bankruptcy News Issue 21; Bankruptcy Creditors' Service Inc.) HARNISCHFEGER: Taps The Blackstone Group ---------------------------------------- The Debtors ask the Court to authorize them to employ The Blackstone Group L.P., as their Financial Advisors, nunc pro tunc to November 15, 1999. The Debtors believe Blackstone is well qualified and able to provide HII with services necessary to maximize the value of the estates in a cost-effective, efficient and timely manner. Specifically, Blackstone will provide, subject to the Court's approval: (1) Assistance in the development and review of the Debtors' business plans and related financial projections; (2) Assistance in the development of financial data and presentations to the Committee and Equity Committee and other parties in interest; (3) Evaluation of the Debtors' capital structure and debt capacity; (4) Development of a financial foundation for a plan of reorganization and analysis of plan of reorganization alternatives; (5) Valuation of the Debtors and their subsidiaries and of any securities to be distributed as part of a plan of reorganization; (6) Liaison with the Committee, the Equity Committee, and other parties in interest and their respective professionals regarding plan of reorganization issues and negotiations; (7) Assistance in and advice to the Debtors concerning the terms, conditions and impact of any proposed merger with the Debtors, any acquisition by the Debtors, or any sale of the Debtors or their divisions, subsidiaries or assets, except with respect to any transaction involving Beloit Corporation and/or its divisions, subsidiaries or assets; (8) Assistance in securing senior exit financing for the Debtors' domestic and foreign operations; (9) Provision of expert testimony relating to the foregoing as and when reasonably requested; and (10) Provision of other advisory services, as may be mutually agreed, as to all financial matters concerning the Debtors' obligations under the Bankruptcy Code relative to the execution of the Debtors' chapter 11 cases. The Debtors believe that the Services to be provided by Blackstone, subject to the Court's approval, will not duplicate the services that other financial advisors are already providing to the Debtors in the chapter 11 case. In this regard, Blackstone has agreed to make reasonable efforts to avoid such duplication. The Debtors agree to pay Blackstone, subject final to Court approval: (1) A Monthly Fee of $150,000; (2) A Reorganization Fee equal to 1.0% of the Reorganization Value, less a 50% offset of the Monthly Fees, payable upon consummation of the Debtors' plan of reorganization, but not exceeding the amount of $5,000,000; (3) Reimbursement of all necessary and reasonable expenses. (Harnischfeger Bankruptcy News Issue 21; Bankruptcy Creditors' Service Inc.) INCOMNET: Debtors Respond To Comments of US Trustee --------------------------------------------------- In response to each of the objections of the US Trustee to the Disclosure Statement of Incomnet, Inc. and its debtor affiliate, the debtor has modified the Disclosure Statement to remedy some of the US Trustee's objections. The debtor supports its plan in the face of the US Trustee's objections in the following instances: The debtor states that Reorganized IC may prosecute any potential preference actions involving transfers by IC's parent. Any recoveries from these preference actions will inure to the benefit of general unsecured creditors. Reorganized IC will serve as disbursing agent with respect to the liquidation of IC's parents' assets and the distribution of the proceeds to creditors. IC's employees are intimately familiar with IC's parent's assets and liabilities and it is therefore appropriate to designate reorganized IC as the representative of IC's parent's estate for the purpose of prosecuting the IC's parent preference actions. The debtor also disagrees with the US Trustee's contention that the debtors must take a position as to whether Ironwood is an insider within the meaning of the Bankruptcy Code. The debtor also states that whether Ironwood is an insider may not ever become relevant for plan confirmation purposes. The US Trustee claims that there is no basis for Ironwood to "be deemed to contribute assets of ICC's parent to ICC." However, the debtor states that a creditor is free to share its proceeds with third parties. According to the debtor, the trustee's claim to the contrary confuses estate property and nonestate property. The debtor also states that the plan provides that each holder of a secured claim will be unimpaired and the US Trustee suggests that the plan must separately classify each secured creditor receiving this treatment. The debtor believes that it would be a waste of time and resources. The US Trustee also suggests that the plan inappropriately classifies all of Ironwoods' remaining secured and unsecured claims against IC in a single class, Class 6. KCS ENERGY: Reports Fourth Quarter and Full Year 1999 Results ------------------------------------------------------------- KCS Energy, Inc. (NYSE: KCS) announced financial and operating results for the fourth quarter and year ended December 31, 1999. Commenting on the Company's performance during the year, KCS President and Chief Executive Officer James W. Christmas said, "1999 was a turnaround year for KCS