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/raid1/www/Hosts/bankrupt/TCR_Public/010103.MBX T R O U B L E D C O M P A N Y R E P O R T E R Wednesday, January 3, 2001, Vol. 5, No. 2 Headlines ANICOM INC: Shareholders Seek Damages for April-to-July Purchases APPLIED MAGNETICS: Court Establishes March 5 Bar Date BETHLEHEM STEEL: Moody's Drops Rating to B1 & Says Outlook is Negative BRADLEES, INC: Outlines Payment & Return Rules Liquidators will Follow CORAM HEALTHCARE: Confirmed Plan Converts $122 Million of Debt to Equity DORSEY TRAILERS: Negotiates for Extension of Cash Collateral Agreement DRYPERS CORPORATION: Court Approves $70.2 Million Sale to Paragon FINOVA GROUP: Warren Buffet Buys Junk Bonds for Millions, Paper Says INTERNET SPORTS: Unable to Secure New Financing, Operations Halt LERNOUT & HAUSPIE: Proposes New Employee Benefit Program LTV CORPORATION: Judge Bodoh Approves Debtors' First Day Motions LTV CORPORATION: Cleveland-Cliffs Waits for Effects of LTV Actions METAL MANAGEMENT: Nasdaq Delists Common Stock from Small Cap Market MIDLAND FOOD: Employs PricewaterhouseCoopers as Accountants MONTGOMERY WARD: Little Will be Worth Salvaging, Analysts Say MONTGOMERY WARD: GE Capital Sees "No Material Effect" on Earnings PACIFIC GAS: Bad Credit Makes February Supplies Uncertain PACIFIC GAS: Has 3 to 7 Weeks of Cash Left, Spokesman Says PACIFIC GATEWAY: Files for Chapter 11 Protection in San Francisco PINACLE BRANDS: Resolves Disputes With San Jose Sales SPREE.COM: Asset Sale Set for $615,000, Subject to Higher Offers STAGE STORES: Closes 121 More Stores in 14 States SUN HEALTHCARE: Committee & Lenders Decry Need for an Examiner T&W FINANCIAL: Confirmation Hearing on Liquidating Plan Set for Jan. 24 US AIRWAYS: Moody's Review Flies in an Uncertain Direction ********* ANICOM INC: Shareholders Seek Damages for April-to-July Purchases ----------------------------------------------------------------- A consolidated complaint has been filed in the Anicom Securities Class Action, pending before Judge John Darrah of the U.S. District Court in Chicago. The present defendants include Anicom Inc. (NASDAQ:ANIC) and several former individual officers and/or directors of Anicom, including Scott Anixter, Alan Anixter, Carl Putnam, and Don Welchko. The case involves, among other things, Anicom's recent admission of an overstatement of net profits and revenues of at least $35 million over a period of just over two years. There are approximately 25 million common shares of Anicom stock outstanding. Many may have been purchased during the class period. Anicom has just issued a press release stating that it does not now expect Anicom shareholders who continue to hold Anicom common stock to receive any of the proceeds from an anticipated bankruptcy. (See Dec. 22, 2000 Anicom press release.) This lawsuit seeks damages for those who purchased during the class period of April 29, 1998 through July 18, 2000. Judge Darrah has appointed Kenneth McNeil and the law firm of Susman Godfrey LLP in Houston, Texas, as lead counsel in this class action. The law firm of Susman Godfrey has played a leadership role in a number of class actions. Liaison counsel in Chicago is Foley & Lardner, represented by Doug Hagerman. Assisting trial counsel is Lynn Sarko and the law firm of Keller Rohrback in Seattle, Washington. Special advisory counsel on the matter is the law firm of Wolff Popper in New York City. Lead plaintiff in the case is the State of Wisconsin Investment Board. Inquiries about the case should be directed to 800/776-6044, or any of the following: Kenneth McNeil, Esq. -- Lead Counsel Susman Godfrey LLP 1000 Louisiana, Suite 5100 Houston, TX (713) 653-7814 Doug Hagerman, Esq. -- Liaison Counsel Foley & Lardner One IBM Plaza, Suite 3300 330 North Wabash Avenue Chicago, IL 60611 (312) 755-1900 Lynn Sarko -- Assisting Trial Counsel Keller Rohrback LLP 1201 Third Avenue, Suite 3200 Seattle, WA 98101 (206) 623-1900 APPLIED MAGNETICS: Court Establishes March 5 Bar Date ----------------------------------------------------- The U.S. Bankruptcy Court for the Central District of California, Santa Barbara Division, directs that creditors of Applied Magnetics Corporation, must file their proofs of claim by March 5, 2001. Applied Magnetics filed for chapter 11 protection nearly a year ago. The case number is ND 00-10066 RR. Theodore B. Stolman, Esq., as Stutman, Treister & Glatt represents the Company. BETHLEHEM STEEL: Moody's Drops Rating to B1 & Says Outlook is Negative ---------------------------------------------------------------------- Moody's Investors Service downgraded the ratings of Bethlehem Steel Corporation (senior implied to B1 from Ba3). The downgrade is based on the impact of steel market conditions on operating performance, projected weakness in debt protection measurements, the ongoing use of funds for shareholder enhancement activities, and limited prospects for a near-term recovery in steel prices. The rating also considers the company's position in the domestic integrated steel sector, ongoing cost reduction and quality improvement efforts, available near-term liquidity, and a growing proportion of value-added shipments. The rating outlook is negative. Ratings downgraded are: Bethlehem Steel Corporation: * senior implied rating to B1 from Ba3, * debentures and notes (including assumed obligations of Lukens, Inc.) to B2 from Ba3, * preferred stock to "caa" from "b2", * inventory secured bank credit agreement to Ba3 from Ba2. Domestic steel producers have faced extremely difficult market conditions during 2000. Prices have declined sharply in the past six months. Imports are approaching the record level seen only two years ago. Inventories throughout the supply chain are high. Finally, industrial demand shows signs of weakness. Not surprisingly in this environment, the industry's operating performance has been dismal, and credit quality has suffered. Bethlehem's performance thus far in 2000 has mirrored industry trends, with operating margins declining from a slim 2.4% in the second quarter to a negative 2.5% in the third. Debt protection measures have also weakened. EBITDA interest coverage was approximately 4x in the first half of 2000, but only 1.4x in the third quarter. Given a further decline in pricing in the fourth quarter, this measure could approach breakeven. The outlook for pricing going into 2001 is also clouded. While prices appear to have bottomed out, there are no signs that ongoing inventory reduction, production curtailments and import reductions will improve prices in the near term. Combined with potential demand weakness from slowing economic activity, the prospects for improvement in prices in the first half of 2001 are slim. Moreover, contractual prices are expected to decline by at least 1-2% next year. Bethlehem is addressing these market issues by reducing costs and curtailing capital expenditures. Already-announced personnel reductions, selective process improvement investments and completion of the Sparrows Point cold mill project should improve product quality and reduce costs, while capital expenditures will decline toward maintenance levels. These measures, combined with available