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/raid1/www/Hosts/bankrupt/TCR_Public/041108.mbx T R O U B L E D C O M P A N Y R E P O R T E R Monday, November 8, 2004, Vol. 8, No. 244 Headlines A.B. DICK: Presstek Completes Purchase & Expands Loan to $80 Mil. AIR CANADA: Reports Record 77.7% October System Load Factor AIRCAST INTERNATIONAL: Moody's Assigns Single-B Rating to Loans AIRGAS INC: S&P Lifts Rating One Notch to BB+ ALLEGHENY ENERGY: Third Quarter Net Loss Widens to $376.8 Million ALLEGHENY ENERGY: S&P Places B Rating on $1 Bil. Sr. Sec. Facility AMKOR TECHNOLOGY: Moody's Says Liquidity Has Improved AMRESCO: Moody's Junks Three Classes & Rates Two Classes Low-B ARMSTRONG HOLDINGS: Sept. 30 Balance Sheet Upside-Down by $1 Bil. ATA AIRLINES: Asks Court to Fix December 26 as Claims Bar Date ATA AIRLINES: Denver & SFO Airports Balks at Cash Collateral Use BALLY TOTAL: Moody's Reviewing Single-B & Junk Ratings BEAR STEARNS: Fitch Puts Low-B Ratings on Six Certificate Classes BELL CANADA: Third Quarter Revenue Up 3.3 Percent to $4.8 Billion BERKLINE/BENCHCRAFT: Moody's Affirms Single-B Ratings on Loans BEXAR COUNTY: Moody's Slices Sub. Revenue Bond Rating to Ba2 BIOPHARMA ROYALTY: S&P Junks Sr. Notes Due to Low Royalty Revenues BRIDGEPOINT TECH: U.S. Trustee Picks 4-Member Creditors Committee CALPINE CORP: Posts $22.3 Million of Net Income in Third Quarter CATHOLIC CHURCH: Portland's First Interim Chapter 11 Report CATHOLIC CHURCH: Judge Perris Extends Portland's Exclusive Periods CHAPCO CARTON: Creditors Must File Proofs of Claims by Nov. 15 CHARTER COMMS: Sept. 30 Stockholders' Deficit Narrows to $4 Mil. CLARK GROUP: Confirmation Hearing Set for November 10 CLARK GROUP: Wants to Hire Summers Compton as Bankruptcy Counsel CLEARLY CANADIAN: Inks C$1.5 Million Secured Loan with Global COMFORCE CORP: Sept. 30 Balance Sheet Upside-Down by $37.5 Million COMM 2004-RS1: Fitch Puts Low-B Ratings on Six Securities Classes CONCERT INDUSTRIES: Files CCAA Plan of Arrangement in Montreal CONMED CORP: S&P Assigns B Rating to $125 Mil. Convertible Notes CROWN CASTLE: Buys Verizon's Interest in Crown Atlantic for $295MM DANKA BUSINESS: Sept. 30 Balance Sheet Upside-Down by $73.9 Mil. DELTA AIR: $252 Million of Pass Through Certificates Tendered DELTA FUNDING: Fitch Junks Class B & Cuts Class M-2's Rating to B DIAMOND K CORP.: Case Summary & 22 Largest Unsecured Creditors DIGITALNET: Moody's Withdraws Low-B Ratings After BAE Acquisition DIVERSIFIED ASSET: Fitch Slices Class B-1 Notes' Rating to B DT INDUSTRIES: Wants Plan-Filing Period Stretched to March 8 DYNACQ HEALTHCARE: Restructures Bank Loan & Cures Default EMISPHERE TECH: Sept. 30 Stockholders' Deficit Narrows to $4.1-Mil ENRON CORP: Court Approves Settlement Agreement with Accord Energy ENRON CORP: Court Allows $6.75 Million Claim Against NEGT Power ENRON CORP: AEP Completes $115 Million Bammel Asset Purchase FAO, INC.: Who Recovers What Under the Liquidating Plan FOSTER WHEELER: Saybrook Completes Out-of-Court Restructuring FRANKLIN CAPITAL: Raises $3,245,000 in Private Equity Placement GADZOOKS INC: October Same Store Sales Up 14.1% from Last Year GENOIL INC: Acquires Majority Interest in Velox Corporation GITTO GLOBAL: Inks Sale Pact with Unidentified Horse Bidder GOODYEAR TIRE: Appoints Joseph Copeland Sr. Vice President GRANITE INC: Voluntary Chapter 11 Case Summary GREATER FELLOWSHIP: Case Summary & 16 Largest Unsecured Creditors HARVEST ENERGY: Increases Share Exchange Ratio to 1.05604 HEALTH CARE: Fitch Explains BB+ Preferred Stock Rating in Detail HORNBECK OFFSHORE: Launches Cash Tender Offer for 10-5/8% Notes IRON MOUNTAIN: Moody's Junks Five Classes After Review J.P. MORGAN: S&P Assigns Low-B Rating to Six Certificate Classes KAISER ALUMINUM: Alpart & Kaiser Liquidation Plan Overview KB TOYS: Wants Plan-Filing Period Extended to Jan. 14 LAGUARDIA ASSOCIATES: Case Summary & Largest Unsecured Creditors LYNX 2002-I: Moody's Slices Class D Notes' Rating to B3 from Ba2 MERRILL LYNCH: Fitch Places Low-B Rating on 17 Certificate Classes METROMEDIA INT'L: Talking to Investor Group about Proposed Merger METROPCS INC: Majority of Noteholders Consent to Limited Waiver MID-AMERICAN MACHINE: Case Summary & Largest Unsecured Creditors MICROCELL TELECOM: Sept. 30 Balance Sheet Upside-Down by C$41.7MM MOLL AUTO SALES: Case Summary & 35 Largest Unsecured Creditors MORTGAGE ASSET: Fitch Places Low-B Ratings on Four Cert. Classes NAPIER ENVIRONMENTAL: Weak Financials Spur Restructuring Plans NATIONAL ENERGY: ET Holdings Objects to Adam Mirick's $2.5M Claim NETWORK INSTALLATION: Wins Wireless Project Order from ACON Labs NEXTWAVE TELECOM: Selling All PCS Licenses to Verizon for $3 Bil. NORTHERN KENTUCKY: Baseball Franchise Gets $3 Million Bid PACIFIC GAS: Saybrook Details Hand in Bankruptcy Emergence PAMET SYSTEMS: Sept. 30 Balance Sheet Upside-Down by $6.3 Million PANOLAM INDUSTRIES: S&P Places B+ Rating on Planned $20M Facility PEGASUS SATTELITE: Wants Exclusive Periods Extended Until Mar. 31 PENN NATIONAL: Moody's Reviewing Low-B Ratings Due to Merger Plans PEREGRINE SYSTEMS: Providing Update in Nov. 10 Conference Call PG&E NATIONAL: Moves to Pay TransCanada $12.7 Mil. Break-Up Fee PG&E NATIONAL: Wants Court OK on Hydro Facilities Bidding Protocol PILGRIM'S PRIDE: S&P Puts Low-B Ratings on $500M Debt Securities PILLOWTEX CORP: Selling Miscellaneous Assets for $350,000 QUIGLEY COMPANY: Judge Beatty Denies Committee's Recusal Motion QUIGLEY COMPANY: Look for Bankruptcy Schedules by November 19 RCN CORP: Court Oks Kasowitz Benson as Debtors' Conflicts Counsel SALOMON BROTHERS: Fitch Slices Class M-3 Rating to BB+ from BBB SHAW COMMUNICATIONS: Renews Normal Course Issuer Bid SITHE/INDEPENDENCE: Fitch Assigns BB Rating to Secured Debts STEWART ENTERPRISES: Moody's Puts Low-B Ratings on Loans & Bonds STRUCTURED ASSET: Fitch Places Low-B Ratings on 10 Cert. Classes SUN HEALTHCARE: Revised Sept. 30 Balance Sheet Shows $119M Deficit TEXAS STATE: Moody's Pares Subordinate Revenue Bond Rating to Ba3 THOMSON MEDIA: Moody's Assigns Single-B Ratings to Loan Pacts TRUMP HOTELS: Releases Details on $100MM DIP Loan Beal's Arranging TW, INC.: Wants Solicitation Period Stretched to Jan. 31 UAL CORP: Gets Interim Extension to File Plan Until December 1 UAL CORP: Gets Court Nod to Reject Four Aircraft Leases UNITED AIRLINES: Flight Attendants Balk at New Concession Demands UNITED ONLINE: Moody's Rates Planned $150M Senior Secured Loan B1 UNIVERSAL ACCESS: Wants 6 More Months to Propose a Chapter 11 Plan VARTEC TELECOM: Look for Schedules & Statements by Dec. 16 VARTEC TELECOM: Brings In Hughes & Luce as Special Counsel VERESTAR INC: American Tower Tries to Torpedo Debtors' Plan VIVENTIA BIOTECH: Dan Group Completes Private Placement W.R. GRACE: Employees Sue Over $40-Mil Retirement Fund Sell-Out WASHINGTON MUTUAL: Fitch Lifts Classes B2 & B5's Ratings to BBB WILSON N. JONES: Weak Balance Sheet Cues Fitch to Cut Rating to B+ WORLDCOM INC: R.A.K. Wants Court to Compel Cure Claim Payment WORLDCOM INC: Agrees to Withdraw Labor Department's ERISA Claims * U.S. Corporate Credit Quality Slips in October, Says Kamakura * BOND PRICING: For the week of November 8 - November 12, 2004 ********* A.B. DICK: Presstek Completes Purchase & Expands Loan to $80 Mil. ----------------------------------------------------------------- Presstek, Inc. (Nasdaq: PRST), a manufacturer and marketer of environmentally responsible high tech digital imaging solutions for the graphic arts and laser imaging markets, reported that parties have closed on Presstek's purchase of A.B.Dick Company. A.B.Dick Company is a leading worldwide supplier to the graphic arts and printing industry, manufacturing, marketing and servicing equipment and supplies for all stages of document creation -- pre- press, press and post- press. In July 2004, A.B.Dick filed for Chapter 11 bankruptcy protection. At the same time, Presstek entered into an asset purchase agreement with A.B.Dick pursuant to which Presstek would acquire the business and assets of A.B.Dick Company through the U.S. Bankruptcy Code Section 363 asset sale provisions. Presstek's bid was approved by the U.S. Bankruptcy Court on November 3, 2004. Presstek's Chief Financial Officer Moosa E. Moosa stated, "The closing price is approximately $40 million and will be paid in cash. In connection with this transaction, Presstek has increased its line of credit from $50 million to $80 million in a credit agreement with Citizen's Bank, KeyBank and Bank North, a portion of which will be used to accommodate the cash needs of this transaction. Presstek has no plans at the present time to initiate any stock offerings in connection with this acquisition." Presstek's President and CEO Edward J. Marino said, "We are very pleased to announce the completion of our acquisition of A.B.Dick. We will begin working with A.B.Dick immediately to improve the operation of the company. We would like to take this opportunity to welcome A.B.Dick employees, as well as their customers and vendors, to the Presstek family. We are looking forward to a bright future together." About Presstek Presstek, Inc. is a leading manufacturer and marketer of environmentally responsible high tech digital imaging solutions to the graphic arts and laser imaging markets. Presstek's patented DI(R), CTP and plate products provide a streamlined workflow in a chemistry-free environment, thereby reducing printing cycle time and lowering production costs. Presstek solutions are designed to make it easier for printers to cost effectively meet increasing customer demand for high-quality, shorter print runs and faster turnaround while providing improved profit margins. Presstek subsidiary Precision Lithograining Corporation is a manufacturer of high quality digital and conventional printing plate products, including Presstek's award-winning, chemistry-free Anthem plate. Presstek subsidiary Lasertel, Inc., manufactures semiconductor laser diodes for Presstek's and external customers' applications. For more information on Presstek, visit http://www.presstek.com/ call 603-595-7000 or email: info@presstek.com Headquartered in Niles, Illinois, A.B.Dick Company -- http://www.abdick.com/-- is a global supplier to the graphic arts and printing industry, manufacturing and marketing equipment and supplies for the global quick print and small commercial printing markets. The Company, along with its affiliates, filed for chapter 11 protection (Bankr. D. Del. Lead Case No. 04-12002) on July 13, 2004. Frederick B. Rosner, Esq., at Jaspen Schlesinger Hoffman, and H. Jeffrey Schwartz, Esq., at Benesch, Friedlander, Coplan & Aronoff LLP represent the Debtors in their restructuring efforts. Richard J. Mason, Esq., at McGuireWoods, LLP, represents the Official Committee of Unsecured Creditors. When the Debtor filed for protection from its creditors, it listed over $10 million in estimated assets and over $100 million in estimated liabilities. AIR CANADA: Reports Record 77.7% October System Load Factor ----------------------------------------------------------- Air Canada reported a system load factor of 77.7 per cent in October 2004, the highest ever for October. The mainline carrier flew 7.7 per cent more revenue passenger miles (RPMs) in October 2004 than in October 2003, according to preliminary traffic figures. Overall, capacity increased by 1.5 per cent, resulting in a load factor of 77.7 per cent, compared to 73.2 per cent in October 2003; an increase of 4.5 percentage points. In the domestic market, capacity decreased by 8.3 per cent while traffic increased 1.7 per cent resulting in a domestic load factor of 80.1 percent - a 7.8 percentage point increase year over year. Jazz, Air Canada's regional airline subsidiary, flew 4.3 per cent more revenue passenger miles in October 2004 than in October 2003, according to preliminary traffic figures. Capacity decreased by 17.1 per cent, resulting in a load factor of 72.4 per cent, compared to 57.5 per cent in October 2003; an increase of 14.9 percentage points. "In October we again achieved record system and North American load factors as traffic continued to grow and capacity was tightened. The decrease in North American capacity reflected the elimination of our Boeing 737 fleet as well as the redeployment of some aircraft to the rapidly growing Latin America market," said Rob Peterson, Executive Vice President and Chief Financial Officer. "Our simplified web fares, now also fully available in the Transborder US market, continue to grow in popularity. We have clearly become the airline of choice for the lowest fares to the greatest number of destinations on an everyday basis." Air Canada filed for CCAA protection on April 1, 2003 (Ontario Superior Court of Justice, Case No. 03-4932) and filed a Section 304 petition in the U.S. Bankruptcy Court for the Southern District of New York (Case No. 03-11971). Mr. Justice Farley sanctioned Air Canada's CCAA restructuring plan on Aug. 23, 2004. Sean F. Dunphy, Esq., and Ashley John Taylor, Esq., at Stikeman Elliott LLP, in Toronto, serve as Canadian Counsel to the carrier. Matthew A. Feldman, Esq., and Elizabeth Crispino, Esq., at Willkie Farr & Gallagher serve as the Debtors' U.S. Counsel. When the Debtors filed for protection from its creditors, they listed C$7,816,000,000 in assets and C$9,704,000,000 in liabilities. On September 30, 2004, Air Canada successfully completed its restructuring process and implemented its Plan of Arrangement. The airline exited from CCAA protection raising $1.1 billion of new equity capital and, as of September 30, has approximately $1.9 billion of cash on hand. AIRCAST INTERNATIONAL: Moody's Assigns Single-B Rating to Loans --------------------------------------------------------------- Moody's Investors Service assigned B1 ratings for the guaranteed first lien senior secured facilities being arranged for Aircast International Asset Acquisition Corp. Moody's also assigned a B2 rating for Aircast's second lien term loan and a B2 senior implied rating. Moody's also assigned a B3 issuer rating to Aircast. These new facilities will be issued to finance the purchase of Aircast by Tailwind Capital Partners. These ratings recognize: (1) expected demand growth in the mid-to-high single digits for ankle braces and walkers (the main products of the company), (2) Aircast's strong position in its niche market, (3) low collection risk, (4) geographic diversification, (5) low customer concentration, (6) conservative purchase price of the company and substantial equity investment made by the buyers. The ratings also recognize disadvantages from the company's overall size, deteriorating market share in ankle braces and likely pricing pressure over the next two years from the Medicare Modernization Act. The outlook for all ratings is stable. Moody's assigned these ratings: * B1 to the $5 million first lien revolving credit of Aircast * B1 to the $50 million first lien term loan * B2 to the $30 million second lien term loan * B2 senior implied for Aircast * B3 issuer rating for Aircast Tailwind Capital Partners, an investment fund specializing in healthcare, technology and media transactions, will purchase Aircast at a multiple conservatiev for the industry. Besides with a new equity injection, the purchase of the company's equity will be financed with $55 million in new first lien senior debt ($50 million expected drawn at closing), $30 million in new second lien senior debt, and $15 million in subordinated seller notes, as well as equity brought by the buyer. At closing, total debt to adjsuted EBITDA should be below 5. Moody's projects that operating cash flow to debt is expected to be approximately 11% for the year ending December 31, 2005 while free cash flow to debt for the same period is expected to be 8%. On a pro forma basis at June 30, 2004, the ratio of total secured debt to adjusted EBITDA will stand at 3.46:1. The stable outlook reflects the expectation that bank facility covenants (which have not been determined at this stage) should give Aircast sufficient financial flexibility and that the company will apply the vast majority of the excess cash flow to debt reduction, in spite of the mandatory recapture of only 50% in the bank debt documentation. If debt was not reduced by at least $6 million in 2005, the ratings could come under pressure. The ratings could be upgraded if the ratio of free cash flow to debt increased to 10% or more. The ratings are supported by the strong demographic fundamentals of the medical device industry. Aircast generates two-thirds of its revenue from ankle and walking braces. Volume growth for the category should be in the mid-to high single digits driven by the increasing number of "baby boomers" entering or in middle age, and their increased need for braces due to their higher degree of physical activity. The company has strong shares in its niche markets. Approximately one-third of its revenue is generated overseas, providing geographic diversification. Its customer concentration is low. The largest customer (if wholesalers are considered "past-through" entities) represents 2.4% of total sales. Aircast does not rely on direct reimbursement. As a result, collection risk in this credit is low. At the same time, the ratings take into account expected pricing pressure and volume risk due to passage of the 2003 Medicare Modernization Act. Payments under Medicare (off of which HMOs index their payments) will not increase through 2006 for most products manufactured by Aircast. Starting in 2007, competitive bidding could be introduced for many of the company's products in various metropolitan areas. Nonetheless, Moody's notes that the absence of revenue generated from direct reimbursement provides some pricing flexibility to the company, and that in the last twelve months ended June 30, 2004, which included six months of freeze in payments, the company still increased its sales in the US in the high single digits due in large part to organic volume growth. The ratings also take into account the small size of the company, which could make it less competitive on cost at the time that competitive bidding is implemented. This could affect volume and price per unit. Still, Moody's notes that other factors besides price, such as quality of products, will be selection criteria. Also, excess cash flow recapture should lead to substantial debt repayment by the time competitive bidding is fully ramped up (i.e., in 2009). Bank lenders will benefit from first and second liens on all US assets of Aircast and on 66% of the stock in foreign subsidiaries. All operating assets are in the US, strengthening the value of the collateral package. Moody's believes that the strength of collateral coverage for first lien facilities supports a notching of one, and that residual value should be sufficient to place the rating on the second lien debt at the level of the senior implied rating. The sellers have been granted an earnout provision that will be tied to certain minimum sales levels in the first three years after the acquisition. Moody's has tested the effect on cash flow resulting from potential earnout payments, and concluded that debt reduction would remain sufficiently strong for the assigned rating level. Based in Summit, New Jersey, Aircast is a manufacturer and distributor of ankle braces, walkers, compression products and vascular systems. AIRGAS INC: S&P Lifts Rating One Notch to BB+ --------------------------------------------- Standard & Poor's Ratings Services raised its ratings on Airgas Inc. The corporate credit rating was raised to 'BB+' from 'BB'. The outlook is stable on this Radnor, Pennsylvania-based industrial gas distributor. The upgrade reflects the likelihood that credit quality will be sustained at improved levels, despite periodic moderate-size acquisitions. "The company's stable cash flows are expected to be used to support debt reduction, thus bolstering prospects that cash flow protection measures for fiscal 2005 (ended March 2005) will be fully satisfactory for the revised ratings," said Standard & Poor's credit analyst Wesley E. Chinn. The ratings on Airgas incorporate the moderate cyclicality of the manufacturing and industrial markets the company serves and management's aggressive financial policies that favor the use of debt to fund acquisitions. The most recent significant transaction was the July 2004 acquisition of the U.S. packaged gas business of The BOC Group PLC for $175 million in cash, plus a contingent payment of up to $25 million if Airgas achieves certain financial targets. These negatives are tempered by Airgas' position as the leading North American distributor of industrial gases and related equipment, good operating margins, and stable cash flows. Within this industry, Airgas has the broadest geographic coverage, via its distribution network in the U.S. encompassing over 900 locations. The BOC transaction bolsters Airgas' already solid business profile by providing cylinder gas operations in areas where Airgas has little or no presence and enhancing specialty gas capabilities. The stable outlook recognizes the company's resilient internal funds generation, which is expected to be used to reduce BOC acquisition-related borrowings significantly near term. With operating profits in an upward trend, reflecting strength in industrial markets and growth in strategic products, including bulk, specialty and medical gases, the financial profile is expected to be fully satisfactory for the ratings at the end of the current fiscal year. Upside rating prospects are tempered by Airgas' financial policies, which are still viewed as aggressive by Standard & Poor's. Airgas will continue to make periodic acquisitions to strengthen its position in existing markets, provide new locations, and create cross-selling opportunities (of welding supplies and safety equipment) to the customers that are being acquired. A further meaningful strengthening of credit quality ratios through fiscal 2006 would be evidence of management's commitment to a higher rating category, while a more aggressive acquisition strategy, perhaps to diversify from current business lines, would limit future upside ratings potential. ALLEGHENY ENERGY: Third Quarter Net Loss Widens to $376.8 Million ----------------------------------------------------------------- Allegheny Energy, Inc. (NYSE:AYE) reported a net loss of $376.8 million for the third quarter of 2004, compared with a net loss of $51.0 million in the third quarter of 2003. Third quarter results for 2004 include $427.5 million in losses from discontinued operations due principally to charges taken for assets held for sale. Allegheny Energy reported third quarter 2004 income from continuing operations of $50.6 million compared with a loss from continuing operations in the third quarter 2003 of $46.8 million. "As expected, our core business returned to profitability in the third quarter. Our power plants performed well, and we benefited from continued cost reductions and lower interest expense," said Paul J. Evanson, Chairman, President and Chief Executive Officer. "In the third quarter, we also recognized non-cash charges on the sale or impairment of certain non-strategic assets, as we continued to execute on our plan to reduce debt and build a more focused company." To provide a better understanding of Allegheny Energy's core results and trends, Allegheny Energy also reported adjusted financial results, which are non-GAAP financial measures. A reconciliation of these non-GAAP financial measures and results reported in accordance with GAAP is attached to this release. Third Quarter Adjusted Results Allegheny Energy's income from continuing operations before income taxes and minority interest was $70.8 million for the third quarter of 2004, an increase of $39.1 million compared to adjusted income from continuing operations before income taxes and minority interest for the same period in 2003. Among the factors contributing to the results were: -- Operations and maintenance expense decreased by $20.0 million from the third quarter of 2003, primarily due to reduced spending on outside services. -- Interest expense decreased by $24.8 million from the prior year third quarter, primarily due to lower borrowing rates and lower average debt outstanding. Earnings from continuing operations before interest, taxes, depreciation and amortization (adjusted EBITDA) for the third quarter 2004 were $243.2 million, an increase of $17.9 million from the third quarter 2003. EBITDA is a non-GAAP financial measure. For a reconciliation of EBITDA to GAAP financial measures and details on the calculation of EBITDA, see the reconciliation of non-GAAP financial measures attached to this release. Third Quarter Segment Results Delivery and Services The Delivery and Services segment reported income from continuing operations of $30.2 million for the third quarter of 2004, virtually unchanged from the same quarter in the prior year. The segment's operating revenues increased by $20.7 million, primarily due to increased retail electric revenues from higher residential and commercial sales as a result of greater usage. The higher revenue was offset by higher purchased energy expense. Generation and Marketing The Generation and Marketing segment reported income from continuing operations of $16.2 million for the third quarter of 2004, compared to a loss of $82.6 million for the same period in 2003. The segment's operating revenues increased by $119.2 million primarily due to reduced losses as a result of Allegheny Energy's exit from Western energy markets. Interest expense for the Generation and Marketing segment in the third quarter decreased by $23.3 million due to lower borrowing rates and lower average debt outstanding. Discontinued Operations For the third quarter of 2004, the $427.5 million consolidated net loss from discontinued operations includes a non-cash asset impairment charge of $209.4 million pre-tax ($129.2 million after tax) from the previously announced sale of the Lincoln generating facility; a non-cash asset impairment charge of $35.1 million pre- tax ($20.7 million after tax) associated with the previously announced agreement to sell the West Virginia natural gas operations; and non-cash asset impairment charges of $445.4 million pre-tax ($274.7 million after tax) as a result of the previously announced decision to sell the Gleason and Wheatland generating facilities. Discontinued operations also included an after-tax loss of $2.9 million from operating results at these units. Nine-Month Consolidated Results For the first nine months of 2004, Allegheny Energy reported a consolidated net loss of $383.0 million, or $2.97 per diluted share, compared with a consolidated net loss of $341.3 million, or $2.69 per diluted share, for the first nine months of 2003. The results for the first nine months of 2004 included $431.5 million in losses from discontinued operations, and the first nine months 2003 results included losses of $17.3 million from discontinued operations. Allegheny Energy's income from continuing operations for the first nine months of 2004 was $48.5 million, or $0.38 per diluted share, compared to a loss from continuing operations of $303.3 million, or a loss of $2.39 per diluted share, in the first nine months of 2003. The 2003 loss was primarily due to Allegheny Energy's participation in Western energy markets, which it exited in 2003. A summary of nine-month results by business segment is included in the attached financial tables. About the Company Headquartered in Greensburg, Pa., Allegheny Energy is an energy company consisting of two major businesses, Allegheny Energy Supply, which owns and operates electric generating facilities, and Allegheny Power, which delivers low-cost, reliable electric service to customers in Pennsylvania, West Virginia, Maryland, Virginia and Ohio. More information about Allegheny Energy is available at http://www.alleghenyenergy.com/ * * * As reported in the Troubled Company Reporter on Sept. 14, 2004, Fitch Ratings revised the Rating Outlook of Monongahela Power Company to Stable from Negative. Approximately $838 million of debt securities are affected. At the same time, Fitch has affirmed the existing ratings of Allegheny Energy, Inc. and subsidiaries. The Rating Outlooks for all issuers in the Allegheny Energy group are Stable. The revision of Monongahela's Outlook to Stable is based on the successful execution of additional coal supply contracts for 2005 and 2006, the return to service of baseload coal-fired generation units at the Hatfield's Ferry and Pleasants plants prior to the start of peak seasonal demand, and the expectation that operating and maintenance expenses will trend down. The new coal supply contracts increase the hedged percentage of 2005 and 2006 coal supply needs to 90% and 50%, respectively, and alleviate near term commodity price risk. The all-in average prices for the locked in portion of coal supply are approximately $34 for 2005 and Fitch estimates it will be approximately $36.10 for 2006, which are well below the current spot market price of Appalachian coal. While the restoration of the major coal-fired units to service ended the cash losses associated with purchasing replacement power at higher cost, the company continues to be at risk for any future outages under Monongahela's current retail tariffs. Monongahela is unable to recover the costs of replacement supply in either West Virginia or Ohio, and no near-term change is expected. A successful closing of the recently announced sale of Mountaineer Gas would be positive for credit quality. Mountaineer Gas has been a persistent drag on profitability and the proceeds from any sale are anticipated to be used for debt reduction. However, the closing of the transaction is subject to material regulatory contingencies. The affirmation of the 'BB-' senior unsecured rating and Stable Rating Outlook of the group parent, Allegheny, reflects the new management's ongoing progress in restructuring efforts and debt reduction and adequate parent company liquidity, as well as the high consolidated leverage and weak cash flow coverage ratios. Allegheny's rating reflects Fitch's expectation that Allegheny would continue to provide support to the leveraged Allegheny Energy Supply subsidiary as well as the cash flow from the stronger, more stable regulated utility subsidiaries. Execution of the remainder of the $1.5 billion debt reduction plan by year- end 2005, improvement in cash flow generation at Supply, improvements in plant operating performance and expense control, and rate relief would improve credit quality. Credit concerns include the risks of extended plant outages, rising environmental compliance costs, adverse regulatory or judicial decisions, and commodity price exposure (2006 and beyond). ALLEGHENY ENERGY: S&P Places B Rating on $1 Bil. Sr. Sec. Facility ------------------------------------------------------------------ Standard & Poor's Ratings Services assigned its 'B+' rating and a recovery rating of '2' to the $1.04 billion senior secured credit facility to Allegheny Energy Inc. (B+/Positive/--) generation subsidiary, Allegheny Energy Supply Co. LLC (B+/Positive/--). The outlook is positive. The amended and restated bank loan replaces Allegheny Supply Energy's existing $1.25 billion secured bank loan, but with a more favorable interest rate structure. The amended bank loan, which only has one debt tranche, is secured by substantially all of Allegheny's assets. The '2' recovery rating indicates that holders of the bank loan can expect substantial (80% to 100%) recovery of principal in the event of a default. Because of the recovery score, Standard & Poor's did not assign a higher rating to the bank loan than its issuer credit rating on Allegheny Energy Supply. Allegheny Energy Supply's recovery expectation is due to the large amount of secured debt burden. In addition to the $1.04 billion secured bank loan, the collateral is shared with $344 million of secured notes (St. Joseph bonds) and $280 million of pollution control bonds. "Standard & Poor's expects that the company will continue to execute its plan to pay down $1.5 billion or more of debt between December 2003 and the end of 2005," said credit analyst Tobias Hsieh. "Increased progress selling assets, paying down debt and stabilizing cash flow, or positive outcomes from rate filings could lead to ratings upgrades." According to Standard & Poor's enterprise valuation method for recovery analysis, which assumes 5x EBITDA after capital expenditure, the value to secured debt for this transaction is just below 100%, but failed to achieve the 100% threshold to justify a higher rating. An upgrade, however, is possible should there be additional debt reduction in the future that raises the coverage substantially above 100%. AMKOR TECHNOLOGY: Moody's Says Liquidity Has Improved ----------------------------------------------------- Moody's Investors Service raised Amkor Technology's speculative grade liquidity rating to SGL-2 from SGL-3. The upgrade represents the restoration of good liquidity characteristics following the funding of a $300 million term loan (which was rated B1 by Moody's on October 13, 2004). The funding of the term loan, which will be used to restore cash balances, will meaningfully increase Amkor's liquidity cushion, which will be depleted as a result of more than $150 million of committed payments scheduled for late 2004. Given the company's most recent revenue guidance, Moody's anticipates that Amkor's cash balances at yearend (following the loan funding) would be no less than $350 million, and could be somewhat higher. Moody's expects Amkor can generate modest positive cash flow in 2005, even in the current operating environment, due to reduced spending plans. Amkor's backup liquidity is very modest, consisting largely of a $30 million revolving credit facility. The second lien on the term loan allows for potentially up to $1 billion of first lien debt to be layered ahead of it based on incurrance tests. However, the company cannot make use of this provision today because of covenant restrictions under its senior bond indenture. Amkor Technology, Inc., headquartered in West Chester, Pennsylvania, is the world's largest provider of contract semiconductor assembly and test services for integrated semiconductor device manufacturers as well as fabless semiconductor companies. AMRESCO: Moody's Junks Three Classes & Rates Two Classes Low-B -------------------------------------------------------------- Moody's Investors Service has placed nine classes of Amresco's franchise loan securitizations on review for possible downgrade. The complete lists of securities placed on review are as follows: Issuer: ACLC Business Loan Receivables Trust 1999-1 * $ 64,000,000 6.516% Class A-1 Notes, currently rated Aa2 * $ 19,000,000 6.940% Class A-2 Notes, currently rated A1 * $100,347,000 7.385% Class A-3 Notes, currently rated Ba2 * $17,672,000 7.710% Class B Notes, currently rated Caa1 Issuer: ACLC Business Loan Receivables Trust 2000-1 * $68,600,000 Floating Rate Class A-3A Notes, currently rated A1 * $15,300,000 8.030% Class A-3F Notes, currently rated A1 * $16,275,000 8.390% Class B Notes, currently rated B1 * $ 5,250,000 8.630% Class C Notes, currently rated Caa1 * $13,650,000 8.870% Class D Notes, currently rated Ca The rating actions are the result of high delinquency and default rates that the deals continue to suffer in the last six months. According to Shorie Darnaby, a senior credit officer in Moody's asset finance group, the rating agency's review will focus on the historical recoveries of defaulted loans, the timing of receipt of such recovery proceeds by the related trusts, the existing and potential future defaults and the current credit enhancement available for each class. AMRESCO Commercial Finance Inc. is the servicer on all the listed securities and was a franchise lender that stopped originating loans in 2002. ARMSTRONG HOLDINGS: Sept. 30 Balance Sheet Upside-Down by $1 Bil. ----------------------------------------------------------------- Armstrong Holdings, Inc. (OTC Bulletin Board: ACKHQ) reported third quarter 2004 net sales of $893.5 million, a 4.9% increase over third quarter net sales of $851.4 million in 2003. Excluding the favorable effects of foreign exchange rates of $18.3 million, consolidated net sales increased by 2.7%. Sales growth was recorded for the Company's Building Products, Wood Products and Cabinets segments primarily due to improved demand and higher prices. Operating income of $48.8 million was recorded for the third quarter of 2004 compared to operating income of $17.8 million in the third quarter of 2003. A non-cash charge of $8.0 million was recorded in the third quarter of 2003 related to an asbestos claim settlement. During 2003, Armstrong implemented several manufacturing and organizational changes to improve its cost structure and enhance its competitive position. The costs for these initiatives incurred in the third quarter of 2003 totaled approximately $33.6 million, of which approximately $24.0 million was for accelerated depreciation. The remaining amount was primarily for severances and related inventory obsolescence. During the third quarter of 2004, net charges for cost reduction initiatives were $1.4 million. The improvement in operating income is primarily due to reduced expenses relating to cost-reduction initiatives, lower operating expenses as a result of implementing the cost-reduction initiatives and improved pricing. Higher raw material costs, particularly lumber and PVC, a lower mix of products, as well as higher selling, general and administrative expenses, offset these improvements. Segment Highlights Resilient Flooring net sales were $308.1 million in the third quarter of 2004 and $315.6 million in the third quarter of 2003. 2004 sales compared to 2003 were favorably impacted by $5.4 million from the translation effect of the changes in foreign exchange rates. The decline in sales was primarily due to unit volume declines of laminate and vinyl products sold to major national retailers. Operating income of $10.0 million was recorded for the quarter, a decline of $10.8 million from the third quarter of last year. The decline was due primarily to lower sales and higher raw material costs, wages and salaries, partially offset by expenses incurred in 2003 for the cost-reduction initiatives and reduced expenses in 2004 resulting from implementing those initiatives. Wood Flooring net sales of $209.4 million in the third quarter of 2004 increased 14% from $183.7 million in the prior year. This increase was primarily driven by higher sales volume and improved selling prices. Operating income of $7.1 million in the third quarter of 2004 compared to an operating loss of $9.9 million in the third quarter of 2003. The increase in operating income was primarily attributable to expenses incurred in 2003 for cost- reduction initiatives, reduced expenses in 2004 resulting from implementing those initiatives, sales volume gains and higher prices. Partially offsetting these gains were higher lumber costs. Textiles and Sports Flooring net sales of $70.0 million decreased in the third quarter of 2004 compared to $73.3 million in the third quarter of 2003. Excluding the favorable effects of foreign exchange rates of $5.5 million, net sales decreased 11.2%. Operating income of $2.8 million was reported for the third quarter of 2004 compared to operating income of $0.2 million in the third quarter of 2003. The increase in operating income was primarily due to a $1.8 million gain on the sale of a previously closed plant, expenses incurred in 2003 for cost-reduction initiatives and reduced manufacturing expenses resulting from implementing those initiatives, partially offset by the impact of lower sales. Building Products net sales of $250.2 million in the third quarter of 2004 increased from $227.9 million in the prior year. Excluding the favorable effects of foreign exchange rates of $7.5 million, sales increased by 6.3%, primarily due to higher sales volume and higher selling prices. Operating income for the quarter increased to $40.0 million, from $32.4 million in the third quarter of 2003. This increase resulted from increased sales, improved production efficiencies and higher equity earnings from the WAVE joint venture. These gains were partially offset by higher raw material and energy costs, and wage and salary increases. Cabinets net sales in the third quarter of 2004 of $55.8 million increased from $50.9 million in 2003 due primarily to price increases and sales of higher priced products. Operating income of $2.8 million in 2004 improved by $6.0 million from a 2003 operating loss of $3.2 million. The improvement in operating income was primarily due to the increased sales and reduced manufacturing costs, partially offset by higher employee bonus accruals. Year-to-Date Results For the nine-month period ending September 30, 2004, net sales were $2,642.0 million, an increase of 7.7% from the $2,453.2 million reported for the first nine months of 2003. Increases were reported for all segments except Textiles and Sports Flooring. Excluding the favorable effects of foreign exchange rates of $69.5 million, consolidated net sales increased 4.7%. Operating income in the first nine months of 2004 was $94.0 million. This compares to an operating loss of $4.3 million for the first nine months of 2003. The improvement in operating income was due to higher prices, increased sales volume, expenses incurred in 2003 for cost-reduction initiatives and reduced manufacturing expenses resulting from implementing those initiatives. Partially offsetting these gains were increased raw material and salary and wage costs. More details on the Company's performance can be found in its Form 10-Q, filed with the SEC today. References to performance excluding the effects of foreign exchange are non-GAAP measures. Management believes that this information improves the comparability of business performance by excluding the impacts of changes in foreign exchange rates when translating comparable foreign currency amounts. 