from an operational standpoint. We had solid drilling results, successfully implemented our cost-reduction and property rationalization programs and returned to profitability." Net income for the year ended December 31, 1999 was $4.3 million, compared to a net loss of $296.5 million for the year ended December 31, 1998. Excluding the effect of the 1998 non-cash asset writedowns, 1998 net loss was $8.1 million. EBITDA for the year increased 14% to $95.3 million, reflecting a 10% increase in average realized natural gas and oil prices and lower operating and administrative expenses, partially offset by $1.9 million of restructuring costs. In 54 separate transactions, the Company divested more than one- third of its working interest wellbores, but less than 4% of its reserves. The Company also sold a group of overriding royalties representing approximately 27% of its Volumetric Production Payment (VPP) reserves. In total, the Company sold reserves of 21.7 billion cubic feet equivalent (Bcfe) with net proceeds of $27.7 million. "These non-core property sales have enabled us to reduce debt and sharpen our focus," Mr. Hahne said. In 1999, KCS directed $60 million of available capital to its three core business units -- the Mid-Continent, Onshore Gulf Coast and Volumetric Production Payments. Production in 1999 was lower than 1998 by 1.6 Bcfe, or 2.7%, because of asset sales. As previously announced, KCS is currently in default under its bank credit facilities and its senior and senior subordinated notes, and has been pursuing a financial restructuring transaction which would significantly strengthen its balance sheet. On December 28, 1999, the Company announced that it had reached an agreement on a proposed restructuring with holders of more than two-thirds of the senior subordinated notes and holders of a majority of the senior notes. To effectuate this agreement, the parties agreed that the Company would commence a case under Chapter 11 of the Bankruptcy Code by January 18, 2000. On January 5, 2000, three holders of senior notes filed an involuntary petition for relief against KCS Energy, Inc. (the parent company only) under Chapter 11 of the Bankruptcy Code in the U. S. Bankruptcy Court in Wilmington, Del. On January 18, the Bankruptcy Court signed an order granting KCS relief under Chapter 11 of the Bankruptcy Code. Also on January 18, 2000, each of KCS Energy Inc.'s subsidiaries filed with the Bankruptcy Court voluntary petitions under Chapter 11 of the Bankruptcy Code. On January 18, 2000, the Company also filed a disclosure statement with the Court with respect to a proposed plan of reorganization under Chapter 11 of the Bankruptcy Code. The disclosure statement and plan have been amended in subsequent filings with the Court. A hearing before the Court to consider the adequacy of the disclosure statement is currently set for April 11, 2000. If the Court approves the disclosure statement at the April 11 hearing, or shortly thereafter, the Company intends to promptly begin soliciting votes to accept or reject the plan of reorganization. However, there can be no assurance at this time that the plan of reorganization proposed currently will be confirmed by the Court. KCS is an independent energy company engaged in the acquisition, exploration and production of natural gas and crude oil with operations in the Mid-Continent and Gulf Coast regions. The Company also purchases reserves (priority rights to future delivery of oil and gas) through its Volumetric Production Payment (VPP) program. For more information on KCS Energy, Inc., please visit the Company's web site at http://www.kcsenergy.com. MARINER: Announces Executive Management Changes ----------------------------------------------- Mariner Post Acute Network, Inc. today announced the appointments of C. Christian Winkle to the position of chief executive officer and Michael F. Gries chief restructuring officer, effective immediately. Francis W. ("Butch") Cash will leave the Company March 31, 2000. "Over the past six months, Butch provided critical stability to our Company during a difficult bankruptcy restructuring process and we owe him a tremendous debt of gratitude for his efforts. Today, our priorities focus on maximizing opportunities in our core operations and continuing to provide high quality patient care," said Gene E. Burleson, chairman of the board of directors of Mariner. "This succession represents an affirmation of our high regard for Chris Winkle's operating skills and validation of the procedures Chris put in place when he joined the Company in January 1999. Also, the addition of Mike Gries solidifies our management team. As a founding member of Conway, Del Genio, Gries & Company, Mike was a leader of our restructuring team and brings continuity to our efforts." Before joining Mariner in January, 1999, Winkle, 37, served in several senior management positions at Integrated Health Services. During his tenure, his responsibilities included the management of more than 400 post-acute facilities. Gries served as outside financial advisor to Mariner as a founding member of Conway, Del Genio, Gries & Company, LLC. Mariner Post-Acute Network, Inc, headquartered in Atlanta, Georgia, operates more than 400 skilled nursing, sub-acute and assisted living facilities with approximately 50,000 beds. American Pharmaceutical