cash and availability under the company's credit facilities, should provide sufficient liquidity in the near term. However, the company is pursuing additional share repurchases which will utilize a portion of available funds. The two notch downgrade for Bethlehem's unsecured debt reflects additional notching relative to the senior implied rating given the company's proportion of secured debt and the outlook for debt protection measures given the trends in market conditions. Bethlehem Steel Corporation, headquartered in Bethlehem, Pennsylvania, is the second largest U.S. steel producer. Revenues were $3.9 billion in 1999. BRADLEES, INC: Outlines Payment & Return Rules Liquidators will Follow ---------------------------------------------------------------------- Bradlees, Inc. issued a statement last week giving customers the payment and merchandise return rules that will be followed during the Going Out of Business Sales being run by a joint venture comprised of Gordon Brothers Retail Partners LLC, The Nassi Group, LLC, The Ozer Group, LLC, Hilco Trading Company, Inc., and Garcel, Inc. d/b/a Great American Group: * effective December 30, 2000 the Company will continue to honor Bradlees cash cards in all stores for a period ending January 15, 2001 at the close of business; * the Company will honor merchandise exchanges of non-defective merchandise during this same period; * exchanges will only be honored for merchandise purchased prior to December 26, 2000. * all merchandise exchanges must be accompanied by the original receipt. "[A]s a result of the change in policy, there is no need for customers to file creditor claims to the extent that they take advantage of this opportunity . . . although customers may assert claims in the Chapter 11 cases," Bradlees explained. Bradlees, Inc. announced on December 26, 2000 that it had filed for protection pursuant to Chapter 11 of the United States Bankruptcy Code in order to conduct an orderly liquidation of its business and sale of its assets. The Company expressed apologies to customers for the inconvenience it had caused while initially trying to balance the interests of all of the Company's creditors. In its petition, the Company cited a general economic downturn, including rising interest rates and higher gas and heating oil prices, as factors which have reduced the disposable income available to Bradlees' core customers. In addition, the filing stated that new competition, unseasonable weather in the first half of 2000, and more recently, the tightening of trade credit and curtailment of inventory shipments had an adverse affect on the Company's ability to continue to operate. Bradlees operates 105 stores and three distribution centers in seven Northeast states with sales of $1.5 billion in 1999. Bradlees offers an assortment of merchandise focused on basic and casual apparel, basic and fashion items for the home, and commodity and convenience products. The Company employs approximately 9,800 employees. CORAM HEALTHCARE: Confirmed Plan Converts $122 Million of Debt to Equity ------------------------------------------------------------------------ Judge Mary Walrath of the U.S. Bankruptcy Court for the District of Delaware approved Denver-based Coram Healthcare Corporation and Coram Inc's request to allow note holders to convert about $122 million of the principal and unpaid accrued interest of their Series A and B notes into preferred stock, Primezone said. The preferred stock, which subject to the court's approval may be restructured under a plan of reorganization, will pay a cumulative compounding annual dividend at 15% payable quarterly in arrears. Payments made before the reorganization will be made in additional shares of preferred stock, while those made after the effective date will be made in cash or in shares of common stock equal to the fair market value of the dividend payment, Primezone said. The stock will be subject to the same covenants as Coram's A and B notes. Holders of the stock will have 47.5% of voting rights and may select at least 3 of 7 members of Coram Inc's board of directors, but stockholders have agreed to suspend their corporate governance rights while the Chapter 11 process is going on. The company's remaining Series A and B notes, worth about $136 million, will have an annual interest rate of 9% payable quarterly and will reflect an amended maturity date of June 30, 2001. Walrath has also extended Coram's exclusive right to submit a plan of reorganization to the Court for 90 days. Coram Healthcare Corporation chairman, president and CEO Daniel D. Crowley said, "We are very pleased with these timely decisions. This will allow us to work on the debt restructuring process in an orderly fashion." He also said that Coram's operating subsidies were generating adequate cash flow and were meeting all obligations to patients, vendors and employees. Coram, which provided quality home infusion therapies and support for clinical trials, had sought voluntary Chapter 11 protection on August last year with the U.S. Bankruptcy Court for the District of Delaware. It had debts of $251 million. DORSEY TRAILERS: Negotiates for Extension of Cash Collateral Agreement ---------------------------------------------------------------------- As previously announced on December 5, 2000, Dorsey Trailers, Inc. (OTC Bulletin Board: DSYT) filed a voluntary petition for Relief under the provisions of Chapter 11 of the U.S. Bankruptcy Court for the Middle District of Alabama, Montgomery, Alabama (Bankruptcy Case No. 00-6792- WRS). Chapter 11 allows the Company to remain debtor-in-possession of its assets and business while being subject to the supervision and orders of the Bankruptcy Court for certain transactions or actions. Pursuant to the Bankruptcy Code, the Company, as debtors and debtors-in- possession, will continue to manage and operate the assets and business, pending the confirmation of a plan of reorganization and subject to the supervision and orders of the Bankruptcy Court. Since filing for bankruptcy, the Company has entered into successive two-week agreements with Foothill Capital Corporation, the lender under the Company's existing working capital credit facility for use of cash collateral to fund on-going operations. The current agreement is limited in duration until January 3, 2001. Management of the Company and its representatives are currently negotiating with Foothill Capital Corporation for an extension of the cash collateral agreement. No assurances can be given that the Company and its representatives will be successful in obtaining approval for the extension of the cash collateral agreement. Marilyn R. Marks, Chairman of the Board of Directors of the Company issued the following statement: "As we begin the process of complying with the requirements of the Bankruptcy Code under Chapter 11, it has become clear to the Company that if there is no approved plan of reorganization in which the Company continues as an ongoing operation thus requiring a sale of the assets of the Company, it is unlikely that the Company will be able to obtain a true market value for the Company's assets due to the severe downturn in the trailer