2003 Form 10-K/A Filed Armstrong recently requested guidance from the staff of the SEC on interpreting Regulation S-X Rules 1-02(w) and 3-09. Based on guidance from the staff of the SEC, Armstrong has determined it should file an amended 2003 Form 10-K to include the audited financial statements of WAVE ("Worthington Armstrong Venture"), a 50-50 joint venture partnership of Worthington Industries, Inc. and Armstrong formed in 1992. When it originally filed the 2003 Form 10-K, Armstrong had disclosed condensed WAVE financial information. Armstrong Holdings, Inc. is the parent company of Armstrong World Industries, Inc., a global leader in the design and manufacture of flooring, ceilings and cabinets. In 2003, Armstrong's net sales totaled more than $3 billion. Based in Lancaster, PA, Armstrong has 44 plants in 12 countries and approximately 15,500 employees worldwide. More information about Armstrong is available on the Internet at http://www.armstrong.com/ At Sept. 30, 2004, Armstrong Holdings' balance sheet showed a $1,300,700,000 stockholders' deficit, compared to a $1,330,200,000 deficit at Dec. 31, 2003. ATA AIRLINES: Asks Court to Fix December 26 as Claims Bar Date -------------------------------------------------------------- Rule 3003(c)(3) of the Federal Rules of Bankruptcy Procedure provides that "The court shall fix and for cause shown may extend the time within which proofs of claim or interest may be filed." The Local Bankruptcy Rules of the U.S. Bankruptcy Court for the Southern District of Indiana do not specify a time by which proofs of claim must be filed in Chapter 11 cases. By this motion, ATA Holdings Corp., and its debtor-affiliates ask Judge Lorch to establish December 26, 2004, as the deadline for creditors to file their proofs of claim. The Debtors believe that the proposed Bar Date will give all creditors ample opportunity to prepare and timely file claims. The Debtors propose that each person or entity that asserts a claim, as that term is defined in Section 101(5) of the Bankruptcy Code, against them arising before the Petition Date or is deemed to arise prior to the Petition Date pursuant to Section 501(d), must file an original, written proof of claim that substantially conforms to the proof of claim that they will circulate or the Official Form No. 10. All proofs of claims will be deemed timely filed only if actually received by BMC Group, the Debtors' claims agent, on or before 5:00 p.m. P.S.T. on the applicable Bar Date. Proofs of claims sent by facsimile or telecopy will not be accepted. These persons or entities are not required to file a claim before the Bar Date: (a) Any person or entity that has already properly filed with the Clerk of the Bankruptcy Court or BMC, a proof of claim against the Debtors utilizing a claim form substantially in conformity with Official Form No. 10; (b) Any person or entity: (i) whose claim is listed on the Debtors' schedules of assets and liabilities or any amendments thereto; (ii) whose claim is not listed as "disputed," "contingent," or "unliquidated"; and (iii) who does not dispute the amount, classification or nature of the claim for that person or entity as set forth in the Schedules or any amendments thereto; (c) Any person having a claim under Sections 330, 331(a), 503, and 507(a) of the Bankruptcy Code as an administrative expense of Debtors' Chapter 11 cases; (d) Claims or Interests made by any holder of equity securities of Debtors solely with respect to that holder's ownership interest in or possession of the equity securities; and (e) Any person or entity that holds a claim that has been allowed by a Court order entered on or before the Bar Date. The Debtors will distribute a proof of claim form tailored to conform to the size and complexity of their Chapter 11 cases. The proposed Proof of Claim Form substantially conforms to Official Form No. 10. The modified Proof of Claim Form: -- indicates which Debtor case the claimant is scheduled in and that Debtor's case number; -- allow the creditor to correct any incorrect information contained in the name and address portion; -- indicate how Debtors have listed each creditor's claim on Debtors' Schedules, including the amount of the claim, the classification of the claim and whether the claim has been listed as contingent, unliquidated, or disputed; and -- include certain instructions for completing the form. The Debtors ask the Court to approve the modified Proof of Claim Form. Pursuant to Bankruptcy Rule 3003(c)(2), the Debtors ask Judge Lorch to enjoin any holder of a claim who is required, but fails, to file a proof of claim in accordance with the Bar Date Order on or before the Bar Date from asserting the claim. The Debtors and their property will be forever discharged from any and all indebtedness or liability with respect to the claim, and the holder will not be permitted to (i) vote on any plan of reorganization or participate in any distribution in the Debtors' Chapter 11 cases on account of the claim or (ii) receive further notices regarding the claim. The Debtors will mail a notice of the Bar Date and a Proof of Claim Form to: (1) each member of the statutory committee appointed in their cases and the committee's attorneys; (2) all parties listed on the Debtors' master creditor list, including all known holders of claims and interests listed on the Schedules at the addresses stated therein and their counsel, if known; (3) all state and local taxing authorities for the jurisdictions in which the Debtors conduct or previously conducted their businesses; (4) parties to any litigation that was pending as of the Petition Date and any party that has filed a motion to lift the automatic stay; (5) all persons and entities requesting notice pursuant to Bankruptcy Rule 2002; and (6) the Office of the United States Trustee for Region 10. A creditor holding claims against more than one Debtor must file a separate claim in the case of each Debtor against which the creditor asserts a claim. A creditor will be bound by the Debtor it named in its proof of claim. Headquartered in Indianapolis, Indiana, ATA Airlines, owned by ATA Holdings Corp. -- http://www.ata.com/-- is the nation's 10th largest passenger carrier (based on revenue passenger miles) and one of the nation's largest low-fare carriers. ATA has one of the youngest, most fuel- efficient fleets among the major carriers, featuring the new Boeing 737-800 and 757-300 aircraft. The airline operates significant scheduled service from Chicago- Midway, Hawaii, Indianapolis, New York and San Francisco to over 40 business and vacation destinations. Stock of parent company, ATA Holdings Corp., is traded on the Nasdaq Stock Exchange. The Company and its debtor-affiliates filed for chapter 11 protection on Oct. 26, 2004 (Bankr. S.D. Ind. Case No. 04-19866, 04-19868 through 04-19874). Terry E. Hall, Esq., at Baker & Daniels, represents the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $745,159,000 in total assets and $940,521,000 in total debts. (ATA Airlines Bankruptcy News, Issue No. 2; Bankruptcy Creditors' Service, Inc., 215/945-7000) ATA AIRLINES: Denver & SFO Airports Balks at Cash Collateral Use ---------------------------------------------------------------- Two airport operators object to ATA Airlines and its debtor- affiliates' use or further pledge of their prepetition cash collateral to the extent that the cash collateral include the Airports' trust funds for Passenger Facility Charges: (1) Denver International Airport, which is owned and operated by the City and County of Denver in connection with its municipal airport system; and (2) the City and County of San Francisco, acting by and through the San Francisco Airport Commission. The Airports want to ensure that the PFCs collected by the Debtors are neither included with their cash collateral nor commingled with any of the Debtors' other obligations. Douglas W. Jessop, Esq., at Jessop & Company, PC, in Denver, Colorado, informs the United States Bankruptcy Court for the Southern District of Indiana that the Debtors have used the Airports' facilities in the operation of their businesses by, among other things: -- causing passenger aircraft to land at and take off from the Airports; -- using the Airports' terminal space, including gates, offices, baggage and ramp areas; -- using the non-terminal space, like cargo areas and aircraft parking spaces; and -- using the Airports' equipment, including common use baggage handling equipment and check-in equipment. The Debtors incur these obligations to the Airports on a monthly basis: (i) rent, charges and landing fees totaling $200,000 with respect to Denver and $345,700 with respect to San Francisco; and (ii) PFCs aggregating $73,000 with respect to Denver and $202,000 with respect to San Francisco. The PFCs are passenger ticket charges collected by airlines as required by 49 U.S.C. Section 40117 and governed by detailed Federal regulations set forth at 14 C.F.R. Section 158. The U.S. Department of Transportation's regulations provide that the PFC revenues that are held by an air carrier or an agent of the carrier after collection of a PFC constitute a trust fund that is held by the air carrier or agent for the beneficial interest of the public agency imposing the PFC. That carrier or agent holds neither legal nor equitable interest in the PFC revenues except for any handling fee or retention of interest collected on unremitted proceeds. Since commencing operations at the Airports, the Debtors are required to collect and remit PFCs to Denver and San Francisco in the amount of $4.50 per enplaned passenger. PFCs are used by the Airports for airport development. Before the Petition Date, the Debtors have been complying with the accounting and remittance requirement of the PFC regulations with respect to both Airports. The Debtors, however, have failed to fully pay PFCs to San Francisco for September 2004. Headquartered in Indianapolis, Indiana, ATA Airlines, owned by ATA Holdings Corp. -- http://www.ata.com/-- is the nation's 10th largest passenger carrier (based on revenue passenger miles) and one of the nation's largest low-fare carriers. ATA has one of the youngest, most fuel- efficient fleets among the major carriers, featuring the new Boeing 737-800 and 757-300 aircraft. The airline operates significant scheduled service from Chicago- Midway, Hawaii, Indianapolis, New York and San Francisco to over 40 business and vacation destinations. Stock of parent company, ATA Holdings Corp., is traded on the Nasdaq Stock Exchange. The Company and its debtor-affiliates filed for chapter 11 protection on Oct. 26, 2004 (Bankr. S.D. Ind. Case No. 04-19866, 04-19868 through 04-19874). Terry E. Hall, Esq., at Baker & Daniels, represents the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $745,159,000 in total assets and $940,521,000 in total debts. (ATA Airlines Bankruptcy News, Issue No. 2; Bankruptcy Creditors' Service, Inc., 215/945-7000) BALLY TOTAL: Moody's Reviewing Single-B & Junk Ratings ------------------------------------------------------ Moody's Investors Service placed the ratings of Bally Total Fitness Holding Corporation on review for possible downgrade following Bally's announcement that the trustee under its senior and subordinated note indentures informed the company that it will send default notices to the company unless Bally commences consent solicitations by November 15, 2004, and has either cured the defaults or obtained the necessary waivers from the holders of a majority of each series of notes by December 15, 2004. The trustee has advised the company that it would begin notifying noteholders of default in accordance with the indentures. Moody's is concerned that an event of default under the indentures may be triggered if Bally is unable to obtain the necessary waivers or cure the default. Moody's placed these ratings on review for possible downgrade: * $175 million Senior Secured Term Loan B Facility, due 2009, rated B2; * $100 million Senior Secured Revolving Credit Facility, due 2008, rated B2; * $235 million 10.5% Senior Unsecured Notes, due 2011, rated B3; * $300 million 9.875% Senior Subordinated Notes, due 2007, rated Caa2; * Senior Implied, rated B3; * Senior Unsecured Issuer, rated Caa1. Bally has not filed its Form 10-Q quarterly report for the second quarter ended June 30, 2004 with the Securities and Exchange Commission. In connection with its previous announcement that it postponed the filing of its second quarter Form 10-Q, the company indicated that it is working with its independent auditors under the oversight of its audit committee to resolve certain accounting issues before filing further financial statements. The failure by Bally to file its Form 10-Q for the second quarter on a timely basis would constitute an event of default under its senior unsecured and senior subordinated note indentures if notice is given by the indenture trustee and a thirty day cure period expires. The lenders under Bally's $275 million secured credit facility have foregone any requirement for receipt from the company of financial statements filed with the SEC. However, the credit agreement provides for a cross-default ten days after delivery to Bally of a default notice under either of the indentures. As a result, delivery of a default notice under either indenture to Bally could result in acceleration of Bally's obligations under the credit facility and the indentures. Moody's review will focus on whether Bally can avoid an event of default by filing its Form 10-Q for the second quarter or obtain the necessary waivers from the holders of a majority of each series of notes by December 15, 2004. Moody's will also consider expected recovery values in the event of a default. The senior secured revolving credit facility and senior unsecured notes are expected to have relatively high recovery values in the event of a default due to Bally's expected enterprise value and the value of its real estate and receivables. As of March 31, 2004, the company's short term and long term net installment receivables totaled $729 million on a gross basis. Additionally, the net reported book value of property and equipment as of March 31, 2004 was $618 million. Expected recovery rates for the senior subordinated notes in the event of a default are more uncertain and reflect the contractual subordination of these notes and their lack of guarantees. Headquartered in Chicago, Illinois, Bally is the largest commercial operator of fitness centers in North America. Revenue for the year ended December 31, 2003 was approximately $953 million. BEAR STEARNS: Fitch Puts Low-B Ratings on Six Certificate Classes ----------------------------------------------------------------- Bear Stearns Commercial Mortgage Securities Trust 2004-TOP16, commercial mortgage pass-through certificates are rated by Fitch Ratings as follows: -- $20,000,000 class A-1 'AAA'; -- $60,000,000 class A-2 'AAA'; -- $100,000,000 class A-3 'AAA'; -- $100,000,000 class A-4 'AAA'; -- $80,000,000 class A-5 'AAA'; -- $676,075,000 class A-6 'AAA'; -- $20,231,000 class B 'AA'; -- $13,005,000 class C 'AA-'; -- $13,005,000 class D 'A'; -- $15,895,000 class E 'A-'; -- $10,115,000 class F 'BBB+'; -- $11,560,000 class G 'BBB'; -- $10,115,000 class H 'BBB-'; -- $2,891,000 class J 'BB+'; -- $4,335,000 class K 'BB'; -- $5,780,000 class L 'BB-'; -- $1,445,000 class M 'B+'; -- $1,445,000 class N 'B'; -- $2,890,000 class O 'B-'; -- $7,225,001 class P 'NR'; -- $1,156,012,001 class X-1* 'AAA'; -- $1,108,051,000 class X-2* 'AAA'. * Notional Amount and Interest Only. Class P is not rated by Fitch. Classes A-1, A-2, A-3, A-4, A-5, A-6, B, C, D, E, and X-2 are offered publicly, while classes F, G, H, J, K, L, M, N, O, P, and X-1 are privately placed pursuant to Rule 144A of the Securities Act of 1933. The certificates represent beneficial ownership interest in the trust, primary assets of which are 123 fixed-rate loans having an aggregate principal balance of approximately $1,156,012,001, as of the cutoff date. BELL CANADA: Third Quarter Revenue Up 3.3 Percent to $4.8 Billion ----------------------------------------------------------------- For the third quarter of 2004, BCE Inc. (TSX, NYSE: BCE) reported revenue of $4.8 billion, up 3.3% and EBITDA of $1.9 billion, up 2.2% when compared to the same period last year. "In the third quarter we continued to make steady progress in the execution of our business plans," said Michael Sabia, President and Chief Executive Officer of BCE. "We continue to focus successfully on medium-term revenue growth opportunities, on effective cost management and on rapidly transforming the company to meet new market realities." The company recorded restructuring and other charges in the quarter which had a negative impact on reported operating income and on earnings per share (EPS). Exclusive of these restructuring and other charges and the net gains on investments, BCE's operating income was up $56 million or 5.3% and EPS was $0.52, an increase of 8.3% over the previous year. Including restructuring and other charges, operating income was $25 million, down $1,024 million from the third quarter of last year while EPS was $0.09, down from $0.49 last year. The restructuring charge reflects the cost of Bell's Voluntary Employee Departure Program, introduced over the summer. Under the program 5,052 Bell Canada employees (approximately 11% of Bell Canada's total workforce) will leave the company. Departures have begun and will be largely completed by year-end. The departures are being managed to ensure a smooth transition and that service levels will not be affected. The company has taken a charge of $985 million ($647 million after-tax) in this quarter relating to these departures. Annual savings of $390 million are expected going forward. "The industry is in a period of rapid change and we are committed to remaining in step with that change," said Mr. Sabia. "New entrants and emerging technologies are altering the competitive landscape and new business models are required to maintain our leadership and meet our customers' expectations. The Employee Departure Program helps us build a new cost structure for the company and strengthens our position as the marketplace continues to evolve." Recognizing that evolution, the company is building on its growth potential in wireless, DSL and video in Bell's Consumer segment and on the provision of Internet Protocol (IP) and value-added solutions in the Business segment. In wireless, total subscribers are up 11.5% over last year. DSL subscribers are up 27% and, by nearly doubling the number of new video customers year over year, ExpressVu became the third largest broadcast distribution company in Canada. Revenue from value-added solutions in both the Enterprise and SMB groups was up this quarter. At the end of September 2004, 60% of the traffic on Bell Canada's core network was IP-based, already meeting Bell's 2004 year-end target. Cost management and financial discipline across the company allowed BCE to continue its focus on margin improvement. Bell Canada continues its internal transformation through the implementation of IP technology, the simplification of operations and the reinvention of processes. The company is now well positioned to reach its goal of removing $1 billion in annual costs by the end of 2006. Bell Canada Financial Performance Excluding the impact of the labour disruption at Aliant (which ended in late September) and the restructuring and other charges, Bell Canada's revenue growth was 1.6%, operating income increased 8.7% and operating margin increased to 26.1% from 24.4%. Including these factors, Bell Canada's revenue growth was 1.2%, operating income decreased from $1,012 million to an operating loss of $13 million, and operating margin was negative 0.3% compared to 24.4%. Key Operational Achievements Bell's success going forward will be predicated on its ability to strengthen and strategically refine operations through innovation, investment in new technologies and continuing efforts to strengthen service to customers. Bell continues to build on its expertise in each of its three main customer segments. Mr. Sabia commented: "In each of these business segments, we are seeing a strengthening of our prospects in new and emerging opportunities. That strengthening has been predicated on the strategic analysis we undertook more than a year ago and on the development and continuing sound execution of our business plans. With Internet Protocol we are creating an entirely new generation of Value-Added Solutions for our business customers. And on the consumer front we continue to build the "Broadband Home" through solid ongoing growth in wireless, high speed Internet and video services and a new generation of Value-Added Solutions." Consumer Revenues in the Consumer segment grew by 3.8% in the quarter to reach $1.9 billion. Revenues for the first nine months stand at $5.6 billion, an increase of 4.8% over the same period in 2003. Operating income was 3.1% higher in the quarter and 6.9% higher year to date. Subscribers to Bell Canada's "Digital Bundle" grew by 114,000 in the third quarter. The Digital Bundle consists of a combination of video, wireless and high-speed Internet service and is an effective means of increasing sales of these services by offering package pricing. During the quarter, 43% of new Bundle activations included the sale of at least one new service. There are now 313,000 Bell Digital Bundle customers. The Bell Bundle was enhanced in late June with the launch of a $5/month long distance plan for 1,000 minutes of calls anywhere in Canada and the U.S. available only to Digital Bundle subscribers. This offer leverages the company's long distance customer base to drive sales of our growth services (wireless, Internet and video), as well as to capitalize now on the value of our long distance business. Since its introduction, approximately 115,000 Long Distance Bundles have been sold. Business Growth in operating income was strong, despite the fact that revenues remained flat in the Business segment. Operating income increased 26.9% in the quarter to reach $245 million and by 22.5% in the first nine months to reach $713 million. Small and Medium Business The SMB group achieved a solid quarter, and will continue to focus on its "Technology Advisor" strategy. This segment of the business market has traditionally been underserved and Bell Canada has taken a number of steps to bolster its leadership position in this space. These steps include significant reduction in service delivery times, the creation of a highly specialized sales force and acquisition of niche capabilities to broaden the suite of services Bell Canada can provide. On August 3, 2004, the SMB Group launched ProConnect, a fully managed service which enables small and medium businesses to share information easily, securely and affordably across the most extensive private IP-based network in Canada. At the outset, demand for this service is high and is leading to greater profile for the group's IP capabilities. Cross selling opportunities created by becoming part of the Bell Canada family is growing revenues at recently acquired Charon Systems (an IT solutions provider). During the quarter, SMB sold approximately 23,000 Value-Added Solutions (VAS) - nearly double what was sold in all of 2003. These services included Desktop Security, Hosting, Single Number Reach and Productivity Pak. The SMB group also made substantial progress in making its products and services simpler. For example, it has reduced the time required to deliver services to its customers by a significant margin. That means better and faster service for customers and a more quickly activated revenue stream for the company. This model to drive more efficient processes is being applied throughout the entire suite of products within SMB. Enterprise Bell Canada Enterprise group reached a number of milestones during the quarter demonstrating leadership in the implementation of IP technology and in the provision of IP services to businesses in Canada. Bell Canada now has 110,000 IP enabled lines running off customer premise equipment (CPE) and has a national Managed Internet Protocol Telephony (MIPT) service fully in place. While areas of the group's legacy business are witnessing declines as the transition to IP occurs, Bell's IP-based connectivity and VAS revenues continue to grow significantly and are on track to achieve year-end targets. IP-based connectivity services grew by 35% this quarter with almost two-thirds of Bell Canada's large Enterprise customers using some elements of the company's VAS portfolio. Bell Enterprise enjoyed strong third quarter sales momentum that led to a significant number of customer wins. For example, Bell recently signed a significant three-year service contract with Ontario-based Hydro One Networks Inc. Under the contract, Bell will provide maintenance and management service for the electric utility's telephone systems, data internetworking equipment and cabling infrastructure via a new Bell product, Enterprise Workflow Management. Hydro One Networks is Bell's first customer for this product which gives Bell Canada customers a means to manage their complex network assets in a simpler and more efficient fashion. There were also two important contract wins with the Government of Qu,bec during the quarter. The first involves the renewal of a contract for the integration and management of the province's digital land records and registry documents platform. Bell's initial role on this project as connectivity provider has expanded to include systems integration and network management functions. The second contract is for the implementation of an electronic authentication security system. The contract is important because it reinforces Bell Canada's position as a leading provider of value-added solutions. Bell West Bell continues to grow its customer base in Alberta and British Columbia, leading to increases in data and wireless revenues both this quarter and on a year-to-date basis. Construction continues on Alberta's SuperNet, which will deliver a world-class IP network to the provincial government. Bell will now also focus on the development of innovative IP applications to run over this network, considered one of the most advanced and comprehensive in the world. Bell expects to close its purchase of 360 Networks during the first half of November, doubling both the number of customers and access to buildings in the West and allowing the company to run a far greater portion of its traffic on its own networks. For business and consumers in Alberta and British Columbia, Bell is the number one competitive alternative, and one of the fastest growing enterprises in Western Canada. Performance of Growth Drivers Wireless Wireless EBITDA margin was strong at 45.4% in the quarter. The cost of acquisition (COA) per subscriber improved by 10.4% in the quarter to $381. BCE's wireless subscriber base grew by 109,000 net additions this quarter to reach 4.7 million customers, an increase of 11.5% over last year. Compared to the third quarter of 2003, net additions were down by 15,000. In the quarter, the company achieved its best wireless churn rate since the beginning of 1997, with blended churn at 1.2% and postpaid churn at 1.0%. On a year-to-date basis, blended churn of 1.3% and post-paid churn of 1.1% reflected improvements of 0.1 and 0.2 percentage points compared to the same period last year. This performance in wireless was achieved as the company managed the highly complex migration of its nearly five million customers to a new billing platform, considered to be one of the largest IT projects undertaken in Canada this year. With the introduction of our new wireless billing platform in May of this year, our focus was to ensure continuity of service levels and the orderly billing migration of our existing customer base rather than aggressively pursuing growth. Billing is now up to date as billing volumes peaked during the quarter and have returned to normal levels. The wireless unit continues to focus on returning customer service levels to normal as quickly as possible. High-Speed Internet (DSL) The company's digital subscriber line (DSL) high-speed Internet business added 96,000 subscribers this quarter growing the subscriber base by 27% over the third quarter of 2003 to 1,766,000. Subscriptions to Sympatico's value-added solutions increased by 20,000 to reach a total of 453,000 at the end of the quarter. The company's new Sympatico.MSN.ca web site is performing well. For example, traffic being forwarded to bell.ca (where Bell services can be ordered) has increased 33% since the launch of the new portal. Revenues from the portal have increased by 40%. The company's DSL footprint in Ontario and Qu,bec reached 81% of residential and business lines passed by the end of the quarter compared to 79% at the end of the third quarter of 2003. This increase was in part due to the deployment of new high-density DSL remotes which began in April, 2004. These remotes not only extend high-speed availability throughout the network, they also lay the groundwork for Bell to offer video to the home over higher-speed DSL connections. By the end of the quarter, the company had deployed 139 of these new remotes. Video Customer gains of 33,000 in the video business were almost double the net activations achieved in Q3 last year and significantly outpaced growth in the second quarter this year. Total subscribers at the end of the quarter reached 1,460,000, 8% higher compared to the same period last year. Bell Canada has taken steps recently to revitalize its video business with new initiatives that are leading to a stronger growth trajectory. These initiatives have included: more flexible programming packages starting at $25 per month; an advanced personal video recorder (PVR) that allows customers to watch and record on two separate TVs simultaneously; a simplified channel line-up; a simplified pricing structure; and a simplified on- screen programming guide. Solid progress was made this quarter in Bell ExpressVu's deployment of very high-speed DSL (VDSL) to multiple dwelling units (MDUs). By the end of the quarter, Bell had signed access agreements with 220 buildings, on track to achieve the year-end goal of 300 buildings. "Continued strong growth in wireless, DSL and video remain critical for the company," said Mr. Sabia. "These are the building blocks of the future core of our business operations and their continued growth through effective promotion and continued investment remains a top priority for the company." Bell Globemedia Revenues at Bell Globemedia were up 2% and operating income improved by 15%. CTV had 17 of the top 20 regularly scheduled programs in the country during the summer period. Canadian Idol was once again a national phenomenon with viewership peaking at 4.2 million making it Canada's most watched, non-sports program for the second straight season and helping drive increased advertising revenues. The Globe and Mail recently launched a new subscription-based web site called "Insider Edition" available from globeandmail.com . The Globe and Mail is seeing strength in its circulation numbers and in revenue growth from its various web properties. Telesat Canada Telesat Canada reported revenues of $91 million in the third quarter, an increase of 8.3% over last year. Operating income was $39 million, an increase of 39.3%. Telesat completed testing and put into operation its Anik F2 satellite which is the first triple band satellite in the world and the first satellite capable of providing two-way Ka broadband services. The company also launched service on Nimiq 3 which will provide high-power and back-up operations for ExpressVu's direct- to-home television services. Attesting to its international reputation, Telesat's consulting services are now being used by the Nigerian National Space Agency and the Co-operation Council of the Arab States of the Gulf. Telesat has also been selected as a prime vendor for an interactive distance learning network that will span Canada, the U.S., Mexico and Europe. Other Significant Developments -- Bell Canada was selected by the Vancouver Organizing Committee for the 2010 Olympic and Paralympic Winter Games as its Premier National Partner. The partnership continues through to 2012, securing for Bell the Canadian Olympic Team sponsorship rights to Torino in 2006, Bejing in 2008, Vancouver in 2010, the 2012 Games, and for two Pan-American Games. The Olympics will be the core platform to enhance Bell Canada's brand as the leading national provider of communications services. -- Bell Canada signed a labour contract with its technical employees that extends until November, 2007. As well Aliant ended a work disruption when it reached a contract settlement with its unionized employees which also extends until December, 2007. -- In July, Bell sold its remaining 3.24% interest in The Yellow Pages Directory Group for $123 million. -- In August, Bell Canada completed the purchase of MTS's 40% interest in Bell West for $646 million in cash. Bell Canada now holds 100% of Bell West. -- In September, Bell Canada sold its remaining 15.96% interest in MTS for proceeds of $584 million. This was in addition to a payment of $75 million made by MTS to Bell Canada in consideration of the early termination of their commercial agreements. Outlook BCE confirmed its annual full year 2004 financial guidance of: -- revenue growth comparable to 2003 growth -- mid-to-high single-digit growth in earnings per share (before net investment gains/losses, impairment or restructuring charges) -- free cash flow of approximately $1 billion, mainly from recurring sources, and -- Bell Canada capital intensity of 17% to 18%. Bell Canada Statutory Results Bell Canada "statutory" includes Bell Canada, and Bell Canada's interests in Aliant, Bell ExpressVu (at 52%), and other Canadian telcos. Bell Canada's reported statutory revenue was $4.2 billion in the third quarter of 2004, up 1.2% compared to the same period last year. Net loss applicable to common shares was $53 million in the third quarter of 2004, compared to net earnings applicable to common shares of $550 million for the same period last year. About BCE Bell Canada Enterprises is Canada's largest communications company. Through its 26 million customer connections, BCE provides the most comprehensive and innovative suite of communication services to residential and business customers in Canada. Under the Bell brand, the company's services include local, long distance and wireless phone services, high speed and wireless Internet access, IP-broadband services, value-added business solutions and direct-to-home satellite and VDSL television services. Other BCE businesses include Canada's premier media company, Bell Globemedia, and Telesat, a pioneer and world leader in satellite operations and systemsmanagement. BCE shares are listed in Canada, the United States and Europe. BCE 2004 Third Quarter Financial Information BCE's 2004 Third Quarter Shareholder Report (which contains BCE's 2004 third quarter MD&A and unaudited consolidated financial statements) and other relevant financial materials are also available at http://www.bce.ca/en/investors/under "Investor Briefcase". BCE's 2004 Third Quarter Shareholder Report is also available on the Web sites maintained by the Canadian securities regulators at http://www.sedar.com/and by the U.S. Securities and Exchange Commission at http://www.sec.gov/It is also available upon request from BCE's Investor Relations Department (e-mail: investor.relations@bce.ca, tel.: 1 800 339-6353; fax: (514) 786-3970). BCE's 2004 Third Quarter Shareholder Report will be sent to BCE's shareholders who have requested to receive it on or about Nov. 8, 2004. BCE is Canada's largest communications company. It has 25 million customer connections through the wireline, wireless, data/Internet and satellite services it provides, largely under the Bell brand. BCE's media interests are held by Bell Globemedia, including CTV and The Globe and Mail. As well, BCE has e-commerce capabilities provided under the BCE Emergis brand. BCE shares are listed in Canada, the United States and Europe. BCI is operating under a court supervised Plan of Arrangement, pursuant to which BCI intends to monetize its assets in an orderly fashion and resolve outstanding claims against it in an expeditious manner with the ultimate objective of distributing the net proceeds to its shareholder and dissolving the company. BCI is listed on the Toronto Stock Exchange under the symbol BI and, until December 31, 2003, on the NASDAQ National Market under the symbol BCICF. Visit its Web site at http://www.bci.ca/ BERKLINE/BENCHCRAFT: Moody's Affirms Single-B Ratings on Loans -------------------------------------------------------------- Moody's Investors Service affirmed the existing ratings of Berkline/Benchcraft following the revised structure of the second lien bank term loan and of the revolving credit facility. The company plans to reduce the sizes of the second lien term loan (rated B2) by $20 million to $50 million and the revolving credit facility (rated B1) by $10 million to $25 million. The outlook remains stable. Moody's affirmed these ratings of Berkline/Benchcraft: * $25 million senior secured revolving credit facility due 2010, at B1; * $110 million senior secured first lien term loan due 2011, at B1; * $50 million senior secured second lien term loan due 2012, at B2; * Senior implied rating, at B1; * Senior unsecured issuer rating, at B3. Moody's views the revised structure of second lien term loan as a modest improvement to the company's credit profile. The company's outstanding debt will decrease by $20 million as a result of this recapitalization, decreasing pro forma leverage (as measured by adjusted debt/adjusted EBITDAR) to 4.4x as of August 30, 2004. As detailed in Moody's initialization of Berkline/Benchcraft's rating on September 29th, 2004, Berkline/BenchCraft was acquired by management and the investment firm Code Hennessy & Simmons IV LP in March 2002. The rated credit facilities are a part of a recapitalization package, which will refinance existing debt and return funds to existing shareholders. The company will have no debt outstanding under its revolving credit facility as part of this recapitalization. The ratings reflect the recent (2002) merger of the Berkline and BenchCraft operations and the ongoing integration of these businesses. The ratings also reflect the highly competitive and fragmented nature of the residential furniture business and the relative dependence of residential furniture sales on the general state of the economy. Ratings reflect the threat of increased import penetration and the possibility that increases in raw material costs will not be able to be passed on to the consumer, or will be passed on with a lag. The ratings are supported by: (1) the company's Berkline and BenchCraft brand names; (2) its broad and diversified customer and supplier base; (3) its wide product line; (4) its number one position in motion furniture and leading position in upholstered furniture; and (5) its offshore sourcing capabilities. The company's ratings are also supported by: (1) the company's good liquidity; (2) its $25 million revolver is largely expected to be undrawn and limited amortization of the term loans is required. The company has historically been and is projected to be a steady cash flow generator with relatively limited capital expenditure and working capital requirements. The stable rating outlook reflects the requirement that the company will utilize 75% of excess cash flow for debt repayment (until leverage reaches 2.5x or less), as well as the expectation that the residential furniture sector should continue to improve as the economy recovers, with a positive impact on the company's cash flow and earnings. The outlook also reflects our expectation that the company will not undertake additional recapitalization or relevering transactions, or make significant acquisitions or capital expenditures. Ratings could be upgraded if the upturn in the residential furniture industry continues and positively impacts Berkline/BenchCraft and if Berkline/BenchCraft utilizes excess cash flow for debt reduction as expected. Ratings could be upgraded if the company's ratio of adjusted debt/adjusted EBITDAR falls to the 4x range or below and free cash flow/total adjusted debt is in the range of 12-15%. Although Moody's currently views it as unlikely, ratings could be downgraded if: (1) the recovery in the residential furniture market does not continue; (2) Berkline/BenchCraft's market position deteriorates; and (3) credit metrics decline with adjusted debt/adjusted EBITDAR increasing to over 5x and free cash flow/total adjusted debt falling into the single digits. Moody's rates the senior first lien secured bank facilities at the same B1 level as the senior implied rating, as the first lien facility will constitute the majority of the outstanding debt. Tangible and intangible collateral does not appear to be sufficient for the first lien facility to be notched up from the senior implied rating, despite the first priority security interest in all assets. The second lien term loan is rated one notch below the first lien term loan at B2 due to its second priority security interest in all assets. The senior unsecured issuer rating, which is at the holding company, is rated two notches below the senior implied rating at B3. Headquartered in Morristown, Tennessee, Berkline/BenchCraft is a leading manufacturer of motion upholstery furniture, freestanding reclining chairs and stationary furniture. BEXAR COUNTY: Moody's Slices Sub. Revenue Bond Rating to Ba2 ------------------------------------------------------------ Moody's Investors Service downgraded these ratings on the Bexar County Housing Finance Corporation Multifamily Housing Revenue Bonds (American Opportunity for Housing-Cinnamon Creek Apartments), 2002 Series A and B: * Senior Series 2002A downgraded to Baa2 from A3, * Subordinate Series 2002B downgraded to Ba2 from Baa3. The oulook on these bonds remains negative. The amount of debt affected is approximately $14 million. The ratings downgrade is prompted by Moody's review of annualized 2004 unaudited monthly reports from January 2004 through September 30, 2004 and San Antonio rental market data. Reports demonstrate that the property is performing below underwritten levels of 1.40x on the senior bonds and 1.25x on the subordinate bonds. Annualized 9 months of data reflect a debt service coverage of 1.20x on the senior bond and 1.07x on the subordinate bonds. Net operating income has been affected by high concessions, bad debt expenses, loss to lease expenses and marketing expenses The San Antonio rental market continues to perform well with third quarter 2004 rents the highest on record. Cinnamon Creek has successfully instituted rental rate increases however, increases have lagged the overall market as evidenced by high loss to lease expenses. The trend of rising rents may be affected by the high rate of newly constructed units, which are expected to come on line in the near term. The benefit of increased rental revenues has been largely offset by the high rates of rental concessions, which are currently offered in the competitive San Antonio multifamily rental market. Physical occupancy at Cinnamon Creek is in line with submarket performance. The property is currently 94% occupied. The rating outlook on the bonds continues to be negative. BIOPHARMA ROYALTY: S&P Junks Sr. Notes Due to Low Royalty Revenues ------------------------------------------------------------------ Standard & Poor's Ratings Services lowered its 'BBB-' rating on the senior notes issued by BioPharma Royalty Trust to 'CCC'. At the same time, the rating is removed from CreditWatch negative, where it was placed August 20, 2004. The lowered rating reflects the precipitous deterioration of the patent royalty revenues being generated by Bristol-Myers Squibb Co. ('A+') through the sale of the prescription drug Zerit in the worldwide HIV/AIDS marketplace. The rating analysis, which included corporate and structured analysis and discussions with Bristol-Myers, focused on industry and business fundamentals, historical sales data, growth prospects or lack thereof, vulnerabilities, and projected cash flows. The overriding risk facing this transaction is the increasing likelihood that cash flows will be insufficient to service the rated debt and make senior bondholders whole at the legal final maturity date, June 6, 2006. This rationale is supported by increased competition and a wider array of alternative medications, resulting in steeply declining sales and product obsolescence. Standard & Poor's original sales projections assumed that after an initial decline in sales from 1999 to 2000, sales would increase at a declining rate of 5.9% per annum on average. However, actual sales in 2002 and 2003 were 32% and 35% lower, respectively, than originally projected. Moreover, full-year 2004 sales could end up roughly 50% lower than original sales projections. Furthermore, actual sales for 2002 were 36% lower than 2001, were relatively flat in 2003 (compared to 2002), and are expected to decline by approximately 30%, on a full year basis, in 2004 (compared to 2003). These continued sharp declines have necessitated Standard & Poor's to again revise its base case sales forecast on a going forward basis reflecting the continued decline in market share of Zerit for new prescriptions, which is considered to be irreversible. Based on the revised sales forecasts and corresponding royalty revenues generated by Zerit sales, the results of the cash flows are no longer consistent with a 'BBB-' rating. The issuer is entitled to 70% of the royalties payable under a licensing agreement between a major research-based academic institution and Bristol-Myers. Under the licensing agreement, Bristol-Myers pays royalties based on worldwide sales of Zerit. Zerit sales in 1999 and 2000 totaled $605 million and $613 million, respectively. Subsequently, sales declined in 2001 to $546 million. The deterioration in sales was much more pronounced in 2002, when sales of Zerit declined to $348 million. As a result of the deterioration in sales during 2002, the senior notes breached their senior coverage ratio test on three consecutive payment dates and entered early amortization, as the breach constituted an event of default according to the transaction documents. Sales of Zerit during 2003 were relatively unchanged from 2002 at $350 million. However, 2004 sales through the end of the second quarter have only totaled $136 million. Zerit received regulatory approval in 1999 for use as a first line component of a combination antiretroviral therapy regimen for HIV-infected patients. At the time, Zerit was the most commonly prescribed thymadine nucleoside reverse transcriptase inhibitor -- NRTI -- for HIV therapy in the U.S. In recent years, the HIV virus has become increasingly resistant to NRTIs, which has led many doctors to prescribe newer drugs. Zerit has also proven to have a less favorable side effect profile compared to newer drugs in its class. Furthermore, the global market for HIV drugs has further developed and competition from rival drugs has become more prevalent. Standard & Poor's will continue to monitor the performance of the transaction including, but not limited to, ensuring that actual sales and the generation of royalty revenues are consistent with Standard & Poor's revised sales forecast and corresponding royalties generated from those sales. BRIDGEPOINT TECH: U.S. Trustee Picks 4-Member Creditors Committee ----------------------------------------------------------------- The United States Trustee for Region 6 appointed four creditors to serve on an Official Committee of Unsecured Creditors in BridgePoint Technical Manufacturing corp.'s chapter 11 case: 1. Agilent Financial Services Attn: Chris Del Guidice 1 CIT Drive Mail Stop 2100A Livingston, New Jersey 07039 2. Test Spectrum, Inc. Attn: Todd Turner 105 W. Riverside, #100 Austin, Texas 78704 3. Arrow Electronics Attn: Doug Christiansen 7459 S. Lima St. Building I Englewood Colorado 80112-5816 4. Met Center Partners I Attn: Howard Yancy 611 W. 15th St. Austin, Texas 78701 Official creditors' committees have the right to employ legal and accounting professionals and financial advisors, at the Debtors' expense. They may investigate the Debtors' business and financial affairs. Importantly, official committees serve as fiduciaries to the general population of creditors they represent. Those committees will also attempt to negotiate the terms of a consensual chapter 11 plan -- almost always subject to the terms of strict confidentiality agreements with the Debtors and other core parties-in-interest. If negotiations break down, the Committee may ask the Bankruptcy Court to replace management with an independent trustee. If the Committee concludes reorganization of the Debtors is impossible, the Committee will urge the Bankruptcy Court to convert the Chapter 11 cases to a liquidation proceeding. Headquartered in Austin, Texas, BridgePoint Technical Manufacturing Corp. -- http://www.bridgept.com/-- provides engineering, testing, packaging, and circuit board assembly services to semiconductor and computer companies. The Company filed for chapter 11 protection on September 3, 2004 (Bankr. W.D. Tex. Case No. 04-14555). Mark Curtis Taylor, Esq., at Hohmann & Taube, LLP, represents the Debtor in its restructuring efforts. When the Company filed for protection from its creditors, it listed above $1 million in assets and above $10 million in debts. CALPINE CORP: Posts $22.3 Million of Net Income in Third Quarter ---------------------------------------------------------------- Calpine Corporation (NYSE: CPN) reported financial and operating results for the three and nine months ended Sept. 30, 2004. For the three months ended Sept. 30, 2004, the company reported net income of $22.3 million, compared to net income of $237.8 million for the quarter ended Sept. 30, 2003. "During the quarter, Calpine's power plant operations remained strong, with 97% availability," stated Calpine CEO and President Peter Cartwright. "Earnings, however, fell short of our expectations -- primarily as a result of low market spark spreads attributed in part to mild, below normal weather in several U.S. power markets. "We made significant progress on our announced liquidity enhancing program, completing $1.5 billion of liquidity transactions. A portion of these proceeds was used to repurchase $735 million of existing debt. In October, we also redeemed our HIGH TIDES I and II preferred securities. "While we cannot predict when power prices will normalize, we are encouraged by an improvement in spark spreads in several of Calpine's major power markets. Moving forward, Calpine remains committed to advancing our strategy of selling power under long- term contracts, improving our balance sheet through the repurchasing of debt, and enhancing liquidity." 