Services, the Company's institutional pharmacy group, operates approximately 40 institutional pharmacies, serving more than 2,000 facilities, comprising approximately 125,000 beds. In addition, the Company's Specialty Hospital group operates 13 Long-Term Acute Care hospitals in key markets. MEDPARTNERS: Seeks To Extend Time To Assume/Reject Leases --------------------------------------------------------- MedPartners Provider Network, Inc., debtor, seeks an order extending for ninety days, through and including June 6, 2000, the time within which the debtor must assume or reject any and all unexpired leases of non-residential real property wherein the debtor is the lessee including the ground leases at 5000 and 5001 Airport Plaza Drive, Long Beach, California, leased from Long Beach Airport Business Park. Pending court approval of the divestiture of the properties and completion of the debtor's review/assessment of the value of any other leases, and in order to ensure the preservation of potentially valuable assets and the ability to reject major liabilities, the debtor seeks the extension. MICHAEL PETROLEUM: Order Authorizes Use of Cash Collateral ---------------------------------------------------------- A hearing on the second motion of debtors for order authorizing further use of cash collateral and granting adequate protection will be held before the Honorable Wesley W. Steen, US Courthouse, 515 Rust Street, Houston, Texas on April 3, 2000. MITSUI MINING & SMELTING CO.: Speeds Up Debt Reduction ------------------------------------------------------ Mitsui Mining & Smelting Co. (5706) expects to show group interest-bearing liabilities of about 235 billion yen as of March 31, a decline of 56 billion yen from a year ago. This means the nonferrous metal company will have accomplished the debt reduction goal put forth in its current business plan one year earlier than proposed. It hopes to slash debt by another 10 billion yen next fiscal year. The faster reduction is attributed to a rise in free cash flow stemming from the concentration of its resources in the profitable area of electronics materials in earlier years. The company expects to generate free cash flow of 16 billion yen this fiscal year, and these funds are used to repay debt. A gain of some 11 billion yen from the sale of fixed assets will also be used to repay loans. Thanks to its rising share price, the company's convertible bonds have also undergone a wave of conversions, and the combined outstanding balance of bonds issued up to last fiscal year should decline by about 15.3 billion yen. (Nikkei 22-March-2000) MTS INC: Moody's Lowers Ratings ------------------------------- Moody's Investors Service lowered the debt ratings of MTS, Inc. ("Tower"), the wholly owned operating subsidiary of TOWER RECORDS, INC., and of its Japanese subsidiary Tower Records K.K. This concludes the review for possible downgrade started in July, 1999. The following ratings were affected by this action: For MTS, Inc. - Senior implied rating lowered to B2 from Ba3; $125 million senior secured credit facility due 2001 to B2 from Ba2; Senior unsecured issuer rating to B3 from B1; $110 million senior subordinated notes to Caa1 from B2. For Tower Records K.K. - Yen 19,414 million guaranteed revolving credit facility due 2001 to B2 from Ba2. The rating outlook on all debt is stable. The downgrades reflect a continuing weak sales trend in Tower's key U.S. and European markets despite industry-wide growth in sales of entertainment products, indicating deteriorating market share;a high level of fixed costs; delays in implementing systems and operational changes discussed in mid-1999; competition from on-line and traditional retailers; and the expectation that gross margins could remain depressed due to a shift toward lower-margin product mix and selling channels. The ratings continue to reflect Tower's high lease-adjusted leverage and high levels of fixed costs; and potential volatility in margins and top line sales due to competitive factors and availability of new entertainment product. The ratings also consider the benefit of Tower's typical high- cost, high-traffic locations around the world, which create strong name recognition in urban markets; expectations that interest coverage will remain adequate for the near term; the company's continuing importance to vendors in the U.S. and Japan; and the potential for new sales from the introduction of a limited selection of electronic products into the stores. The ratings outlook is stable. Future ratings actions will depend on Tower's ability to stabilize its market position or gain operating efficiencies which would improve profitability and cash flow. The downgrade of the bank facilities recognizes a decline in asset coverage levels as average usage has climbed, as well as the Tower's general deterioration in credit quality. The bank facilities are secured by receivables and inventory, and as such are structurally senior to other obligations. There is no direct borrowing base controlling borrowings. There is an asset coverage covenant requiring a minimum level of asset coverage to borrowings, but Moody's believes this provides only moderate protection to lenders. The banks also benefit from a pledge of 65% of the stock of MTS' foreign subsidiaries. All of the rated debt is guaranteed