manufacturing industry. Accordingly, the proceeds from a sale of the assets of the Company after payment of secured creditors and administrative claims would not be sufficient to satisfy all of the unsecured creditors of the Company. As such there would be nothing available for the distribution to the Company's stockholders. Dorsey Trailers, Inc. -- http://dorseytrailers.com-- was in the business of designing, manufacturing, and marketing one of the broadest lines of high quality, customized truck trailers through three plants located in Alabama, Georgia, and South Carolina. DRYPERS CORPORATION: Court Approves $70.2 Million Sale to Paragon ----------------------------------------------------------------- Drypers Corporation (OTC Bulletin Board: DYPR) received approval from the United States Bankruptcy Court for the Southern District of Texas for Paragon Trade Brands, Inc. (OTC Bulletin Board: PGTR) and/or its nominees or business affiliates to be the stalking horse bidder for the sale or other acquisition of Drypers' business. The proposal approved by the Court calls for an acquisition price of $70.2 million, which is comprised of $62.1 million in cash and the assumption of an estimated $8.1 million of subsidiary debt. The Court also approved Paragon to be the lender in connection with a proposed additional $5 million postpetition credit facility. Additionally, the Company received approval of certain bidding procedures for the sale of its business and retention plans for non- executive and executive employees. The bidding procedures approved by the Court will govern the timing and consideration of competing bids for the business of Drypers or discrete parts thereof. Pursuant to the Bankruptcy Court's approval, Paragon will have until January 12, 2001 to complete its limited confirmatory due diligence and to sign definitive agreements. Drypers Corporation -- http://www.drypers.com-- manufactures and markets premium quality disposable diapers and training pants under the Drypers(TM) brand and is a major provider of private label disposable baby diapers and training pants. Drypers Corporation is committed to the development of value brands and to building lasting global brand equity through product innovation and differentiation in a vital category. Headquartered in Houston, Texas, the Company operates in North America, Latin America, Southeast Asia, and other international markets. FINOVA GROUP: Warren Buffet Buys Junk Bonds for Millions, Paper Says ------------------------------------------------------------------ Paul M. Sherer and Devon Spurgeon writing for The Wall Street Journal, relate that billionaire Warren E. Buffett has turned his attention to the battered junk-bond market. Specifically, through his Berkshire Hathaway Inc. investment vehicle, Mr. Buffett has recently paid several hundred million dollars to buy the junk bonds of Finova Group Inc. Finova, the Scottsdale, Ariz., commercial lender, recently announced it had signed a securities-purchase agreement with Leucadia National Corp. under which New York-based Leucadia would invest as much as $350 million in Finova in return for voting control of the company. The Leucadia deal is subject to Finova restructuring its bank and public debt outstanding. Finova said a debt restructuring was necessary "to avoid the possibility of reorganization under protection of the courts." Finova, with $6.3 billion in bonds and $4.69 billion in bank debt, has $1.6 billion of principal payments due in May 2001. Though Mr. Buffett's purchases were made before Leucadia stepped in, the Journal reporters note, he may now be in a position to affect Leucadia's deal, explaining that the proposed restructuring must be approved by two-thirds of the bondholders and all of the bank lenders. Mr. Buffett hasn't spoken to Finova about his actions or intentions, according to people familiar with the situation. Market watchers tell the Journal that Leucadia will face an uphill battle getting the unanimous approval it needs from the banks. There has been heavy trading in Finova bonds in recent months, particularly in Finova's benchmark $1.1 billion 7.25% bond maturing in 2004, with a number of distressed-debt investors taking positions. One distressed-debt investor who owns some Finova bonds, which are now trading at about 59 cents on the dollar, figures that in a liquidation bondholders could recover more than 80 cents on the dollar, though he thinks a restructuring is more likely. INTERNET SPORTS: Unable to Secure New Financing, Operations Halt ---------------------------------------------------------------- J. Thomas Murray, President and CEO of Internet Sports Network, Inc. (OTCBB:ISPS), announced that the Company failed to secure additional funding and therefore will be ceasing operations effective immediately. As previously disclosed in the Company's Form 10-Q for the quarter ended September 30, 2000 filed with the SEC on November 20, 2000, the Company had been in default with three loans, its promissory note and its Series 1 convertible debentures since the quarter ending June 30, 2000. The Company previously stated in such Form 10-Q that it would need to cease operations and seek protection under federal bankruptcy laws if the Company was unable to obtain equity or debt financing or generate additional cash through the sale of assets by November 30, 2000. The Company was unable to obtain funding through any of these three sources. As a result, the Company was forced to release all employees on December 21, 2000. J. Thomas Murray will continue to serve as the Company's Chief Executive Officer and will supervise the analysis of the Company's financial position and implementation of subsequent action plan. LERNOUT & HAUSPIE: Proposes New Employee Benefit Program -------------------------------------------------------- Lernout & Hauspie Speech Products and Dictaphone Corporation have presented a Motion to Judge Wizmur seeking an Order freezing the existing Dictaphone Pension Plan, and implementing a new employee benefit program. The L&H Group offers its employees various benefits in addition to salary, including, but not limited to, medical benefits, dental benefits, life insurance, accidental death and dismemberment insurance, short-term disability, long-term disability, tuition reimbursement, flexible spending accounts and 401(k) plans. In an effort to decrease the economic and administrative burdens associated with offering the employee benefits, the L&H Group decided in October 2000, and notified its employees at the same time, that it would offer a new program which modifies the terms and conditions of the existing employee benefits and makes such programs more uniform throughout the L&H group. The current employee benefits programs cost approximately $15.7 million per year. The new benefits program will save the L&H Group an estimated $600,000 in gross costs on medical and dental alone. The Debtors intend to offer the new benefits programs to its employees beginning on or after January 1, 2001. The existing benefits programs have been cancelled and will expire on December 31, 2000. If the new program is not implemented, the L&H Group's employees could be left without