2004 Third Quarter Results In the quarter ended Sept. 30, 2004, Calpine netted approximately $563.3 million of sales of purchased power for hedging and optimization with purchased power expense for hedging and optimization. This was due to the adoption on October 1, 2003, on a prospective basis, of new accounting rules related to presentation of non-trading derivative activity. Without this netting, total revenue would have grown by approximately 17% versus the reported 4% reduction in revenue. For the three months ended Sept. 30, 2004, the company reported earnings per share of $0.05, or net income of $22.3 million, compared to earnings per share of $0.51, or net income of $237.8 million, for the same quarter in the prior year. The results for the third quarter of 2004 include additional tax expense of approximately $78.8 million, which is attributable to the repatriation of net cash proceeds from Canada to the United States following the sale of oil and gas assets in Canada and which is mostly netted within the discontinued operations gain. The company expects to record a reduction of approximately $66.9 million, or $0.15 per share, of this tax expense, in the fourth quarter of 2004 because of provisions in The American Jobs Creation Act of 2004 signed into law on October 22, 2004. Calpine recognized an after-tax gain of $62.6 million, or $0.14 per share, in discontinued operations associated with the sale of the company's Canadian natural gas reserves and petroleum assets and the sale of its gas reserves in the Colorado Piceance Basin and New Mexico San Juan Basin. The company also recognized an after-tax gain of $0.23 per share on the repurchase of certain debt issuances, compared to a gain of $0.23 per share in the same quarter in 2003. Gross profit decreased by $84.5 million, or 25%, to $254.4 million in the three months ended Sept. 30, 2004, primarily due to: i) non-recurring other revenue of $69.4 million recognized in the third quarter of 2003 from the settlement of contract disputes with, and claims against, Enron Corp.; ii) the amortization of $6.2 million in the third quarter of 2004 of the DIG C-20 gain recorded in the fourth quarter of 2003 due to the cumulative effect of a change in accounting principle; iii) soft market fundamentals, which caused total spark spread to not increase commensurately with additional transmission purchase expense, and depreciation costs associated with new power plants coming on-line. During the three months ended Sept. 30, 2004, financial results were affected by a $79.7 million increase in interest expense and distributions on trust preferred securities, as compared to the same period in 2003. This occurred as a result of higher debt balances, higher average interest rates and lower capitalization of interest expense as new plants entered commercial operation. Loss before discontinued operations and cumulative effect of a change in accounting principle was $40.2 million, or $0.09 per share. This loss is primarily due to an effective tax rate increase, which occurred as a result of the sale of oil and gas assets in Canada and due to the repatriation of cash to the United States. For the three months ended Sept. 30, 2004, the company generated 29.4 million megawatt-hours, which equated to a baseload capacity factor of 56%, and realized an average spark spread of $21.40 per megawatt-hour. For the same period in 2003, Calpine generated 25.4 million megawatt-hours, which equated to a capacity factor of 60%, and realized an average spark spread of $23.88 per megawatt-hour. 2004 Nine-Month Results In the nine months ended Sept. 30, 2004, Calpine netted approximately $1.26 billion of sales of purchased power for hedging and optimization with purchased power expense. This was due to the adoption on October 1, 2003, on a prospective basis, of new accounting rules related to presentation of non-trading derivative activity. Without this netting, total revenue would have grown by approximately 17% versus the reported 1% reduction in revenue. For the nine months ended Sept. 30, 2004, the company reported a loss per share of $0.18, or a net loss of $77.6 million, compared to earnings per share of $0.41, or net income of $162.4 million, for the same period in the prior year. The year to date results for 2004 include additional tax expense of approximately $78.8 million, which is attributable to the repatriation of net cash proceeds from Canada to the United States following the sale of oil and gas assets in Canada and which is mostly netted within the discontinued operations gain. Calpine expects to record a reduction of approximately $66.9 million, or $0.15 per share, of this tax expense in the fourth quarter of 2004 because of provisions in The American Jobs Creation Act of 2004 signed into law on October 22, 2004. Gross profit decreased by $222.9 million, or 34%, to $423.4 million in the nine months ended Sept. 30, 2004, primarily due to: i) non-recurring other revenue of $69.4 million recognized in the third quarter of 2003 from the settlement of contract disputes with, and claims against, Enron Corp.; ii) the amortization of $22.9 million in the first nine months of 2004 of the DIG C-20 gain recorded in the fourth quarter of 2003 due to the cumulative effect of a change in accounting principle; iii) soft market fundamentals, which caused total spark spread to not increase commensurately with additional plant operating expense and transmission purchase expense, and depreciation costs associated with new power plants coming on-line. During the nine months ended Sept. 30, 2004, financial results were affected by a $285.5 million increase in interest expense and distributions on trust preferred securities, as compared to the same period in 2003. This occurred as a result of higher debt balances, higher average interest rates and lower capitalization of interest expense as new plants entered commercial operation. Prior year results benefited from recording $52.8 million (in income from unconsolidated investments in power projects) from termination of a power purchase agreement by the Acadia joint venture. Other income increased by $241.7 million during the nine months ended Sept. 30, 2004, as compared to the same period in 2003, primarily due to: i) pre-tax income in the amount of $171.5 million, net of transaction costs and the write-off of unamortized deferred financing costs associated with the restructuring of power purchase agreements for the company's Newark and Parlin power plants and the sale of an entity holding a power purchase agreement; ii) a $16.4 million pre-tax gain from the restructuring of a long-term gas supply contract net of transaction costs; and iii) a $12.3 million pre-tax gain from the King City restructuring transaction related to the sale of the company's debt securities that had served as collateral under the King City lease, net of transaction costs. Also, during the nine months ended Sept. 30, 2004, foreign currency transaction losses were $7.5 million, compared to a loss of $36.2 million in the corresponding period in 2003. Calpine recognized a gain of $0.24 per share in the nine months ended Sept. 30, 2004 on the repurchase of certain debt issuances, compared to a gain of $0.25 per share in the same nine-month period in 2003, and loss before discontinued operations and cumulative effect of a change in accounting principle was $167.5 million, or $0.39 per share, in 2004. Discontinued operations, net of tax increased by $84.4 million during the nine months ended Sept. 30, 2004, as compared to the same period in 2003, as a result of the sale of oil and gas assets in the United States and Canada during the third quarter of 2004 and the sale of the company's interest in the Lost Pines facility in the first quarter of 2004. For the nine months ended Sept. 30, 2004, the company generated 72.5 million megawatt-hours, which equated to a baseload capacity factor of 51%, and realized an average spark spread of $21.19 per megawatt-hour. For the same period in 2003, Calpine generated 62.1 million megawatt-hours, which equated to a capacity factor of 55%, and realized an average spark spread of $23.90 per megawatt-hour. Liquidity and Finance Program Highlights Calpine continues to advance on its announced program to enhance liquidity, address near-term debt maturities and repurchase existing indebtedness. During the past several months, Calpine has: -- Completed the sale of all of its Canadian natural gas reserves and petroleum assets for approximately $625 million and sold its natural gas reserves in the Colorado Piceance Basin and New Mexico San Juan Basin for approximately $223 million. A portion of the net proceeds was used to repay $500 million of the company's first lien indebtedness. -- Received funding on a preferred equity interest relating to Calpine's Saltend power plant. Calpine Jersey Limited (Calpine Jersey) issued $360 million of two-year, Redeemable Preferred Shares at U.S. LIBOR, plus 700 basis points. Calpine Jersey is an indirect, wholly owned subsidiary of Calpine. The net proceeds from the offering were loaned to Calpine's 1,200-megawatt Saltend cogeneration power plant located in Hull, Yorkshire, England, and will be used as permitted by the company's indentures. -- Completed its $785 million offering of 9.625% first-priority senior secured notes due 2014, offered at 99.212% of par. These notes are secured, directly and indirectly, by substantially all of the assets owned by Calpine, including its natural gas and power assets and the stock of Calpine Energy Services and other subsidiaries. Net proceeds from this offering will be used to redeem or repurchase existing indebtedness through open-market purchases, and as otherwise permitted by the company's indentures. -- Issued $736 million of 6% unsecured contingent convertible notes due 2014, offered at 83.9% of par. A portion of the net proceeds were used to redeem in full Calpine's HIGH TIDES I and HIGH TIDES II preferred securities. The balance net proceeds was used to repurchase $115.0 million of its GH TIDES III preferred securities. -- In transactions initiated and completed during the third quarter, the company repurchased $734.8 million of the principal amount of its outstanding debt and its HIGH TIDES preferred securities as listed below: -- 7.625% Senior Notes Due 2006 $23,845,000 -- 8.5% Senior Notes Due 2008 279,770,000 -- 7.875% Senior Notes Due 2008 50,000,000 -- 4.75% Convertible Senior Notes Due 2023 266,225,000 -- HIGH TIDES III 115,000,000 Total $734,840,000 These securities were repurchased in exchange for $553.8 million in cash. -- During October 2004, the company repurchased an additional $620.8 million of the principal amount of its outstanding debt and its HIGH TIDES preferred securities as listed below: -- 10.5% Senior Notes Due 2006 $2,230,000 -- 7.625% Senior Notes Due 2006 23,000,000 -- 8.75% Senior Notes Due 2007 10,820,000 -- 8.5% Senior Notes Due 2008 58,500,000 -- 8.375% Senior Notes Due 2008 7,750,000 -- 7.875% Senior Notes Due 2008 7,000,000 -- 8.5% Senior Notes Due 2011 28,000,000 -- HIGH TIDES I 198,500,000 -- HIGH TIDES II 285,000,000 Total $620,800,000 These securities were repurchased in exchange for $581.1 million in cash. On Sept. 30, 2004, the company's liquidity totaled approximately $2.7 billion. This included cash and cash equivalents on hand of approximately $1.5 billion, current portion of restricted cash of approximately $0.9 billion and approximately $0.3 billion of borrowing capacity under various credit facilities. Power Plant and Natural Gas Operations Calpine's geographically diversified portfolio of 73 natural gas- fired, combined-cycle power generation facilities represents one of the cleanest and most fuel-efficient fleets in North America. Together with its 19 geothermal power plants, Calpine can deliver 26,489 megawatts of generation to power customers in 21 states, Canada and in the United Kingdom. During the quarter, Calpine: -- Operated its natural gas-fired and geothermal power plants with an average plant availability factor of 97.3%, off slightly compared to an 98.1% average availability for the same period a year ago; -- Generated 29.4 million megawatt-hours, a 16% increase over the third quarter of 2003. Through hedging and optimization activity at its Calpine Energy Services subsidiary, the company delivered an additional 25.4 million megawatt-hours; -- Achieved an average heat rate of 7,140 British thermal units per kilowatt-hour, compared to a heat rate of 7,159 for the same period in 2003; -- Lowered plant operating expenses to $5.16 per megawatt-hour (assuming a 70% capacity factor) for the trailing twelve- month period ending Sept. 30, 2004, compared to $5.31 for the same period ending Sept. 30, 2003; and -- Completed construction of the 271-megawatt Goldendale Energy Center, located in Goldendale, Wash. New Power Contract Opportunities Calpine serves more than 100 load-serving, retail and industrial customers across North America and in the United Kingdom. The company is currently pursuing nearly 27,200 megawatts of contract opportunities, with an eight-year weighted average term. During the quarter, the company entered into 26 new power contracts, representing approximately 1,400 megawatts of generation for sale to large wholesale customers. Through Sept. 30, 2004, the company has signed 67 power contracts. The sales represent approximately 5,700 megawatts of capacity and approximately 224 million megawatt-hours. The weighted average on- peak spark spread for these contracts is approximately $17.00 per megawatt-hour, with a five-year weighted average life. Calpine is pursuing additional opportunities in the emerging energy services sector. The company is helping meet the needs of traditional power and retail customers as well as new entrants to the market, including financial and banking institutions. Most recently, Calpine signed an agreement to provide a variety of services -- including fuel management, power marketing and gas supply -- for three gas-fired, cogeneration power plants in New Jersey. Included in the Supplemental Data with this news release is an updated report summarizing Calpine's total estimated generation capacity and capacity currently under contract through 2009. A full detailed report is available on the company's website on its investor relations page at http://www.calpine.com/ 2004 Earnings and Cash Flow Guidance For 2004, the company remains on track to achieve its $1.7 billion of EBITDA, as adjusted for non-cash and other charges. Calpine continues to target breakeven GAAP earnings, with the assumption of additional bond repurchases during the fourth quarter. About the Company Calpine Corporation, celebrating its 20th year in power, is a North American power company dedicated to providing electric power to customers from clean, efficient, natural gas-fired and geothermal power plants. The company generates power at plants it owns or leases in 21 states in the United States, three provinces in Canada and in the United Kingdom. The company is listed on the S&P 500 and was named FORTUNE's Most Admired Energy Company in America for 2004. Calpine was founded in 1984 and is publicly traded on the New York Stock Exchange under the symbol CPN. For more information, visit http://www.calpine.com/ * * * As reported in the Troubled Company Reporter on Oct. 13, 2004, Standard & Poor's Ratings Services assigned its 'CCC+' rating to Calpine Corp.'s (B/Negative/--) $736 million unsecured convertible notes due 2014. The rating on the notes is the same as Calpine's existing unsecured debt and two notches lower than the corporate credit rating. The outlook is negative. As reported in the Troubled Company Reporter on Oct. 25, 2004, Fitch Ratings has withdrawn the 'CCC' rating and Stable Rating Outlook for Calpine Corp.'s 5.75% High Tides I and 5.50% High Tides II trust preferred securities. The rating withdrawal reflects the full redemption of these securities. CATHOLIC CHURCH: Portland's First Interim Chapter 11 Report ----------------------------------------------------------- On October 8, 2004, Leonard Vuylsteke, Financial Director of the Archdiocese of Portland in Oregon, delivered the first Chapter 11 Interim Report as required by Rule 2016-1.B. of the Local Bankruptcy Rules of the U.S. Bankruptcy Court for the District of Oregon. The Interim Report provides for the financial condition of Portland's estate: Estate Money Total from Petition Date ------------ ------------------------ Receipts $7,899,605 Disbursements 6,254,615 ------------ Balance on Hand $1,644,990 According to Mr. Vuylsteke, Portland's case is not ready for reorganization. The initial deadline for filing non-tort claims has not passed, and the bar date for filing tort claims has not yet been set. Mr. Vuylsteke reports that objections have been made to Portland's proposal for accelerated claims resolution, and no procedure has yet been established. In addition, there is pending an adversary proceeding to determine property of the estate. There are also two other adversary proceedings to determine the availability and amount of insurance to pay tort claims. Although all of these actions are proceeding expeditiously, Portland does not foresee filing a plan of reorganization and disclosure statement before May 2005. Portland has $395,000 that could be disbursed for interim compensation of professionals and administrative expenses at this time without jeopardizing the viability of its estate. The estate is currently obligated to pay a maximum of $10,000 for administrative expenses owed to non-professionals. Mr. Vuylsteke says the administrative expenses consist of quarterly U.S. Trustee fees. The Court has appointed these professionals: Professional Duty ------------ ---- Sussman Shank LLP General Counsel to Portland Schwabe Williamson & Wyatt PC Special Litigation counsel to Portland Miller Nash LLP Special Litigation counsel to Portland Rothgerber Johnson & Lyons LLP Special Constitutional Law counsel to Portland Tonkon Torp LLP Counsel to the Official Committee of Tort Claimants KPMG LLP Accountants to Portland The Roman Catholic Church of the Diocese of Tucson filed for chapter 11 protection (Bankr. D. Ariz. Case No. 04-04721) on September 20, 2004, and delivered a plan of reorganization to the Court on the same day. Susan G. Boswell, Esq., Kasey C. Nye, Esq., at Quarles & Brady Streich Lang LLP, represent the Tucson Diocese. The Archdiocese of Portland in Oregon filed for chapter 11 protection (Bankr. Ore. Case No. 04-37154) on July 6, 2004. Thomas W. Stilley, Esq. and William N. Stiles, Esq. of Sussman Shank LLP represent the Portland Archdiocese in its restructuring efforts. Portland's Schedules of Assets and Liabilities filed with the Court on July 30, 2004, the Portland Archdiocese reports $19,251,558 in assets and $373,015,566 in liabilities. (Catholic Church Bankruptcy News, Issue No. 8; Bankruptcy Creditors' Service, Inc., 215/945-7000) CATHOLIC CHURCH: Judge Perris Extends Portland's Exclusive Periods ------------------------------------------------------------------ The Archdiocese of Portland in Oregon asks the U.S. Bankruptcy Court for the District of Oregon to extend the time within which it has the exclusive right to file and solicit acceptances of a reorganization plan. Portland wants the Exclusive Plan Filing Period extended until August 1, 2005, and the Exclusive Solicitation Period extended until September 30, 2005. Under Sections 1121(b) and (c)(3) of the Bankruptcy Code, Portland has the exclusive right to file a plan until 120 days after the Petition Date and to obtain acceptance of that plan until 180 days after the Petition Date. Thomas W. Stilley, Esq., at Sussman Shank, LLP, explains that the extension of the Exclusive Periods is necessary to provide Portland sufficient time to: -- attempt to resolve numerous issues with the Official Committee of Tort Claimants associated with a deadline for filing tort claims; -- provide notice of the Tort Claims Bar Date to persons who may be entitled to assert a tort claim once the Tort Claims Bar Date is set; -- identify the number and amount of tort claims being asserted against it; -- finalize an implement its proposed Plan of Accelerated Claims Resolution Process to liquidate all or a majority of the tort claims; and -- attempt to resolve or litigate disputes with its insurers over coverage issues. An extension also gives tort claimants more time to file proofs of claim. Moreover, an extension allows Portland sufficient time to discuss and negotiate a consensual reorganization plan with the Tort Claimants Committee and individual tort claimants. Portland was the first diocese in the United States to take the unprecedented step of filing for bankruptcy. The size and complexity of its case is unprecedented in the District of Oregon. Mr. Stilley reminds the Court that Portland faces at least 60 pending tort claims alleging millions of dollars in damages and an unknown number of other unfilled and potential future claims. Portland has not yet finalized a plan because of the amount of claims is far from certain. It also unclear what property must be included in its estate. Unless at least the amount of the claims is resolved, or the claims have been estimated for purposes of confirmation, it will be almost impossible for Portland to propose a confirmable plan. Mr. Stilley relates that Portland has been working in good faith towards the negotiation of the essential elements of a Chapter 11 plan and the expeditious resolution of its case. Mr. Stilley assures Judge Perris that the extension is not intended to pressure creditors, and will not prejudice any creditors' interest. Moreover, Mr. Stilley notes that Portland has been paying its postpetition bills on time and is not in default. * * * Judge Perris extends Portland's Exclusive Plan Filing Period until June 1, 2005, and its Exclusive Solicitation Period until July 31, 2005. The Roman Catholic Church of the Diocese of Tucson filed for chapter 11 protection (Bankr. D. Ariz. Case No. 04-04721) on September 20, 2004, and delivered a plan of reorganization to the Court on the same day. Susan G. Boswell, Esq., Kasey C. Nye, Esq., at Quarles & Brady Streich Lang LLP, represent the Tucson Diocese. The Archdiocese of Portland in Oregon filed for chapter 11 protection (Bankr. Ore. Case No. 04-37154) on July 6, 2004. Thomas W. Stilley, Esq. and William N. Stiles, Esq. of Sussman Shank LLP represent the Portland Archdiocese in its restructuring efforts. Portland's Schedules of Assets and Liabilities filed with the Court on July 30, 2004, the Portland Archdiocese reports $19,251,558 in assets and $373,015,566 in liabilities. (Catholic Church Bankruptcy News, Issue No. 8; Bankruptcy Creditors' Service, Inc., 215/945-7000) CHAPCO CARTON: Creditors Must File Proofs of Claims by Nov. 15 -------------------------------------------------------------- The U.S. Bankruptcy Court for the Northern District of Illinois set November 15, 2004, as the deadline for all creditors owed money by Chapco Carton Company on account of claims arising prior to July 13, 2004, to file their proofs of claim. Creditors must file their written proofs of claim on or before the November 15 Claims Bar Date, and those forms must be delivered to: Clerk of the Bankruptcy Court Northern District of Illinois, Eastern Division Room 710, 219 South Dearborn Street Chicago, Illinois 60604 Headquartered in Bolingbrook, Illinois, Chapco Carton Company -- http://www.chapcocarton.com/-- manufactures, sells and distributes folding cartons used for retail packaging in food, candy, office supplies and automotive parts industries. Chapco Carton filed for chapter 11 protection on July 13, 2004 (Bankr. N.D. Ill. Case No. 04-26000). Chad H. Gettleman, Esq., at Adelman Gettleman & Merens, represents the Company in its restructuring efforts. When the Debtor filed for protection from its creditors, it listed $15,232,256 in assets and $19,220,379 in liabilities. CHARTER COMMS: Sept. 30 Stockholders' Deficit Narrows to $4 Mil. ---------------------------------------------------------------- Charter Communications, Inc. (NASDAQ: CHTR) (along with its subsidiaries, the Company) reported financial and operating results for the three months ended September 30, 2004. The Company also provided pro forma results, which reflect the sales of certain cable systems in March and April 2004 and October 2003 as if these sales occurred on January 1, 2003. Highlights The Company reported the following highlights in the quarter: -- Third quarter HSD revenues increased 34% year over year on a pro forma basis as a result of strong unit and revenue per HSD customer growth. Added 108,500 residential high-speed data (HSD) customers during the third quarter and 378,400 over the past 12 months. -- Third quarter commercial services revenues increased 27% and third quarter advertising sales revenues increased 18% on a pro forma basis compared to the third quarter of 2003. -- Video revenue per customer increased 3%, HSD revenue per customer increased 5% and overall revenue per customer increased 10% for the third quarter of 2004 compared to the pro forma year ago period. -- Telephony ready homes passed totaled 508,100 homes at September 30, 2004, a five-fold increase over September 30, 2003. Telephony customers increased 67% to 40,200 compared to the year ago period. -- Digital customers with high definition services grew from less than 16,500 at December 31, 2003 to 76,000 at the end of the third quarter 2004. Digital video recorders units grew to 61,000 at September 30, 2004. -- Revenue grew 8% and adjusted EBITDA 2% on a pro forma basis for the third quarter of 2004 compared to the third quarter of 2003. Q3 Adjusted EBITDA on a pro forma basis represents 37.7% of revenues. For the three months ended September 30, 2004, Charter reported 3% revenue growth and a 3% decline in adjusted EBITDA on an actual basis compared to third quarter 2003. Charter President and CEO Carl Vogel said, "We're pleased with the performance of our high-speed data product evidenced by strong unit and revenue per customer growth as compared to the second quarter and prior periods. The recent product enhancements and migration to a two-speed service choice have proven successful as third quarter 2004 average revenue per HSD customer has increased 5% compared to the year ago period. Our strategy of combining differentiated advanced services with our core products in a digital format combined with our high-speed data services is proving to be successful in increasing revenue per customer as revenue growth continues to accelerate each quarter in 2004. Our challenge continues to be in the analog video category. We have a number of initiatives in place to continually improve customer service and adjust our packages and pricing to address competitive pressures in many markets. We also continue to focus on wider deployment of advanced services like voice over IP, video on demand, digital video recorders and high definition television in as many markets as financially possible." Third Quarter Results Third quarter 2004 revenues were $1.248 billion, an increase of $89 million, or 8%, over pro forma third quarter 2003 revenues of $1.159 billion and increase of 3% over third quarter actual revenues of $1.207 billion. The increases in revenues are principally the result of growth in HSD revenues as well as increased commercial revenues and advertising sales. For the three months ended September 30, 2004, HSD revenues increased $48 million, or 34%, on a pro forma basis, reflecting 378,400 additional HSD customers since September 30, 2003. In addition, third quarter 2004 average monthly revenue per HSD customer increased 5% compared to third quarter 2003 pro forma average monthly HSD revenue. Commercial revenues increased $13 million, or 27%, on a pro forma basis and advertising sales revenues increased $11 million, or 18%, on a pro forma basis compared to the year ago quarter. Video revenues increased 1% on a pro forma basis compared to the third quarter of 2003. Third quarter 2004 operating costs and expenses were $777 million, an increase of $82 million, or 12%, on a pro forma basis and an increase of $58 million, or 8%, on an actual basis, compared to the year ago period. The rise in third quarter 2004 operating costs and expenses was primarily a result of a 12% increase in programming costs, a 15% increase in service costs from ongoing infrastructure maintenance and an 11% increase in general and administrative costs primarily due to increases in costs associated with improving customer care and costs to address our growing commercial business compared to the year ago pro forma period. Charter reported a loss from operations of $2.344 billion for the third quarter 2004 compared to third quarter 2003 income from operations of $104 million on a pro forma basis and $117 million on an actual basis. The change in income (loss) from operations primarily resulted from the recognition of a $2.433 billion charge for the impairment of franchises for the three months ended September 30, 2004 due to the use of a lower projected growth rate in the Company's valuation, resulting in revised estimates of future cash flows. An increase in depreciation and amortization also unfavorably impacted income (loss) from operations in the comparison of third quarter of 2004 to the same 2003 period. Net loss applicable to common stock and loss per common share for the third quarter of 2004 were $3.295 billion and $10.89, respectively. For the third quarter of 2003, Charter reported actual net income applicable to common stock and basic earnings per common share of $36 million and 12 cents, respectively. The difference between net loss applicable to common stock for third quarter 2004 and net income applicable to common stock for the same year ago period was primarily the result of non-cash items, including the impairment charge of $2.433 billion and the cumulative effect of accounting change of $765 million recorded in the third quarter of 2004 and the $267 million gain on the exchange of debt in the third quarter of 2003, partially offset by a $185 million increase in income tax benefit. Year to Date Results For the nine months ended September 30, 2004, Charter generated pro forma revenues of $3.672 billion, an increase of 6% over pro forma revenues of $3.457 billion for the year ago period. Pro forma revenue growth is due primarily to a $144 million, or 37%, increase in HSD revenues year over year. For the first nine months of 2004, pro forma commercial revenues increased $36 million, or 26%, and pro forma advertising sales revenues increased $22 million, or 12%, compared to the pro forma year ago period. Actual revenues for the first three quarters of 2004 of $3.701 billion increased 3% over actual revenues of $3.602 billion for the same year ago period. Pro forma operating costs and expenses for the nine months ended September 30, 2004 totaled $2.271 billion, up $186 million, or 9%, compared to the year ago pro forma period, primarily a result of increased programming and service costs. Actual operating costs and expenses of $2.287 billion for the first three quarters of 2004 increased 6% compared to actual operating costs and expenses for the same 2003 period. For the nine months ended September 30, 2004, pro forma loss from operations totaled $2.266 billion compared to net income of $267 million for the same pro forma 2003 period as a result of the $2.433 billion impairment charge described earlier, special charges of $100 million primarily consisting of $85 million related to the settlement of class action lawsuits, which are subject to final documentation and court approval, and option compensation costs of $34 million. For the first nine months of 2004, actual loss from operations totaled $2.154 billion compared to net income from operations of $306 million for the actual year ago period due to the same factors impacting the change in pro forma results, partially offset by the $105 million pre-tax gain on the sale of cable systems recorded in the first nine months of 2004. Third Quarter Liquidity Adjusted EBITDA totaled $471 million for the three months ended September 30, 2004, an increase of $7 million, or 2%, on a pro forma basis and a decrease of $17 million, or 3% on an actual basis, compared to the year ago period. Net cash flows from operating activities for the third quarter of 2004 were $215 million, compared to $353 million for the year ago quarter, primarily as a result of a $71 million increase in interest on cash pay obligations and a $59 million increase in cash used by operating assets and liabilities primarily resulting from the benefit in the third quarter of 2003 from collection of receivables from programmers related to prior period network launches. Expenditures for property, plant and equipment for the third quarter of 2004 totaled $249 million, an increase of approximately 4% from third quarter 2003. Charter reported un-levered free cash flow of $222 million for the third quarter of 2004, compared to pro forma un-levered free cash flow of $231 million and actual un-levered free cash flow of $249 million in the third quarter of 2003. Charter reported negative free cash flow of $128 million for the third quarter of 2004 compared to pro forma negative free cash flow of $41 million and actual negative free cash flow of $30 million for the third quarter of 2003. The increases are primarily the result of a $78 million and $71 million increase in interest on cash pay obligations on a pro forma and actual basis, respectively. Year to Date Liquidity Pro forma adjusted EBITDA totaled $1.401 billion for the nine months ended September 30, 2004, an increase of $29 million, or 2%, compared to the year ago pro forma period of $1.372 billion. Actual adjusted EBITDA totaled $1.414 billion for the first three quarters of 2004, a 2% decline compared to actual first three quarters 2003 adjusted EBITDA of $1.443 billion. Actual net cash flows from operating activities for the nine months ended September 30, 2004, were $383 million, a decrease of 40% from $638 million reported a year ago, primarily a result of the $146 million increase in interest on cash pay obligations and an $80 million increase in cash used by operating assets and liabilities, primarily due to changes in the timing of cash receipts previously discussed. Actual expenditures for property, plant and equipment for the first nine months of 2004 totaled $639 million, an increase of approximately 27% from the first nine months of 2003 when capital expenditures totaled $503 million. The increase in capital expenditures resulted from increased purchases of customer premise equipment, primarily for high definition television and digital video recorders. Expenditures for scalable infrastructure related to the deployment of these advanced services as well as for commercial and residential HSD services also increased during the first nine months of 2004. Charter reported actual un-levered free cash flow of $775 million for the nine months ended September 30, 2004, compared to un- levered free cash flow of $940 million in the first nine months of 2003. Pro forma un-levered free cash flow was $764 million and $882 million for the nine months ended September 30, 2004 and 2003, respectively. The decline in un-levered free cash flow was primarily the result of increased capital expenditures as previously discussed. The increase in capital expenditures along with increased interest on cash pay obligations resulted in actual negative free cash flow of $215 million for the first nine months of 2004, compared to actual free cash flow of $96 million for the first nine months of 2003. Pro forma negative free cash flow was $222 million for the first nine months of 2004 compared to pro forma free cash flow of $59 million for the first three quarters of 2003. At September 30, 2004, the Company had $18.5 billion of outstanding indebtedness, and $129 million cash on hand. Net availability of funds under the Charter Operating credit facilities was approximately $957 million at September 30, 2004. It is likely that Charter or Charter Communications Holding Company, LLC will require additional funding to repay debt maturing in 2005 and 2006. We are working with our financial advisors to address such funding requirements, however, there can be no assurance that such funding will be available to us. Although Paul Allen, Charter's largest shareholder and Chairman of the board of directors, and his affiliates have purchased equity from us in the past, Mr. Allen and his affiliates are not obligated to purchase equity from, contribute to or loan funds to us in the future. Operating Statistics All year over year changes in operating statistics are pro forma for the sales of certain cable systems to Atlantic Broadband Finance, LLC and WaveDivision Holdings, LLC. Charter ended the third quarter with 10,623,600 RGUs, a net increase of 97,600 RGUs during the third quarter of 2004. The increase in RGUs was driven by a net gain of 108,500 residential HSD customers during the quarter. Charter grew the digital customer base by 38,700, while the analog video customer base declined by 58,600 customers. The Company's telephony customer base increased by 9,000 customers, or nearly 29%. As of September 30, 2004, Charter served 6,074,600 analog video, 2,688,900 digital video and 1,819,900 residential high-speed data customers. The Company also served 40,200 telephony customers as of September 30, 2004. The Company increased RGUs by 348,700 during the 12 months ended September 30, 2004, driven by an increase in HSD customers of 378,400 and digital customers of 118,600. The increases in HSD and digital video customers were partially offset by a decrease in analog video customers of 164,400 over the 12 months ended September 30, 2004. Charter added 16,100 telephony customers during that same period. Other Matters On an annual basis, the 2004 pro forma revenue growth rate is expected to be greater than or equal to the as reported 2003 revenue growth rate of 6%. The pro forma 2004 adjusted EBITDA growth rate is not expected to exceed the actual as reported 2003 adjusted EBITDA growth rate of 7%. About Charter Communications Charter Communications, Inc., a broadband communications company, provides a full range of advanced broadband services to the home, including cable television on an advanced digital video programming platform via Charter Digital(TM) and Charter High- Speed(TM) Internet service. Charter also provides business-to- business video, data and Internet protocol (IP) solutions through Charter Business(TM). Advertising sales and production services are sold under the Charter Media(R) brand. More information about Charter can be found at http://www.charter.com/ At Sept. 30, 2004, Charter Communications' balance sheet showed a $4 million stockholders' deficit, compared to a $175 million deficit at Dec. 31, 2003. CLARK GROUP: Confirmation Hearing Set for November 10 ----------------------------------------------------- The Honorable James J. Barta of the U.S. Bankruptcy Court for the Eastern District of Missouri will convene a combined hearing at 2:00 p.m., on Wednesday, November 10, 2004, to: -- determine the adequacy of the Disclosure Statement prepared by Clark Group, Inc., and its debtor-affiliates, to explain their joint prepackaged Plan of Reorganization and -- consider confirmation of the Debtors' Plan. The Debtors and Sierra Craft, Inc., requested an expedited concurrent hearing on the confirmation of the proposed Plan and Disclosure Statement because of the November 15, 2004, deadline for the entry of a confirmation order in accordance with the Asset Purchase Agreement between the Debtors and Sierra Craft. A full text copy of the Plan and Disclosure Statement is available for a fee at: http://www.researcharchives.com/download?id=040812020022 The Plan provides for: a) the sale of substantially all of the Debtors' respective assets, other than the Excluded Assets, to Sierra Craft, Inc. in exchange for the Purchase Consideration on the Effective Date in accordance with the Asset Purchase Agreement between the Debtors and Sierra Craft, Inc.; b) the substantive consolidation of the Debtors for purposes of classification and treatment of Allowed Claims and distributions to Holders under the Plan; c) the payment in full of all Allowed Secured Claims, other than the Victaulic Company of America, Inc. Secured Claims, on the Effective Date; d) the payment in full of all Allowed Unclassified Claims on the Effective Date and 50% of all Allowed Convenience Claims on the Effective Date; e) the formation of the Liquidation Trust to receive and distribute the remaining Net Proceeds of the Purchase Consideration, and the proceeds from the sale of the Excluded Assets, to Holders of Allowed Class 4A and Class 4B Claims, and, to a limited extent if certain contingencies are satisfied, to the Holder of the Allowed Victaulic Company Secured Claims, on each Quarterly Distribution Date; and f) certain waivers, releases, injunctions and exculpations with respect to the Debtors, Sierra Craft, and various third-parties, including the Debtors' principal Secured creditors. Votes on the Plan were solicited from holders of claims in all impaired classes entitled to vote prior to the Petition Date. An overwhelming majority of all impaired classes entitled to vote accepted the Plan: Class Class Description Status Voting Result ----- ----------------- ------ ------------- 2D Victaulic Secured Claims Impaired 100% Accepted 2E Other Secured & Setoff Claims Impaired 100% Accepted 3 Convenience Claims Impaired 94.44% Accepted 4A General Unsecured Claims Impaired 68.75% Accepted 4B Disputed Litigation Claims Impaired 100% Rejected Headquartered in St. Louis, Missouri, Clark Group, Inc. -- http://www.clarksprinkler.com/-- provides a comprehensive line of fire protection products and the highest quality service and expert knowledge on fire protection products. The Company and its debtor-affiliates filed for chapter 11 protection on October 1, 2004 (Bankr. E.D. Mo. Case No. 04-52536). Bonnie L. Clair, Esq., at Summers, Compton, Wells & Hamburg, PC, represent the Debtors in their restructuring efforts. When the Company filed for protection from its creditors, it listed total assets and debts of over $10 million. CLARK GROUP: Wants to Hire Summers Compton as Bankruptcy Counsel ---------------------------------------------------------------- Clark Group, Inc. and its debtor-affiliates ask the U.S. Bankruptcy Court for the Eastern District of Missouri for permission to employ Summers, Compton, Wells & Hamburg, P.C., as their bankruptcy counsel. Summers Compton is expected to: (a) provide the Debtors with legal advice with respect to their duties and powers in the administration of their bankruptcy case in connection with the continued operation of their business and financial affairs; (b) assist the Debtors in obtaining the approval of their prepackaged Plan of Reorganization and negotiating and formulating any modifications to that Plan; (c) assist the Debtors in obtaining authority to sell assets and businesses not being purchased by Sierra Craft Inc. pursuant to the Asset Purchase Agreement between the Debtors and Sierra Craft; (d) Consult with the United States Trustee and any committee formed in the Debtors' chapter 11 cases concerning matters arising in their bankruptcy proceedings; and (e) perform other legal services as necessary in connection with fulfilling the duties of representing the Debtors in their chapter 11 cases. David A. Sosne, Esq., and Bonnie L. Clair, Esq., both Principals at Summers Compton, are the lead attorneys for the Debtors' restructuring. Mr. Sosne discloses that the Firm received a $138,000.00 retainer. For their professional services, Mr. Sosne will bill the Debtors $240 per hour while Ms. Clair will charge at $200 per hour. Mr. Sosne reports Summers Compton's lead professionals bill: Professional Designation Hourly Rate ------------ ----------- ----------- Neil H. Miller Counsel $225 Brian J. LaFlamme Associate 165 Sharon A. Wentzel Paralegal 85 Mr. Sosne reports other Summers Compton professionals bill: Designation Hourly Rate ----------- ----------- Counsel/Principal $200 - 250 Associates 150 - 195 Paralegal 85 - 100 To the best of the Debtors' knowledge, Summers Compton is "disinterested" as the term is defined in Section 101(14) of the Bankruptcy Code. Headquartered in St. Louis, Missouri, Clark Group, Inc. -- http://www.clarksprinkler.com/-- provides a comprehensive line of fire protection products and the highest quality service and expert knowledge on fire protection products. The Company and its debtor-affiliates filed for chapter 11 protection on October 1, 2004 (Bankr. E.D. Mo. Case No. 04-52536). Bonnie L. Clair, Esq., and David A. Sosne, Esq., at Summers, Compton, Wells & Hamburg, PC, represent the Debtors in their restructuring efforts. When the Company filed for protection from its creditors, it listed total assets and debts of over $10 million. CLEARLY CANADIAN: Inks C$1.5 Million Secured Loan with Global ------------------------------------------------------------- Clearly Canadian Beverage Corporation (OTCBB:CCBC) (TSX:CLV) has made arrangements for a secured loan in the aggregate amount of up to Cdn$1.5 million. The Company has signed a term sheet with Global (GMPC) Holdings Inc. of Toronto, Ontario for a Cdn$1,500,000 loan, to be advanced in two tranches, for a term of twelve months. The advance of the first tranche of Cdn$1,000,000 will be subject to the execution by the Company of definitive loan and security agreements, and the advance of the second tranche of Cdn$500,000 will be subject to the Company meeting certain property valuation requirements. The loan will bear interest at a rate of 12% per annum compounded and payable monthly. The Company has agreed to issue to Global 600,000 common shares as a bonus in connection with the first tranche of the loan and an additional 220,000 common shares for the second tranche of the loan. The net proceeds of the loan will be used to repay in full all amounts remaining outstanding under the Company's previous bridge loan from Quest Capital Corp. (approximately Cdn$665,000) and for general working capital purposes. In connection with, and upon completion of the first tranche of the loan, Y&R Investment Capital Inc. will receive a cash fee of Cdn$25,000 and will also receive 175,000 common shares of the Company for arranging the loan with Global. At this time, the Company also continues to pursue additional private financing to support the Company's operations and relations with existing suppliers and vendors and to allow for more aggressive marketing and sales activities for its beverage products. The funding of the loan by Global is also subject to its completion of satisfactory due diligence. Additionally, the loan and the issuance of the bonus shares, and related fees are subject to regulatory approval. About Global Global is a merchant bank which provides bridge loan services (asset back/collateralized financing), to companies across