by Tower's U.S. operating subsidiaries, and the TRKK facility is guaranteed by MTS. The non-U.S. operations, which generate about two-thirds of the company's revenues, do not guarantee the notes. For the near term, Tower has substantial liquidity remaining under bank facilities which total $275 million. The bank lines expire in 2001, however. Based on recent financial performance, Moody's believes the company could come close to the 1.25 times limit of the fixed charge covenant, which could result in a renegotiation of the credit facilities. Tower has failed to achieve expected operating improvements, and has underperformed its peers in terms of same store sales growth during a time of moderate growth in its combined product segments. Moody's believes that entertainment megastores, which sell a relatively high proportion of catalog product to new releases, are more vulnerable to Internet-based competition than mall stores. Gross margin continued its downward trend during the first 6 months of fiscal 2000 (ending July 2000). Moody's expects this trend to continue due to a lower-margin product mix in the Far East, lower vendor discounts in the U.S. due to lower purchasing volumes, and the growth of lower-margin Internet sales. As a result, Tower is not receiving sufficient benefit from sales growth to cover its high fixed costs and e-commerce development expenses. In addition, the company has delayed previously discussed changes in its buying and distribution model which could enhance productivity. Moody's expects gross EBITDA margin (before of foreign currency translation adjustments) for the near future to be at or below last year's levels despite an increase in revenues. Moody's expects EBITDAR to fixed costs will hover at about 1.25 times, and anticipates a potential increase in borrowings to finance capital expenditures, development of Tower's Internet presence, and working capital investments. Investment needs could be reduced if the company decides to withdraw from less productive locations. About two-thirds of Tower's business comes from their overseas operations. Moody's believes that foreign exchange risk is relatively well hedged as a result of the yen-denominated bank line and local sourcing of inventory. MTS, Inc., headquartered in West Sacramento, California, is the primary operating subsidiary of TOWER RECORDS, INC. The company operates about 180 entertainment megastores in the U.S. and around the globe. Revenues were $1,026 million in the fiscal year ended July 1999. OCELOT ENERGY: Changes Name and Moves to Jersey ----------------------------------------------- Ocelot International Ltd. announces that it plans to change its name to PanAfrican Energy Corporation Ltd. with a change to its jurisdiction of incorporation to Jersey in the Channel Islands. The name change reflects the company's primary focus on long life, high margin energy development projects in Sub-Saharan Africa. The change in jurisdiction will simplify the company's administrative structure. The transaction will involve an exchange of the issued share capital for identical shares of the Jersey company and will be effected by a Court approved plan of arrangement and presented to shareholders at a special shareholders meeting to be scheduled in approximately 60 days. The plan of arrangement is also subject to regulatory approval. The company also intends to add a Luxembourg Stock Exchange listing in the near future. Ocelot International Ltd. is an international energy company engaged in the exploration production and marketing of oil, gas and electricity. Ocelot's asset portfolio includes oil production in Gabon and the Democratic Republic of Congo, natural gas development and co-generation projects in Tanzania and Cameroon, together with an oil and natural gas development in Kazakhstan. Ocelot International's Class B subordinate voting shares in Class A common shares are listed for trading in the Toronto Stock Exchange under the symbols OCE.B and OCE.A respectively. PACIFIC INTERNATIONAL: Zaremba Group Agreement Approved By Court ---------------------------------------------------------------- Zaremba Group, LLC's Agreement with Pacific International Enterprises was approved by the Los Angeles Bankruptcy Court on March 22, 2000. This Agreement is for a term of three years and is automatically renewable for successive three year terms. Zaremba will market and resell PIE products; snowboards, wakeboards,skateboards, skiboards, snow and water skis and other sports products. Zaremba will acquire clear title to all existing PIE assets and will lease these assets to PIE at a base rent of $1 per annum. Zaremba has obtained funding in the amount of $7 million that is designated to support PIE's successful emergence from Chapter 11.