coverage. Although the L&H Group believes that the implementation of the new benefits program is a transaction in the ordinary course of its business, the L&H Group nonetheless seeks judicial review and approval of these changes. The changes are described below: (a) Medical Benefit Program. Eligibility: First of month following date of hire; if hired on the first day of the month, employee is eligible on that date. This program is for active, regular, full-time employees who work 30 or more hours per week. Plan Administrator: Blue Cross/Blue Shield of Massachusetts Preferred Provider: a) In network and out-of-network benefits b) No deductible for in-network c) $10 co-pay for doctor's office visits d) $50 emergency room visit (waived if admitted) e) $250 out-of-network deductible per covered person (not to exceed $500 per family) Vision Service: a) One routine exam each year b) Discounts on eyewear Fitness Reward Program: Reward toward membership at any health club Prescription Drugs a) $5 generic b) $10 brand name c) Mail order program available Employee Contribution (monthly) a) $29.10 employee only b) $58.05 employee plus one c) $87 family (b) Dental benefit program Plan administrator: Metlife Deductible: a) $50 individual annual deductible b) $150 maximum family annual deductible c) $1,500 calendar year maximum Employee Contribution (monthly) a) $4.42 employee only b) $9 employee plus one c) $13.95 family (c) Life and AD&D Insurance: Plan administrator: Fortis Benefits Insurance Co. Life: One times base earnings to a maximum of $150,000 (minimum $50,000). AD&D: Matching coverage for employee by company Employee Contribution (monthly): None; entire cost paid by company. (d) Supplemental Life Insurance: Plan Administrator: Fortis Benefits Insurance Co. Coverage: Up to five times base salary (not to exceed $500,000). Guaranteed amount: $150,0000 (proof of good health required for additional amounts) Three-year limit on portability for employees or dependents with conversion option at end of three-year period. Coverage available for spouse and dependents. Employee Contribution (monthly): Entire cost to be paid by employee. (e) Supplemental AD&D Insurance Plan Administrator: Fortis Benefits Insurance Co. Benefits: Up to five times base salary (not to exceed $500,000) Employee Contribution (monthly): Entire cost to be paid by employee. (f) Short-term Disability Program: Eligibility: After 6 months of continuous service; includes non-work related illness or injury. Benefits: Payments of 66-2/3% of base salary up to $1,000 per week, starting on 8th day of disability and up to13 weeks with medical certification. Employee Contribution (monthly): Entire cost to be paid by company. (g) Long-term Disability Program: Plan Administrator: Fortris Benefits Insurance Co. Benefits: Starts 91st day of disability; 60% of base salary up to $7,500 per month. Employee Contribution (monthly): Entire cost to be paid by company. (h) 401(k) Plan: Eligibility: First month following 30 days of continuous service. Plan Administrator: Fidelity Benefits: Pre-tax savings up to 15% of yearly salary; company match is 50% of first 6% of savings. Vesting is 100% after two years, 0 if employment terminated prior to two years. (i) Tuition Reimbursement Program: Eligibility: After 90 days of continuous service. Benefits: Up to 100% of tuition costs (based on grades) and payment of other costs, such as parking, lab and registration fees, for up to two courses per semester, with reimbursement up to $5,250 or IRS limit, whichever is higher. Any reimbursement made during prior 12-month period is repayable upon employee termination. Reimbursement for graduate studies is taxable. (j) Vacation Days: Eligibility: For full-time employees, prorated at 1.25 days per month for the first calendar year; part-time employees prorated based on hours worked per week. Benefits: Based on 40-hour week, 15 days during 2d to 4th calendar years; 5+ years earns 20 days. Up to five days may be carried over to the following period. No vacation day payouts for unused vacation days during the year, or for carryovers upon termination. (k) Flexible Spending Accounts: Eligibility: First of month following date of hire. Plan Administrator: Cafeteria Plan Advisors Benefits: Healthcare FSA - $3,000 annual maximum; dependent care FSA - $5,000 annual maximum. Employee Contribution (monthly): equal amounts deducted from employee's paycheck. The Debtors noted that only Dictaphone offered a pension plan, while L&H and L&H Holdings do not. As part of the new benefits program, the L&H Group seeks to freeze the pension plan offered by Dictaphone as of January 1, 2001. Specifically, the Debtors do not propose to modify the terms of the existing Dictaphone Plan, but instead have asked that the Court permit them to freeze the Plan with respect to the number of participants in the plan, and the benefits which have accrued under the plan. Existing participants still will be eligible to receive benefits as early as age 55, or at normal retirement, as currently provided under the plan, and their years of service still will count toward early retirement eligibility. For participants who have not vested, years of service still will count toward vesting. The Debtors have represented that freezing the Dictaphone Pension Plan could product an estimated savings of $1.8 million per year. At the same time, the Debtors will improve the existing 401(k) plan for all employees, which would include Dictaphone employees. In drafting the new benefits program, the Debtors compared the previous benefits offered by each Debtor and attempted to strike a balance between refining the terms and conditions of the employee benefits to meet the individual requirements of the Debtors, while concomitantly making the employee benefits more uniform in an effort to lower costs. (L&H/Dictaphone Bankruptcy News, Bankruptcy Creditors' Service, Inc., 609/392-0900). LTV CORPORATION: Judge Bodoh Approves Debtors' First Day Motions ---------------------------------------------------------------- The LTV Corporation (NYSE: LTV) received Court approval last week of an interim order authorizing LTV use of its cash collections from accounts receivable and to obtain post-petition financing. This cash will allow LTV to maintain normal operations of LTV Steel, VP Buildings and LTV Copperweld. The Company will pursue post petition Debtor-in-Possession financing immediately. The Court also approved LTV's requests to honor all current hourly and salaried employee paychecks, expense checks and health benefit claims. Retiree health care benefits continue. "We are very encouraged by the Court's approval of this order and our first day motions. We now have the funds to continue the normal operation of our businesses and develop of a restructuring plan that will result in a viable, successful LTV," said William H. Bricker, LTV's chairman and chief executive officer. Bricker said that LTV's businesses were operating as usual, producing and delivering high quality products to its customers throughout North America. The Company is continuing talks with the United Steelworkers of America, as well as elected federal, local and state