many industries such as oil & gas, mining, real estate, manufacturing, retail, financial services, technology and biotechnology. For further information, please contact Jason G. Ewart at (416) 488-7760 or visit http://www.globalbridgeloans.com/ About the Company Based in Vancouver, B.C., Clearly Canadian Beverage Corporation markets premium alternative beverages and products, including Clearly Canadian(R) sparkling flavoured water, Clearly Canadian O+2(R) oxygen enhanced water beverage and Tre Limone(R) which are distributed in the United States, Canada and various other countries. Additional information about Clearly Canadian may be obtained on the world wide web at http://www.clearly.ca/ * * * Going Concern Doubt In its Form 20-F for the fiscal year ended December 31, 2003, filed with the Securities and Exchange Commission, Clearly Canadian Beverage Corporation reported a working capital deficit of $2,660,000 at December 31, 2003, compared to a working capital surplus of $24,000 at December 31, 2002. Due to the Company's recurring losses from operations, net deficit and lack of working capital for the Company's planned business activities, there is substantial doubt as to the Company's ability to continue as a going concern. The Company has recognized the decrease in working capital and cash resources in recent years and has taken steps intended to improve its working capital position. In that respect, in 2001 the Company appointed McDonald Investments Inc. as its investment banker and financial advisor to evaluate various strategic options, including possible divestitures of certain assets as well as acquisition opportunities. To this end, in April 2001, the Company's U.S. subsidiary, CC Beverage, completed the sale of its home and office water business assets. The total sales proceeds were $4.8 million, which was used to pay down certain debt obligations and improve the Company's working capital position. Also, in February 2002, the Company's U.S. subsidiary, CC Beverage, finalized the sale of certain production facility assets and a bottling plant lease located in Burlington, Washington, as well as its Cascade Clear water business and its private label co- pack business to Advanced H2O, Inc. of Bellevue, Washington. AH2O acquired CC Beverage's production facility assets for $4,348,600, which purchase price included $2,130,000 in cash, the assumption of long-term indebtedness of approximately $2,155,000 and the assumption of certain capital equipment leases of $63,600. The proceeds from the sale of the various assets to AH2O were used for general working capital purposes, to reduce debt and to provide additional funding for the marketing and distribution of the Company's beverages. COMFORCE CORP: Sept. 30 Balance Sheet Upside-Down by $37.5 Million ------------------------------------------------------------------ COMFORCE Corporation (Amex: CFS), a leading provider of high-tech professional staffing, consulting and outsourcing services, reported results for its third quarter ended September 26, 2004. Revenues for the quarter increased 32.4% to $123.4 million, compared to revenues of $93.2 million for the third quarter of 2003. Sequentially revenues increased 5.0%, compared to revenues of $117.6 million for the second quarter of 2004. The improvement in revenues was primarily attributable to the continued strong growth in PRO Unlimited representing the Human Capital Management segment. For the quarter, PRO's revenues grew to $70.1 million, a 50.2% increase over the same quarter last year. Staff Augmentation revenues also grew by 15.3% due primarily to increases in Technical Services, which includes Government Staffing, of 28.7% and Information Technologies of 9.9%. Gross profit for the third quarter of 2004 was $17.5 million, or 14.2% of revenues, compared to $15.2 million, or 16.3% of revenues in the third quarter of 2003. Operating income for the third quarter was $3.4 million, compared to an operating loss of $(26.5) million for the same quarter of last year. The 2003 third quarter operating loss included a non-cash charge for goodwill impairment in the amount of $28.0 million. Excluding this non-cash charge, the 2003 operating income was $1.5 million. As a percentage of sales, operating income was 2.7% in the third quarter of 2004, compared to 1.6%, excluding the non-cash charge, in the third quarter of 2003. Interest expense was $3.0 million for the third quarter of 2004, compared to $3.3 million for the same quarter last year. As previously announced, a reduction in COMFORCE's public debt of approximately $70.0 million since June 2000, has enabled the Company to reduce its annual interest expense by approximately $7.5 million, including borrowing at the lower rates available under its bank credit facilities to effectuate repurchases of public debt and by exchanging preferred equity and lower interest rate convertible notes for this public debt. The Company recorded income from continuing operations before income taxes of $486,000 in the third quarter of 2004, compared to a loss from continuing operations before income taxes of $(29.8) million in 2003. The Company recorded a tax provision of $354,000 in the third quarter of 2004, compared to a tax benefit of $3.7 million in the third quarter of 2003. COMFORCE reported net income of $132,000 or $0.00 per basic and diluted share for the third quarter of 2004, compared to a net loss of $(26.1) million, or $(1.59) per basic and diluted share for the same period last year. The loss for third quarter 2003 was primarily the result of the aforementioned non-cash charge for goodwill impairment. Nine-Month Results COMFORCE reported revenues of $348.4 million, a 30.4% increase for the first nine months of 2004, compared to revenues of $267.1 million in the comparable year period. Revenues were favorably impacted by the continued strong performance of PRO Unlimited and certain sectors of Staff Augmentation, particularly Technical Services. Operating income for the first nine months of 2004 was $9.3 million, compared to an operating loss of $(21.8) million in the first nine months of 2003. In the first nine months of 2003, under the provisions of SFAS 142, the Company recorded a non-cash charge for goodwill impairment in the amount of $28.0 million. Excluding the non-cash charge of $28.0 million, operating income for the first nine months of 2003 was $6.2 million. Also, included in the first nine months of 2003 was a $1.6 million insurance recovery related to a non-cash charge for uncollectible funding and service fees receivable. Interest expense for the first nine months of 2004 was $9.2 million, compared to interest expense of $10.7 million for the same period last year. During the first nine months of 2004 the Company repurchased $14.8 million principal amount of Senior Notes resulting in a gain on debt extinguishment for the Company of $2.0 million. As a result of the Company's repurchase of 12% Senior Notes in the second quarter of 2003, and the Company's exchange and repurchase of 15% PIK Debentures in the first quarter of 2003, the Company recognized a gain on the extinguishment of debt of $8.8 million in the first nine months of 2003. Income from continuing operations before income taxes was $2.1 million for the first nine months of 2004, compared to a loss from continuing operations before income taxes of $(23.5) million for the same period last year. The Company recorded a tax provision of $1.1 million in the first nine months of 2004 and a tax provision of $8,000 in the first nine months of 2003. The Company recorded net income of $984,000, or $0.04 per basic and diluted share for the first nine months of 2004, compared to net loss of $(23.4) million, or $(1.44) per basic and diluted share for the first nine months of 2003, principally due to the $28.0 million write-off of goodwill. Management Comments John Fanning, Chairman and Chief Executive Officer of COMFORCE commented, "It gives us great pleasure to report our third consecutive quarter of double digit revenue growth year over year. "As our numbers indicate, PRO Unlimited was the major contributor in our overall growth, both for the quarter and our first nine months. PRO, as a market leader in human capital management, continues to experience an increasing demand for their services, particularly from Fortune 500 companies. We expect to see this trend continue as the economy further strengthens. "Staff Augmentation is also experiencing increased revenue growth. This has been particularly true in Technical Staffing, which includes our Government Staffing division, where we experienced a marked increase in revenue for the quarter. Technical staffing rose 28.7% in the third quarter. "We continue to put an emphasis on RightSourcing Vendor Management, within Healthcare Support Services and believe it represents an exciting opportunity for future growth. "Demand is also increasing in our Information Technology sector, where we realized our third sequential quarter of revenue improvement. We believe that this is a clear indicator of recovery and increased spending in this sector. The positive response to our Sarbanes-Oxley specialists also contributed to this revenue growth. "I am also pleased to report that during the quarter we signed an amended agreement with our credit facility, which will provide us with greater financial flexibility to buy back more of the 12% Senior Notes." Mr. Fanning concluded, "This has been a very rewarding and productive nine months for COMFORCE. We remain committed to investing in and growing all areas of our business and gaining market share. At the same time we will look to manage our costs. We expect to report sound performance for the balance of 2004." About the Company COMFORCE Corporation provides specialty staffing, consulting and outsourcing services primarily to Fortune 500 companies. The Company operates in three business segments -- Human Capital Management Services, Staff Augmentation, and Financial Outsourcing Services. The Human Capital Management Services segment provides consulting services for managing the contingent workforce through its PRO Unlimited subsidiary. The Staff Augmentation segment provides Healthcare Support Services, including RightSourcing Vendor Management Services, and Nurse Staffing Services, Sarbanes- Oxley Specialists, Technical Services, Information Technology (IT), Telecom, and Other Staffing Services. The Financial Outsourcing Services segment provides payroll, funding and outsourcing services to independent consulting and staffing companies. COMFORCE has thirty-six (36) offices nationwide. At Sept.26, 2004, COMFORCE Corp.'s balance sheet showed a $37,503,000 stockholders' deficit, compared to a $38,624,000 deficit at Dec. 28, 2003. COMM 2004-RS1: Fitch Puts Low-B Ratings on Six Securities Classes ----------------------------------------------------------------- Fitch rated these COMM 2004-RS1 Commercial Mortgage Related Securities, series 2004-RS1: -- $220,600,000 class A 'AAA' -- $314,364,000* class XP 'AAA'** -- Class IO-1 'AAA'** -- Class IO-2 'AAA'** -- $39,020,000 class B-1 'AA' -- $41,298,000 class B-2 'AA' -- $3,386,000 class C 'AA-' -- $12,955,000 class D 'A' -- $4,318,000 class E 'A-' -- $3,023,000 class F 'BBB+' -- $2,056,000 class G 'BBB-' -- $2,176,000 class H 'BB+' -- $725,000 class J 'BB' -- $1,313,000 class K 'BB-' -- $1,520,000 class L 'B+' -- $622,000 class M 'B' -- $2,384,000 class N 'B-'. * Notional amount ** Interest only The ratings reflect the credit enhancement provided to each class by subordination of junior classes, the positive and negative features of the underlying collateral, and the integrity of the legal and financial structures, including advancing for liquidity by the master servicer and the trustee of each underlying commercial mortgage-backed securities -- CMBS -- transaction. The ratings do not address the likelihood or frequency of principal prepayments or the receipt of prepayment premiums, default interest, additional interest, or penalties. The preliminary ratings on the interest-only certificates address only the likelihood of receiving interest payments, while principal on the related certificates remains outstanding. The certificates are directly or indirectly secured by a portfolio consisting of all or a portion of 25 fixed-rate subordinated classes from 13 CMBS transactions. The largest underlying CMBS transaction is Marquee 2004-1 Ltd., which is a repackaging of a senior certificate, evidencing an ownership interest in the two classes of CMCMT 1998-C1, representing 75.3% of COMM 2004-RS1. CONCERT INDUSTRIES: Files CCAA Plan of Arrangement in Montreal -------------------------------------------------------------- Concert Industries Ltd.'s (TSX: CNG) Canadian operating subsidiaries have filed a motion to order a meeting of their creditors to consider and vote on a final plan of compromise and arrangement pursuant to the Companies' Creditors Arrangement Act. The plan relates only to Concert Fabrication Ltee, Concert Airlaid Ltee and Advanced Airlaid Technologies Inc., the Canadian operating subsidiaries, and their creditors. The motion will be presented in the Superior Court for the District of Montreal today, Nov. 8, 2004. The motion, if granted, will order that Concert's Canadian operating subsidiaries call and hold a meeting on Dec. 10, 2004 and that during the interim period, creditors will submit proof of their claims against the companies. If approved, the Canadian operating subsidiaries' plan would entail a significant restructuring of Concert's Canadian operations. The Company's European operations will be unaffected by the plan. The plan is part of a comprehensive reorganization of the business and affairs of Concert's Canadian operating companies and is designed to enable them to be restructured and repositioned on a long-term basis as a viable business in the development and manufacture of specialty pulp based absorbent latex, thermal and multi-bonded airlaid fabrics. The Canadian operating companies have developed the plan, which they believe is in the best interest of all stakeholders including creditors, suppliers and employees. These companies have been involved in ongoing discussions with Tricap Management Limited, their senior secured lender, concerning the plan and the restructuring of their operations and Tricap supports the terms of the plan. Certain other major creditors that are affected by the plan have agreed to vote in favour of and support the plan. Shareholders and creditors of Concert will not be entitled to vote on, or participate in, the plan of the Canadian operating subsidiaries. Following the implementation of the plan, Concert will no longer have ownership or control of any of its operating companies. The implementation of the plan is likely to result in the delisting of Concert's shares from the TSX. The entire text of the motion and the plan of arrangement will be made available, starting November 9, through the Company's website at http://www.concert.ca/through the website of the Monitor, PricewaterhouseCoopers Inc., at http://www.pwc.com/brs- concertgroup/ or by calling Marc Nantel-Legault of the Monitor at (514) 205-5088. About the Company Concert Industries Ltd. is a company specializing in the manufacture of cellulose fiber based non-woven fabrics using airlaid manufacturing technology. Concert's products have superior absorbency capability and are key components in a wide range of personal care consumer products, including feminine hygiene and adult incontinence products. Other applications include pre-moistened baby wipes, disposable medical and filtration applications and tabletop products. The Company has manufacturing facilities in Canada, in Gatineau and Thurso, Quebec, and in Germany, in Falkenhagen, Brandenburg. On August 5, 2003, the Company and certain of its North American subsidiaries obtained an order from the Quebec Superior Court of Justice providing creditor protection under CCAA Proceedings. The Company's European operations are excluded from the CCAA Proceedings. PricewaterhouseCoopers Inc., was appointed by the Court to act as the Monitor, and this order is currently in effect until December 17, 2004. The entire text of the Court orders and the Monitor's reports are available at http://www.concert.ca/and at http://www.pwc.com/brs-concertgroup/or by calling (613) 755-5981. CONMED CORP: S&P Assigns B Rating to $125 Mil. Convertible Notes ---------------------------------------------------------------- Standard & Poor's Ratings Services assigned its 'B' subordinated debt rating to medical products maker ConMed Corp.'s 20-year, $125 million convertible note offering. At the same time, Standard & Poor's affirmed its 'BB-' corporate credit and senior secured debt ratings on the company. The proceeds of the convertible note transaction will be used to refinance part of ConMed's senior secured credit facility and to complete a $30 million stock repurchase. After the transaction, ConMed will have approximately $320 million of debt outstanding. The outlook is stable. "The ratings on ConMed Corp. reflect Standard & Poor's concern that the midsize medical products manufacturer, though well- established in a number of surgical markets, faces the ongoing challenge of competing against larger, better-financed companies in each of its markets," said Standard & Poor's credit analyst Jordan C. Grant. Utica, New York-based ConMed is trying to capitalize on its position as an important manufacturer of arthroscopic and powered surgical instruments and electrosurgical systems. By focusing on niche areas within operating room services and establishing relationships with physicians through a sizable sales force, the company has garnered the second-largest U.S. market share in four of its five product lines. ConMed has pursued moderate-sized acquisitions to expand its niche offerings. Most recently, it acquired selected endoscopy equipment lines from C.R. Bard (BBB+/Stable/A-2) for $84 million in August 2004, and in 2003, it acquired Bionx Implants Inc., a manufacturer of soft-tissue and fracture-repair products, for approximately $48 million. Still, ConMed competes with much larger companies that have broader offerings, including Johnson & Johnson (AAA/Stable/A-1+) and Stryker Corp. (A-/Stable/--). Disappointments with new products--at the same time the company is making investments to expand its sales force--have contributed to a decline in operating margins. These margins peaked at 28% a few years ago, then fell to 24%, where they have remained fairly consistent. Still, ConMed's financial profile remains appropriate for the rating, despite the company's recent acquisition and its expected share repurchase activity. CROWN CASTLE: Buys Verizon's Interest in Crown Atlantic for $295MM ------------------------------------------------------------------ Crown Castle International Corp. (NYSE: CCI) has purchased Verizon's 37.245% interest in the Crown Atlantic Joint Venture for $295 million, inclusive of approximately $15 million of net working capital. Effective immediately, Crown Castle owns 100% of Crown Atlantic. Verizon will retain certain protective rights regarding the tower network held by Crown Atlantic. For the quarter ended September 30, 2004, Crown Atlantic generated $114.0 million in annualized site rental revenue and $70.4 million in annualized Adjusted EBITDA. Crown Atlantic owns 2,019 towers and has $180 million outstanding under its senior credit facility. Also, Crown Castle Operating Company, a restricted group subsidiary as defined in Crown Castle's bond indentures, has purchased a 15% interest in Crown Atlantic for $118.8 million in cash from Crown Castle Investment Corp., an unrestricted subsidiary as defined in Crown Castle's bond indentures. After giving effect to this purchase, CCOC owns approximately 52% of Crown Atlantic and CC Investment owns approximately 48% of Crown Atlantic. As a result of the transactions, Crown Castle has designated Crown Atlantic a restricted group subsidiary. As of September 30, 2004, pro forma for these transactions, Crown Castle had $613.5 million of cash and cash equivalents, including approximately $154 million in its unrestricted subsidiaries. Additional details regarding these transactions will be available in Crown Castle's Form 8-K to be filed on or before November 10, 2004. Crown Castle International Corp. engineers, deploys, owns and operates technologically advanced shared wireless infrastructure, including extensive networks of towers. Crown Castle offers significant wireless communications coverage to 68 of the top 100 United States markets and to substantially all of the Australian population. Crown Castle owns, operates and manages over 10,600 and over 1,300 wireless communication sites in the U.S. and Australia, respectively. For more information on Crown Castle visit: http://www.crowncastle.com/ * * * As reported in the Troubled Company Reporter on June 30,2004, Standard & Poor's Ratings Services placed its ratings of Houston, Texas-based wireless tower operator Crown Castle International Corp. (including the 'B-' corporate credit rating) and operating company Crown Castle Operating Co. on CreditWatch with positive implications. Approximately $4 billion of leased-adjusted debt is outstanding. The CreditWatch placement follows Crown Castle's announcement of a definitive agreement to sell its U.K. tower subsidiary for about $2 billion. The prior positive outlook had recognized the potential for meaningful reduction in debt leverage, and the earmarking of $1.3 billion of proceeds from the announced disposition could accelerate the deleveraging process. However, a key factor in the rating analysis will be the use of the approximate $740 million balance of net sale proceeds. The company notes that these monies will be used either for further debt reduction or for expansion of its U.S. portfolio. To the extent that Crown Castle opts not to apply the bulk of the $740 million to debt reduction, Standard & Poor's will review management's expansion plans, including the potential cash flow from newly built and/or purchased towers. "If Crown Castle purchases extant towers, factors that will be considered in evaluating the credit impact will include the quality of existing tenants per tower, contract terms applicable to purchased tenants, the potential for new tenants, and tenant diversity," said Standard & Poor's credit analyst Michael Tsao. DANKA BUSINESS: Sept. 30 Balance Sheet Upside-Down by $73.9 Mil. ---------------------------------------------------------------- Danka Business Systems PLC (NASDAQ: DANKY) reported second-quarter results for the period ended September 30, 2004 that include operating earnings of $6.0 million, an increase over the $1 million from the second quarter a year ago and a 10% year-over- year decrease in selling, general and administrative expenses. Total revenue was $308.7 million, a decline of 4% from the second quarter a year ago. Gross margins were 36.3%, cash flow from operations was $27.6 million and free cash flow was $21.9 million. Net loss was $1.8 million for the quarter compared to a net loss of $17.3 million in the year-ago quarter. The year-ago quarter included $20.6 million of pre-tax expense for the write-off of debt issuance costs. Including the impact of dividends on participating shares, basic and diluted EPS was a loss of $0.11 per share compared to a loss of $0.35 per share in the year-ago period. "Our overall performance in the second quarter was highlighted by the year-over-year improvement in operating earnings," stated Danka Chief Executive Officer Todd Mavis. "SG&A was also down approximately $12 million over the year-ago quarter which further demonstrates that we are delivering on promised cost savings, even as we make growth-oriented investments in our product offerings, our sales force and our infrastructure. Our efforts remain focused on the creation of value across the enterprise and the second quarter results were validation that we are on the right track." "In the quarter, we successfully executed on key initiatives to increase equipment sales and cash generation over last quarter," continued Mavis. "Equipment and related revenue increased 15% sequentially and free cash flow was $21.9 million. As expected, we did see a sequential decline in service revenue largely due to the seasonality of our business." Key second-quarter financial metrics: -- Total second-quarter revenue was $308.7 million, a 4% decline from the year-ago quarter but essentially flat with the first quarter. Adjusting for currency exchange, total revenue declined 8% year-over-year. Most of the decline was attributable to service revenue which declined by 6% year- over-year. The retail supplies and rentals business also declined, as expected, because of the de-emphasis of rentals, as well as the declining need for supplies related to the heritage Kodak analog equipment base. -- The digital portion of Danka's equipment base increased to 60% and digital output now represents 75% of total volume, both of which are key elements in the stabilization and ultimate growth of service revenues. -- Consolidated gross margins were 36.3% of revenue compared to 37.2% in the same quarter last year. The primary reason for the decline was a 250 basis point decrease in equipment and related sales margins. Service margins were stable at 40.5%. -- SG&A was $107.6 million, 10% lower than the year-ago quarter, and 3% lower than the first quarter. As a percentage of revenue, SG&A was 34.9% in the second quarter, 200 basis points lower than the year-ago period, and 100 basis points lower than the first quarter. -- Operating earnings were $6.0 million compared to $1.0 million in the year-ago second quarter. Operating earnings were favorably impacted this quarter by the net reversal of $2.1 million of restructuring reserves and the approximate $1 million reversal of an accrual related to a historic asset disposition. Operating earnings were negatively impacted in the quarter by higher than expected costs in Danka's Sarbanes-Oxley compliance program and consulting fees related to cost reduction efforts. -- Free cash flow (net cash provided by operating activities less capital expenditures) was $21.9 million compared to negative free cash flow of $28.1 million in the first quarter. As a result, the company's cash balance at the end of the second quarter was $106.6 million compared to $85.9 million at the end of the first quarter. -- Total revenue for the six months ended September 30, 2004 was $619.0 million compared to $656.7 million in the year- ago period. Gross margins were 37.3% for the period compared to 37.0% in the year-ago period. Operating earnings were $13.9 million compared to $6.0 million, an increase of 132%. Cash flow from operations was $3.9 million compared to $44.0 million in the year-ago period. "During the second quarter, we increased the size of our U.S. sales force to improve our sales coverage, added new technology offerings to our product portfolio and continued to leverage our recent IT investments to improve back office processes, all of which will lead to improved execution, new revenue opportunities and the rightsizing of our cost structure," concluded Mavis. "Moving forward, we will further expand sales coverage, accelerate our TechSource business and bring additional product offerings to market. We are also progressing a multi-faceted reengineering of our business that we believe will generate important new cost reductions and operational efficiencies. We believe these actions will provide long term benefit to our customers, provide a platform for growth and create value across all aspects of our business." About the Company Danka delivers value to clients worldwide by using its expert technical and professional services to implement effective document information solutions. As one of the largest independent providers of enterprise imaging systems and services, the company enables choice, convenience, and continuity. Danka's vision is to empower customers to benefit fully from the convergence of image and document technologies in a connected environment. This approach will strengthen the company's client relationships and expand its strategic value. For more information, visit Danka at http://www.danka.com/ At Sept. 30, 2004, Danka's balance sheet showed a $73,895,000 stockholders' deficit, compared to a $64,755,000 deficit at March 31, 2004. DELTA AIR: $252 Million of Pass Through Certificates Tendered ------------------------------------------------------------- Delta Air Lines (NYSE: DAL) reported that approximately $252 million aggregate principal amount of Pass Through Certificates Series 2000-1C and Pass Through Certificates Series 2001-1C have been tendered in its pending exchange offer. Consummation of the exchange offer remains subject to numerous other significant conditions. The amount of securities in the other classes tendered to date is substantially below the minimum tender conditions. In the event that the exchange offer is consummated only with respect to the Short-Term Existing Securities then the collateral reserved for the other classes of notes will be available to Delta to meet other liquidity needs. As reported in the Troubled Company Reporter on Oct. 18, 2004, Delta Air Lines was amending and extending its offer to exchange up to $680 million aggregate principal amount of three series of newly issued senior secured notes to the holders of $2.6 billion aggregate principal amount of outstanding unsecured debt securities and enhanced pass through certificates. The New Notes will be secured by a pool of collateral consisting of certain unencumbered aircraft, flight simulators and flight training equipment with an aggregate appraised current market value of $1.2 billion. If only the A-1 New Notes are issued, they will be secured by a pool of unencumbered aircraft with an aggregate appraised current market value of $0.4 billion. The A-1 New Notes will amortize from 2006 through 2008, the A-2 New Notes will amortize from 2009 through 2011 and the A-3 New Notes will amortize from 2012 through 2014. The New Notes will accrue interest from the settlement date at an annual rate of 9.5% in the case of the A-1 New Notes, 10% in the case of the A-2 New Notes and 12% in the case of the A-3 New Notes. The exchange offer will terminate at 5:00 p.m. on Nov. 18, 2004, unless extended. The offering is being made only to "qualified institutional buyers," as such term is defined in Rule 144A under the Securities Act of 1933, as amended. The exchange offer will not be registered under the Securities Act of 1933, or any state securities laws. Therefore, any securities issued in the exchange offer may not be offered or sold in the United States absent an exemption from the registration requirements of the Securities Act of 1933 and any applicable state securities laws. This announcement is neither an offer to sell nor a solicitation of an offer to buy the securities offered in the exchange offer. About the Company Delta Air Lines -- http://delta.com/-- is the world's second largest airline in terms of passengers carried and the leading U.S. carrier across the Atlantic, offering daily flights to 493 destinations in 87 countries on Delta, Song, Delta Shuttle, the Delta Connection carriers and its worldwide partners. Delta's marketing alliances allow customers to earn and redeem frequent flier miles on more than 14,000 flights offered by SkyTeam, Northwest Airlines, Continental Airlines and other partners. Delta is a founding member of SkyTeam, a global airline alliance that provides customers with extensive worldwide destinations, flights and services. * * * As reported in the Troubled Company Reporter on Sept. 16, 2004, Delta Air Lines filed a Form 8-K with the Securities and Exchange Commission to make changes in its Annual Report on Form 10-K for the year ended December 31, 2003. The Annual Report is being revised so it may be incorporated into another document. Since Delta filed the Annual Report with the SEC, significant events have occurred which have materially adversely affected Delta's financial condition and results of operations. These events, which have been reported in Delta's subsequent SEC filings, include a further decrease in domestic passenger mile yield and near historically high levels of aircraft fuel prices. The Annual Report has been revised to disclose these events and the possibility of a Chapter 11 filing in the near term. Additionally, as a result of Delta's recurring losses, labor and liquidity issues and increased risk of a Chapter 11 filing, Deloitte & Touche LLP, Delta's independent auditors, has reissued its Independent Auditors' Report to state that these matters raise substantial doubt about the company's ability to continue as a going concern. As reported in the Troubled Company Reporter on August 23, 2004, Standard & Poor's Ratings Services lowered Delta Air Lines, Inc.'s corporate credit rating and the ratings on Delta's equipment trust certificates and pass-through certificates to 'CCC'. Any out-of- court restructuring of bond payments or a coercive exchange would be considered a default and cause the company's corporate credit rating to be lowered to 'D' -- default -- or 'SD' -- selective default, S&P noted. Ratings on Delta's enhanced equipment trust certificates, which are considered more difficult to restructure outside of bankruptcy, were not lowered. DELTA FUNDING: Fitch Junks Class B & Cuts Class M-2's Rating to B ----------------------------------------------------------------- Fitch Ratings has taken rating action on these Delta Funding Corporation issue: * Series 2000-4 -- Class A affirmed at 'AAA'; -- Class M-1 affirmed at 'AA'; -- Class M-2 downgraded to 'B' from 'BB'; -- Class B remains at 'C'. The affirmations (representing approximately $17.40 million in outstanding principal) reflect credit enhancement consistent with future losses. In addition, the affirmed class A reflects a certificate insurance policy provided by Financial Security Assurance Inc. -- FSA, whose insurer financial strength is rated 'AAA' by Fitch. The negative rating action (representing approximately $5.5 million in outstanding principal) have been taken due to higher losses than expected. As of October 15, 2004, there is no overcollateralization remaining in the current pool, with 39.99% of the current principal balance 60 or more days delinquent. Fitch will continue to closely monitor this deal. Further information regarding current delinquency, loss, and credit enhancement statistics is available on the Fitch Ratings web site at http://www.fitchratings.com/ DIAMOND K CORP.: Case Summary & 22 Largest Unsecured Creditors -------------------------------------------------------------- Lead Debtor: Diamond K Corporation 2305 County Road 3210 Mount Pleasant, Texas 75455 Bankruptcy Case No.: 04-62341 Debtor affiliates filing separate chapter 11 petitions: Entity Case No. ------ -------- R&K Energy, Inc. 04-62343 Type of Business: The Debtor is a construction company and currently engaged in approximately thirty-five construction projects in various degrees of completion throughout the United States. See http://www.diamondkcorp.com/ Chapter 11 Petition Date: November 4, 2004 Court: Eastern District of Texas (Tyler) Debtors' Counsel: Amanda Inabnett Hughes, Esq. Mark A. Castillo, Esq. The Curtis Law Firm 901 Main Street, Suite 6515 Dallas, TX 75202 Tel: 214-752-2222 Fax: 214-752-0709 Estimated Assets Estimated Debts ---------------- --------------- Diamond K Corporation $1 M to $10 M $1 M to $10 M R&K Energy, Inc. $100,000-$500,000 $500,000 to $1 M A. Diamond K Corporation's 20 Largest Unsecured Creditors: Entity Claim Amount ------ ------------ Clear Stream Environment $148,050 P.O. Box 73552 Houston, TX 77273 Lone Star Drilling, LLC $146,499 P.O. Box 69 Pittsburg, TX 75686 Hertz Equipment Rental $128,655 P.O. Box 26390 Oklahoma City, OK 73126 Boley Featherston Huffma $113,279 APAC Texas, Inc. $101,045 NQL Energy Service $100,050 Stephenson Dirt LLC $79,005 United Rental FL $72,283 Striping Tech-Electrical $65,337 Cherokee Mechanica Inc. $55,662 Service Lloyd's $50,830 Dawn Development Co., Inc. $50,534 Underground Utility Supp. $44,872 Sharewell, LP $37,157 Holland Pump $36,479 Transit Mix Concrete $34,863 Carruth Nursery $33,436 Fleet Fueling $31,919 Drillers Supply, Inc. $30,646 Sunwest Mud $26,809 B. R&K Energy, Inc.'s 2 Largest Unsecured Creditors: Entity Claim Amount ------ ------------ Diamond K Corporation Unknown The CIT Group/EF Unknown DIGITALNET: Moody's Withdraws Low-B Ratings After BAE Acquisition ----------------------------------------------------------------- Moody's Investors Service confirmed and will withdraw the ratings of DigitalNet, Inc., following the completion of the acquisition of the company's parent, DigitalNet Holdings, Inc., by BAE Systems North America, Inc., a subsidiary of BAE Systems plc (senior debt at Baa2). All but a small amount (under $1 million) of the senior unsecured notes of DigitalNet, Inc. were retired in a tender offer concurrently with the closing of the acquisition. The ratings confirmation concludes the review of the company's ratings that was announced on September 14, 2004. Moody's has confirmed and will withdraw these ratings: * $81.3 million Senior Unsecured Notes due 2010, rated B2; * Senior Implied, rated B1; * Senior Unsecured Issuer, rated B2. Headquartered in Herndon, Virginia, DigitalNet, Inc., now a subsidiary of BAE Systems North America, Inc., is a leading provider of managed network, information security, and application development and integration services and solutions to U.S. civilian, defense, and intelligence federal government agencies. DIVERSIFIED ASSET: Fitch Slices Class B-1 Notes' Rating to B ------------------------------------------------------------ Fitch Ratings downgraded two classes of notes and affirms two classes of notes issued by Diversified Asset Securitization Holdings II, L.P. -- DASH II. These rating actions are effective immediately: -- $50,229,828 class A-1 notes affirmed at 'AAA'; -- $318,122,241 class A-1L notes affirmed at 'AAA'; -- $50,000,000 class A-2L notes downgraded to 'BBB+' from 'A-'; -- $37,000,000 class B-1 notes downgraded to 'B' from 'BB-'. Furthermore, the class A-2L and class B-1 notes are removed from Rating Watch Negative. DASH II is a structured finance collateralized debt obligation managed by Western Asset Management Co. and originated by Asset Allocation & Management, LLC -- AAMCO. Western became the substitute asset manager for AAMCO in October 2002. Fitch rates Western 'CAM2' on its ABS asset manager rating. DASH II was established in Sept. 13, 2000 to issue $496 million in notes and limited partnership interests. The portfolio supporting the CDO comprises approximately 37% residential mortgage-backed securities -- RMBS, 29% commercial mortgage-backed securities -- CMBS, 23% commercial asset-backed securities -- ABS, and 8% consumer ABS. Included in this review, Fitch discussed the current state of the portfolio with the asset manager and their portfolio management strategy. In addition, Fitch conducted cash flow modeling utilizing various default timing and interest rate scenarios to measure the breakeven default rates relative to the minimum cumulative default rates required for the rated liabilities. As a result of this analysis, Fitch has determined that the current ratings assigned to the class A-2L and B-1 notes no longer reflect the current risk to noteholders. Since the last rating action, the collateral has continued to deteriorate. The weighted average rating factor has increased from 23 ('BBB-') to 27 ('BBB-/BB+'). The class A overcollateralization ratio decreased to 111.6% as of the most recent trustee report dated October 2, 2004, from 113.70% as of September 30, 2003, the class B OC ratio has decreased to 102.1% from 104.4% and now fails versus the trigger of 103%. Defaulted assets have increased from 0.65% as of September 30, 2003 to 5.39% of the total collateral and eligible investments. Assets rated 'BBB-' or lower represented approximately 24.97%, excluding defaults. The rating of the class A-1 and class A-1L notes addresses the likelihood that investors will receive full and timely payments of interest, as per the governing documents, as well as the stated balance of principal by the legal final maturity date. The ratings of the class A-2L and class B-1 notes address the likelihood that investors will receive ultimate and compensating interest payments, as per the governing documents, as well as the stated balance of principal by the legal final maturity date. Fitch will continue to monitor and review this transaction for future rating adjustments. Additional deal information and historical data are available on the Fitch web site at http://www.fitchratings.com For more information on the Fitch VECTOR model, see 'Global Rating Criteria for Collateralised Debt Obligations,' dated Sept. 13, 2004, available on Fitch's web site. DT INDUSTRIES: Wants Plan-Filing Period Stretched to March 8 ------------------------------------------------------------ DT Industries, Inc., and its debtor-affiliates ask the Honorable Lawrence S. Walter of the U.S. Bankruptcy Court for the Southern District of Ohio, Western Division, for more time to file a chapter 11 plan. Specifically, the Debtors ask the Court to extend their exclusive period in which to file a plan through March 8, 2005, and ask for a concomitant extension of their time to solicit acceptances of that plan through May 7, 2005. DT Industries sold substantially a large chunk of its assets to Thompson Street Capital Partners for $18 million earlier this year. The company is currently trying to complete a sale of its U.K. assets. Headquartered in Dayton, Ohio, DT Industries, Inc. -- http://www.dtindustries.com/-- is an engineering-driven designer, manufacturer and integrator of automated systems and related equipment used to manufacture, assemble, test or package industrial and consumer products. The Company and its debtor-affiliates, filed for chapter 11 protection on May 12, 2004 (Bankr. S.D. Ohio Case No. 04-34091). Ronald S. Pretekin, Esq., at Coolidge Wall Womsley & Lombard, represents the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $150,593,000 in assets and $142,913,000 in liabilities. DYNACQ HEALTHCARE: Restructures Bank Loan & Cures Default --------------------------------------------------------- Dynacq Healthcare Inc. (Pink Sheets:DYII) has completed a restructuring of its $6 million revolving credit facility which will now mature on Feb. 28, 2005. Currently, approximately $5.8 million is outstanding under the revolving credit facility. As a result of the restructuring, Dynacq is no longer in default under this facility. Dynacq intends to either refinance the amounts due or repay all outstanding amounts by such final maturity date. About the Company Dynacq Healthcare Inc. -- http://www.dynacq.com/-- is a holding company. Its subsidiaries provide surgical healthcare services and related ancillary services through hospital facilities and outpatient surgical centers. * * * Bank Debt Default DYNACQ INTERNATIONAL, INC., is the borrower under an $8,000,000 WORKING CAPITAL MANAGEMENT(R) ACCOUNT AGREEMENT NO. 582-07L53 with MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED dated as of May 18, 2001. In its Form 10-Q for the quarterly period ended May 31, 2004, filed with the Securities and Exchange Commission, Dynacq Healthcare, Inc., reported: "Because we did not timely file the Form 10-K for the fiscal year ending August 31, 2003 and the three quarterly reports on Form 10-Q for the fiscal quarters ended November 30, 2003, February 29, 2004 and May 31, 2004, we are in default under the terms of the line of credit. On April 16, 2004, the financial institution submitted to us a written notice of default. Since we did not cure the default within 10 days, we are now in default under the line of credit. To this date, the financial institution has not taken any further action. Our indebtedness under our line of credit is secured by substantially all of our assets. If we are unable to repay all outstanding balances, the financial institution could proceed against our assets to satisfy our obligations under the line of credit. There can be no assurance that the Company will have sufficient funds available to meet all of its capital needs. EMISPHERE TECH: Sept. 30 Stockholders' Deficit Narrows to $4.1-Mil ------------------------------------------------------------------ Emisphere Technologies, Inc. (Nasdaq: EMIS) reported results for the third quarter ended September 30, 2004. The Company also reviewed highlights of the quarter including progress in commercializing its proprietary eligen(R) drug delivery technology. Emisphere reported a preliminary net loss of $9.5 million for the quarter ended September 30, 2004, as compared to a net loss of $14.3 million for the quarter ended September 30, 2003. The foregoing net loss is preliminary and subject to an ongoing review by the Company and its auditors of the accounting treatment, which is non-cash in nature, of the Company's employee stock purchase plans in the current and prior periods. That review is expected to be completed before the filing of the Company's financial statements for the quarter ended September 30, 2004 to be submitted to the SEC on Form 10-Q. Total operating expenses were $8.1 million for the 2004 third quarter, a decrease of $5.8 million, or 42%, compared to the same period last year. Total operating expenses include research and development costs of $4.1 million, a decrease of $1.7 million or 29%, compared to last year's third quarter. General and administrative expenses were $2.6 million, an increase of $0.3 million or 13% as compared to the same period last year, resulting primarily from increased legal fees associated with ongoing litigation with Eli Lilly and Company concerning parathyroid hormone. Net cash used in operations for the quarter was $5.8 million compared to $6.1 million for the previous quarter. As of September 30, 2004, Emisphere held cash, cash equivalents and investments totaling $24.3 million, compared to $43 million at December 31, 2003. Product Development Update for Third Quarter 2004 Human Growth Hormone In September, Emisphere announced that it entered into a licensing agreement with Novartis Pharma AG to develop an oral formulation of recombinant human growth hormone (rhGH). Under the terms of the milestone- based agreement, Novartis may pay Emisphere up to $34 million during the course of product development, and a royalty increasing to double-digit rates based upon sales. Including the initial payment, Emisphere could achieve milestone-based payments of up to $6 million over the course of the