$450,000 has been earmarked for moving PIE, Inc. to new manufacturing facilities in Southern California, restarting its business operations and funding its administrative expenses that will need to be paid on plan confirmation. Zaremba shall provide interest-free purchase order production financing to PIE during the term of this Agreement. The parties shall use their best efforts to be ready for commencement of operations no later than May 5, 2000. PACIFIC NEVADA: Case Summary and Largest Unsecured Creditors -------------------------------------------------- Debtor: Pacific Nevada Investment Corp. 1101 Las Vegas Blvd Las Vegas, NV 89101 Type of Business: Real Estate Investment Petition Date: March 7, 2000 Chapter 11 Court: District of Nevada Bankruptcy Case No.: 00-11604 Judge: Linda B. Riegle Debtor's Counsel: PRO SE Total Assets: $ 1,350,000 Total Debts: $ 1,040,425 Largest Unsecured Creditors County of Clark $ 12,000 City of Las Vegas $ 8,000 Nevada Power Company $ 2,000 Maintenance Warehouse $ 1,000 Silver State Disposal $ 750 Southwest Gas $ 500 Las Vegas Valley Water $ 50 PHYSICIAN COMPUTER: Seeks Approval of Settlement Agreements ----------------------------------------------------------- The debtors, Physician Computer Network, Inc. and its debtor affiliates seek court approval of the Settlement Agreements with Oracle and GECC, which globally resolve the substantial disputes among the parties. The Oracle settlement provides that PCN will pay and Oracle will accept the amount of $60,922 or less than half of the disputed invoices, which amount will be due on or before May 26, 2000. In addition, the program licenses that were the subject of the invoices will be terminated. The GECC Settlement provides for allowance of a Class 4 claim under the plan in favor of GECC in the amount of $95,000. The proposed allowance represents a more than 60% reduction of GECC's filed claim amount. PRIMARY HEALTH SYSTEMS: Hospital Ordered Reopened ------------------------------------------------- A Cleveland hospital stopped admitting patients as a jointly owned suburban hospital was ordered reopened by a bankruptcy court judge. The one-week reprieve for Mt. Sinai Medical Center-East in suburban Richmond Heights was ordered by U.S. Bankruptcy Court Judge Mary Walrath in Wilmington, Del., where the parent Primary Health Systems Inc. of Wayne, Pa., is trying to reorganize its finances. Judge Walrath said closing the hospital could hurt chances to find another buyer. University Hospitals Health System of Cleveland has offered $10 million for Mt. Sinai-East and St. Michael Hospital in Cleveland. James Ricciardi, an attorney for PHS, told the judge that Mt. Sinai-East barely had enough cash to make its payroll and couldn't guarantee the safety of patients because so many employees have already left. Ricciardi said the order keeping Mt. Sinai-East open could kill a $62.7 million deal with the Cleveland Clinic. Under the terms of the deal, which the court must review, the Clinic agreed to buy the two hospitals only if they are closed. Walrath was expected to hear a motion today for an order directing the reopening of St. Michael, which stopped admitting patients on Wednesday and ordered its emergency room closed by Friday. PHS announced two weeks ago that it would close St. Michael by the end of the month and sell it to the Cleveland Clinic Foundation. Under pressure from the city, PHS later agreed to convert part of St. Michael into a nursing home and to open a medical clinic at the location. The City Council and community leaders have been trying to find an alternative to closing St. Michael, which serves the city's Slavic Village neighborhood alongside Interstate 77, and Mt. Sinai-East. PHS, trying to resolve its financial problems in bankruptcy court, said the plans for St. Michael reflected its attempt to balance financial problems and the community's medical needs. SHOE CORP: Seeks To Extend Time to Assume/Reject Leases ------------------------------------------------------- Shoe Corporation of America, Inc. seeks an order further extending for an additional 60 days, up to and including June 8, 2000, the time within which the debtors must assume or reject their unexpired leases of nonresidential real property. There is one unexpired lease to which the debtor is a party, and it is an integral part of the remainder of the liquidation being conducted by the debtors. An ultimate decision with regard to the lease has not yet been made and the debtors need to complete the liquidation process and to assess the value or potential marketability of the unexpired lease and make determinations with respect to whether the unexpired leases should be assumed and assigned, or ultimately rejected. The debtors believe this process can be accomplished in the next 60 days. STAR NEWCO: Seeks Authority For Second Employee Severance Program ----------------------------------------------------------------- The debtor, Star Newco, Inc. seeks an order authorizing and approving the second employee severance program. A hearing on the motion will be held before the Honorable Mary F. Walrath on April 4, 2000 at 10:30 AM. In connection with its core business, the debtor believes that it is crucial to provide Mitch Hall, the most important employee in its sales force with incentives to ensure that he remains with the debtor during the period following the Asset Sales. The debtor seeks approval of a one time $20,000 payment and continued medical benefits for six months. ********* 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. All rights reserved. ISSN 1520-9474. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. The TCR subscription rate is $575 for six months delivered via e-mail. Additional e-mail subscriptions for members of the same firm for the term of the initial subscription or balance thereof are $25 each. 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