legislators to find a solution to the high fixed costs that threaten its survival in this import-saturated market. In addition, the Company made a formal request of both the Clinton and Bush administrations to address the inadequate enforcement of the foreign import laws. LTV CORPORATION: Cleveland-Cliffs Waits for Effects of LTV Actions ------------------------------------------------------------------ Iron ore producer Cleveland-Cliffs Inc. said Friday the effect of Cleveland-based steelmaker and metals fabricator LTV Corporation's bankruptcy filing will depend on "specific actions undertaken by LTV," Reuters reports. Cleveland-Cliffs said it expects LTV, which had filed for bankruptcy under Chapter 11, to be a major customer this year and beyond. The 2 companies had signed a multi-year sales contract early last year. Cleveland-Cliffs chairman and CEO John Brinzo told Reuters, "There are substantial contractual obligations and management relationships between Cliffs and LTV. At this time, it is premature to speculate on the impact on Cliffs or the Empire Mine." LTV has a 25% stake in the Cliffs-managed Empire Mine in the Upper Peninsula of Michigan. Brinzo said that non-performance by LTV on its obligations could have "a significant impact" on Cliffs and/or the Empire Mine. METAL MANAGEMENT: Nasdaq Delists Common Stock from Small Cap Market ------------------------------------------------------------------- Metal Management, Inc. (Nasdaq Smallcap: MTLM), announced that it has been notified by the Nasdaq Stock Market that it has delisted the Company's common stock from the Nasdaq Smallcap Market effective immediately. The Company is currently operating its business as a debtor-in- possession under Chapter 11 of the United States Bankruptcy Code. Upon confirmation of the Company's plan of reorganization, the post- bankruptcy Company intends to apply for listing of its new common stock on the Nasdaq Stock Market or other national stock exchange. MIDLAND FOOD: Employs PricewaterhouseCoopers as Accountants ----------------------------------------------------------- Midland Food Services, L.L.C., sought and obtained Judge Walrath's permission to employ PricewaterhouseCoopers, LLP, as its accountants during the course of its chapter 11 restructuring. James E. Wilcosky is the PwC partner leading the engagement. In her written order, Judge Walrath directs that "PricewaterhouseCoopers shall keep proper time records to be submitted with any application for compensation in accordance with the provisions of the Meade Land & Development Company decisions, 527 F.2d 280 (3d Cir. 1975) and 577 F.2d 858 (3d Cir. 1978) and rules of this Court." Judge Walrath's order gives no reasons for this unusual language. MONTGOMERY WARD: Little Will be Worth Salvaging, Analysts Say ------------------------------------------------------------- Analysts and retailers say there will be little left to salvage of Chicago-based 128-year-old department store operator Montgomery Ward, which announced Thursday that it would cease operating. Monica Summers, writing for Reuters, said stores in prime locations may find retailers who are willing to take on their leases or hire small groups of staff. But the future does not appear to be that bright. As Barnard's Retail Trend Report president Kurt Barnard puts it, "I wouldn't put $5 down for Montgomery Ward. You would inherit nothing but monumental headaches." He said however that sites in good locations may "ultimately be parceled out to other retailers." General Electric Co.'s financial services arm GE Capital, which owns the store group, had announced that it was pulling back on funding for Montgomery, prompting the announcement Thursday last week from Montgomery that it would file for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code for the 2nd time in 3 years. Montgomery blamed weak holiday sales and a difficult U.S. retail environment, which may be due in part to tough competition from the likes of Sear Roebuck & Co., J.C. Penney Co. Inc, and Wal-Mart, for the decision. Montgomery is immediately cutting 450 jobs from its national headquarters. It plans to close down 250 retail stores and 10 distribution centers in the next 6 months, which will affect 28,000 store staff. Merrill Lynch analyst Peter Caruso said home electronics and entertainment retailers such as Best Buy Co., Inc. and Circuit City Stores, Inc. will benefit from Montgomery's exit, Reuters said. "Now, Best Buy and Circuit City will be able to recoup some of their losses in regions that are losing Montgomery Ward stores," he said. MONTGOMERY WARD: GE Capital Sees "No Material Effect" on Earnings ----------------------------------------------------------------- General Electric Co financial services arm GE Capital says it sees no material effect on its earnings from Montgomery Ward's recent bankruptcy filing. In a prepared statement, GE Capital said, "With our company-wide strength and the previously disclosed one-time gain from the PaineWebber transaction, today's filing by Montgomery Ward of a voluntary petition for Chapter 11 protection will have no material effect on GE Capital Services' ability to meet our anticipated earnings. We are on plan to achieve our numbers." PACIFIC GAS: Bad Credit Makes February Supplies Uncertain ---------------------------------------------------------- Company spokesman Ron Low revealed that between 15 to 20 suppliers to Pacific Gas and Electric, which Standard & Poor's last week indicated was one of two California utilities that risked running out of cash "within a matter of weeks", have declined to sell to the utility unless payment is made up front, Reuters reports. S&P had also warned to downgrade debt ratings to junk status unless urgent action was taken. "The month of January we have enough natural gas... to meet customer needs. For February the question is whether suppliers will continue to sell to us because of creditworthiness," Low said. The disclosure was made at a hearing called by the California Public Utilities Commission which is investigating whether utilities should be allowed to raise electricity rates. The commission is due to remove a rate freeze on the price of electricity billed to consumers and decide on the increase in the rates tomorrow, January 4. Utilities have been pushed to the point of bankruptcy by the price freeze which has not allowed utilities to pass on to consumers power costs, which as of November last year had reached $7.7 billion, comprising $3.2 billion for Southern California and $4.5 billion for Pacific Gas and Electric. Southern California is a unit of Edison International (EIX.N), while Pacific Gas is a subsidiary of PG&E Corp (PCG.N). The California Public Utilities Commission is holding the hearings in preparation for a meeting on January 4 when they are expected to lift the price freeze and decide the level of any increase in electricity rates. Low said Pacific has 2.1 billion cubic feet of natural gas in storage and in pre-purchased long-term contracts per day for the month of January, and noted that average usage is predicted at 1.5 billion cubic feet per day. PACIFIC GAS: Has 3 to 7 Weeks of Cash Left, Spokesman Says ----------------------------------------------------------- Pacific Gas and Electric spokesman Ronald Low said the utility company has "virtually exhausted our ability to borrow money. We have 3 to 7 weeks of cash available." Pacific is one of California's two biggest utilities and is seeking to implement massive price increases for electricity it supplies to consumers, saying that the rate hikes are needed to stave off bankruptcy, Reuters said. Pacific is working for a rate hike of 26% while Southern California Edison is asking for 30%. At a California Public Utilities Commission hearing Friday, Pacific Gas and Electric director of business and financial planning Walt Campbell said, "The utility is in dire financial straits." Consumer groups have however voiced skepticism. Consumer advocacy group Office of Ratepayer Advocates regulatory analyst Robert Kinosian said, "We don't think they're in nearly the financial difficulty that they portray themselves to be." Consumer group The Utility Reform Network senior attorney Mike Florio cautions about passing costs directly to California consumers, saying, "It will bankrupt the whole state." He noted that Pacific was trying to separate itself from its holding company which was in better shape. "They are in a pretty tight spot... but they are pulling up the drawbridge at the holding company," he said. Pacific's holding company is PG&E Corp, which spends $35 million a year on de-commissioning nuclear facilities, an overfunded area according to Kinosian. PACIFIC GATEWAY: Files for Chapter 11 Protection in San Francisco ----------------------------------------------------------------- Pacific Gateway Exchange, Inc. (Nasdaq: PGEX) filed a voluntary Chapter 11 petition with the U.S. Bankruptcy Court for the Northern District of California, San Francisco Division. The Chapter 11 case has been assigned to the Honorable Dennis Montali, United States Bankruptcy Judge. The Board of the Company determined that it was in the best interests of the Company and its constituents that this action be taken. The Company is in discussions with Bank of America and Bankers Trust Company, its current lenders, regarding a debtor in possession financing arrangement and hopes to finalize such financing and seek Bankruptcy Court approval for the financing within the next few days. The Company is represented in connection with its Chapter 11 case by Klee, Tuchin, Bogdanoff & Stern and Pachulski, Stang, Ziehl, Young & Jones. PINACLE BRANDS: Resolves Disputes With San Jose Sales ----------------------------------------------------- Prior to its chapter 11 filing in Wilmington, San Jose Sales & Distribution, Inc., Fourth-N-Goal Sportscards, Inc., and Gary Brison sued Pinnacle Brands, Inc., and Pinnacle Trading Card Company in a Texas state court and in a California federal court. San Jose sought millions. The allegations of wrongdoing ranged from simple claims on account to complex antitrust issues. Pinnacle filed counterclaims alleging its own litany of misdeeds. Pinnacle wants millions in return. To resolve the morass of litigation, Mitchel H. Perkiel, Esq., at Kay, Scholer, Fierman, Hays & Handler, LLP, counsel to Pinnacle explains to the Bankruptcy Court, Pinnacle and San Jose undertood extensive negotiations. Those efforts culminated in agreement for each patry to exchange a mutual release with every other party and voluntarily dismiss all litigation. Pinnacle is convinced that this is the best course of action and asks Judge Walrath for her stamp of approval on a settlement agreement memorializing this compromise and settlement of these litigation claims. SPREE.COM: Asset Sale Set for $615,000, Subject to Higher Offers ---------------------------------------------------------------- Having called it quits and joining the trail of failed dot.com ventures, Spree.com Corporation is selling its assets at auction in the U.S. Bankruptcy Court in Philadelphia. Subject to higher and better offers and further subject to Bankruptcy Court approval, BTF PA Corp. has a $615,000 offer on the table. Pursuant to various sale procedures established by Judge Sigmund, competing bids must start at $690,000 and the auction will be conducted in $50,000 bidding increments. Provided that a final bid exceeds the amount owed to Spree's DIP Lender by more than $100,000, BTF will collect a $50,000 break-up fee if its bid is topped. Michael H. Reed, Esq., of Pepper Hamilton LLP (215/981-4416) serves as counsel to Spree.com. STAGE STORES: Closes 121 More Stores in 14 States -------------------------------------------------- Stage Stores Inc. announced that it filed a motion with the U.S. Bankruptcy Court for the Southern District of Texas to close an additional 121 stores as a part of its restructuring process. Jim Scarborough, chief executive officer and president, commented, "As a part of our ongoing restructuring process, we have identified 348 stores in 14 states which will serve as our base for returning the company to profitability. These stores fit the geographic and demographic profiles we have identified as our niche markets. The majority of these stores are in markets where we have a long history of operating profitably. In fact, the performance of this core group of stores has improved significantly since we began our restructuring process in June." Scarborough continued, "In order to focus all of our efforts on our core operations, we have engaged The Ozer Group and Hilco Merchant Resources to manage the liquidation of the stores scheduled for closure, subject to Bankruptcy Court approval. Under our agreement, we will receive a guaranteed recovery for the inventory, net of related expenses." Stage Stores Inc. brings nationally recognized brand name apparel, accessories, cosmetics and footwear for the entire family to small towns and communities throughout the south central and midwestern United States. The company currently operates stores under the Stage, Bealls and Palais Royal names. SUN HEALTHCARE: Committee & Lenders Decry Need for an Examiner -------------------------------------------------------------- The Official Committee of Unsecured Creditors of Sun Healthcare Group, Inc., and Bank of America, N.A. as Administrative Agent of the Senior Lenders and the Debtors object to a motion brought by Peter C. Kern for appointment of an Examiner. The United States Trustee opposes the Motion too. In separate filings, both the Committee and the Administrative Agent remind the Court that the Debtors are hopelessly insolvent, as recognized in the Court's earlier order of denial of Peter Kern's motion for an equity committee after the United States Trustee rejected Kern's request to appoint an equity committee. Objection of the Creditors' Committee The Committee reveals that under the unfortunate realities of the Debtors' debt structure, substantial liabilities have been asserted against the Debtors: mortgages and other secured debt $115 million senior bank debt $900 million senior subordinated notes $432 million junior convertible subordinated notes $430 million general unsecured claims $125 to $200 million governmental claims undetermined, but allegedly significant DIP lender claims $60 to $200 million Based