next year. The companies formed the agreement following successful completion of pre-clinical feasibility studies for rhGH with Emisphere's eligen(R) technology. Emisphere identified delivery agents that can deliver therapeutically sufficient levels of rhGH to the blood stream when administered orally. The lead carrier for rhGH has completed extensive formulation and preclinical safety studies. This collaboration marks the second between the two companies. In 2000 Emisphere and Novartis entered into a license agreement for the development of oral salmon calcitonin for the treatment of osteoporosis. Oral Salmon Calcitonin During the third quarter, in the Journal of Bone and Mineral Research, Novartis published positive results of its 277-subject Phase II-a study with oral salmon calcitonin. The results showed effective absorption of the drug within the body, marked inhibition of bone resorption with minimal alteration of formation and reproducibility of responses over three months. The low dropout rate achieved in the study indicated that the drug was well-tolerated with no major safety concerns. A second publication in this journal has been accepted for this product, supporting Novartis' plans to initiate a second clinical development program for an osteoarthritis indication to run parallel with the program in osteoporosis. Michael M. Goldberg, M.D., Chairman and Chief Executive Officer of Emisphere Technologies, Inc., commented, "We continue to make progress in our research and development efforts, both internally and in collaboration with our partners. We have expanded our relationship with Novartis through our licensing deal for human growth hormone. The positive Phase II results Novartis has published on oral salmon calcitonin indicate that this program will serve as a strong foundation to help move the human growth hormone program forward. This expansion of our relationship with Novartis further demonstrates the performance of our eligen(R) drug delivery technology." The eligen(R) Technology Emisphere's broad-based oral drug delivery technology platform, known as the eligen(R) technology, is based on the use of proprietary, synthetic chemical compounds, known as EMISPHERE(R) delivery agents, or "carriers". These molecules facilitate or enable the transport of the therapeutic macromolecules across biological membranes such as those of the gastrointestinal tract, and exert their desired pharmacological effect. Emisphere's eligen(R) technology makes it possible to orally deliver a therapeutic molecule without altering its chemical form or biological integrity. About the Company Emisphere Technologies, Inc. (Nasdaq: EMIS) is a biopharmaceutical company pioneering the oral delivery of otherwise injectable drugs. Emisphere's business strategy is to develop oral forms of injectable drugs, either alone or with corporate partners, by applying its proprietary eligen(R) technology to those drugs or licensing its eligen(R) technology to partners who typically apply it directly to their marketed drugs. Emisphere's eligen(R) technology has enabled the oral delivery of proteins, peptides, macromolecules and charged organics. Emisphere and its partners have advanced oral formulations or prototypes of salmon calcitonin, heparin, insulin, parathyroid hormone, human growth hormone and cromolyn sodium into clinical trials. Emisphere has strategic alliances with world-leading pharmaceutical companies. For further information, please visit http://www.emisphere.com/ At Sept. 30, 2004, Emisphere Technologies' balance sheet showed a $4,105,000 stockholders' deficit, compared to a $22,807,000 deficit at Dec. 31, 2003. The $4.1 million stockholders' deficit is preliminary and subject to an ongoing review by the Company and its auditors of the non- cash financial treatment of the Company's employee stock purchase plan. That review is expected to be completed before the filing of the Company's financial statements for the quarter ended Sept. 30, 2004 to be submitted to the SEC on Form 10-Q. ENRON CORP: Court Approves Settlement Agreement with Accord Energy ------------------------------------------------------------------ Prior to filing its chapter 11 case, Enron Corp. issued a credit support guaranty to Accord Energy Limited where Enron guaranteed certain obligations of Enron Capital & Trade Resources Limited up to $21,382,500. On February 23, 2000, Enron and Accord amended the Guaranty, increasing the guaranteed amount to $35,637,500. On December 20, 2000, Enron and Accord entered into a second amendment to the Guaranty, adding Enron Canada Corp. and Enron North America Corp. as obligors and to increase the amount of the Guaranty to $106,912,500. On October 15, 2002, Accord filed a $50,391,245 claim against Enron asserting alleged obligations under the Guaranty. On November 26, 2003, Enron filed an adversary proceeding seeking to avoid the Second Amendment. Edward A. Smith, Esq., at Cadwalader, Wickersham & Taft, in New York, points out that the Compromise Election in the Debtors' Fifth Amended Chapter 11 Plan allows holders of guaranty claims for guarantees executed between December 2, 2000, and January 31, 2001, to compromise and settle litigation concerning the claims at a 50% discount to the allowed amount of the claim. Following discussions between Enron and Accord, the parties have negotiated a settlement agreement. The Settlement Agreement provides that: (a) Accord will elect the Compromise Election -- a 50% discount will be applied with respect to the allowed amounts of the Claim in excess of $35,637,500, for purposes of determining Accord's distribution under the Plan; (b) Neither the Guaranty nor the First Amendment is subject to avoidance under Section 548 of the Bankruptcy Code; (c) Nothing in the Settlement Agreement will preclude, limit, or restrict the Debtors' right to object to, contest, or litigate the amount of the Claim, provided that Enron agrees not to raise or assert any defense to the Claim that may be available to it pursuant to Sections 544, 547 and 548 of the Bankruptcy Code; and (d) Enron will file with the Court a stipulation dismissing the Guaranty Avoidance Action, with prejudice and without costs to any party. The Settlement Agreement will clearly benefit the Debtor and its creditors, Mr. Smith asserts. The Settlement Agreement allows the Debtor to avoid further litigation concerning the Guaranty, including the attendant litigation costs, and results in the reduction in the allowed amount of the Claim. Accordingly, Enron sought and obtained the Court's approval of the Settlement Agreement. Headquartered in Houston, Texas, Enron Corporation is in the midst of restructuring various businesses for distribution as ongoing companies to its creditors and liquidating its remaining operations. Before the company agreed to be acquired, controversy over accounting procedures had caused Enron's stock price and credit rating to drop sharply. The Company filed for chapter 11 protection on December 2, 2001 (Bankr. S.D.N.Y. Case No. 01- 16033). Judge Gonzalez confirmed the Company's Modified Fifth Amended Plan on July 15, 2004, and numerous appeals followed. Martin J. Bienenstock, Esq., and Brian S. Rosen, Esq., at Weil, Gotshal & Manges, LLP, represent the Debtors in their restructuring efforts. (Enron Bankruptcy News, Issue No. 128; Bankruptcy Creditors' Service, Inc., 15/945-7000) ENRON CORP: Court Allows $6.75 Million Claim Against NEGT Power --------------------------------------------------------------- Enron Corporation and its debtor-affiliates ask the Court to approve their Stipulation of Settlement with NEGT Energy Trading - Gas Corporation formerly known as PG&E Energy Trading - Power, LP, and NEGT Energy Trading - Power, LP. According to Edward A. Smith, Esq., at Cadwalader, Wickersham & Taft, in New York, the NEGT Entities filed for Chapter 11 protection on July 8, 2003, in the United States Bankruptcy Court for the District of Maryland. Debtors Enron Power Marketing, Inc., Enron Energy Marketing Corp., and Enron Energy Services, Inc., and the NEGT Entities were parties to prepetition contracts for the sale of power and a Termination and Transaction Agreement dated November 30, 2001. On November 26, 2003, EPMI filed in the Maryland Bankruptcy Court a complaint to avoid and recover preferential transfers against PG&E Power. EPMI also filed Claim No. 62 for $13,200,000 against NEGT Power. On January 9, 2004, EPMI filed Claim No. 224 for $13,200,00, intending to amend and supersede Claim No. 62. Additionally, the Debtors filed three claims against the NEGT Entities: Debtor Claimant Claim No. Claim Amount --------------- --------- ------------ EEMC 372 $2,436,240 EESI 373 730,436 ENA 197 contingent & unliquidated NEGT Power objected to Claim Nos. 372, 373, and 197. To resolve their disputes, the Parties entered into a Settlement Agreement, which provides that: (a) Claim No. 224 will be allowed for $6,750,000, as a general unsecured claim against NEGT Power, which claim and distribution will not be subject to any rights of setoff or recoupment; (b) Claim Nos. 62, 373 and 373 will be expunged and disallowed in their entirety; (c) The objection to Claim No. 197 will be deemed withdrawn without prejudice; and (d) The Maryland Action will be dismissed with prejudice. The Settlement will clearly benefit the Debtors and their creditors, Mr. Smith states. The Debtors believe that the $6.75 million claim allowance will adequately compensate them for their Contracts with NEGT Power. The Court promptly approves the Settlement. Headquartered in Houston, Texas, Enron Corporation is in the midst of restructuring various businesses for distribution as ongoing companies to its creditors and liquidating its remaining operations. Before the company agreed to be acquired, controversy over accounting procedures had caused Enron's stock price and credit rating to drop sharply. The Company filed for chapter 11 protection on December 2, 2001 (Bankr. S.D.N.Y. Case No. 01- 16033). Judge Gonzalez confirmed the Company's Modified Fifth Amended Plan on July 15, 2004, and numerous appeals followed. Martin J. Bienenstock, Esq., and Brian S. Rosen, Esq., at Weil, Gotshal & Manges, LLP, represent the Debtors in their restructuring efforts. (Enron Bankruptcy News, Issue No. 128; Bankruptcy Creditors' Service, Inc., 15/945-7000) ENRON CORP: AEP Completes $115 Million Bammel Asset Purchase ------------------------------------------------------------ American Electric Power (NYSE: AEP) closed its acquisition of the Bammel storage reservoir and related pipeline and compressor assets from Enron Corp. for $115 million. AEP and Enron announced a settlement agreement in April related to AEP's 30-year pre-paid lease arrangement for Bammel that was entered into in June 2001 when AEP purchased Houston Pipe Line Co. from Enron. Enron filed bankruptcy six months later and the lease became part of the bankruptcy proceedings. The settlement agreement was approved by bankruptcy court in September. In this transaction, AEP acquires - among other assets - all of Enron's interests in the 7,000-acre underground Bammel storage reservoir near Houston, the related Bammel Loop, Texas Loop and Houston City Loop pipelines, appurtenant wells, compressors and other equipment, and 10.5 billion cubic feet (bcf) of natural gas in the Bammel storage reservoir. AEP and Enron mutually released the other from all claims associated with Bammel and the related assets. The parties' respective trading claims are not covered under this settlement. Houston Pipe Line includes approximately 4,000 miles of natural gas intrastate and gathering pipelines. The settlement does not cover AEP's suit in Texas federal court against Bank of America claiming fraud, breaches of contractual covenants and negligent misrepresentations by Bank of America in connection with AEP's purchase of the Houston Pipe Line stock, the Bammel storage lease and related contractual agreements. Bank of America claims a security interest in approximately 55 bcf of cushion gas purportedly in the Bammel storage reservoir. American Electric Power owns more than 36,000 megawatts of generating capacity in the United States and is the nation's largest electricity generator. AEP is also one of the largest electric utilities in the United States, with more than 5 million customers linked to AEP's 11-state electricity transmission and distribution grid. The company is based in Columbus, Ohio. Headquartered in Houston, Texas, Enron Corporation is in the midst of restructuring various businesses for distribution as ongoing companies to its creditors and liquidating its remaining operations. Before the company agreed to be acquired, controversy over accounting procedures had caused Enron's stock price and credit rating to drop sharply. The Company filed for chapter 11 protection on December 2, 2001 (Bankr. S.D.N.Y. Case No. 01- 16033). Judge Gonzalez confirmed the Company's Modified Fifth Amended Plan on July 15, 2004, and numerous appeals followed. Martin J. Bienenstock, Esq., and Brian S. Rosen, Esq., at Weil, Gotshal & Manges, LLP, represent the Debtors in their restructuring efforts. FAO, INC.: Who Recovers What Under the Liquidating Plan ------------------------------------------------------- As previously reported in the Troubled Company Reporter on Nov. 1, 2004, the Honorable Joel B. Rosenthal of the U.S. Bankruptcy Court for the District of Delaware confirmed the Chapter 11 Plan of Liquidation proposed by proposed by FAO, Inc., and its debtor- affiliates. Judge Rosenthal determined that the Plan: * properly classifies the claims, * specifies the unimpaired classes of claims, * specifies the treatment of unimpaired classes of claims, * provides for the same treatment of each claim in each class, * provides adequate and proper means for its implementation, * is not inconsistent with applicable provisions of the Bankruptcy Code, * complies with applicable provisions of the Bankruptcy Code, * was proposed in good-faith, * provides for the payment for services or costs and expenses in connection with the Debtors Chapter 11 cases, * provides for the proper treatment of administrative and tax claims pursuant to the requirements of Section 1129((a)(9) of the Bankruptcy Code, * is feasible, * calls for the payment of fees payable under Section 1930 of the Judiciary Procedures Code, * does not alter retiree benefits * is fair and equitable, and * does not call for the avoidance of taxes or the application of Section 5 of the Securities Act of 1933. Each impaired class voted to accept the Plan. A last-minute deal with D.E. Shaw Laminar Portfolios LLC, reported in the Troubled Company Reporter on Oct. 22, 2004, paved the way for a consensual confirmation hearing. Terms of the Plan The Plan calls for the dissolution of the Debtors. The Plan contemplates the appointment of a Liquidation Trust Committee and a Liquidation Trustee. The Official Committee of Unsecured Creditors will appoint a three- to five-member Liquidation Trust Committee. The Liquidation Trustee will be tasked to distribute claims payment in consultation with the Liquidation Trust Committee. The Debtors will be substantively consolidated into a single entity. All intercompany claims and prepetition cross-corporate guarantees between the Debtors will be eliminated. All of the Debtors' assets and liabilities will be merged. Seven Classes of Claims will be paid in full: (1) Non-Professional Administrative Expense Claims totaling $400,000; (2) Professional Administrative Expense Claims totaling $850,000; (3) Priority Tax Claims totaling $950,000; (4) Priority Non-Tax Claims totaling $50,000; (5) Secured Claims of Banks and other Financial Institutions under the Prepetition Credit Agreement for $533,000; (6) D.E. Shaw Laminar Portfolios LLC's Claim under the Subordinated Note Due 2008 dated April 23, 2003, in the outstanding principal amount of $5,900,000 plus accrued interest; (7) Reclamation Claims totaling $1,040,547; Other claims will be paid by the Liquidating Trust, with projected recoveries based on the Trust's success in prosecuting and recovering on avoidance actions: (A) D.E. Shaw Laminar Portfolios LLC will recover 28.5% to 50% of its claim based on the Equipment Note dated April 23, 2003 in the principal amount of $3,853,154. (B) PNC Leasing LLC will get 50% to 85% of its secured claim based on the Loan Agreement dated September 5, 2001. The Debtors owe PNC $453,164. (C) Vendors, Suppliers and Trade Creditors will recover 47.3% to 60.9% of their claims. The Debtors owe them $24,600,000. (D) Holders of Claims based on the prior Chapter 11 Plan confirmed in the Debtors' first Chapter 11 cases on April 4, 2003 will recover 28.3% to 39.4% of their claims. Prior Plan Claims total $15,715,200. (E) Holders of General Unsecured Claims will recover 28.3% to 39.4% of their claims. General Unsecured Claims total $26,647,900. Equity interests will be cancelled. A full-text copy of the Plan is available for a fee at: http://www.researcharchives.com/download?id=040812020022 FAO Inc. (n/k/a Children's Books & Toys, Inc.) and its wholly owned subsidiaries ZB Company, Inc., FAO Schwarz, Inc. (n/k/a Toy Soldier, Inc.), The Right Start, Inc. (n/k/a TRS Liquidation Co.), and Targoff-RS, LLC, filed for chapter 11 protection a second time on December 4, 2003 (Bankr. D. Del. Case No. 03-13672), eight months after they emerged from their first chapter 11 cases (Bankr. D. Del. Case Nos. 03-10119 through 03-10122). Mark D. Collins, Esq., at Richards Layton & Finger, represents the Debtors. When the failed toy retailer filed for bankruptcy, it listed $102,079,000 in assets and $85,898,000 in liabilities. FOSTER WHEELER: Saybrook Completes Out-of-Court Restructuring ------------------------------------------------------------- Saybrook successfully completed Foster Wheeler Ltd.'s equity-for- debt exchange offer. Foster Wheeler is a global company providing a broad range of engineering and construction services to clients in the refining, upstream oil and gas, chemicals, power generation, pharmaceuticals and other sectors. Saybrook was engaged as financial advisor by the Ad Hoc Committee of Security Holders of Foster Wheeler. Many on Wall Street said this out-of-court restructuring of six classes of securities couldn't be done. Each with competing interests, some held institutionally, others held in retail. The transaction involved the exchange of approximately $600 million of debt and resulted in the reduction of the Company's total debt by more than $450 million. The exchange offer received over 93% participation by the Company's bond holders. Saybrook also structured and negotiated the purchase of $120 million of 10.359% Senior Secured Notes of Foster Wheeler by a group of institutional investors. This investment, in conjunction with the exchange, eliminates substantially all material scheduled corporate debt maturities prior to 2011. Jonathan Rosenthal, the Partner who led the transaction team for Saybrook, said, "At the end of the day, holders believed in the Company's prospects and its management team. Foster Wheeler's restructuring positions the Company to compete effectively in the global engineering and construction marketplace. We are pleased to have assisted in the completion of this complex transaction." "The completion of this equity-for-debt exchange is the most significant accomplishment at Foster Wheeler in many years," said Raymond J. Milchovich, Chairman, President, and Chief Executive Officer. "We have provided a dramatically improved capital structure to support our worldwide operating subsidiaries." Saybrook is an investment bank engaged in capital management and financial advisory services. The firm advises its clients in two primary arenas: restructuring and real estate. Saybrook's corporate restructuring professionals have advised constituencies in dozens of high profile reorganizations, including five of the largest bankruptcies in history. To find out more, please visit http://www.saybrook.net/ About the Company Foster Wheeler, Ltd., is a global company offering, through its subsidiaries, a broad range of design, engineering, construction, manufacturing, project development and management, research, plant operation and environmental services. At September 24, 2004, Foster Wheeler's balance sheet showed a $441,238,000 stockholders' deficit, compared to an $872,440,000 deficit at December 26, 2003. FRANKLIN CAPITAL: Raises $3,245,000 in Private Equity Placement --------------------------------------------------------------- Franklin Capital Corporation (AMEX: FKL) has closed a $3,245,000 private placement of shares of its common stock and warrants to purchase additional shares of its common stock. Proceeds from the private placement will be used in connection with Franklin's previously announced restructuring and recapitalization plan, including to expedite Franklin's entry into the medical products/health care solutions industry and financial services industry. The shares of common stock and warrants to purchase additional shares of common stock issued in connection with the private placement have not been registered under the Securities Act of 1933, as amended, and may not be offered or sold unless they are so registered or are exempt from the registration requirements. Franklin Capital Corporation originates and services direct and indirect loans for itself and its sister company Franklin Templeton Bank and Trust, F.S.B. Eight different loan programs are offered, allowing Franklin Capital Corporation to serve the needs of prime, non-prime and sub-prime customers throughout the United States. * * * As reported in the Troubled Company Reporter on August 24, 2004, Franklin Capital Corporation's former independent accountants, Ernst & Young LLP, indicated in its reports dated March 5, 2004 and March 7, 2003 on Franklin's financial statements, substantial doubt about the company's ability to continue as a going concern. GADZOOKS INC: October Same Store Sales Up 14.1% from Last Year -------------------------------------------------------------- Gadzooks, Inc. (OTC Pink Sheets: GADZQ) reported that sales for the four weeks of fiscal October ended October 30, 2004 totaled $10.5 million. Comparable store sales increased 14.1 percent for the October period compared to the same period in fiscal 2003. Total sales for the first 39 weeks of fiscal 2004 were $137.2 million. Sales for the third quarter ended October 30, 2004 totaled $39.6 million. Comparable store sales increased 18.6 percent for the third quarter compared to the same period of fiscal 2003. Jerry Szczepanski, Chairman and Chief Executive Officer of Gadzooks said, "We are very pleased again with our performance this month. We now have put four months of solid double digit comps in a row since the one year anniversary of our concept change in July." Szczepanski added, "Our recent agreement with investment funds to provide financing to help us emerge from Chapter 11 and the completion of our Tranche B financing to provide seasonal borrowing capacity has all been completed in the last two weeks. Combining this with our continued sales growth is a breath of fresh air for our Company." Headquartered in Carrollton, Texas, Gadzooks, Inc. -- http://www.gadzooks.com/-- is a mall-based specialty retailer selling casual clothing, accessories and shoes for 16-22 year old females. The Company now operates 243 stores in 40 states. The Company filed for chapter 11 protection on February 3, 2004 (Bankr. N.D. Tex. Case No. 04-31486). Charles R. Gibbs, Esq., and Keith Miles Aurzada, Esq., at Akin Gump Strauss Hauer & Feld, LLP, represent the Debtor in its restructuring efforts. When the Company filed for protection from its creditors, it listed $84,570,641 in total assets and $42,519,551 in total debts. GENOIL INC: Acquires Majority Interest in Velox Corporation ----------------------------------------------------------- Genoil has acquired a controlling interest in the Velox Corporation. In the past year Genoil entered into a worldwide licensing agreement to market and manufacture the "Maxis" oil and water separation system developed by Velox. Through a series of transactions involving the acquisition of approximately 1.2 million shares Genoil has now acquired a majority interest in Velox. The Maxis is a cyclonic oil/water separation technology that can process large volumes of water achieving a high quality separation of oil from water. In almost all conditions the Maxis system dramatically reduces or eliminates the requirements for heating and chemical treatments in the knock-out phase of oil/water separation thereby significantly reducing costs. The small percentage of water remaining in the separated oil depends on the quality of crude and the ambient temperature of the flow. Furthermore, the small percentage of oil remaining in the separated water flow is lower than nearly all existing conventional systems on the market. In combination with Genoil's existing oil/water separation technologies such as the Crystal, the Diamond and the new Claris, extremely low levels of oil in water can be achieved thereby making it possible for producers to meet demanding environmental standards and regulations. Thus, the Maxis complements Genoil's oil/water separation technology and will be a valuable addition to Genoil's goal of providing low maintenance and low cost solutions to the oil and gas industry. A key characteristic of the Maxis system is its uniquely small footprint in comparison to most conventional systems. While Maxis is a highly efficient technology for on-shore producers, its small footprint makes it especially attractive for offshore producers where space is at a premium. Genoil is actively pursuing both markets. The Maxis system also complements the Genoil hydroconversion upgrading system known as GHU. In field conditions where producers wish to create "field upgraders" to upgrade low API crude to diluent standards thereby producing pipeline spec crude, Genoil has been able to work with producers to design field upgrading modules which combine the Maxis system with field GHU units. The Maxis units are able to break through the "oil/water separation bottleneck" at field level locations and directly supply separated oil to field GHU upgraders. Genoil is currently working with an international producer in the design of such a module. While Genoil pursues marketing of its Maxis technology for use in the international oil industry, the Velox Corporation will independently focus on other major uses for the Maxis system in the world market. New international environmental regulations will soon require shipping firms to equip their ships with means to clean up the ballast water that ships dump back into the ocean or harbors. The Maxis system is ideally designed to meet these new and demanding environmental requirements. It is estimated that 84,000 ships worldwide will have to adopt new ballast cleansing technologies to meet international and regional environmental standards within the next few years. The Velox Corporation will be actively pursuing this major market. About the Company Genoil is a technology development company providing solutions to the oil and gas industry through the use of proprietary technologies. Genoil's shares are listed on the TSX Venture Exchange under the symbol GNO. The proposed issue of shares remains subject to Genoil receiving regulatory approval from the TSXV. * * * Going Concern Doubt The Corporation has not achieved commercial operations from its various patents and technology rights and continues to incur losses. At March 31, 2004, the Company has a working capital deficiency of $3,044,177, including a note payable due in January 2005. The future of the Corporation is dependent upon its ability to maintain the continued financial support of the note holder, and obtain additional financing to fund the development of commercial operations. These consolidated financial statements are prepared on the basis that the Corporation will continue to operate throughout the next fiscal period to March 31, 2005 as a going concern. A failure to continue as a going concern would then require that stated amounts of assets and liabilities be reflected on a liquidation basis, which would differ from the going concern basis. GITTO GLOBAL: Inks Sale Pact with Unidentified Horse Bidder ----------------------------------------------------------- Emily Young, writing for the Sentinel & Enterprise in Fitchburg, Mass., reports that Gitto Global Corporation signed a purchase and sale agreement last week. "We signed a purchase and sale agreement to sell the company," Thomas Doherty at Argus Management, serving at Gitto/Global's Chief Restructuring Officer, told Ms. Young. "We'll continue to entertain potential buyers and keep talking to other companies to maximize the cash back." "This is an initial purchaser," Mr. Doherty continued. "There will be a hearing in court where people will be able to outbid (this purchaser)." "It's good news for our customers and our creditors down the line," Mr. Doherty added, declining to reveal the potential buyer's identity or the purchase price to Ms. Young. Headquartered in Lunenburg, Massachusetts, Gitto Global Corporation -- http://www.gitto-global.com/-- manufactures polyvinyl chloride, polyethylene, polypropylene and thermoplastic olefinic compounds. The Company filed for chapter 11 protection on September 24, 2004 (Bankr. D. Mass. Case No. 04-45386). Andrew G. Lizotte, Esq., at Hanify & King P.C., represents the Debtor in its restructuring efforts. When the Debtor filed for protection from its creditors, it estimated more than $10 million in assets and more than $50 million in debts. GOODYEAR TIRE: Appoints Joseph Copeland Sr. Vice President ---------------------------------------------------------- The Goodyear Tire & Rubber Company (NYSE: GT) reported that Joseph Copeland, formerly president of the company's chemical business, has been named senior vice president of business development, strategy and restructuring for Goodyear. The new appointment combines the business development responsibilities previously led by Rick Navarro, as well as the strategic and restructuring initiatives that were part of the previous assignment of Chief Financial Officer Richard Kramer. "In prior assignments with the company, Joe has displayed unique leadership capabilities that have resulted in excellent overall performance as well as a clear understanding of elements that will form the core of strategy going forward," said Goodyear Chairman and Chief Executive Officer Robert J. Keegan. "I have complete confidence in Joe's capabilities to help us drive the company's turnaround in his new capacity." Mr. Keegan said in addition to the considerable skills and experiences Copeland brings to the newly created position, the consolidation of business development and strategy will result in net cost savings for the company. Mr. Navarro, who implemented a comprehensive review process for business portfolio analysis, now has been assigned to work on special strategic projects reporting to Mr. Keegan. Mr. Copeland, 43, served as the director of finance for both the Engineered Products and Chemical divisions of Goodyear. Prior to those assignments, he held senior positions in both technical services and e-commerce for the company's Chemical Division and North American Tire unit, respectively. Mr. Copeland joined Goodyear in August 2000. Before joining Goodyear, Mr. Copeland served in important management roles at Ford Motor Company and Intel Corporation. While at Ford, between 1995 and 1997, Mr. Copeland served on the team that introduced the new and successful Jaguar S-Type to the company's luxury vehicle line. He also helped structure Ford's entry into the Indian market through the creation of a joint venture. At Intel from 1997 to 2000, Mr. Copeland was senior finance manager for its e-commerce and Internet marketing group, where he helped develop the strategy for the company's entry into the channel. In experience, Mr. Copeland practiced corporate law in Washington, D.C., from 1988 to 1993. He received his undergraduate degree in 1983 and his law degree in 1988, both from Baylor University. He received his MBA in 1995 from the University of Chicago. Headquartered in Akron, Ohio, Goodyear manufactures tires, engineered rubber products and chemicals in more than 80 facilities in 28 countries. It has marketing operations in almost every country around the world. Goodyear employs about 85,000 people worldwide. * * * As reported in the Troubled Company Reporter on July 29, 2004, Standard & Poor's Ratings Services assigned a 'B+' secured debt rating and a '2' recovery rating to The Goodyear Tire & Rubber Co.'s proposed $500 million senior secured funded credit facility. The senior secured and recovery ratings indicate a strong likelihood of substantial recovery of principal (80% to 100%) in the event of a default or bankruptcy. At the same time, Standard & Poor's affirmed the 'B+' corporate credit rating on Akron, Ohio-based Goodyear. The company has total debt of about $6 billion (including operating leases and sold accounts receivable) and underfunded employee benefit obligations of $5.8 billion. The outlook is stable. The new facility will replace Goodyear's existing $680 million revolving credit facility and will have the same collateral package. The facility will be used primarily to support outstanding letters of credit, but Goodyear will also have the option to use the proceeds for general corporate purposes. The facility will mature in September 2007 and will conclude the financing requirements of Goodyear's union agreements. "The ratings on Goodyear reflect the company's very weak financial profile, characterized by weak cash flow generation, poor earnings, onerous debt maturities, and heavy underfunded employee benefit liabilities," said Standard & Poor's credit analyst Martin King. "These factors more than offset the company's business strengths, including its position as one of the three largest global tire manufacturers, with good geographic diversity, strong distribution, and a well-recognized brand name." GRANITE INC: Voluntary Chapter 11 Case Summary ---------------------------------------------- Debtor: Granite, Inc. dba Granite Glass and Fence dba Dempsey-Adams Carstar 1837 Madison Avenue Granite City, Illinois 62040 Tel: (618) 877-5400 Bankruptcy Case No.: 04-34487 Type of Business: The Company has three divisions: Dempsey-Adams Carstar is a nationwide collision repair service that specialize in the latest body and frame straightening process and computerized paint matching and offer on-site glass repair. Granite, Inc.'s glass division specializes in commercial glazing, including plate and safety glass, insulated units and commercial storefronts. Granite Inc.'s fencing division provides high-quality commercial, industrial and residential fencing. See http://graniteglassandfence.com/ Chapter 11 Petition Date: November 5, 2004 Court: Southern District of Illinois (East St Louis) Debtor's Counsel: Steven M. Wallace, Esq. Blackwell Sanders Peper Martin 720 Olive Street, Suite 2400 Saint Louis, Missouri 63101 Tel: (314) 345-6452 Fax : (314) 345-6060 Estimated Assets: $1 Million to $10 Million Estimated Debts: $0 to $50,000 The Debtor did not file a list of its 20 Largest Unsecured Creditors. GREATER FELLOWSHIP: Case Summary & 16 Largest Unsecured Creditors ----------------------------------------------------------------- Debtor: Greater Fellowship Ministries, Inc. aka Healing Center Full Gospel Baptist Church 3885 Tchulahoma Road Memphis, Tennessee 38118 Bankruptcy Case No.: 04-37163 Type of Business: The Debtor operates a church. Chapter 11 Petition Date: November 2, 2004 Court: Western District of Tennessee (Memphis) Judge: Jennie D. Latta Debtor's Counsel: Bevanne J. Bowers, Esq. Law Office of Bevanne J. Bowers 605 Poplar Avenue Memphis, TN 38105 Tel: 901-335-8708 Total Assets: $1,100,000 Total Debts: $1,154,822 Debtor's 16 Largest Unsecured Creditors: Entity Nature Of Claim Claim Amount ------ --------------- ------------ IRS Insolvency Unit Back taxes $70,000 Martin Leasing Equipment $25,000 Secured value: $15,000 AmSouth Bank Credit card $23,000 Chase Financial Equipment $20,000 Secured value: $10,000 WMC TV Advertisement $8,800 Nextel Communications Phone service $2,700 Diversifed Copy Products Supplies $1,500 Lifeway Bookstore Supplies $900 ADT Alarm Security system $800 Sprint Phone service $800 American Marketing Security $600 Discount School Supplies Supplies $386 Time Warner Bankruptcy Unit Cable $177 Mid-American Specialties Supplies $74 Reliable Office Supplies Supplies $85 HARVEST ENERGY: Increases Share Exchange Ratio to 1.05604 --------------------------------------------------------- Harvest Energy Trust (TSX: HTE.UN) reported an increase to the Exchange Ratio of the Exchangeable Shares of Harvest Energy Trust from 1.04703 to 1.05604. This increase will be effective on November 15th, 2004. As part of the Plan of Arrangement with Storm Energy which closed on June 30, 2004, Harvest issued Exchangeable Shares which are exchangeable into trust units at a ratio that adjusts each month. The Exchangeable Shares are not publicly traded. However, holders of Harvest Exchangeable Shares can exchange all or a portion of their holdings at any time by giving notice to their investment advisor or Valiant Trust Company at its principal transfer office at 310, 606 - 4th Street SW, Calgary, AB, T2P 1T1 (telephone: 403- 233-2801). Harvest Energy Trust is a Calgary-based energy trust actively managed to deliver stable monthly cash distributions to its Unitholders through its strategy of acquiring, enhancing and producing crude oil, natural gas and natural gas liquids. Harvest trust units are traded on the Toronto Stock Exchange (TSX) under the symbol "HTE.UN". Please visit Harvest's website at http://www.harvestenergy.ca/for additional corporate information and recent corporate presentations. * * * As reported in the Troubled Company Reporter on Oct. 5, 2004, Standard & Poor's Ratings Services assigned its 'B+' long-term corporate credit rating to Calgary, Alta.-based Harvest Energy Trust and its 'B-' senior unsecured debt rating to the proposed $200 million seven-year bond to be issued by Harvest Operations Corporation, a wholly owned subsidiary of Harvest Energy Trust. The debt is fully guaranteed by the trust and all its wholly owned subsidiaries. HEALTH CARE: Fitch Explains BB+ Preferred Stock Rating in Detail ---------------------------------------------------------------- Fitch Ratings has published a credit analysis report on Health Care REIT, Inc. (HCN) providing insight into Fitch's rationale for its ratings of 'BBB-' for the company's $875 million of outstanding senior unsecured notes and the 'BB+' for the $289 million of preferred stock. The Rating Outlook is Positive. Fitch's ratings reflect favorably on: -- HCN's good asset diversity with 379 health care facilities spread across 33 states, including: -- Florida (16% of investment), -- Massachusetts (12%), -- North Carolina (9%), -- Texas (7%) and -- Tennessee (6%), -- the company's manageable use of debt leverage at approximately 42% of undepreciated book capital (as of Sept. 30, 2004) and -- its sizeable unencumbered asset pool. Financial flexibility is satisfactory for the rating, reflecting nearly 75% availability under the company's $340 million unsecured revolving credit facilities, proven access to debt and equity capital and a well-laddered debt maturity schedule. Additional credit considerations are the company's 2.5 times increase in the number of assets it has under master leases (now at 83% of real property owned) as well as very low development exposure (approximately 1% of gross depreciable property). Additionally, HCN's Positive Rating Outlook continues to reflect its improving credit statistics and overall leverage. The company's fixed-charge coverage has steadily improved to 2.7x as of Sept. 30, 2004, from a low of 2.4x at Dec. 31, 2000. Furthermore, the company's ratio of total debt-to-undepreciated book capital has improved to 41.8% as of Sept. 30, 2004. This represents a 200 basis point improvement from 43.8% reported as of Dec. 31, 2003. Finally, the Positive Rating Outlook recognizes the company's stringent and conservative underwriting of tenants. The company's underwriting process and ongoing monitoring of its tenants has aided HCN in avoiding many of the operator bankruptcy pitfalls that other health care real estate investment trusts (REITs) have faced. The company's stated strategy of 'partnering' with regional, nonpublic operators has, over time, proven to be a sound business plan. HCN, based in Toledo, Ohio, is an approximately $2.6 billion (total undepreciated book capitalization) equity REIT focused on the assisted living (57% of total investment), skilled nursing (37%) and specialty care (6%) sectors. The company specializes in sale/leaseback and mortgage investments of long-term health care facilities. As of Sept. 30, 2004, the company had investments in 379 health care facilities located in 33 states with 49 operators and had total assets of approximately $2.5 billion. For a copy of the credit analysis, visit the Fitch Ratings Web site at http://www.fitchratings.com/ HORNBECK OFFSHORE: Launches Cash Tender Offer for 10-5/8% Notes --------------------------------------------------------------- Hornbeck Offshore Services, Inc. (NYSE: HOS) has commenced a cash tender offer to purchase any and all of its $175,000,000 aggregate principal amount 10-5/8% Senior Notes due 2008 (CUSIP 440536 AB 6). In connection with the Offer, the Company is soliciting consents to proposed amendments that would eliminate certain restrictive covenants and default provisions contained in the indenture governing the Notes. The Offer and the Consent Solicitation are being made pursuant to the terms and subject to the conditions set forth in the Company's Offer to Purchase and Consent Solicitation Statement dated November 3, 2004, and the Consent and Letter of Transmittal, copies of which are available from the Information Agent and Tender Agent, Global Bondholder Services, by calling (866) 470-3800 (US toll-free) or (212) 430-3774 (collect). Hornbeck Offshore has also retained Goldman, Sachs & Co. as Dealer Manager for the Offer and Solicitation Agent for the Consent Solicitation. Questions about the Offer or the Consent Solicitation may be directed to the Credit Liability Management Group of Goldman, Sachs & Co. at (800) 828-3182 (US toll-free) or (212) 357- 5680 (collect). Hornbeck Offshore is offering to purchase the Notes using fixed- spread pricing that will result in total consideration for each $1,000 principal amount of Notes validly tendered equal to the present value on the applicable settlement date of the optional redemption price of $1,053.13 at the first call date for the Notes, August 1, 2005, plus the interest that would accrue from the last interest payment date on the Notes to the first call date, as determined by reference to a fixed spread of 0.75% over the yield to maturity of the 1.50% U.S. Treasury Security due July 31, 2005, minus accrued interest on the Notes from the last interest payment date to the applicable settlement date. Holders who tender their Notes prior to 5:00 p.m., Eastern time, on November 17, 2004 will be eligible to receive the total consideration, which includes a consent payment equal to $30 per $1,000 of principal. Holders who tender their Notes after the Consent Time but prior to 5:00 p.m., Eastern time, on December 3, 2004 will not be eligible to receive the $30 consent payment. In addition, Hornbeck Offshore will pay accrued interest up to, but not including, the applicable settlement date on all Notes accepted in the Offer. Subject to the conditions of the Offer, the initial settlement date with respect to all Notes tendered prior to the Consent Time will be within five business days of the Consent Time, which is expected to be November 24, 2004. A final settlement date will occur promptly after the Expiration Time with respect to all Notes tendered after the Consent Time but prior to the Expiration Time. The purchase price for the Notes will be determined by the Dealer Manager and publicly announced by 5:00 p.m., Eastern time, on November 16, 2004. Any holder who tenders its Notes will be deemed to have delivered its consent to the proposed amendments to the Indenture. The Consent Time is the deadline for holders to withdraw tenders of their Notes and to revoke related consents to the proposed amendments. Holders that tender their Notes prior to the Consent Time will be eligible to receive the total consideration on the initial settlement date, and holders that tender their Notes after the Consent Time but prior to the Expiration Time will be eligible to receive the total consideration less the consent payment on the final settlement date. This news release is not an offer to purchase, a solicitation of an offer to sell or a solicitation of consent with respect to any securities. The Offer is being made solely by the Offer to Purchase and Consent Solicitation Statement dated November 3, 2004. About the Company Hornbeck Offshore Services, Inc. is a leading provider of technologically advanced, new generation offshore supply vessels in the U.S. Gulf of Mexico and select international markets, and is a leading transporter of petroleum products through its fleet of ocean-going tugs and tank barges, primarily in the northeastern U.S. and in Puerto Rico. * * * As reported in the Troubled Company Reporter on Aug. 30, 2004, Standard & Poor's Ratings Services raised its corporate credit rating and senior unsecured ratings on Hornbeck Offshore Services, Inc., to 'BB-'from 'B+' following a review of current and expected growth initiatives and Hornbeck's ability to fund them in a manner that will not hurt credit quality. The ratings were also removed from CreditWatch with positive implications, where they were placed on March 11, 2004, following the announcement that Hornbeck would issue six million shares of common stock in an IPO. The outlook is now stable. Mandeville, Louisiana-based Hornbeck currently has $175 million of debt. "The ratings upgrade reflects Hornbeck's improved liquidity and financial flexibility following its IPO," said Standard & Poor's credit analyst Paul B. Harvey. "With nearly $85 million in liquidity as of June 30, 2004, Hornbeck should have adequate liquidity for existing construction plans. The company also now has the ability to issue common equity to help fund its fleet expansion, limiting its reliance on its credit facility and private capital infusions for growth," he continued. IRON MOUNTAIN: Moody's Junks Five Classes After Review ------------------------------------------------------ Moody's Investors Service downgraded the ratings of Iron Mountain Incorporated. The senior implied rating was lowered to B2 from B1. At the same time, Moody's assigned a rating of B2 to the company's new guaranteed senior secured $150 million tranche D term facility due 2011 and affirmed the company's SGL-3 liquidity rating. The ratings were assigned a stable outlook. This will conclude a review for possible downgrade, which was initiated on November 3, 2004. The downgrade reflects the company's continued appetite for debt financed acquisitions in excess of Moody's expectations, the growing risk profile of the company's business mix, and the weak 3% estimated pro forma 2004 free cash flow to total debt and the substantial negative free cash flow after acquisitions. The ratings reflect acquisition risk and the company's sustained tolerance for leverage. Pro forma for the debt financed acquisition of Connected Corporation which is expected to close in the fourth quarter, total debt plus eight time operating leases is estimated at 6 times the twelve months ended September 30, 2004 EBITDAR, and almost 2 times last twelve months revenues. Pro forma debt to book capitalization is estimated to increase to 64% from 62% at December 31, 2003. The ratings also incorporate the company's negative tangible equity of approximately $766 million at September 30, 2004 related to a high level of intangible assets and a modest fixed charge coverage of 1.6 times, inclusive of operating leases and current portion of long term debt for the twelve months ended September 30, 2004. The ratings are supported by: (1) the company's dominant market share of the stable record management business; (2) a diversified customer base; and (3) consistent gross margins. Moody's believes that over time the benefit of the lower risk profile of the maturing core domestic storage business will diminish because of the acquisition risk and cash investment needs of the digital, shredding and international businesses. This equation makes the leverage profile of the company unsustainable at the previous rating category. The rating outlook is stable. Further improvement in the rating would be predicated on improved cash generation from organic growth, significant debt reduction and no decapitalization of the company. Moody's does not expect Iron Mountain to substantially reduce total debt using free cash flow in the near term. The failure to sustain meaningful free cash flow generation, an increase in leverage or decapitalization of the company could pressure the rating. Going forward, Moody's will maintain its analytical focus on Iron Mountain's operational and funding strategy for international expansion, shredding and its digital businesses as well as the cash contribution of acquired businesses. Moody's will also monitor the existence, or lack thereof, of covenants that protect investors from fund transfers to unrestricted subsidiaries. The SGL-3 rating reflects Moody's expectation that operating cash flow, combined with cash balances, and availability under its secured revolving credit facility should be adequate to cover capital needs over the coming year. Moody's notes that combined availability under total committed revolvers has reduced significantly since June 30, 2004. Despite the issuer's newly negotiated covenant tests signed, Moody's believes the company will maintain a modest cushion under its financial covenant tests for the next twelve months. In addition, the company does not enjoy any meaningful alternate sources of liquidity. The proceeds of the $150 million guaranteed secured term loan D will be used to finance the acquisition of Connected Corporation for $117 million as well as to finance other specified acquisitions including the buy-out of a minority interest joint venture partner. The B2 rating on the guaranteed senior secured credit facility reflects the contractual benefits and limitations of the collateral package and the upstream guarantees of the domestic subsidiaries. The loan is the joint obligation of Iron Mountain Incorporated and Iron Mountain Incorporated Canada Corporation. The security is evidenced by a perfected first priority lien on 100% of the capital stock of domestic subsidiaries, and 65% of the stock of foreign subsidiaries. Earlier this year the EBITDA to Interest Expense coverage test was eliminated and replaced with a Guarantors Domestic Leverage test. The Fixed Charge coverage test was modified to capture any dividends paid. The company obtained covenant relief today for the maximum permitted Consolidated Net Debt to EBITDA test and the Guarantors Domestic Leverage test. Moody's notes that the GBP210 million (approximately $386 million) guaranteed secured revolver and term loan and overdraft facility due March 2009 which is the joint obligation of Iron Mountain Europe and its subsidiaries has a priority call on cash generated at IME. This Sterling facility is guaranteed by the IME subsidiaries but not by IMI. Moody's does not rate the IME loan. The Caa1 ratings on the subordinated notes reflect the notes' contractual subordination to a significant amount of secured indebtedness as well as approximately $1.1 billion of debt and trade payables of the non-guarantor subsidiaries at December 31, 2003. The notes are guaranteed by substantially all of the company's direct and indirect domestic wholly owned subsidiaries on a joint and several basis. However, a growing proportion of the company's total assets are excluded from the guarantee structure that supports the parent company's debt repayment. Non guarantors include Iron Mountain Canada Corporation, Iron Mountain Europe Limited and their respective subsidiaries and other international subsidiaries. The non-guarantor subsidiaries generated 19% of consolidated revenue for fiscal year 2003 and held approximately 32% of consolidated assets at December 31, 2003. Moody's notes that the restricted payments covenant under the most recent bond indenture provides for a sizable basket of $1.4 billion for investments in unrestricted subsidiaries, investments or guarantees of non-subsidiaries and for stock repurchases. In addition, there are no requirements to use the proceeds from the sale of foreign assets to reduce debt at the parent company. These aspects of the indenture become more important as the company continues to expand its investments in non-guarantor subsidiaries with the proceeds from US issued public debt. While covenants under the bank credit facility may be more restrictive, they are also susceptible to future negotiations. The rating actions are: * $350 million guaranteed senior secured revolving credit facility due 2009, downgraded to B2 from B1; * $200 million guaranteed senior secured Term Loan B due 2011, downgraded to B2 from B1; * $150 million guaranteed senior secured Term Loan D due 2001, assigned a B2; * $150 million principal amount of 8.25% guaranteed senior subordinated notes due 2011, downgraded to Caa1 from B3; * $481 million principal amount of 8.625% guaranteed senior subordinated notes due 2013, downgraded to Caa1 from B3; * $431 million principal amount of 7.75% guaranteed senior subordinated notes due 2015, downgraded to Caa1 from B3; * $320 million principal amount of 6.625% guaranteed senior subordinated notes due 2016, downgraded to Caa1 from B3; * GBP150 million issue of 7.25% guaranteed senior subordinated notes due 2014, downgraded to Caa1 from B3; * Senior Implied Rating downgraded to B2 from B1; * Senior Unsecured Issuer Rating downgraded to B3 from B2; SGL affirmed at SGL-3. Iron Mountain Incorporated, based in Boston, Massachusetts, is an international provider of records and information management and related services. Total sales for fiscal 2003 were $1.5 billion. J.P. MORGAN: S&P Assigns Low-B Rating to Six Certificate Classes ---------------------------------------------------------------- Standard & Poor's Ratings Services assigned its preliminary ratings to J.P. Morgan Chase Commercial Mortgage Securities Corp.'s $2.0 billion commercial mortgage pass-through certificates series 2004-CIBC10. The preliminary ratings are based on information as of November 4, 2004. Subsequent information may result in the assignment of final ratings that differ from the preliminary ratings. The preliminary ratings reflect the credit support provided by the subordinate classes of certificates, the liquidity provided by the trustee, the economics of the underlying mortgage loans, and the geographic and property type diversity of the loans. Classes A-1, A-2, A-3, A-4, A-5, A-6, A-J, B, C, D, and E are currently being offered publicly. Standard & Poor's analysis of the portfolio determined that, on a weighted average basis, the pool has a debt service coverage of 1.47x, a beginning LTV of 92.4%, and an ending LTV of 76.2%. A copy of Standard & Poor's complete presale report for this transaction can be found on RatingsDirect, Standard & Poor's Web- based credit analysis system, at http://www.ratingsdirect.com/ The presale can also be found on the Standard & Poor's Web site at http://www.standardandpoors.com Select Credit Ratings, and then find the article under Presale Credit Reports. Preliminary Ratings Assigned J.P. Morgan Chase Commercial Mortgage Securities Corp. Class Rating Amount ($) ----- ------ ---------- A-1 AAA 36,467,000 A-2 AAA 91,592,000 A-3 AAA 250,536,000 A-4 AAA 180,896,000 A-5 AAA 174,874,000 A-6 AAA 387,056,000 A-1A AAA 465,920,000 A-J AAA 119,051,000 B AA 62,006,000 C AA- 17,361,000 D A+ 14,881,000 E A 17,362,000 F A- 22,322,000 G BBB+ 27,282,000 H BBB 22,322,000 J BBB- 27,283,000 K BB+ 4,960,000 L BB 7,441,000 M BB- 12,401,000 N B+ 4,960,000 P B 7,441,000 Q B- 2,480,000 NR N.R. 27,283,292 X-1* AAA 1,984,177,292** X-2* AAA 1,917,535,000** * Interest-only class ** Notional amount N.R. - Not rated KAISER ALUMINUM: Alpart & Kaiser Liquidation Plan Overview ---------------------------------------------------------- Alpart Jamaica, Inc., and Kaiser Jamaica Corporation delivered their Joint Plan of Liquidation to United States Bankruptcy Court for the District of Delaware on October 29, 2004. The primary objectives of the Plan are to: (a) maximize the value of the ultimate recoveries to all creditor groups on a fair and equitable basis; (b) settle, compromise or otherwise dispose of certain claims and other disputes on terms that the Liquidating Debtors believe to be fair and reasonable under the circumstances and in the best interests of their estates and creditors and Kaiser Aluminum & Chemical Corporation, as the sole stockholder of each Debtor; and (c) effectuate the orderly liquidation and dissolution of the Liquidating Debtors. Moreover, the Plan provides for, among other things: (a) the classification and treatment of claims and interests; (b) the establishment of a distribution trust to make distributions in accordance with the Plan; (c) the creation and administration of trust accounts; and (d) the liquidation of Alpart Jamaica and Kaiser Jamaica. A full-text copy of the Liquidating Debtors' Disclosure Statement is available for free at: http://bankrupt.com/misc/AJI_&_KJC_Disclosure_Statement.pdf A full-text copy of the Liquidating Debtors' Liquidation Plan is available for free at: http://bankrupt.com/misc/AJI_&_KJC_Joint_Liquidation_Plan.pdf Sources of Cash The cash available in the Liquidating Debtors' estates to fund the Plan will come from: (a) the net cash proceeds to the Liquidating Debtors in connection with the sale of their interests in Alumina Partners of Jamaica pursuant to a purchase and sale agreement, after taking into account the costs and expenses of the sale payable by the Liquidating Debtors in accordance with the settlement of Claims among the Debtors and the satisfaction of any applicable Allowed Secured Claim with a valid and enforceable lien against the proceeds; (b) the proceeds, if any, received by the Liquidating Debtors under the Intercompany Claims Settlement; and (c) the proceeds, if any, received from the successful prosecution, settlement, or collection of preference actions, fraudulent actions, rights of set-off, and other claims or causes of action under Chapter 5 of the Bankruptcy Code and other applicable bankruptcy and non- bankruptcy law. The Liquidating Debtors currently estimate that, as of the Plan effective date, the Alpart Proceeds will be $274,400,000 and the Intercompany Settlement Proceeds will be $4,000,000. The Debtors are not aware of any Recovery Actions -- and the Official Committee of Unsecured Creditors has independently determined that there are no viable preference actions concerning payments made by the Liquidating Debtors -- and, accordingly, it has been assumed that the Recovery Action Proceeds will be zero. The estimated Alpart Proceeds as of the Effective Date includes $20,000,000 that to be held in a cash collateral account to secure the obligations of the Liquidating Debtors and the rest of the Debtors under the February 12, 2002 postpetition credit agreement among the Debtors, lenders, and Bank of America, N.A. On the Effective Date, cash in the Liquidating Debtors' Cash Collateral Account will be used to make the payments, if any, to KACC by the Liquidating Debtors pursuant to the Intercompany Claims Settlement. Any remaining amounts held in the Cash Collateral Account will not be released for distribution to holders of Allowed Claims until amounts owing under the DIP Financing Facility are paid in full and the DIP Financing Facility is terminated. The Liquidating Debtors and the Creditors Committee currently expect that no Intercompany Settlement Payments will be required and, accordingly, that the entire $20,000,000 -- plus interest and earnings from investment -- held in the Cash Collateral Account will ultimately be released for distribution to holders of Allowed Claims. The Release, however, is not expected to occur before the Effective Date and may not occur before the effective date of a KACC reorganization plan. No assurance can be given as to whether or when the release will occur or, if and when the release does occur, as to how much cash will then remain in the Cash Collateral Account. Uses of Cash The Liquidating Debtors' cash as of the Effective Date will be used to: (a) fund the segregated trust account to be established and maintained to fund the payment of all reasonable fees, costs and expenses incurred by a trustee in connection with its performance of its duties as Distribution Trustee under the Plan or the trust agreement between the Liquidating Debtors and the Distribution Trustee; (b) fund the segregated trust account to be established and maintained by the Distribution Trustee to satisfy allowed secured claims, administrative claims, priority claims, and priority tax claims against the Liquidating Debtors' estates, in accordance with the Plan; (c) pay the fees of U.S. Bank National Association, as successor indenture trustee under the 9-7/8% Senior Note Indenture and the 10-7/8% Senior Note Indenture, and counsel for the ad hoc group of holders of senior notes composed of Trilogy Capital, Caspian Capital Partners, Varde Partners, Canyon Partners, Citadel Equity Fund, Ltd., Citadel Credit Trading, Ltd., Durham Asset Management, LLC, Farallon Capital Management, LLC, Troob Capital and Scoggin Capital, payable in accordance with the Plan up to an aggregate not to exceed $1,500,000; (d) make any required payments under the Intercompany Claims Settlement; and (e) fund the segregated trust account to be established and maintained by the Distribution Trustee to satisfy allowed unsecured claims against the Liquidating Debtors' estates with any remaining cash. The Liquidating Debtors and the Creditors Committee currently anticipate that available cash will be applied as (in millions): Estimated Available Cash $278.4 Estimated Funding of: Distribution Trust Expenses Account (1.0) Priority Claims Trust Account (12.5) - (17.5) Estimated Payment of: Senior Noteholder Fees (1.5) Intercompany Settlement Payments 0.0 -------------- Estimated Cash Remaining to Fund Unsecured Claims Trust Account $258.4 - 263.4 ============== Moreover, based on the various estimates and assuming that Subclass 3B votes to accept the Plan and there are no Allowed Other Unsecured Claims, the aggregate cash ultimately to be distributed to holders of Senior Note Claims, PBGC Claims, and claims under the 12-3/4% senior subordinated notes due 2003, would be (in millions): Estimated Aggregate Subclass Cash Distribution -------- ------------------- Subclass 3A (Senior Notes Claims) $162.7 to 171.1 Subclass 3B (Senior Subordinated Note Claims) 8.0 Subclass 3C (PBGC Claims) 82.7 to 84.3 Although the Liquidating Debtors and the Creditors Committee expect that the entire $20,000,000 to be held in the Cash Collateral Account will ultimately be released for distribution to holders of allowed claims, the amount is not expected to be released before the Effective Date and, accordingly, it is expected that the initial distributions to be made to holders of allowed Senior Note Claims and the PBGC on or promptly after the Effective Date will be less than what has been estimated. Liquidating Transactions On the Effective Date, the Distribution Trust Assets will be transferred to and vest in the Distribution Trust, free and clear of claims, liens and interests, except as may be otherwise provided in the Intercompany Claims Settlement. Upon the transfer of the Distribution Trust Assets to the Distribution Trust, the Liquidating Debtors will be deemed dissolved and their business operations withdrawn for all purposes without any delay. Corporate Action On the Effective Date: * a Distribution Trust will be established; * a Distribution Trustee to act on behalf of the Distribution Trust will be appointed; * the Distribution Trust Assets will be transferred to the Distribution Trust; * Trust Accounts will be created; * cash will be distributed pursuant to the Plan; and * the Distribution Trust Agreement will be adopted, executed and implemented. The Liquidating Transactions will not in any way merge the assets of the Liquidating Debtors' estates, including the Trust Accounts. All claims against the Liquidating Debtors are deemed fully satisfied in exchange for the treatment of the claims under the Plan, and holders of allowed claims against either Liquidating Debtor will have recourse solely to the applicable Trust Accounts for the payment of their allowed claims in accordance with the terms of the Plan. All liens against the Distribution Trust Assets will be fully released upon the holder of the lien receiving its full distribution under the Plan, or upon the Effective Date if the holder of the lien is not entitled to any distribution under the Plan. Creation of the Distribution Trust On the Effective Date, the Liquidating Debtors and the Distribution Trustee will enter into the Distribution Trust Agreement, thereby creating the Distribution Trust. The Distribution Trustee, whose identity will be disclosed at least 10 days before the Confirmation Hearing, will be selected by the Creditors Committee with the consent of the Liquidating Debtors, and will be the exclusive trustee of the Distribution Trust Assets. On the Effective Date, the Debtors will transfer to the Distribution Trust all the Distribution Trust Assets then owned by the Estates, whereupon title to the Distribution Trust Assets will irrevocably vest in the Distribution Trust, free and clear of Claims, Liens, and Interests. The Distribution Trust Assets include: (a) the Trust Accounts and any cash -- and any other property -- held by the Trust Accounts; (b) the rights of the Liquidating Debtors under or in respect of the Intercompany Claims Settlement, the Alpart Purchase Agreement or any causes of action not released by the Plan, including the Recovery Actions, and any proceeds thereof; and (c) the Alpart Proceeds, including any amounts paid over to the Distribution Trustee upon the termination of the DIP Financing Facility for deposit into the Unsecured Claims Trust Account as contemplated by the Plan. The Distribution Trust will be established for the purpose of: * collecting, maintaining and administering any Distribution Trust Assets for the benefit of the creditors and claimants of the Estates; * liquidating -- including objecting to Claims and determining the proper recipients and amounts of distributions to be made from the Distribution Trust -- and distributing the Distribution Trust Assets for the benefit of the Beneficiaries who are determined to hold Allowed Claims as expeditiously as reasonably possible; * pursuing available causes of action, including Recovery Actions; * closing the Chapter 11 cases; and * implementing the Plan and completing dissolution; The Distribution Trust will terminate upon the completion of its liquidation and distribution duties pursuant to the terms of the Distribution Trust Agreement. Powers of the Distribution Trustee (A) General Powers The Distribution Trustee will be empowered to, among other things: * execute all agreements, instruments, and other documents and effect all other actions necessary to implement the Plan; * establish, maintain, and administer the Trust Accounts; * accept, preserve, receive, collect, manage, invest, supervise and protect the Distribution Trust Assets; * liquidate, transfer or otherwise dispose of the Distribution Trust Assets; * calculate and make distributions of the Distribution Trust Assets to holders of Allowed Claims; * comply with the Plan and exercise its rights and fulfill its obligations; * review, reconcile, settle or object to Claims and resolve any those objections; * investigate and, if appropriate, pursue any Recovery Actions or other available causes of action -- including any actions previously initiated by the Debtors and pending as of the Effective Date -- and raise any defenses in any adverse actions or counterclaims; * retain and compensate, without further Bankruptcy Court order, the services of professionals or other persons or entities to represent, advise and assist the Distribution Trustee in the fulfillment of its responsibilities in connection with the Plan and the Distribution Trust Agreement; * take steps as are necessary, appropriate, or desirable to coordinate with representatives of the estates of the Other Kaiser Debtors; * take actions as are necessary, appropriate or desirable to close the Chapter 11 cases; * file appropriate Tax returns on behalf of the Distribution Trust and Debtors and pay taxes or other obligations owed by the Distribution Trust; * pay all Distribution Trust Expenses using the Distribution Trust Expenses Account; * execute, deliver, and perform other agreements and documents or exercise other powers and duties as the Distribution Trustee determines, in its reasonable discretion, to be necessary, appropriate, or desirable to accomplish and implement the purposes and provisions of the Distribution Trust; * take actions as are necessary, appropriate or desirable to terminate the existence of the Liquidating Debtors under the laws of Jamaica; and * terminate the Distribution Trust in accordance with the terms of the Plan and Distribution Trust Agreement. (B) Right to Object to Claims After the Effective Date, only the Distribution Trustee, with the prior consent of the Steering Committee will have the authority to file, settle, compromise, withdraw or litigate to judgment objections to Claims. After the Effective Date, the Distribution Trustee, with the prior consent of the Steering Committee, may settle or compromise any Disputed Claim. (C) Right to Pursue Causes of Action In accordance with Section 1123(b) of the Bankruptcy Code, the Distribution Trustee will retain and may enforce any claims, demands, rights and causes of action that either Estate may hold against any entity, including the Recovery Actions, to the extent not released under the Plan. In particular, the Distribution Trustee will retain the right to pursue any adversary proceedings available to the Liquidating Debtors in connection with the Alpart Purchase Agreement or the Intercompany Claims Settlement. Indemnification of Distribution Trustee The Distribution Trustee and the members of the Steering Committee will be indemnified by the Distribution Trust from the Distribution Trust Expenses Trust Account, except for any act or omission constituting bad faith, fraud, willful misconduct, gross negligence or a breach of its fiduciary duties. Compensation of the Distribution Trustee The Distribution Trustee will receive fair and reasonable compensation for its services, with such compensation to be paid from the Distribution Trust Expenses Account. Term of the Distribution Trust The Distribution Trust will terminate upon: * the payment of all costs, expenses and obligations incurred in connection with administering the Distribution Trust; * the distribution of all remaining Distribution Trust Assets and proceeds in accordance with the provisions of the Plan, the Confirmation Order and the Distribution Trust Agreement; * the closure of the Chapter 11 cases; and * the completion of any necessary or appropriate reports, tax returns or other documentation. Headquartered in Houston, Texas, Kaiser Aluminum Corporation -- http://www.kaiseral.com/-- operates in all principal aspects of the aluminum industry, including mining bauxite; refining bauxite into alumina; production of primary aluminum from alumina; and manufacturing fabricated and semi-fabricated aluminum products. The Company filed for chapter 11 protection on February 12, 2002 (Bankr. Del. Case No. 02-10429). Corinne Ball, Esq., at Jones Day, represent the Debtors in their restructuring efforts. On June 30, 2004, the Debtors listed $1.619 billion in assets and $3.396 billion in debts. (Kaiser Bankruptcy News, Issue No. 53; Bankruptcy Creditors' Service, Inc., 215/945-7000) KB TOYS: Wants Plan-Filing Period Extended to Jan. 14 ----------------------------------------------------- KB Toys, Inc., wants more time for file a chapter 11 plan. Specifically, pursuant to 11 U.S.C. Sec. 1121, the Debtor wants its exclusive period in which to file a chapter 11 plan extended to January 14, 2005, and wants its exclusive right to solicit acceptances of that plan from creditors extended through March 14, 2005. The Debtors tell the Bankruptcy Court they "believe that additional time, particularly as the debtors enter their busy holiday season, is necessary to allow the debtors to operate their business during this critical time of year, finalize the negotiations of the terms of the plan and prepare to file a plan and related disclosure statement." Last month, KB said it will close 141 to 238 underperforming stores by Jan. 31, and plans to continue operating approximately 600 stores throughout the United States, the Commonwealth of Puerto Rico and the American Territory of Guam, when it emerges from chapter 11 in 2005. The retailer started had 1,300 stores when it filed for chapter 11 protection early this year. The Bankruptcy Court will hold a hearing to consider the Debtor's exclusivity extension request on Nov. 14. KB Toys, Inc. -- http://www.kbtoys.com/-- filed for chapter 11 protection (Bankr. Del. Case No. 04-10120) on January 14, 2004. Joel A. Waite, Esq., at Young, Conaway, Stargatt, & Taylor, represents the toy retailer. LAGUARDIA ASSOCIATES: Case Summary & Largest Unsecured Creditors ---------------------------------------------------------------- Lead Debtor: LaGuardia Associates, L.P. c/o 251 DeKalb Pike King of Prussia, Pennsylvania 19406 Bankruptcy Case No.: 04-34512 Debtor affiliates filing separate chapter 11 petitions: Entity Case No. ------ -------- Field Hotel Associates, L.P. 04-34514 Type of Business: The Debtor owns a 358 room Crowne Plaza Hotel located at 104-04 Ditmars Boulevard, East Elmhurst, New York. Chapter 11 Petition Date: October 29, 2004 Court: Eastern District of Pennsylvania (Philadelphia) Judge: Stephen Raslavich Debtors' Counsel: Martin J. Weis, Esq. Dilworth Paxon LLP 1735 Market Street Philadelphia, PA 19103 Tel: 215-575-7000 Estimated Assets: $10 Million to $50 Million Estimated Debts: $10 Million to $50 Million A. LaGuardia Associates, L.P.'s 20 Largest Unsecured Creditors: Entity Claim Amount ------ ------------ HIP Health Plan of NY $78,536 ECONnergy $77,985 US Foodservice $58,631 Landmark Food Corp. $37,912 The State Insurance Fund $31,112 Micros Retail Systems, Inc. $27,550 Lodgenet Entertainment $21,465 Longacre Beef Co., Inc. $19,895 Mazur & Jaffe $18,709 Direct Machinery Sales Co. $17,118 Five Star Parking $16,489 KVL Audio Visual Services $15,831 Filco Carting Corp. $14,216 Shea Truck & Auto Repair $13,582 Otis Elevator Co. $11,968 American Hotel Register $11,576 ECONnergy $10,760 Chalet Pastry Shop $10,377 R Best Produce, Inc. $10,067 Renoir French Cleaners & Tailors $9,521 B. Field Hotel Associates' 20 Largest Unsecured Creditors: Entity Claim Amount ------ ------------ State Insurance Fund $117,281 Five Star Parking $96,248 Landmark Food Corporation $87,098 NYC Water Board $85,401 Proskauer Rose $54,732 Triple Crown Foods, Inc. $72,450 HIP Health Plan of NY $64,696 Top Shelf Meats, Inc. $59,436 Landshell Protective Agency $55,101 Ecconery $48,490 Helmsbriscoe $40,306 Sunbelt Organization SVC $27,471 Panel Kerr Forster $29,943 Capital Cleaning Contract $30,300 HP Products, Corp. $30,112 Leon Sales $25,114 Lodgenet Entertainment $24,380 Raymond's Mechanical $20,367 Derle Farms $20,348 Littler Mendelson, P.C. $19,446 LYNX 2002-I: Moody's Slices Class D Notes' Rating to B3 from Ba2 ---------------------------------------------------------------- Moody's Investors Service has taken action on notes issued by LYNX 2002-I, LTD. The affected tranches are: (1) U.S. $97,000,000 Class C Floating Rate Notes, Due 2032, currently rated Baa2, have been placed on watch for possible downgrade, and (2) U.S. $20,000,000 Class D Floating Rate Notes, Due 2032 have been downgraded to B3 on watch for possible downgrade from Ba2. Moody's has noted that LYNX 2002-I, LTD., which closed on May 08, 2002, is violating the Class C Overcollateralization Test, the Class D Overcollateralization Test, the Class D Interest Coverage Test, and the Weighted Average Rating Factor Test. Rating Action: Watchlist & Downgrade Issuer: LYNX 2002-I, LTD. Tranche: U.S. $97,000,000 Class C Floating Rate Notes, Due 2032 Prior Rating: Baa2 Current Rating: Baa2 on watch for possible downgrade Tranche: U.S. $20,000,000 Class D Floating Rate Notes, Due 2032 Prior Rating: Ba2 Current Rating: B3 on watch for possible downgrade MERRILL LYNCH: Fitch Places Low-B Rating on 17 Certificate Classes ------------------------------------------------------------------ Fitch Ratings has taken rating actions on these Merrill Lynch Mortgage Loans, Inc. mortgage pass-through certificates: * Merrill Lynch Mortgage Loans, Inc., mortgage pass-through certificates, series 2000-3 -- Class A is affirmed at 'AAA'; -- Class M-1 affirmed at 'AAA'; -- Class M-2 affirmed at 'AAA'; -- Class B-1 affirmed at 'AAA'; -- Class B-2 affirmed at 'AAA'; -- Class B-3 upgraded to 'AAA' from 'AA+'. * Merrill Lynch Mortgage Loans, Inc., mortgage pass-through certificates, series 2003-A -- Classes 1-A and 2-A are affirmed at 'AAA'; -- Class B-1 is affirmed at 'AA+'; -- Class B-2 is affirmed at 'A+'; -- Class B-3A is affirmed at 'A'; -- Class B-3B is affirmed at 'BBB+'; -- Class B-4 is affirmed at 'BBB-'; -- Class B-5 is affirmed at 'B+'. * Merrill Lynch Mortgage Loans, Inc., mortgage pass-through certificates, series 2003-A1 -- Classes 1-A, 2-A and 3-A are affirmed at 'AAA'; -- Class M-1 upgraded to 'AAA' from 'AA'; -- Class M-2 upgraded to 'AA' from 'A'; -- Class M-3 upgraded to 'A' from 'BBB'; -- Class B-1 upgraded to 'BBB' from 'BB'; -- Class B-2 affirmed at 'B'. * Merrill Lynch Mortgage Loans, Inc., mortgage pass-through certificates, series 2003-A3 -- Class I-A is affirmed at 'AAA' -- Class M-1 affirmed at 'AA'; -- Class M-2 affirmed at 'A'; -- Class M-3 affirmed at 'BBB'; -- Class B-1 affirmed at 'BB'; -- Class B-2 affirmed at 'B'. * Merrill Lynch Mortgage Loans, Inc., mortgage pass-through certificates, series 2003-B -- Classes A-1 and A-2 are affirmed at 'AAA'; -- Class B-1 is affirmed at 'AA+'; -- Class B-2 is affirmed at 'A+'; -- Class B-3 is affirmed at 'BBB+'; -- Class B-4 is affirmed at 'BBB-'; -- Class B-5 is affirmed at 'B+'. * Merrill Lynch Mortgage Loans, Inc., mortgage pass-through certificates, series 2003-C -- Classes A-1 and A-2 are affirmed at 'AAA'; -- Class B-1 is affirmed at 'AA+'; -- Class B-2 is affirmed at 'A+'; -- Class B-3 is affirmed at 'BBB+'; -- Class B-4 is affirmed at 'BB+'; -- Class B-5 is affirmed at 'B+'. * Merrill Lynch Mortgage Loans, Inc., mortgage pass-through certificates, series 2003-D -- Class A-1 is affirmed at 'AAA'; -- Class B-1 is affirmed at 'AA+'; -- Class B-2 is affirmed at 'A+'; -- Class B-3 is affirmed at 'BBB+'; -- Class B-4 is affirmed at 'BB+'; -- Class B-5 is affirmed at 'B+'. * Merrill Lynch Mortgage Loans, Inc., mortgage pass-through certificates, series 2003-E -- Classes A-1 and A-2 are affirmed at 'AAA'; -- Class B-1 is affirmed at 'AA+'; -- Class B-2 is affirmed at 'A+'; -- Class B-3 is affirmed at 'BBB+'; -- Class B-4 is affirmed at 'BB+'; -- Class B-5 is affirmed at 'B+'. * Merrill Lynch Mortgage Loans, Inc., mortgage pass-through certificates, series 2003-F -- Classes A-1, A-2 and A-3 are affirmed at 'AAA'; -- Class B-1 is affirmed at 'AA+'; -- Class B-2 is affirmed at 'A+'; -- Class B-3 is affirmed at 'BBB'; -- Class B-4 is affirmed at 'BB'; -- Class B-5 is affirmed at 'B+'. * Merrill Lynch Mortgage Loans, Inc., mortgage pass-through certificates, series 2003-G -- Classes A-1, A-2, A-3 and A-4 are affirmed at 'AAA'; -- Class B-1 is affirmed at 'AA+'; -- Class B-2 is affirmed at 'A+'; -- Class B-3 is affirmed at 'BBB+'; -- Class B-4 is affirmed at 'BB+'; -- Class B-5 is affirmed at 'B+'. * Merrill Lynch Mortgage Loans, Inc., mortgage pass-through certificates, series 2003-H -- Classes A-1, A-2 and A-3 are affirmed at 'AAA'; -- Class B-1 is affirmed at 'AA+'; -- Class B-2 is affirmed at 'A+'; -- Class B-3 is affirmed at 'BBB+'; -- Class B-4 is affirmed at 'BB+'; -- Class B-5 is affirmed at 'B+'. The upgrades reflect an increase in credit enhancement relative to future loss expectations and represent approximately $10.9 million of outstanding principal. As of October 25, 2004, class B-3 of MLMI series 2000-3 has seen an increase to 13.33% (from 0.60% at closing) in credit enhancement provided by subordination from the nonrated class B-4. In addition, the collateral pool has experienced no loan level losses to date and current nonperforming loans are limited to the 30-day delinquency bucket. Only 1% of the original mortgage pool remains outstanding. The current credit enhancement of MLMI series 2003-A1 classes M-1, M-2, M-3, and B-1 is 4.34%, 2.61%, 1.59%, and 1.01% respectively. Currently, 66% of the collateral has paid down. Only 0.71% of the current pool is delinquent. There have been no losses to the pool. The collateral consists of conventional, first lien, one- to four-family, 30-year adjustable-rate residential mortgage loans. The affirmations, representing approximately $7.6 billion of outstanding principal, reflect credit enhancement consistent with future loss expectations. The pools are seasoned from a range of 10 to 21 months. The pool factors (current principal balance as a percentage of original) also range from approximately 58% to 91% outstanding. METROMEDIA INT'L: Talking to Investor Group about Proposed Merger ----------------------------------------------------------------- Metromedia International Group, Inc. (Pink Sheets:MTRM) (Pink Sheets:MTRMP), the owner of interests in various communications businesses in Russia and the Republic of Georgia, has entered into exclusive negotiations with an investor group composed of: -- Emergent Telecom Ventures, -- First National Holding, -- Capital International Private Equity Fund IV, L.P. and -- Baring Vostok Capital Partners (Cyprus) Limited concerning the Investor Group's preliminary proposal to acquire MIG by merger. The Investor Group's proposal assigns an aggregate enterprise value to MIG of $300 million. Of this amount, approximately $152 million would be used to retire the Company's outstanding 10-1/2% Senior Discount Notes Due 2007, and the remaining $148 million, after reduction for certain transaction related expenses, would be allocated between MIG's preferred and common shareholders in a manner determined by the Company's Board prior to the execution of any definitive merger agreement. The proposal contains a number of conditions, including without limitation: -- the Investor Group's successful completion of due diligence during a limited exclusivity period, -- the Investor Group obtaining commitments for all financing contemplated in its acquisition proposal, -- MIG meeting currently projected corporate cash balance and liability levels, and -- negotiation and execution of definitive transaction agreements. MIG has granted the Investor Group exclusivity until January 17, 2005 to pursue a due diligence review of the Company and negotiate a definitive merger agreement, subject to earlier termination under certain circumstances. The member companies of the Investor Group have come together specifically for the purpose of acquiring MIG as a whole in the proposed merger transaction. Following successful conclusion of such a transaction, Emergent and First National intend to take direct ownership and pursue further development of MIG's ownership interest in PeterStar; and Capital International and one or more funds advised by Baring Vostok intend to take direct ownership and pursue further development of MIG's current interests in the Republic of Georgia. Emergent /First National and Capital International/Baring Vostok have each expressed their keen intent to continue investment in Russia and the Republic of Georgia, respectively. With respect to these announcements, Mark Hauf, Chairman and CEO of the Company, commented: "We have been actively assessing for some time the practical business development and financial restructuring alternatives available to the Company. In this, our consistent goal has been to best capture returns for our current financial stakeholders from the extensive restructuring of our business begun more than a year ago. We have also received and carefully considered several acquisition proposals from various parties over recent months. Based on the results of all this work, the Board concluded that the Investor Group proposal, if consummated, offers the best opportunity reasonably available to maximize value for the Company's stakeholders. We believe that the proposed acquisition price reflects an attractive valuation for our core businesses; and the Investor Group's willingness to acquire the overall Company creates an efficient means to promptly deliver this value to our current stakeholders. It is also important to note that the Investor Group's members command considerable financial resources and possess substantial business experience in the territories in which MIG now operates. The Investor Group's members have good working relationships with our business partners in Russia and the Republic of Georgia, resulting in no discount being taken in their offered price to account for the otherwise inevitable partner risks common in these territories. In the Board's opinion, these factors lend credibility to the Investor Group's proposal and maximize the likelihood of successfully concluding a transaction." There can be no assurances that any transaction with the Investor Group or any other party will take place nor can any assurance be given with respect to the timing or terms of any such transaction. Details of the terms of a final agreement, if any, reached between the parties will be disclosed upon signing of definitive agreements. The preliminary proposal made by the Investor Group is non-binding and MIG has agreed, under certain circumstances, to reimburse the Investor Group for a limited amount of its out-of- pocket expenses incurred in connection with its due diligence review and negotiation of definitive agreements. About the Members of the Investor Group Baring Vostok Capital Partners Baring Vostok Capital Partners is a leading private equity firm investing in Russia and the CIS, with over US$ 400 million in capital under management. Baring Vostok has successfully invested in a broad range of companies within the oil and gas, consumer goods, manufacturing, telecommunications, financial services, mass media and high-tech sectors. Baring Vostok is an affiliate of Baring Private Equity International, a $2 billion global private equity group with activities in over 25 countries worldwide. Capital International Private Equity Fund Capital International Private Equity Fund IV, L.P. is one of four private equity funds managed by Capital International, Inc. with, collectively, aggregate capital commitments in excess of $1.4 billion. CII, a subsidiary of The Capital Group Companies, Inc., is one of the largest and most experienced emerging markets investment managers in the world with over $28 billion of assets under management. Emergent Telecom Ventures Emergent Telecom Ventures is a communications merchant bank with access to significant amounts of investment capital and a current investment portfolio comprising more than 25 ventures. Emergent was founded by Juan Villalonga, former Chairman and CEO of Telefonica, and Mohamed Amersi, co-founder of Gramercy Communications Partners, which managed a $1.3 billion telecom venture fund. Other than investing for its own and investors' accounts, Emergent provides advice to management of companies in the technology, media and telecommunications sector and is active in various other value-creating transactions in the sector. First National Holding First National Holding is a holding company incorporated in Luxembourg. First National owns a 58.9% stake in OAO Telecominvest in Russia. Through its investments, First National is involved in a number of activities including wire line and wireless telecommunications, financial services, IT and outsourcing. Investments of TCI include a 29% stake in PeterStar, 100% stake in PTT and a 31.3% stake in MegaFon, the third largest GSM operator in Russia. Evercore Partners Retention In a separate filing, Metromedia reported that Evercore Partners Inc. has been retained as the Company's financial advisor to assist the Company's board of directors in its ongoing exploration of strategic alternatives to maximize shareholder value, which may include, but are not limited to, the possible sale of a portion or all of the Company. The completion of any extraordinary transaction is highly uncertain. No assurance can be given that any such transaction will take place nor can any assurance be given with respect to the timing or terms of any such transaction. Given the status of the Company's ongoing review of its strategic alternatives, the Company also announced that it will defer convening an Annual Shareholders Meeting at this time. About Metromedia International Group Through its wholly owned subsidiaries, the Company owns interests in communications businesses in Russia and the Republic of Georgia. The Company has focused its principal attentions on the continued development of these core telephony businesses, and has substantially completed a program of gradual divestiture of its former non-core cable television and radio broadcast businesses. The Company's core telephony businesses include PeterStar, the leading competitive local exchange carrier in St. Petersburg, Russia, and Magticom, the leading mobile telephony operator in the Republic of Georgia. Balance Sheet Insolvency At June 30, 2004, Metromedia International Group's balance sheet showed an $11,469,000 stockholders' deficit, compared to a $13,155,000 deficit at December 31, 2003. METROPCS INC: Majority of Noteholders Consent to Limited Waiver --------------------------------------------------------------- MetroPCS, Inc., has received and accepted consents from the holders of a majority of its $150.0 million aggregate principal amount of outstanding 10-3/4% Senior Notes due 2011 to a limited waiver, for up to 180 days, of any default or event of default arising from a failure by MetroPCS to file with the Securities and Exchange Commission, and furnish to the holders of notes, reports required to be filed pursuant to the Securities Exchange Act of 1934. Bear, Stearns & Co. Inc. acted as the solicitation agent for the consent solicitation. Mellon Investor Services LLC acted as the information and tabulation agent for the consent solicitation. Information regarding the consent solicitation may be obtained by contacting Bear, Stearns & Co. Inc., Global Liability Management Group at (877) 696-BEAR (toll free) or (877) 696-2327 (toll free). About MetroPCS, Inc. Dallas-based MetroPCS, Inc. is a wholly owned subsidiary of MetroPCS Communications, Inc. and a provider of wireless communications services. Through its subsidiaries, MetroPCS, Inc. holds 20 PCS licenses in the greater Miami, Tampa, Sarasota, San Francisco, Atlanta and Sacramento metropolitan areas. MetroPCS offers customers flat rate plans with unlimited anytime local and long distance minutes with no contract. MetroPCS is among the first wireless operators to deploy an all-digital network based on third generation infrastructure and handsets. For more information, visit the MetroPCS web site at http://www.metropcs.com/ * * * As reported in the Troubled Company Reporter on Oct. 13, 2004, Standard & Poor's Ratings Services revised its outlook on Dallas, Texas-based wireless service provider MetroPCS Inc. to negative from positive. The outlook revision reflects two concerns. "First, the company is rapidly approaching the Nov. 8, 2004, deadline for filing its second-quarter SEC Form 10-Q in order to avoid triggering a technical default, which could result in acceleration in repayment of about $150 million of 10.75% senior notes due 2011. Such acceleration could lead to a liquidity issue in the near term," said Standard & Poor's credit analyst Michael Tsao. The delay in filing was caused by an ongoing internal investigation into understatement of revenues and net income for the quarter ended March 2004 (the accounting problem also caused the withdrawal of a plan for an IPO). Second, the accounting problem may be wider in scope than initially expected by Standard & Poor's, given that the company recently fired its principal accounting officer and announced that previously issued financial statements for the years ended in December 2002 and 2003 and subsequent interim period should not be relied upon. The accounting problem and any associated internal control issue could lead to regulatory ramifications. MID-AMERICAN MACHINE: Case Summary & Largest Unsecured Creditors ---------------------------------------------------------------- Debtor: Mid-American Machine Repair, Inc. P.O. Box 334 Sharon, Tennessee 38255 Bankruptcy Case No.: 04-14946 Type of Business: The Debtor manufactures industrial equipments. Chapter 11 Petition Date: November 3, 2004 Court: Western District of Tennessee (Jackson) Judge: G. Harvey Boswell Debtor's Counsel: Timothy B. Latimer, Esq. Utley & Latimer, P.C. 425 East Baltimore Jackson, TN 38301 Tel: 731-424-3315 Total Assets: $460,100 Total Debts: $1,260,929 Debtor's 18 Largest Unsecured Creditors: Entity Nature Of Claim Claim Amount ------ --------------- ------------ Union Planters Bank Building $429,842 P.O. Box 387 Secured value: Memphis, TN 38147 $287,900 Lynx Industrial Contractors, $212,201 LLC 1798 Old Frankfort Pike Lexington, KY 40504 Goss Electrical Co., Inc. $136,310 137 Woodall Rd. Decatur, AL 35601 Mid South Industrial, Inc. $65,685 O.A.S. Millwright Service $55,209 Norris Brothers Company $30,352 NCA $22,893 Steel City, Inc. $21,152 Diamond Heavy Haul, Inc. $18,219 NES Rentals $16,768 Platinum Plus for Business $15,786 Maxim Crane Works $9,585 Flint Riggers & Erectors Inc. $9,000 Thompson Rental Co. $8,603 Press Technology $7,696 MSCO, Inc. $5,699 Aida Dayton Technology $4,287 ENCO Materials, Inc. $4,082 MICROCELL TELECOM: Sept. 30 Balance Sheet Upside-Down by C$41.7MM ----------------------------------------------------------------- Microcell Telecommunications Inc. (TSX: MT.A)(TSX: MT.B) reported its consolidated financial and operating results for the third quarter and nine months ended September 30, 2004. Operating income before depreciation and amortization for the third quarter of 2004 grew by 46% to $37.6 million from $25.7 million in 2003, despite $4.2 million in special charges incurred for advisory fees related to the strategic review process that was initiated by the Company to maximize value for its securityholders, as well as for expenses arising from the accelerated vesting of employee stock options. The significant improvement was the result of a $29.2 million, or 20%, year-over- year increase in total revenues, partially offset by a $17.4 million, or 14%, increase in total operating expenses before depreciation and amortization. Total revenues for the third quarter of 2004 amounted to $175.4 million, compared with $146.2 million for the same quarter in 2003, while total operating expenses before depreciation and amortization were $137.8 million, compared with $120.4 million. "Our third-quarter results were shaped by strong subscriber growth and rigorous expense management, resulting in solid operating margin improvement," said Andre Tremblay, President and Chief Executive Officer of Microcell Telecommunications Inc. "Not only did we achieve record quarterly revenues and OIBDA, but we also had our best non-fourth quarter ever in terms of gross subscriber additions. The key catalysts for subscriber growth in the quarter came from the favourable consumer response to our back-to-school promotions that featured an attractive array of MMS-capable handsets and other service options, many of which are exclusive to Fido, as well as from the continuing positive impact of City Fido in Vancouver and Toronto. Our third-quarter performance was particularly gratifying given ongoing intense competitor activity. More importantly, however, these operating results reflect our continued focus on achieving profitable growth by pursuing a postpaid-oriented market strategy that will positively impact subscriber acquisition and customer mix, as well as accelerate top-line growth." "In the third quarter, we achieved good subscriber growth with a substantial upturn in retail net additions," stated Jacques Leduc, Chief Financial Officer and Treasurer of Microcell Telecommunications Inc. "On a net basis, we added 75,773 new subscribers in the third quarter of 2004, compared with 41,292 for the same quarter last year and 16,652 in the previous quarter. Gross subscriber additions, which escalated month by month during the quarter, amounted to 179,532, reflecting a continuation of our recent robust customer growth trend. More significantly, 70 percent of these gross additions were new postpaid subscribers, reflecting the ongoing successful execution of our market strategy. In fact, our postpaid subscriber base has increased by 41% since the third quarter of 2003. As a result, the proportion of postpaid subscribers in our customer base has increased from 45% to 57%. This combined with seasonally strong ARPU of over $44 per month for retail subscribers contributed to a 20% improvement in total revenues over the same period. Through double-digit revenue growth and good cost control, we achieved an OIBDA of $37.6 million for the third quarter, a result that nearly equals the amount we generated for the first half of the year. As a result of our operating performance for the first nine months of the year, we remain on track to meet our previously stated targets for full-year 2004." On a year-to-date basis, total revenues amounted to $482.1 million, up 15% from $419.4 million for the first nine months of 2003, while total operating expenses before depreciation and amortization increased to $401.4 million from $331.1 million. This resulted in an OIBDA of $80.7 million for the first three quarters of 2004, down from $88.2 million for the same period last year. Despite the impact on operating expenses from the acquisition of approximately 141,000 additional subscribers during the first nine months of 2004 compared with the previous year, the decline in OIBDA was due primarily to the incurrence of special charges related to the takeover bid process in the amount of $9.7 million. Primarily as a result of higher OIBDA, net income increased to $2.9 million for the third quarter of 2004 from $1.3 million in the previous year. Year-to-date, despite decreases in interest expense as well as depreciation and amortization due to a sizeable reduction in long-term debt and capital assets following the implementation of its recapitalization plan on May 1, 2003, the Company reported a net loss of $23.0 million, compared with net income of $61.7 million for the same period in 2003. Net income for the first nine months of 2003 arose mainly from a foreign exchange gain of $148.7 million, compared with a foreign exchange loss of $15.8 this year. The substantial foreign exchange gain recorded in 2003 was attributable to the favourable impact of the appreciation of the Canadian dollar against the U.S. dollar on a significantly higher level of U.S.