on these, the Committee infers that the reorganized value of the Debtors must substantially exceed $2 billion before there is any value for Kern and the existing equity. The Committee believes that certain senior and partially secured creditors will receive only partial recoveries on their claims, while senior subordinated creditors will likely receive minimal recoveries, and junior subordinated creditors will likely receive no recovery. Therefore, the Committee does not expect adequate reorganization value to make a distribution to equity holders even under the best scenario. The Committee relates that in 1999, before the filing of the Chapter 11 cases, the Debtors implemented an overhead reduction plan, eliminating approximately $200 million of cost savings per year. The current Cost Reduction Plan submitted by the Debtors anticipates an additional total annualized savings of approximately $25.4 million, $15.4 million in regional and corporate overhead reductions and an additional $10 million in operating expense reductions. As the Committee understands, the Debtors expect to realize savings of $8.5 million from the divestiture of underperforming facilities and the sale of non-core subsidiaries, significant savings in purchasing ($6.2 million), management information systems ($6.0 million), employees reductions ($1.6 million) and finance and accounting savings ($1.5 million). Implementation of the Cost Reduction Plan, the Committee believes, will take approximately six to eighteen months, with expected savings of $11.4 million by March 31, 2001. The Committee argues that because the Debtors have undertaken an extensive cost cutting program, no cause exists to justify Kern's motion. The Committee also points out that Kern's request for the appointment of an Examiner is made after significant delay and made with no regard to the Debtors' cost reduction plan. The Committee believes that any appointment of an examiner will further increase costs for the Debtors. Therefore, in the Committee's opinion, if Mr. Kern is truly concerned with the matters he proposes an examiner to investigate, he will accept these proposals and withdraw his Motion; if he declines, he will inflict additional costs on Sun's estates and show his motivation as being an attempt to extract nuisance value from creditors. The Committee cites that In re Bradlees, the Court stated that "[the] appointment of an examiner to conduct a new investigation at this time would be duplicative, needless and wasteful." The Committee makes downright comment that the motion for the appointment of an examiner is a negotiation ploy by Kern to pressure the Debtors, considering his earlier motion to appoint an equity committee for the purpose of negotiating a recovery for shareholders. The Committee asks the Court to consider Mr. Kern's present Motion in the context of his continuing litigation efforts to extract value for equity. The Committee believes that in light of the reasons, Kern's motion should be denied. Objection of the Bank of America The objection made by the Bank of America is largely along the similar line as that of the Creditors' Committee. The Bank of America tells the Court that, as Administrative Agent for the Senior Lenders under the Credit Agreement dated as of October 8, 1997, the Bank would be ecstatic if there were sufficient value to satisfy all creditors in full, or even satisfy the Senior Lenders in full, but unfortunately, the Debtors are insolvent by a wide margin and any recovery for equity (or subordinated debt) would be a pure nuisance value recovery. The Administrative Agent asserts that the Senior Lenders need to make one fact abundantly clear - they are dedicated to ensuring that the Debtors' costs are reduced to an appropriate minimum and no opportunity for revenue enhancement is let pass. The Agent reminds the Court that the Senior Lenders have every incentive to insure that the debtors' operating performance is improved as much as possible, in order to insure a successful reorganization and to maximize the amount of reorganization debt and cash that can be distributed to the Senior Lenders. Towards this end, the Senior Lenders have been working assiduously with their professionals, the Debtors' professionals, the Committee's professionals, and the Debtors, the Bank of America relates. Accordingly, the Bank opines that an examiner would duplicate the efforts of numerous other professionals and the Debtors' management. Drawing upon reasons largely similar to those cited by the Committee, the Administrative Agent asserts that no examiner should be appointed. The Debtors' Objection The Debtors draw the Court's attention to four main factors for which Peter Kern's motion should be denied: (1) Kern's objective in seeking an examiner is suspect. Given Kern's lack of an economic interest, he should not be able to command an investigation not supported by the real parties in interest. (2) The motion is filed too late, almost a year after Kern sought the appointment of an equity committee. (3) Nobody with an economic interest in the Debtors supports the appointment of an examiner. The Lenders and the Committee, collectively representing creditors holding in excess of $1.8 billion in claims, are opposing the proposal. (4) Numerous professionals retained in Sun's chapter 11 cases are already examining the issues that Kern believes require examination and the Debtors are willing to provide Kern with the results of those investigations, subject to the execution of a confidentiality agreement. Any investigation of an examiner, as proposed by Kern, would duplicate what is done by the professionals. The United States Trustee's Response Patricia A. Staiano, the United States Trustee for Region 3, draws Judge Walrath's attention to 11 U.S.C. section 1104(c) which `authorizes the appointment of an examiner at any time before the confirmation of a plan, on request of a party in interest or the U.S. Trustee, after notice and a hearing, "if the court does not order the appointment of a trustee".' The appointment of an examiner under section 1104(c)(2) is mandatory, as opposed to discretionary, the UST point out. Morgenstern v. Revco D.S. Inc. (In re Revco D.S., Inc.), 898 F.2d 498 (6th Cir. 1990). The UST cites that the Court in Revco, noting the difference between subsection (b)(1)(now (c)(1)), which is discretionary, and subsection (b)(2)(now (c)(2)), which is mandatory, stated: "Section 1104(b)(1), which governs the appointment of an examiner when the total unsecured debt is less than $5 million, follows the language of section 1104(a) [relating to the appointment of a trustee]; in both cases the appointment is left to the bankruptcy court's discretion. The contrast with section 1104(b)(2) could not be more striking. When the total "fixed, liquidated, unsecured" debt is greater than $5 million, the statute requires the court to appoint an examiner." The UST remarks that the order submitted by Kern is incorrect and outside the clear language of the statute. The UST says that "11 U.S.C. section 1104(d) clearly states that when the court orders the appointment of an examiner, ". . . then the United States trustee, after consultation