-dollar denominated debt outstanding prior to the completion of the Company's capital reorganization on May 1, 2003. A detailed discussion and analysis of the financial results for the third quarter is provided at the end of this news release in the section entitled Management's Discussion and Analysis. Operating and financial highlights for the third quarter included the following: -- Retail gross activations totalled 179,532 for the third quarter of 2004, an increase of 35% compared with the 132,521 subscribers activated during the same quarter in 2003. Postpaid subscribers represented 70%, or 126,281, of the third-quarter retail gross activations, compared with 43%, or 56,807, for the same quarter in 2003. Prepaid subscribers accounted for the remaining 30%, or 53,251, retail gross activations, down from 57%, or 75,714, in the third quarter of last year. -- The blended monthly churn rate in the third quarter increased to 2.8% from 2.6% in the corresponding quarter in 2003. Although the postpaid churn rate increased to 2.5% from 2.0% in the third quarter of last year, it decreased sequentially from 2.6% in the second quarter of 2004. Similarly, the third-quarter prepaid churn rate also increased to 3.2% from 3.1% in the same quarter last year, but improved significantly compared with the previous quarter's rate of 4.5%. -- Net additions of 77,722 postpaid subscribers represented more than a five-fold increase compared with the 13,468 postpaid net additions in the third quarter of 2003, reflecting a higher number of gross activations. Total prepaid subscribers decreased by 1,949 in the third quarter of 2004, compared with an increase of 27,824 customers in the same three-month period last year, reflecting the Company's continued emphasis and focus on the higher-value postpaid segment of the market. As a result, for the three months ended September 30, 2004, net additions equalled 75,773 subscribers, bringing the total retail customer base to 1,275,094. As of the end of the third quarter of 2004, the Company also provided PCS network access to 52,265 wholesale subscribers. -- Postpaid average monthly revenue per user (ARPU) increased to $64.43 from $63.88 in the third quarter of 2003, reflecting increased penetration of enhanced value-added services, continued growth of wireless data and roaming revenues, and fees associated with providing City Fido service. Prepaid ARPU for the third quarter of 2004 decreased to $18.66 from $19.92 last year, due largely to the effect on airtime revenues from the introduction of a new price structure in August 2003 offering a $0.05 per- minute rate for evenings and weekends. As a result of higher postpaid ARPU in combination with a significantly greater proportion of postpaid subscribers in the retail customer base year-over-year, third-quarter blended ARPU increased to $44.24 from $39.98 last year. -- Due primarily to a larger number of gross activations, the retail cost of acquisition (COA) for the third quarter decreased to $215 per gross addition from $249 in 2003. This result was achieved despite a higher percentage of postpaid gross additions and higher variable costs related to sales and distribution. -- Microcell ended the third quarter of 2004 with $133.8 million in cash, cash equivalents and short-term investment, compared with $177.7 million as at the end of the previous quarter. In addition, the Company had access to a $25.2 million undrawn revolving credit facility (net of a $24.8 million credit to cover swap exposure). -- Capital expenditures for the third quarter totalled $38.5 million, compared with $20.1 million for the same period one year ago. The year-over-year increase in capital expenditures reflects higher spending for network access and capacity in line with subscriber and usage growth, as well as for the support of City Fido service in the Greater Vancouver and Greater Toronto Areas. Corporate developments -- On September 20, 2004, we announced jointly with Rogers Wireless Communications Inc. and Rogers Communications Inc. the signing of a support agreement under which Rogers agreed to make offers to purchase our Class A Shares, Class B Shares for $35.00 per share, and our Warrants 2005 for $15.79 and Warrants 2008 for $15.01. The members of our board of directors have agreed that the Rogers offers are fair to our shareholders and in the best interests of Microcell. The board of directors of Microcell recommended to our shareholders to support the Rogers offers. The board of directors received opinions from its financial advisors, JP Morgan Securities Inc. and Rothschild, that the Rogers offers are fair, from a financial point of view, to our shareholders. The offers, which are subject to receipt of certain regulatory approvals and other customary conditions, are open for acceptance until 5:00 p.m., Eastern Standard Time, on November 5, 2004. The Directors' Circular relating to the Rogers offers has been sent to our securityholders on September 30,2004; -- Subsequent to the end of the third quarter on October 12, 2004, TELUS Corporation announced that it would not extend its offers to purchase all of the issued and outstanding publicly traded shares and warrants of Microcell initially made in May 2004; -- Microcell was added to the S&P/TSX Composite Index after the close of business on September 17, 2004. A market-weighted index of the largest Canadian incorporated public companies traded on the Toronto Stock Exchange, the S&P/TSX Composite Index is used to measure the price performance of the broad Canadian equity market; -- The Canadian Radio-television and Telecommunications Commission made a ruling under Decision 2004-46 to expand local interconnection regions and to rationalize the compensation rules between local exchange carriers. The ruling will enable Competitive Local Exchange Carriers to deploy fewer network points of interconnection, to further consolidate trunking facilities, and to offer local number portability across much wider areas. Microcell is the sole wireless carrier with CLEC status in Canada, and the only Canadian wireless operator currently offering number portability; -- Industry Canada announced a decision rescinding the mobile spectrum cap policy, previously set at 55 MHz, which limited the amount of radio spectrum that cellular companies could hold; -- We signed a multi-year wholesale network services agreement with PRIMUS Telecommunications Canada Inc. ("PRIMUS"), the largest alternative communications provider in Canada, providing PRIMUS with access to our national PCS network as a Mobile Virtual Network Operator. The services are expected to be launched in fall 2004 by PRIMUS; -- On September 7, 2004, we launched a new $70 per month airtime package that allows for unlimited local calling, no long-distance charges on incoming calls, and 850 minutes of outgoing long distance within Canada and to the United States. We also introduced a new free interactive on-line service called Fido Showdown, which provides customers with a tool for comparing their current airtime package with Fido's line-up of services; -- During the quarter, we expanded our device portfolio with the introduction of five new wireless devices, including the Siemens CF62 and C65 handsets, the Sony Ericsson T610 handset, the Nokia 3100 handset, and the Nokia N-Gage QD mobile game deck. Results of operations Three- and nine-month periods ended September 30, 2004, compared with three- and nine-month periods ended September 30, 2003. Operating results for our interim periods are not necessarily indicative of the results that may be expected for the full year. Specifically, during the fourth quarter, our operations are subject to certain seasonal factors associated with subscriber acquisition during the holiday period, which historically is the largest acquisition period of the year for the wireless industry. As a result, operating and net income during this period will be affected by the cost of acquiring a proportionately higher number of subscribers compared with each of the other three quarters of the year. Except for the fact that some of our lenders may also be some of our shareholders, we did not enter into any significant related party transactions since our financial reorganization on May 1, 2003. During the third quarter of 2004, we had 179,532 gross activations, an increase of 35% compared with the 132,521 activated during the same three-month period in 2003. The significant year-over-year improvement in quarterly gross activations was brought about by a substantial increase in postpaid subscriber additions. This result can be explained by the favourable consumer response towards our back-to-school promotions that included an expanded array of new MMS-capable handsets, as well as our new monthly service packages featuring unlimited local calling anywhere in Canada and unlimited incoming calls. In addition, the positive impact of our City Fido product in the Greater Vancouver and Toronto Areas contributed significantly to year-over-year growth in gross activations. As a result, postpaid customers represented 126,281 of the total gross activations for the third quarter of 2004, compared with the 56,807 achieved for the same three-month period last year, while prepaid customers accounted for the remaining 53,251 gross activations, down from 75,714 in the third quarter of 2003. The proportionately higher percentage of gross postpaid activations in the third quarter of 2004 at 70%, compared with 43% in the previous year reflects our increased focus on postpaid subscriber acquisition and the attractiveness of our promotional monthly airtime packages, many of which feature service options that are unique to Fido. On a year-to-date basis for 2004, gross activations were 440,752 (made up of 67% postpaid and 33% prepaid), an increase of 47% when compared with 299,421 for the same period in 2003 (consisting of 38% postpaid and 62% prepaid). Our objective for 2004 is to achieve a gross activation postpaid-to-prepaid split of approximately 60% to 40%. The total number of new subscribers acquired during the first nine months of 2004 represents over 65% of the total expected gross activations for 2004, which is on track with our plan for the full year. The blended churn for the three and nine months ended September 30, 2004 was 2.8% and 3.0% respectively, compared with 2.6% and 3.1% for the same periods in 2003, due mainly to higher postpaid churn. Our postpaid churn for the three and nine months ended September 30, 2004 increased to 2.5% and 2.6%, respectively, from 2.0% and 2.1% for the same periods in 2003, primarily as a result of our competitors' retaliatory marketing practices underscored by their continuingly aggressive limited-time promotions launched mainly in response to our launch of City Fido service in Toronto and Vancouver. Although our postpaid churn rate increased year-over- year, we experienced a slight improvement compared with the previous quarter's result of 2.6%. We believe that the sequential quarterly improvement in postpaid churn was mainly the result of our customer lifecycle retention initiatives, the most significant of which include a customer loyalty program that features spending-based reward points and an optional two-year loyalty agreement. Since we introduced long-term contracts in February 2004, approximately 66% of our new postpaid customers have chosen this option. As a result of these programs, we expect a further improvement in postpaid customer retention in future quarters. Although our prepaid churn rate increased slightly to 3.2% in the third quarter of 2004 from 3.1% in the same quarter one year earlier, it decreased on a sequential basis from 4.5% in the second quarter of 2004. The year-over-year increase in prepaid churn for the third quarter was brought about by an increase in inactive accounts due to our increased focus on acquiring higher- value postpaid subscribers, resulting in a reduced number of new activations with which to replenish the prepaid subscriber base. Accordingly, for the first nine months of 2004, our prepaid churn rate was 3.5%, compared with 3.8% for the same period in 2003. At the beginning of the second quarter, we removed 74,843 inactive prepaid customers from our retail subscriber base. The increase in the number of inactive accounts was due primarily to the combined impact of continuing aggressive actions by the competition to attract our customers, a reduction in the validity period of certain airtime vouchers, and the brief success of some of our prepaid retention activities in 2003 that temporarily revived a number of dormant prepaid accounts. The adjustment to the prepaid customer base was not reflected in the calculation of our prepaid and blended churn rates or in net additions as these operating statistics are presented net of such adjustments. Due to the combined impact of a significantly higher number of gross activations and well-managed churn, we added 77,722 and 137,003 net retail postpaid customers in the three and nine months ended September 30, 2004, respectively, compared with the net addition of 13,468 postpaid customers in the third quarter of 2003 and the net loss of 27,997 in the first three quarters of last year. These results were offset partially by the net loss of 1,949 and 32,212 prepaid customers for the third quarter and first nine months of 2004, respectively. As a result, we added 75,773 new retail customers in the third quarter of 2004 and 104,791 for the first nine months of 2004, compared with the net addition of 41,292 and the net loss of 26,796 retail customers for the same respective periods in 2003. Accordingly, as at September 30, 2004, we provided wireless service to 1,275,094 retail PCS customers, 729,183 of which were on postpaid and 545,911 on prepaid, compared with a retail customer base of 1,137,724 at the end of the third quarter of 2003, which was composed of 517,064 postpaid subscribers and 620,660 prepaid subscribers. As at September 30, 2004, we also provided PCS network access to 52,265 wholesale subscribers, compared with 44,121 at the end of the second quarter of 2004 and 22,712 at the end of the third quarter of 2003. The increases were due mainly to Sprint Canada's new combined home, long-distance and Fido wireless bundled service offering introduced commercially in September 2003. In addition, we had 429 subscribers on our iFido residential high-speed Internet service at the end of the third quarter of 2004. This service, which was commercially introduced in mid-March 2004, is currently available in Richmond, British Columbia and Cumberland, Ontario. We expect to offer iFido in our other markets as the MCS network is deployed by the venture overseeing the development of MCS broadband wireless access in Canada. Our revenues consist primarily of retail PCS subscriber services revenue, which is generated from monthly billings for access fees, long distance, incremental airtime charges, prepaid time consumed or expired, roaming, fees for value-added services, as well as revenues from wholesale service providers. Service revenues increased by 21% year-over-year to $163.7 million for the third quarter of 2004 and by 13% year-over-year to $445.9 million for the nine months ended September 30, 2004. The $28.5 million year-over-year improvement in third-quarter service revenues was composed of a $30.3 million increase in postpaid revenues, resulting mainly from a higher average number of postpaid subscribers in combination with higher postpaid ARPU, a $3.7 million increase in roaming revenues, and a $0.7 million increase in wholesale revenue. This was partially offset by a $6.2 million decrease in prepaid revenues arising from a reduction in the number of active prepaid subscribers. Similarly, the $52.8 million increase in service revenues for the first nine months of 2004 compared with the same period in 2003 was composed of a $59.4 million increase in postpaid revenues, an $8.1 million improvement in roaming revenues and a $0.6 million increase in wholesale revenues, offset partially by a $15.3 million decrease in prepaid revenues. Equipment sales were $11.7 million and $36.2 million for the third quarter and first nine months of 2004, respectively, compared with $11.0 million and $26.3 million for the same periods in 2003. Despite higher acquisition discounts from handset rebates on limited-time promotions and an increase in customer retention- related discounts, equipment sales improved year-over-year due primarily to a higher number of handsets sold, resulting directly from a significant increase in the number of gross activations. Postpaid ARPU for the three and nine months ended September 30, 2004 increased to $64.43 and $61.72, respectively, from $63.88 and $60.63 for the comparable periods in 2003. The improvements were attributable mainly to increased value-added service revenue per user from a higher penetration of enhanced voice services, increased data-related revenue per user from the growth of wireless data usage, the introduction of migration and management fees as a result of the launch of City Fido, and higher roaming revenues per user from a relatively greater level of both inbound and outbound traffic. This was offset partially by lower extra airtime revenue per user due to lower over-bundle usage stemming from the migration of high-usage customers towards unlimited usage options and plans such as Fido-to-Fido and City Fido, and decreased long-distance usage per user. Average monthly usage by our postpaid subscribers for the third quarter and year-to-date 2004 were 588 and 534 minutes, respectively, compared with 356 and 354 minutes for the same periods in 2003. The increases are primarily the direct result of our new City Fido service in Vancouver and Toronto that offers unlimited local usage for a fixed price of $45 per month. Prepaid ARPU for the third quarter of 2004 decreased to $18.66 from $19.92 last year. The decrease was due mainly to the effect on airtime revenues from the introduction of a new price structure in August 2003 offering a $0.05 per-minute rate for evenings and weekends. Year-to-date, prepaid ARPU decreased to $17.63 from $19.68 in 2003 primarily as a result of lower billable minutes of usage in combination with the aforementioned impact on airtime revenues from the new evenings and weekends price structure introduced during the third quarter of 2003. Average monthly usage by our prepaid customers for the three- and nine-month periods ended September 30, 2004 was 63 and 59 minutes, respectively, compared with 61 and 62 minutes in 2003. Blended ARPU for the three and nine months ended September 30, 2004 increased to $44.24 and $40.60, respectively, compared with $39.98 and $38.44 for the same periods last year due to the combination of higher postpaid ARPU and a greater proportion of postpaid subscribers in our customer base year-over-year. Costs and operating expenses (excluding depreciation and amortization) for the three- and nine-month periods ended September 30, 2004 increased by 14% and 21%, respectively, to $137.8 million and $401.4 million from $120.5 million and $331.1 million in 2003. The increases reflect the greater level of subscriber acquisition, increased spending on retention and customer service initiatives, as well as incremental costs associated with a higher volume of roaming and long-distance minutes. Accordingly, the year-over-year increase of $17.3 million in third-quarter costs and operating expenses was composed of higher cost of services of $7.7 million, higher selling and marketing expenses of $6.6 million, higher general and administrative expenses ("G&A") of $1.4 million and higher special charges of $4.2 million, offset partially by lower cost of products of $2.6 million. Similarly, year-to-date costs and operating expenses were significantly higher in 2004 relative to 2003, due primarily to our resumption of full commercial operations and subscriber growth starting in the third quarter of 2003, compared with previous quarters during the recapitalization process that were characterized by a self-imposed growth slowdown and careful cash management in order to preserve liquidity. As a result, costs and operating expenses (excluding depreciation and amortization) for the first nine months of 2004 increased by $70.3 million, compared with the same period in 2003. The increase in year-to-date costs and operating expenses was due to higher cost of services of $19.1 million, higher cost of products of $15.4 million, higher selling and marketing expenses of $24.6 million, higher G&A of $1.5 million and higher special charges of $9.7 million. Our cost of services for the third quarter increased to $53.3 million in 2004 from $45.6 million in 2003. The $7.7 million variance was composed of a $2.6 million increase in customer care, training and billing costs, a $1.9 million increase in network operating costs, and a $3.2 million increase in the cost of sales associated with providing long distance and roaming services. Similarly, on a year-to-date basis, cost of services for the first nine months of 2004 increased to $153.3 million from $134.2 million in 2003, due to a $9.7 million increase in customer care, training and billing costs, a $1.7 million increase in network operating costs, and a $7.9 million increase in variable cost of sales, which was compensated for, in part, by a $0.2 million reduction in contribution charges paid to the CRTC. Our cost of products for the third quarter of 2004 was $26.4 million, down from $29.0 million for the third quarter of 2003. The $2.6 million year-over-year decrease was due primarily to lower prepaid voucher production costs of $1.9 million, and a deferral of incremental costs of $8.9 million associated with our 24-month agreement handset discounts and City Fido activation fee. These costs were partially offset by a higher volume of handsets and accessories sold, resulting in an incremental expense of $7.4 million; increased per-unit handset costs for an aggregate amount of $0.6 million, attributable to a higher cost mix of handsets sold; and greater obsolescence and inventory devaluation for $0.2 million. For the nine-month period ended September 30, 2004, our cost of products increased to $83.1 million from $67.7 million in 2003. The $15.4 million variance can be explained by: a higher volume of handsets and accessories sold, resulting in an incremental expense of $33.8 million; increased per-unit handset costs for an aggregate amount of $4.7 million, attributable to a higher cost mix of handsets sold; increased assembly, refurbishing and packaging costs of $0.8 million; and greater obsolescence and inventory devaluation of $4.0 million. These cost increases were partially offset by a decrease in prepaid voucher production costs of $5.6 million, and an expense deferral of $22.3 million, associated with our 24-month agreement handset discounts and City Fido activation fee. For the three and nine months ended September 30, 2004, selling and marketing expenses increased to $31.6 million and $87.8 million, respectively, from $25.0 million and $63.2 million for the same periods in 2003. The higher costs incurred year-over-year in the third quarter reflected an increase in retail partner compensation due to a higher level of sales (particularly a higher percentage of postpaid gross activations), increased spending on advertising, a higher volume of promotional discounts, and additional expenses associated with our new customer loyalty program and on-going retention initiatives. On a year-to-date basis, the higher costs recorded in 2004 were due mainly to increased spending on marketing activities, promotions and sales incentives, compared with the same period in 2003 when we reduced our customer-acquisition related promotions, decreased sales commissions and advertising expenses, as well as downsized our direct sales force as part of our capital restructuring process. As a result of a higher number of gross activations, and despite a greater percentage of postpaid gross additions and higher variable costs related to sales and distribution, our COA decreased to $215 per gross addition for the third quarter of 2004 and to $247 per gross addition for the first nine months of 2004, compared with $249 and $264 per gross addition for the same respective periods in 2003. We recorded G&A expenses of $22.3 million and $67.5 million for the three and nine months ended September 30, 2004, respectively, up from $20.9 million and $66.0 million for the same periods in 2003. The increases were due primarily to higher salaries and benefits and higher bad debt expense brought about by an expansion in accounts receivable, offset partially by lower rental, insurance and maintenance costs. In conjunction with the strategic review and financial alternatives process that we initiated following the public takeover offers in order to maximize value for our securityholders, we incurred special charges in the amount of $3.8 million during the third quarter of 2004. This consisted of fees for legal and financial consulting services. In addition, the consequential impact of the offers on our share price led to an accelerated vesting of shares under our employee stock option plan, which resulted in an accelerated compensation expense of $0.4 million during the quarter that we would have otherwise recognized over the remaining initial vesting period. As a result, the aggregate amount of special charges incurred in the third quarter amounted to $4.2 million. Depreciation and amortization increased to $23.3 million for the three months ended September 30, 2004, compared with $17.5 million for the same period in 2003 due to a notable increase in capital expenditures over the past twelve months. Conversely, on a year- to-date basis, despite higher capital spending for property, plant and equipment, depreciation and amortization was lower at $61.1 million, compared with $88.2 million for the first nine months of 2003. The year-over-year decrease was due to the realignment of our equity interest and capital structure under our recapitalization plan that we were required to perform as at May 1, 2003. This comprehensive revaluation of our balance sheet, referred to as "fresh start accounting," included an adjustment to the historical carrying value of our assets and liabilities to their fair values. As a result, and in order not to surpass the fair value of the enterprise as a whole, the carrying value of our property, plant and equipment was reduced from $602.1 million to $289.7 million as at May 1, 2003. Despite higher costs and expenses incurred from financing the acquisition of approximately 47,000 additional subscribers during the third quarter of 2004 compared with the same quarter last year, we generated operating income of $14.4 million, compared with $8.2 million in 2003. Similarly, on a year-to-date basis, we generated $19.7 million of operating income, compared with $0.1 million for the first nine months of 2003. The improvement can be explained primarily by the significant decrease in depreciation and amortization expense following the reduction in property, plant and equipment associated with fresh start accounting. OIBDA for the third quarter of 2004 increased to $37.6 million from $25.7 million in 2003. The improvement can be attributed to a $29.2 million, or 20%, year-over-year increase in total revenues, which was partially offset by a $17.3 million, or 14%, increase in total costs and operating expenses before depreciation and amortization. For the nine months ended September 30, 2004, OIBDA was $80.7 million, down from $88.2 million in 2003. Despite the impact on operating costs and expenses from the acquisition of approximately 141,000 additional subscribers during the first three quarters of this year, compared with the same period in 2003, the decrease in year-to-date OIBDA for 2004 was due primarily to the incurrence of special charges in the amount of $9.7 million in conjunction with the takeover bid process that began this past May. For the third quarter of 2004, net interest expense and financing charges were $8.7 million, compared with $4.3 million for the same quarter in 2003. The year-over-year quarterly increase was due to an increase in the amount of long-term debt following the refinancing of our post-recapitalization senior secured bank credit facilities during the first quarter of 2004 coupled with a higher effective interest rate. For the first nine months of 2004, net interest expense and financing charges were $22.3 million, down from $76.7 million for the same nine-month period in 2003. This decrease was primarily the direct result of the reduction in long-term debt following the implementation of our recapitalization plan on May 1, 2003, and the appreciation of the Canadian dollar relative to the U.S. dollar. Cash interest payments of $8.8 million and debt principal repayments of $3.0 million were made during the third quarter of 2004. We incurred a foreign exchange gain of $0.1 million for the third quarter of 2004 (which includes an unrealized gain of $0.3 million), compared with a foreign exchange loss of $1.5 million for the same quarter last year (of which $0.9 million was unrealized). The improvement was due mainly to the relatively more favourable change in the U.S./Canadian foreign exchange rate compared in the third quarter of 2004 versus 2003. On a year-to- date basis, we recorded a foreign exchange loss of $15.7 million in 2004 (of which $13.0 million was unrealized), compared with a foreign exchange gain of $148.8 million for the first nine months of 2003 (of which $142.4 million was unrealized). The large foreign exchange gain in 2003 was due to the relatively greater positive impact of a favorable change in the U.S./Canadian foreign exchange rate on a substantially higher level of U.S.-dollar denominated long-term debt outstanding. Prior to the successful completion of our capital reorganization, we had approximately $1.9 billion of U.S.-dollar denominated long-term debt outstanding as at April 30, 2003 compared with $360.6 million as at September 30, 2004. During the first quarter of 2004, we entered into swap transactions to manage our exposure to foreign exchange rate fluctuations on the U.S.-dollar-denominated term loan A debt ("Term Loan A") and term loan B debt ("Term Loan B") as explained in the liquidity and capital resources section. We recognized a share of net loss in investees of $0.8 million and $1.7 million, respectively, for the three and nine months ended September 30, 2004, as a result of Inukshuk's participation in a venture which is currently in start-up mode. The venture, in which we have a one-third ownership, was created with two other partners during the fourth quarter of 2003 to build an MCS network in order to offer high-speed Internet, IP-based voice and local networking services to selected markets across Canada. Given our minority interest in this venture, we account for its net losses using the equity method of accounting. Higher income tax expense of $0.8 million for the three-month period ended September 30, 2004 is mainly due to a higher pre-tax income incurred during the third quarter of 2004 compared with the third quarter of 2003. On a year-to-date basis, lower income tax expense of $7.8 million is mainly due to a lower pre-tax income incurred during the first nine months of 2004 compared with the same period of 2003. We posted net income and net income applicable to Class A and Class B Shares of $2.9 million for the third quarter of 2004. As a result, basic and diluted earnings per share for the three months ended September 30, 2004 were $0.10 and $0.08, respectively. This compared with net income of $1.3 million and a net loss applicable to Class A and Class B Shares (when considering the accretion on the redemption price of the preferred shares) of $5.1 million for the third quarter of 2003, as well as a basic and diluted loss per share of $1.35. For the nine months ended September 30, 2004, we recorded a net loss of $23.0 million and a net loss applicable to Class A and Class B Shares (when considering the accretion on the redemption price of the preferred shares for the first four months of the year) of $28.2 million. Conversely, for the same nine-month period in 2003, we recorded net income of $61.7 million (composed of $45.5 million for the four-month pre-reorganization period and $16.2 million for the five-month post-reorganization period) and net income applicable to Class A and Class B Shares of $51.1 million (composed of $45.5 million for the four-month pre- reorganization period and $5.6 million for the five-month post- reorganization period). The net income we generated in 2003 was mainly on account of a substantial foreign exchange gain recorded on a relatively higher level of outstanding U.S.-dollar denominated debt, which was offset partially by higher interest expense and higher depreciation and amortization. Liquidity and Capital resources As at September 30, 2004, we had cash and cash equivalents of $111.0 million and short-term investments of $22.8 million compared with $43.1 million and $60.9 million respectively, as at December 31, 2003. Our cash and cash equivalents as at September 30, 2004 were composed of $108.0 million in Canadian dollars and $3.0 million in U.S. dollars. In addition, we had access to a revolving bank credit facility in the amount of $25.2 million (after $24.8 million credit reduction following the swap transactions entered into as described in note 5 to the unaudited interim consolidated financial statements), of which no amount was drawn on September 30, 2004. As at September 30, 2004, we had outstanding letters of guarantee for an aggregate amount of $0.3 million. As at September 30, 2004, we had outstanding amounts of $184.4 million as Term Loan A (US$146.2 million) and $188.2 million as Term Loan B (US$149.2 million) for total borrowings of $372.6 million (including a current portion of $12.0 million). Without taking into consideration the swap transactions described below, Term Loan A bears interest at LIBOR plus 4%, which is payable on a quarterly basis. The principal is payable in quarterly installments, which started in June 2004 and will mature in March 2011. Term Loan B bears interest at LIBOR plus 7% (including a LIBOR floor of 2%), which is payable on a quarterly basis. The principal is also payable in quarterly installments, which started in June 2004 and will mature in September 2011. We have the right to increase, at a later date, up to an additional $25 million under our revolving facility or Term Loan A and up to an additional $50 million under Term Loan B. The credit facilities are guaranteed by Microcell, and are secured by a pledge on substantially all of our assets. In March 2004 we entered into swap transactions to manage our exposure to foreign exchange rate fluctuations on the U.S.-dollar denominated Term Loan A and Term Loan B. We swapped, in March 2004, the total principal of Term Loan A and Term Loan B in the amount of $400 million (U.S.