with parties in interest, shall appoint, subject to the court's approval, one disinterested person . . . to serve . . . examiner . . . " However, the language in the proposed order submitted in Kern's motion", the UST notes, "would require the UST to consult with certain specified parties." In this regard, the UST finds that the proposed order is not consistent with the statute in section 1104(d) which among other things, controls, and governs the UST's actions, duties and responsibilities. (Sun Healthcare Bankruptcy News, Bankruptcy Creditors' Service, Inc., 609/392-0900) T&W FINANCIAL: Confirmation Hearing on Liquidating Plan Set for Jan. 24 ----------------------------------------------------------------------- T&W Financial Corporation (Nasdaq:TWFCQ) announced that the Company and its subsidiary, T&W Financial Services Company L.L.C. have filed a joint Plan of Liquidation in their bankruptcy proceedings, jointly administered, in the United States Bankruptcy Court for the Western District of Washington at Tacoma under Case No. 00-39007. On December 21, 2000, the Honorable Paul B. Snyder approved the Company's Disclosure Statement associated with the plan and provided that notice to Company shareholders be given by press release and the filing of a Securities and Exchange Commission Form 8-K. Shareholders are deemed to have rejected the plan and will not be required to vote. The Plan of Liquidation provides for appointment of a plan administrator to liquidate assets and provides for payments to priority and general unsecured creditors from proceeds of specified assets pursuant to settlement with certain financial institutions. These financial institutions hold large secured and unsecured claims against the debtors. The bankruptcy estates of the Company and its subsidiary hold disputed bankruptcy litigation claims against these financial institutions. Under the plan, the estates will release claims against the financial institutions in exchange for contribution of assets, partial release of security and other interests, and assignment of proceeds of certain causes of action by the financial institutions. Although the plan is expected to generate a partial distribution to general unsecured creditors, the plan expressly provides for no distribution to shareholders of the Company and all stock will be cancelled as of the effective date of the plan. The hearing on confirmation of the plan will be held in the Courtroom of the Bankruptcy Judge commencing on January 24, 2001, at 8:30 a.m. Pacific Standard Time, and continuing, if necessary, on January 25, 2001, at 8:30 a.m. Pacific Standard Time, and on continued dates if so ordered by the Court without further notice. Any objections to the plan must be in writing, filed pursuant to Federal Rules of Bankruptcy Procedure 3020(b) with the Clerk, United States Bankruptcy Court, Western District of Washington, 1717 Pacific Avenue, Tacoma, Washington 98402, and served on the United States Trustee, 600 Park Place Building, 1200 Sixth Avenue, Seattle, Washington 98101, and counsel for the debtor, Marc Barreca, Preston Gates & Ellis LLP, 701 Fifth Avenue, Suite 5000, Seattle, WA 98104, no later than 4:30 p.m. Pacific Standard Time, on or before January 16, 2001. US AIRWAYS: Moody's Review Flies in an Uncertain Direction ---------------------------------------------------------- Moody's Investors Service revised its pending review of the debt ratings of US Airways Group to a review with direction uncertain from a review for possible upgrade. The revision considers the weak operating performance of US Airways, the limited outlook for improved cash flow generation over the near term, and the potential for weaker debt holder protection measures. The revision also considers the ongoing discussions regarding the proposed purchase by United Airlines, Inc. (UAL) of US Airways and the potential benefits of that acquisition to US Airways debt holders if US Airways were to become part of the larger UAL group. Moody's noted that it originally placed US Airways' debt ratings under review for possible upgrade in May of this year following the announced plan for United to acquire US Airways. Since that time, US Airways has faced a combination of significantly higher fuel costs, intensified competition in its primary markets and continued weak earnings performance. While the merger plan has been approved by the boards of both United and US Airways, it remains subject to regulatory approval from both US and European regulators, and it is uncertain whether the deal will be completed in a timely fashion under its present terms or whether concessions or other changes will be needed. As the economic environment softens, we expect further pressure on US Airway's cash flow and debt protection measures. US Airways' performance is generally strongest in the summer travel season and weakest in the first calendar quarter of the year. Unexpectedly poor operating performance in either the fourth quarter of 2000 or the first quarter of 2001 combined with the company's expenditures for refleeting would continue the deterioration of debt protective measures and could lead to a ratings downgrade. The company has restructured and reduced its aircraft orders in the medium term but near term deliveries remain significant. Moody's noted that US Airways has prefunded a portion of its 2001 aircraft deliveries and remains liquid with a reported $1.2 billion in cash and short term investments and an unused bank line of $500 million as of September 30, 2000. Debt affected by the ratings review includes: Senior Implied Rating B2 Senior Unsecured Rating B3 Issuer Rating Caa1 Senior Secured Bank Lines B1 All Pass Thru Trust Ratings Ba3 to A2 (except those guaranteed as noted below) Industrial Revenue Bonds B3 (except those guaranteed as noted below) Not affected by the review are certain guaranteed industrial revenue bonds ('IRB's') and certain of the company's Enhanced Equipment Trust Certificates, Series 2000-1, Series 2000-2 and Series 2000-3. The IRB's and Certificates issued under these transactions are guaranteed by monoline insurance companies and remain Aaa and are not on review. Moody's review will continue to focus on the potential benefits of the acquisition by UAL, should the merger be approved but will add a consideration of the potential for a deterioration in debt protective measures sufficient to warrant a negative ratings action US Airways Group, Inc., with 1999 revenues of $8.6 billion, is a major US carrier headquartered in Arlington, Virginia. ********* Bond pricing, appearing in each Monday's edition of the TCR, is provided by DLS Capital Partners in Dallas, Texas. A list of Meetings, Conferences and Seminars appears in each Wednesday's edition of the TCR. Submissions about insolvency- related conferences are encouraged. Send announcements to conferences@bankrupt.com. Each Friday's edition of the TCR includes a review about a book of interest to troubled company professionals. All titles available from Amazon.com -- go to http://www.amazon.com/exec/obidos/ASIN/189312214X/internetbankrupt -- or through your local bookstore. 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