$299.9 million) at a rate of 1.3340. We also swapped the floating interest rate of LIBOR plus 4% on Term Loan A, payable in U.S. dollars, to a floating interest rate of LIBOR plus 5.085%, payable in Canadian dollars. We also swapped the floating interest rate of LIBOR plus 7% on Term Loan B, payable in U.S. dollars, to a floating interest rate of LIBOR plus 8.485%, payable in Canadian dollars. These swap agreements included a recouponing provision which allowed both parties to enter into an amendment of the economic variables when the fair market value of the swaps exceed a threshold of $16 million, in such manner that the market value is reduced to an amount no greater than $16 million. As of September 30, 2004, an amendment occurred between the parties to revise the limit of $16 million to $24.8 million. Consequently, the economic variables were amended to reduce the market value of the swaps from $34.4 million payable to $24.7 million, generating a payment by us to the counterparties of $9.7 million on October 3, 2004. Under this amendment, the floating interest rates of our swap agreements relating to our Term Loan A and Term Loan B were reduced to LIBOR plus 4.616% and LIBOR plus 8.006% respectively. The maturity of the swap transactions corresponds to the maturity of both term loans. These swap transactions, which have not been designated as hedging instruments, are presented at their fair value as derivative instruments on the balance sheet and changes in fair value are recognized in income as foreign exchange gains or losses. Pursuant to a final prospectus dated March 24, 2004, we distributed to the holders of our Class A Shares, Class B Shares, First Preferred Voting Shares, First Preferred Non-Voting Shares, Second Preferred Voting Shares and Second Preferred Non-Voting Shares, rights to subscribe for an aggregate of 4,519,636 Class B Shares. Each five rights entitled the holder thereof to purchase one Class B Share at a subscription price of $22 per share. In connection with the rights offering, we entered into a standby purchase agreement with COM Canada, LLC ("COM") pursuant to which it agreed to purchase, at a price of $22.00, all Class B Shares not otherwise purchased pursuant to the rights offering. In addition, to the extent COM purchased less than $50 million of such shares, it committed to purchase, at a price of $22.00, additional Class B Shares having an aggregate subscription price equal to the deficiency. The closing of the rights offering occurred on April 30, 2004. The rights offering resulted in the issuance by Microcell of 4,519,636 Class B Shares. On May 3, 2004, COM purchased, at a price of $22.00 per share, 2,272,727 Class B Shares. Furthermore, Microcell issued to COM, 3,977,272 warrants to acquire, at a price of $22.00 per share, additional Class B Shares. The net proceeds from the rights offering and private placement to COM amounted to $148.0 million (net of approximately $1.4 million of issuance fees) and have been used by Microcell to redeem as of May 1, 2004 75,233 preferred shares, at a price of $16.39 per share, for a total of $1.2 million. The remaining balance of $146.8 million will be used to fund capital expenditures and for general corporate purposes. As a result of this rights offering and following the redemption of our preferred shares and the exercise of 449,673 stock options, our share capital as at September 30, 2004, was composed of the following: 198,679 Class A Shares; 29,566,308 Class B Shares; 3,998,302 Warrants 2005; 6,663,943 Warrants 2008; and, 3,977,272 new warrants issued pursuant to the private placement. In addition, there were 1,340,192 outstanding stock options for Class B Non-Voting Shares. Our working capital, or current assets less current liabilities, was $137.1 million as at September 30, 2004 compared with $102.4 million as at December 31, 2003 for an increase of $34.7 million mainly due to the net proceeds generated by the rights offering and the bank financing described above. Three-month period ended September 30, 2004 We used $6.8 million in cash for our operating activities in the three-month period ended September 30, 2004, compared with cash provided by operating activities of $51.6 million for the same period in 2003. The $58.4 million decrease resulted mainly from higher cash used in operating assets and liabilities of $57.3 million and by higher cash expenses of $13.0 million, consisting mainly of an increase in cash interest expense payable mainly due to our new credit facilities and partially offset by a higher operating income of $11.9 million (net of depreciation and amortization). Cash used in investing activities was $51.4 million during the three-month period ended September 30, 2004, compared with $20.1 million for the same period in 2003. This increase was mainly attributable to higher additions to property, plant and equipment of $18.5 million in the third quarter of 2004 (resulting from higher cash investments in the PCS network) and to higher investment in short-term investments of $12.8 million. The year- over-year increases in capital expenditures reflected an increase in spending for network access and capacity expansion, as well as the additional costs associated with our on-going support of City Fido in Vancouver and Toronto, as well as preparing other cities for the future launch of City Fido. The lower level of capital spending in 2003 was due to our self-imposed growth slowdown during the financial restructuring process in order to preserve cash. Cash provided by financing activities was $1.4 million for the third quarter of 2004 compared with cash used totalling $2.4 million for the same period of 2003. This difference of $3.8 million was mainly due to the exercise of stock options in 2004 which generated proceeds of $4.7 million, partially offset by the reimbursement of our long-term debt in the amount of $3.0 million compared with a reimbursement of our long-term debt of $2.4 million in the third quarter of 2003. Nine-month period ended September 30, 2004 We generated $29.9 million in cash from our operating activities in the nine-month period ended September 30, 2004, compared with $75.3 million for the same period in 2003. The decrease of $45.4 million resulted mainly from lower cash provided by operating assets and liabilities of $64.5 million and by a lower operating income of $7.5 million (net of depreciation and amortization). This was partially offset by lower cash expenses of $26.6 million, consisting mainly of reduced cash interest expense due to our new capital structure. Cash used in investing activities was $160.0 million during the nine-month period ended September 30, 2004, compared with cash provided by investing activities of $49.6 million for the same period in 2003. This was mainly attributable to higher additions to property, plant and equipment which amounted to $198.2 million in the first three quarters of 2004 compared with spending of $36.1 million for the same period in 2003 and to lower proceeds from the sale of long-term investment, short-term investments and marketable securities of $47.5 million. The year-over-year increases in capital expenditures reflected an increase in spending for network access and capacity expansion, as well as the additional costs associated with our on-going support of City Fido in Vancouver and Toronto, as well as preparing other cities for the future launch of City Fido. The increase in capacity-related expenditures was the result of the timing of upgrades to our switching and radio infrastructure and the initial set-up costs associated with the expansion of City Fido beyond Vancouver and Toronto. Network spending represented $167.6 million of total capital expenditures for the nine-month period ended September 30, 2004. The remaining amounts were related primarily to information technology initiatives and operational support systems. Comparatively, the lower level of capital spending during the first three quarters of 2003 was due to our self-imposed growth slowdown during the capital restructuring process as a means of preserving liquidity. On March 17, 2004, we announced the successful closing of an amended and restated senior secured bank financing in an aggregate principal amount equivalent to $450 million (including undrawn revolving credit facilities of $50 million) for our wholly-owned subsidiary, Solutions. The proceeds have been used mainly to repay borrowings under our previous senior secured credit facilities in the amount of $330.3 million and to terminate related swap transactions in the amount of $4.2 million. With respect to the new credit facilities, we spent $12.9 million in financing costs, which are deferred and amortized over the terms of the loans. In addition, the rights offering, which was fully subscribed, generated net proceeds of $148.0 million, excluding the use of $1.2 million to redeem all of our outstanding preferred shares as at April 30, 2004. Finally, the exercise of stock options generated proceeds of $4.7 million. This was partially offset by higher repayment of long-term debt in 2004 of $1.2 million. As a result of the above, financing activities provided $198.0 million of cash during the nine-month period ended September 30, 2004 compared with cash used of $4.8 million in 2003. Contingencies On April 21, 2004, Unique Broadband Wireless Services, Inc., an Ontario corporation that manufactures and operates wireless products and services, filed a lawsuit against Microcell, Solutions, Inukshuk and Allstream Corp. in the Ontario Superior Court of Justice. In its statement of claim, UBS claims, among other things, for damages in the amount of $160 million from each Microcell, Solutions and Inukshuk for breach of contract, breach of confidence and breach of fiduciary duty and punitive damages. UBS also claims from Inukshuk, as an alternative to the damages claims, an order for specific performance of a conditional agreement between Inukshuk and UBS with respect to the use of 38 MHz of Inukshuk's spectrum by UBS. UBS also claims certain other equitable relief, including disgorgement of profits that UBS alleges would otherwise unjustly enrich Inukshuk, Solutions and Microcell. The action is at a very early stage with no statement of defense yet delivered. Based on information currently available, management considers that the companies have substantive defenses to the action brought by UBS and intend to vigorously defend the action. On August 9, 2004, a proceeding under the Class Actions Act (Saskatchewan) was brought against Microcell and other providers of wireless telecommunications services in Canada. The proceeding involves allegations of deceit, misrepresentation and false advertising by wireless telecommunications service providers with respect to the monthly system access fees being charged to customers. The plaintiffs seek unquantified damages from the defendant wireless telecommunications service providers, plus costs and pre-judgment and post-judgment interest. Microcell believes it has good defences to the allegations made by the plaintiffs. Further, the proceeding has not been certified as a class action and it is too early to determine whether the proceeding will qualify for certification as a class action. Guidance for 2004 We are changing our 2004 guidance for special charges from $15 million to $25 million. In conjunction with the takeover bid offers that have emerged since May 2004, we have incurred special charges related to both financial and legal fees. If a transaction occurs, a transaction fee will be payable to our financial advisors that will be calculated as a percentage of the consideration paid to acquire Microcell's equity. As a result, given the higher takeover bid price from Rogers of $35 per share, compared with the unsolicited takeover offer of $29 per share from TELUS Corporation which was used as the basis for establishing the special charges provision of $15 million originally, we expect to incur an additional $10 million in special charges. Consequently, we now expect to generate an operating loss of up to $10 million and OIBDA in the range of $90 million to $100 million. As indicated in the table below, other previously issued guidance for full-year 2004 financial and operating performance remains unchanged. About the Company Microcell Telecommunications Inc. is a major provider, through its subsidiaries, of telecommunications services in Canada dedicated solely to wireless. Microcell offers a wide range of voice and high-speed data communications products and services to over 1.2 million customers. Microcell operates a GSM network across Canada and markets Personal Communications Services (PCS) and General Packet Radio Service (GPRS) under the Fidor brand name. Microcell has been a public company listed on the Toronto Stock Exchange since October 15, 1997, and is a member of the S&P/TSX Composite Index. At Sept. 30, 2004, Microcell's balance sheet showed a C$41,655,000 stockholders' deficit, compared to a C$12,146,000 deficit at Dec. 31, 2003. MOLL AUTO SALES: Case Summary & 35 Largest Unsecured Creditors -------------------------------------------------------------- Lead Debtor: Moll Auto Sales Company dba JD Byrider Sales 1905 Gallatin Road North Madison, Tennessee 37115 Bankruptcy Case No.: 04-13315 Debtor affiliates filing separate chapter 11 petitions: Entity Case No. ------ -------- Moll Auto Finance Company 04-13313 Type of Business: The Debtor is engaged in vehicle reconditioning and sales. Chapter 11 Petition Date: November 1, 2004 Court: Middle District of Tennessee (Nashville) Judge: Keith M. Lundin Debtors' Counsel: David Glendon Rogers, Esq. 703 Chadwick Drive, Suite 151 Brentwood, TN 37027 Tel: 615-377-7722 Fax: 615-377-7758 Total Assets Total Debts ------------ ----------- Moll Auto Sales Company $0 $4,325,052 Moll Auto Finance Company $0 $4,082,721 A. Moll Auto Sales Company's 20 Largest Unsecured Creditors: Entity Claim Amount ------ ------------ United Service Protection $1,650,000 Serv. for The Assurance Group 23070 Network Place Chicago IL 60673 TN Commerce Bank $1,200,000 381 Mallory Station Road Suite 207 Franklin TN 37067 Community Business Finance $1,200,000 PO Box 1390 Southaven MS 38671 Byrider Franchising, Inc. $35,549 NAPA Auto Parts $27,287 AmSouth Bank $20,000 Tennessee Dept of Revenue $18,457 First Choice Auto Sales $11,800 Capital One $9,700 Bank One NA $9,500 O'Reilly Automotive, Inc. $8,952 WZTV $8,512 Premium Assignment Corp. $8,360 WUXP $8,198 Johnisee & Sons $7,795 AIG $7,215 Manchester LKQ Auto Parts $6,473 BlueCross/BlueShield of TN $5,814 American Tire Company $5,527 Kraft & Company $4,396 B. Moll Auto Finance Company's 15 Largest Unsecured Creditors: Entity Claim Amount ------ ------------ United Service Protection $1,650,000 for the Assurance Group 23070 Network Place TN Commerce Bank $1,200,000 381 Mallory Station Road Suite 207 Franklin TN 37067 National Recovery Bureau $5,095 Kraft & Company $3,494 Kirk C. Waite, Attorney $1,630 Bankers Systems Inc. $983 Vernon A. Melton, Jr. Esq. $500 Pitney Bowes Credit Corp. $229 Paychex $160 Trans Union LLC $158 CSC Credit Services $135 Tennessee Motor Vehicle $105 Charles Veach $99 Performance Business Forms $68 Pitney Bowes $65 MORTGAGE ASSET: Fitch Places Low-B Ratings on Four Cert. Classes ---------------------------------------------------------------- Fitch Ratings affirmed 40 classes of Mortgage Asset Securitization Transactions, Inc. residential mortgage-backed certificates, as follows: * Mortgage Asset Securitization Transactions Alternative Loan Trust, Inc., mortgage pass-through certificates, series 2003-1: -- Classes 1-A, 2-A, 3-A, 4-A, and 5-A affirmed at 'AAA'; -- Class B-1 affirmed at 'AA'; -- Class B-2 affirmed at 'A'; -- Class B-3 affirmed at 'BBB'; -- Class B-4 affirmed at 'BB'; -- Class B-5 affirmed at 'B'. * Mortgage Asset Securitization Transactions Alternative Loan Trust, Inc., mortgage pass-through certificates, series 2003-4 -- Classes 1-A, 2-A, 3-A, 4-A, and 5-A affirmed at 'AAA'; -- Class B-1 affirmed at 'AA-'; -- Class B-2 affirmed at 'A-'; -- Class B-4 affirmed at 'BB-'. * Mortgage Asset Securitization Transactions Alternative Loan Trust, Inc., mortgage pass-through certificates, series 2003-7 -- Classes 1-A, 2-A, 3-A, 4-A, 5-A, 6-A, 7-A, and 8-A affirmed at 'AAA'; -- Class B-2 Affirmed at 'A-'; -- Class B-3 Affirmed at 'BBB-'. * Mortgage Asset Securitization Transactions Alternative Loan Trust, Inc., Mortgage Pass-Through Certificates, Series 2003-9 -- Classes 1-A, 2-A, 3-A, 4-A, 5-A, 6-A, 7-A, 8-A affirmed at 'AAA' -- Class B-1 affirmed at 'AA-'; -- Class B-2 affirmed at 'A-'; -- Class B-3 affirmed at 'BBB'; -- Class B-4 affirmed at 'BB-'. These affirmations, representing approximately $1.4 billion of outstanding principal, reflect credit enhancement consistent with future loss expectations. The pools are seasoned from a range of 10 to 21 months. The pool factors (current principal balance as a percentage of original) range from approximately 43% to 86% outstanding. The underlying collateral for all the transactions consists of conventional, fully amortizing 15- to 30-year fixed-rate mortgage loans secured by first liens on one- to four-family residential properties. NAPIER ENVIRONMENTAL: Weak Financials Spur Restructuring Plans -------------------------------------------------------------- Napier Environmental Technologies Inc. reported plans to make a restructuring proposal to the company's creditors. Napier has experienced losses over many years in seeking to expand markets for the company's products. Weaker than anticipated sales conditions in the third quarter and a seasonal slowdown in the current quarter have further eroded the company's financial position, and it now has insufficient financial resources to meet all of its existing creditor obligations. The company has filed a Notice of Intention to Make a Proposal under the Bankruptcy and Insolvency Act. This will facilitate an orderly evaluation of alternatives to strengthen the company's business model and capital structure. The Notice of Intention filing allows Napier to maintain operations while completing necessary changes to improve its business and develop a restructuring proposal for creditors. During this period Campbell Saunders Ltd., an experienced Trustee, will monitor the activities of the Company and assist it in formulating a proposal to its creditors. In conjunction with the filing, Napier has engaged Wayne J. Henderson to lead the company on an interim basis as Chief Restructuring Officer. Mr. Henderson has been a member of the company's Board of Directors since July 2004 and is a corporate advisor. He has previously held executive positions in corporate and investment banking with a major Canadian financial institution. President and Chief Executive Officer, Frank Dixon, has resigned from the company and its Board of Directors. He will remain available to the company on a consulting basis during a transition period. "The company will continue to operate while we complete the restructuring process," said company Chairman, Lionel Dodd. "The ongoing support of our customers, employees and suppliers will help ensure we can restructure to the benefit of all stakeholders. We are very fortunate to have Wayne's leadership at this very challenging time," he said. The company's secured lender has agreed to continue to provide advances under existing Financing Facilities while the company completes its restructuring. The company will be working to refine its business model - with a greater focus on existing core technology, products and customers, and a significant reduction in SG&A costs. The objective will be to move forward with a solid plan that leverages the proven effectiveness of its products and the validation of some of the world's leading coating and home improvement companies. This will be accomplished through a strategic review process over the next 100 days. Additional financing or investment may be required during the period to ensure that the company can complete the restructuring process. There can be no assurance that the company will successfully emerge from its reorganization proceedings. Approval of a Plan and emergence from reorganization proceedings are subject to a number of conditions. About the Company Napier Environmental Technologies manufactures environmentally safer wood treatments and paint removal products for commercial and consumer markets. NATIONAL ENERGY: ET Holdings Objects to Adam Mirick's $2.5M Claim ----------------------------------------------------------------- Adam Mirick was an energy trader employed by NEGT Energy Trading Holdings Corporation f/k/a PG&E Energy Trading Holdings Corporation. Mr. Mirick's employment with ET Holdings was terminated on March 14, 2003. Mr. Mirick filed Claim No. 77 against ET Holdings for $7,859,478. Prior to the Petition Date, Mr. Mirick filed a complaint against ET Holdings in the Circuit Court for Montgomery County for damages and other relief. ET Holdings asserted defenses. Mr. Mirick contends that he is entitled to $113,390 as compensation for work performed in 2001 and $2,502,261 as compensation for work done in 2002. In addition, Mr. Mirick seeks treble damages and attorney's fees pursuant to the Maryland Wage Payment and Collection Act. ET Holdings asks Judge Mannes to reduce and allow the Mirick Claim as a general unsecured non-priority claim for $111,467. ET Holdings asserts that Mr. Mirick's Claim fails to provide support for the alleged basis of his claim. For the year 2001, ET Holdings made a discretionary supplemental incentive award to Mr. Mirick amounting to $715,000. Pursuant to its supplemental incentive award payment structure, ET Holdings paid Mr. Mirick $500,000 in March 2002, and $109,130 -- $107,500 plus $1,630 interest -- in October 2002. ET Holdings did not pay to Mr. Mirick the $111,467 remaining deferred amount -- $107,500 plus $3,967 interest -- which was due in October 2003 for his year 2001 supplemental incentive award. ET Holdings concedes that Mr. Mirick is owed that amount. Mr. Mirick also claims that he is owed $2,500,000 as a supplemental incentive award for the year 2002. Because supplemental incentive awards were discretionary and ET Holdings never awarded any supplemental incentive awards to Mr. Mirick or any of the other energy traders for 2002, ET Holdings objects to Mr. Mirick's claims based on a purported supplemental incentive award for that year. Because all supplemental incentive awards were discretionary in nature, the Maryland Wage Payment and Collection Act is inapplicable to Mr. Mirick's claims. Therefore, ET Holdings objects to the "treble damages" and attorney's fees, which Mr. Mirick seeks. Moreover, as the automatic stay prohibits ET Holdings from paying Mr. Mirick's prepetition claims, the Maryland Wage Payment and Collection Act is inapplicable as a matter of bankruptcy law. Headquartered in Bethesda, Maryland, PG&E National Energy Group, Inc. -- http://www.pge.com/-- (n/k/a National Energy & Gas Transmission, Inc.) develops, builds, owns and operates electric generating and natural gas pipeline facilities and provides energy trading, marketing and risk-management services. The Company filed for Chapter 11 protection on July 8, 2003 (Bankr. D. Md. Case No. 03-30459). Matthew A. Feldman, Esq., Shelley C. Chapman, Esq., and Carollynn H.G. Callari, Esq., at Willkie Farr & Gallagher represent the Debtors in their restructuring efforts. When the Company filed for protection from its creditors, it listed $7,613,000,000 in assets and $9,062,000,000 in debts. NEGT received bankruptcy court approval of its reorganization plan in May 2004, and emerged from bankruptcy on Oct. 29, 2004. (PG&E National Bankruptcy News, Issue No. 27; Bankruptcy Creditors' Service, Inc., 215/945-7000) NETWORK INSTALLATION: Wins Wireless Project Order from ACON Labs ---------------------------------------------------------------- Network Installation Corp. (OTC Bulletin Board: NWKI) received a project order from medical diagnostics provider ACON Laboratories. The project includes the installation and deployment of a Strix Systems wireless network between campus buildings. The project maintains future scalability for indoor Wi-Fi coverage. About Network Installation Corp. Network Installation Corp. provides communications solutions to the Fortune 1000, Government Agencies, Municipalities, K-12 and Universities and Multiple Property Owners. These solutions include the design, installation and deployment of data, voice and video networks as well as wireless networks and Wi-Fi. Through its wholly-owned subsidiary Del Mar Systems International, Inc., the Company also provides integrated telecommunications solutions including Voice over Internet Protocol (VoIP) applications. To find out more about Network Installation Corp. (OTC Bulletin Board: NWKI), visit our corporate website at http://www.networkinstallationcorp.net/or http://www.delmarsystems.com/The Company's public financial information and filings can be viewed at http://www.sec.gov/ * * * Going Concern Doubt In its Form 10-QSB for the quarterly period ended June 30, 2004, filed with the Securities and Exchange Commission, Network Installation Corporation reports that it has accumulated deficit of $6,576,914, is generating losses from operations, and has a negative cash flow from operations. The continuing losses have adversely affected the liquidity of the Company. The Company faces continuing significant business risks, including but, not limited to, its ability to maintain vendor and supplier relationships by making timely payments when due. NEXTWAVE TELECOM: Selling All PCS Licenses to Verizon for $3 Bil. ----------------------------------------------------------------- NextWave Telecom Inc. has asked the bankruptcy court administering the Company's Chapter 11 proceedings for authority to sell all its PCS licenses to Verizon Wireless as part of a forthcoming plan of reorganization. Under that plan, Verizon Wireless would acquire all the shares of NextWave entities that hold or control such licenses, and all of NextWave's liabilities and other assets would be consolidated into a new operating company that would be spun- out to shareholders to pursue broadband wireless market opportunities following confirmation of the plan. "We're very pleased to present the court with a transaction that will create significant value for the estates and enable the Company to complete its reorganization successfully," said Allen Salmasi, NextWave's Chairman and CEO. "The acquisition agreement with Verizon Wireless represents the best available transaction with respect to our PCS spectrum assets for the benefit of all our stakeholders. The plan we intend to file is not the end of NextWave, it's a new beginning. The Company looks forward to continue developing the promising opportunities generated by the broadband wireless activities we have undertaken in recent years." The acquisition agreement is one of two principal parts of a plan of reorganization that will be filed in the near future, and which will provide full payment to all creditors of the estates: * Under the agreement: (1) aggregate consideration of $3 billion will be paid in cash; (2) approximately $165 million of that amount will be placed in escrow for the benefit of Verizon Wireless or the new operating company, depending on the resolution of certain tax issues; and (3) Verizon Wireless will acquire the shares of NextWave Telecom Inc. and its licensing subsidiaries, which will have no liabilities and no assets other than the Company's PCS licenses, free and clear of all encumbrances. The agreement also provides for a breakup fee of 3% of the purchase price if the agreement is terminated under certain circumstances. * The plan will provide for an internal corporate restructuring that will consolidate all the Company's liabilities and remaining assets -- including MMDS spectrum holdings and Tele*Code, an existing non-debtor subsidiary of NextWave -- into a newly formed operating company, through which NextWave intends to develop, build and operate broadband wireless networks designed to provide both high- speed fixed/mobile Internet access and VoIP services. Such access and services will deliver broadband connectivity that is affordable, mobile, and accessible from home gateway units, desktop PCs, smartphones, PDAs, and other handheld devices. The plan also will provide for an additional payment to the Federal Communications Commission of approximately $71 million, plus any other amounts owed the government under the terms of an April 2004 Global Resolution Agreement between NextWave and the FCC. The Global Resolution Agreement resolved all claims between the Company and the agency, including auction-related financial obligations associated with NextWave's PCS licenses. Upon confirmation, all creditors will be paid in full and existing NextWave shareholders will receive a distribution of cash and interests in the newly formed operating company. A portion of the acquisition price and/or existing cash will be utilized to establish appropriate reserves for contingent liabilities and expenses related to the conclusion of the bankruptcy proceedings, and to provide funding for obligations assumed by the newly formed operating company and for its future operations. "Following our settlement with the FCC," said Mr. Salmasi, "over the past six months we have evaluated every potential option for our remaining PCS licenses, ranging from a complete build-out to mergers and acquisitions. It became clear to us that the most prudent course of action is the one currently being pursued, given the level of maturity, and the scale and scope, that the major wireless carriers have achieved with their PCS networks and distribution channels. We believe this transaction provides the greatest value and certainty for our stakeholders." A hearing on NextWave's request for bankruptcy court approval of the acquisition agreement will be held before the court in White Plains, New York, on November 30, 2004, at 11 AM. In addition to bankruptcy court approval, the transaction also will be subject to FCC approval and antitrust regulatory review. The transaction would close after those approvals are secured and confirmation of the Company's plan of reorganization, which will be filed in the coming weeks. About Verizon Wireless Verizon Wireless owns and operates the nation's most reliable wireless network, serving 42.1 million voice and data customers. Headquartered in Bedminster, New Jersey, Verizon Wireless is a joint venture of Verizon Communications (NYSE: VZ) and Vodafone (NYSE and LSE: VOD). Find more information on the Web at http://www.verizonwireless.com/To receive broadcast-quality video footage of Verizon Wireless operations, log onto http://www.thenewsmarket.com/verizonwireless/ About NextWave Telecom NextWave Telecom, Inc., headquartered in Hawthorne, New York, was organized in 1995 to provide high-speed wireless Internet access and voice communications services to consumer and business markets on a nationwide basis. NextWave is currently constructing a third-generation CDMA2000 1X network in all of its 95 PCS markets whose geographic scope covers more than 168 million POPs coast to coast, including all top 10 U.S. markets, 28 of the top 30 markets, and 40 of the top 50 markets. NextWave's "carriers' carrier" strategy allows existing carriers and new service providers to market NextWave's network services through innovative airtime arrangements. The company filed for chapter 11 protection (Bankr. S.D.N.Y. Case No. 98-23303) on December 23, 1998. Deborah Lynn Schrier-Rape, Esq. of Andrews & Kurth, LLP represents the debtor. NORTHERN KENTUCKY: Baseball Franchise Gets $3 Million Bid --------------------------------------------------------- Canterbury Baseball, LLC -- an investor group headed by Clint Brown, a retired Edgewood, Ky., business executive -- has put together an approximate $3 million offer to buy the troubled Florence Freedom minor league baseball franchise. Subject to higher and better offers, Northern Kentucky Professional Baseball, LLC, will sell substantially all of its assets to Canterbury and assume some stadium construction and other contracts. Competing Bids Competing bidders, if any, must contact the core professionals in the Debtor's chapter 11 case by Nov. 29 and make a $75,000 deposit. Bids must be submitted by Dec. 3 and must top Canterbury's offer by $90,000. An auction, if necessary, will be held on Dec. 8, and bidding will be in $75,000 increments. Objections to the sale, if any, must be filed and served by Dec. 10. The Debtors will ask the Court to ratify and approve the sale to the highest bidder on Dec. 14 In the event Canterbury's bid it upset by a competitor, Canterbury is entitled to a $70,000 break-up fee. Key Documents A copy of the Asset Purchase Agreement between Canterbury and the Debtor is available at no charge at: http://bankrupt.com/misc/04-22256-0087-A.pdf A copy of the applicable Bidding Procedures Order is available at no charge at: http://bankrupt.com/misc/04-22256-0105.pdf A copy of the Debtor's Sale Motion is available at no charge at: http://bankrupt.com/misc/04-22256-0087.pdf Headquartered in North Bend, Ohio, Northern Kentucky Professional Baseball, LLC, operates a professional baseball club. The company filed for chapter 11 protection on September 3, 2004 (Bankr. E.D. Ky. Case No. 04-22256). John A. Schuh, Esq., at Schuh & Goldberg, LLP, represents the Debtor in its restructuring, and Richard G. Hardy, Esq., and Reuel D. Ash, Esq., at Ulmer & Berne LLP, represent the Official Committee of Unsecured Creditors. When the Debtor filed for protection from its creditors, it listed $9,353,870 in total assets and $9,485,394 in total debts. PACIFIC GAS: Saybrook Details Hand in Bankruptcy Emergence ---------------------------------------------------------- When the lights went out in California, no one was quite sure how to get them back on. Three years later, Saybrook's financial advisory success with Pacific Gas and Electric speaks for itself. Saybrook served as investment banker and financial advisor to the Official Committee of Creditors. Creditors achieved a 100% recovery and California's lights are back on. Saybrook's expertise was demonstrated as it helped craft a restructuring plan alternative to management's plan and successfully negotiated its implementation. Defying convention, creditors' recovery actually increased by over $4 billion during Saybrook's engagement and shareholders value increased by more than $8 billion. "By emerging as a financially healthy company, we are on a solid foundation to continue investing in the infrastructure that delivers energy to our customers, and serves as the backbone of our state's economy," said Gordon R. Smith, PG&E's President and CEO. "We will also be able to re-engage with the communities we serve, and return to the traditional roles we played with them, which were temporarily interrupted by the challenges of the energy crisis." Jonathan Rosenthal, a partner of Saybrook who led the engagement team, said, "Shareholders received the immediate benefit of investment grade status, stable operations and a strong capital structure, all resulting in a higher share price with dividends projected within one year. Saybrook helped the utility to emerge from bankruptcy in 3 years versus 5 to 7 years of other utility bankruptcies. Unsecured debt went from a market trading price of $.55 to $1.06 and its share went from $6.00 to $28.00." PG&E filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code on April 6, 2001. Three years later, the resolution and emergence from Chapter 11 -- supported by the company, its creditors, the California Public Utilities Commission (CPUC), labor, and environmental and consumer groups -- has restored the utility's investment grade credit ratings, satisfied all valid creditor claims, and provided the basis for a substantial reduction in electric rates with the potential for additional savings to customers in the future. About Saybrook Saybrook is an investment bank engaged in financial advisory services and capital management. To its advisory practice Saybrook brings an unusual blend of knowledge and experience in areas that include corporate restructurings, public and private real estate finance and municipal finance. Saybrook has played a key role in 5 of the 14 largest bankruptcies in U.S. history, including, United Airlines, WorldCom, Kmart, Adelphia and, most recently, PG&E. In addition, Saybrook served as advisors to the investors on the record breaking Orange County, CA, municipal bankruptcy. To find out more about Saybrook, please visit http://www.saybrook.net/ Headquartered in San Francisco, California, Pacific Gas and Electric Company -- http://www.pge.com/-- a wholly owned subsidiary of PG&E Corporation (NYSE:PCG), is one of the largest combination natural gas and electric utilities in the United States. The Company filed for Chapter 11 protection on April 6, 2001 (Bankr. N.D. Calif. Case No. 01-30923). James L. Lopes, Esq., William J. Lafferty, Esq., and Jeffrey L. Schaffer, Esq., at Howard, Rice, Nemerovski, Canady, Falk & Rabkin represent the Debtors in their restructuring efforts. On June 30, 2001, the Company listed $23,216,000,000 in assets and $22,152,000,000 in debts. Pacific Gas and Electric emerged from chapter 11 protection on April 12, 2004, paying all creditors 100 cents-on- the-dollar plus post-petition interest. PAMET SYSTEMS: Sept. 30 Balance Sheet Upside-Down by $6.3 Million ----------------------------------------------------------------- Pamet Systems, Inc. (OTC: PAMT), a provider of information systems and technologies for public safety and homeland security, announced an open letter from its Chairman to its shareholders accompanied by an update on recent results. Dear Fellow Shareholders: As we approach the Special Meeting of Shareholders on Wednesday, November 17, 2004, I would like to take this opportunity to thank all of you for your support and patience over the past several years. Last January the Board decided to deregister Pamet Systems, Inc. as a public company for two good reasons: -- to improve the Company's bottom line by eliminating the substantial and growing expense of being a public company and -- to eliminate the reporting requirements that were giving our non-public company competitors an advantage against us. The trade-off was that we would be somewhat restricted in our ability to report our progress to our shareholders. The discussion of our results that follows should address this issue for now. Again -- thank you for your patience and understanding as we have worked through the task of strengthening Pamet's position over the last several years. At the November 17th Special Meeting of Shareholders there will be a vote taken on the election of directors and three other proposals -- chief among them a proposal to conduct a 1:10 reverse split of our outstanding shares. If you have received your proxy, we would urge you to read through the proposals and we would ask that you support Management in voting FOR each of the proposals. If you have not yet received your proxy, please contact the Company immediately so we can make sure you do receive a copy. You may also contact us if you require explanations for any of the proposals in the proxy. The correct person to call in either case is Kirke Curtis at 978-263-2060 x223. Sincerely, Bruce J. Rogow Chairman Pamet Systems, Inc. Report on Results Overview Pamet Systems, Inc., founded in 1987, designs and implements broad-based information technology solutions for public safety and criminal justice agencies enabling them to realize cost efficiencies and to provide better service to the public. The foundation of the Company's integrated suite of products is composed of three core components: PoliceServer, FireServer, and CADServer. The Company also offers several companion products including Advanced Imaging, Mobile Access and Advanced Reporting, that are integrated with the police and fire records management and computer-aided dispatch modules. The Company's revenues consist primarily of sales of these software applications, annual support and maintenance service fees, fees associated with migrating clients from the Company's legacy VMS-based products to their Windows-based products and occasional revenue associated with hardware, systems integration and the resale of third-party software products. During the calendar year 2003 and during the 2004 period, the Company was awarded business from several new agencies including the Blue Ash, Ohio Police Department, the Utica, New York Fire Department, the Essex County, New Jersey Sheriff's Office and the Norfolk, Massachusetts Fire Department. The Company also received additional revenue from several existing clients for add-on products, additional user-licenses and as progress payments against implementations that were started in earlier periods (e.g., from Utica, NY, and the Milwaukee County, WI Sheriff's Office). Finally, the Company also realized revenue from over twenty clients of the Company's legacy VMS-based product for services related to migrating to Pamet's Windows-based product. Despite the Company's success in several competitive bidding processes and in migrating a substantial number of its clients to Windows in 2003 and 2004, Pamet has also experienced the defection of a small number of VMS-based customers moving to other vendors' Windows applications for a variety of reasons such as price, ease of use considerations and differences in functionality. To date, 86% of Pamet's installed customers are now on the Window's-based product, with migrations in progress for another 6%. With so few legacy customers left, the Company anticipates very few additional defections. The primary challenges that the Company focused on during the 2003 and 2004 periods were: 1) establishing and maintaining the Company's operating profit, 2) continuing migrations from legacy customers and 3) growing the Company's revenues in a climate of reduced state and municipal spending and grant money and with very meager sales and marketing resources. With regards to establishing and maintaining the Company's operating profit, the Company was able to generate an operating profit for the 2004 period of $91,633 compared to the 2003 period operating loss of ($186,246). Unaudited results for Q3 and Q4 of 2003 and Q1, Q2 and Q3 of 2004 show an operating profit for each of these five quarters. In short, the Company has produced five consecutive quarters of EBITDA-positive results. Due to the accrual of interest on the Company's convertible promissory notes, however, the actual net income or net loss for those periods was as follows: ($53,216) for Q3 2003, ($67,184) for Q4 2003, $271 for Q1 2004, ($26,237) for Q2 2004 and ($68,546) for Q3 2004. The Company has also had success in migrating its legacy VMS customers over to its Windows product suite. These migrations resulted in modest one-time revenue for the migration, in typically higher support fees in subsequent years and in a higher likelihood of short- and medium-term customer retention. Growing the Company's revenues continues to be a constant challenge given the fact that the Company does not yet have any full-time sales or marketing resources and revenue from migrations is gradually diminishing. The Company's unaudited revenues for the 9-month period ended September 30, 2004 decreased 7.3% to $1,126,516 from the unaudited figure of $1,187,021 for the 9-month period ended September 30, 2003. Management believes that until the Company has the working capital necessary to ramp-up full-time sales and marketing resources, it will be unlikely to grow its revenue in any substantial way. To address the issue of the need for additional working capital to grow the Company, Management has first been concentrating on achieving at least a year's worth of consistent operating profit. The next step is to complete a 1:10 reverse stock split as recommended by Management in a proxy recently sent out the Company's shareholders in preparation for an upcoming shareholders meeting on November 17, 2004. If approved, the reverse split will provide the Company with a number of unpledged, authorized shares that Management could use in its search for additional investors and/or for any potential business combinations that it feels would be beneficial to shareholders and to the Company's growth potential. There are currently no plans or arrangements or agreements to issue additional securities in order to raise additional capital. In addition, in early 2004 Management was able to extend to September 30, 2005 the maturity date of all convertible notes that were scheduled to mature in 2004 (no other terms were altered on these notes -- just the maturity date was extended). All the Company's convertible notes now mature on September 30, 2005 and thus Management has had and will continue to have a period of time in which to focus more fully on generating consistent profitability and growth. Finally, in early 2004 Management obtained a $400,000 secured line of credit with one of its investors to replace a previous receivables factoring line of credit with a division of the Cupertino National Bank. The new line of credit is secured by the assets of the Company and carries a 12% interest rate. The Company currently does not have the resources to repay these notes and there can be no assurance that it will be able to negotiate a further extension in their maturities. Results of Operations Nine-Month Period Ended Sept. 30, 2004 versus Nine-Month Period Ended Sept. 30, 2003 The Company's revenues for the 9-month period ended September 30, 2004 decreased 7.3% to $1,186,135 from $1,279,362 for the 9-month period ended September 30, 2003. The primary factors in this decrease in revenue are the continued sluggishness in state and municipal spending related to the continued weakness in state and municipal finances, diminishing migration revenue as the number of the Company's legacy customers approaches zero and the lack of full-time sales and marketing resources at the Company. Cost of sales decreased $32,722 or 35.4% to $59,619 for the 2004 period from $92,342 for the 2003 period. During this same period, the Company experienced an improvement in gross margin to 95.0% in the 2004 period from 92.8% in the 2003 period. The decrease in cost of sales is due primarily to the change in the mix of products being sold between periods. For the last several years the Company has been successfully reducing the amount of third- party hardware that it resells, which typically has only single- digit margins. Hardware sales, while they help top-line revenue, tie up a disproportionate amount of working capital and have required excessive finance and support resources to administer and track. The Company would prefer not to be involved in the integration of hardware. The Company's operating expenses decreased $338,384 or 24.6% to $1,034,833 for the 2004 period from $1,373,267 for the 2003 period as a result of the Company's focus on bringing its cost structure into line with revenues. Of the Company's operating expenses, personnel costs decreased 24.4% or $251,435 to $777,710 in the 2004 period from $1,029,145 for the 2003 period. This reduction was due in part to a small reduction in headcount and from the expiration of the commercial services contract with one of our investors. This contract, entered into during the second quarter of 2002, provided that eight of the Company's employees became employees of the investor's company and were leased back to the Company. This company invoiced Pamet quarterly for the cost of the employees who remained based in Pamet's Acton headquarters and worked on projects exclusively for the Company during the term of the agreement. The net result of this agreement was to reduce the Company's 2002 working capital requirements, but under the agreement the Company still realized the expenses as personnel expenses. As part of the contract, Pamet was charged a 12% general administrative charge levied on top of the salary expenses covered in the commercial services contract. When Pamet terminated the contract at the end of June 2003, the full impact of the resulting decrease in these 12% charges was experienced in the 2004 period. Facilities costs decreased by 11.6% or $21,657 to $164,756 for the 2004 period from $186,413 for the 2003 period. This decrease was attributable primarily to decreases in gas, telephone & Internet and cleaning expenses and an increase in sublease revenue. Travel and entertainment expenses grew $4,516 or 30.2% to $19,463 for the 2004 period from $14,947 for the 2003 period. This increase reflected the Company's efforts to exhibit at more regional trade shows and make more sales calls with its part-time sales force. Spending on professional fees decreased $32,644 or 60.8% to $21,044 for the 2004 period from $53,688 for the 2003 period. The decrease was attributable to the decrease in legal and accounting fees that resulted in the Company's decision, announced in January 2004, to deregister as a public company. Depreciation and amortization expense decreased 100.0% or $25,092 to $0 for the 2004 period from $25,092 for the 2003 period reflecting the fact that all the Company's capital assets are fully depreciated. Other operating expenses decreased 18.9% or $12,072 to $51,910 for the 2004 period from $63,982 for the 2003 period. The decrease is attributable primarily to a decrease in computer-related expenses, office expenses and marketing expenses. Net interest/Other Income expense increased 15.3% or $30,729 to $240,734 in the 2004 period from $200,288 for the 2003 period. This increase resulted interest payments on the $400,000 line of credit the Company established with one of its investors in early 2004. The Company's net loss decreased 63.9% or $247,150 to ($149,101) for the 2004 period from ($386,534) for the 2003 period. This corresponds to $(0.03) per share loss in the 2004 period compared to a $(0.09) per share loss for the 2003 period. Liquidity and Capital Resources The Company had a working capital deficit of $(6,397,422) at September 30, 2004 compared to $(1,978,187) at September 30, 2003. The most significant reason for this decrease is the reclassification of $4,491,545 in long-term notes and accrued interest to current. These notes are due September 30, 2005. During the 2003 period, the Company secured $50,000 of long-term debt financing. In addition, the Company successfully negotiated amendments to $445,855 in convertible promissory notes maturing in 2004, extending them to 2005 with revised terms. At September 30, 2004, $3,565,978 of convertible promissory notes and $914,491 of related interest remained outstanding as liabilities. The maturity date of these notes is September 30, 2005. These amounts on the balance sheet are reported net of $12,785 in discounts for detachable warrants issued on the debt. In general, the outstanding convertible debt funding accrues interest at 7%; is convertible into common stock at the option of the debt holder at conversion prices ranging from $0.115 to $0.25 per share; and has 20% or 100% warrant coverage attached, depending on the note, that allows for the purchase of additional shares of common stock at exercise prices ranging from $0.25 to $1.00 per share, depending on the note. The Company's ability to repay the outstanding convertible promissory notes with accrued interest on due dates is at risk. There can be no assurance that the Company will be able to negotiate another extension of the maturities of these notes. As of October 2003, $37,500 of the debt has matured and is being paid off over approximately 75 weeks in a series of partial payments. During the last quarter of 2002, it became apparent to the new Management that the Company had more shares issued on a fully- diluted basis (including shares issuable pursuant to warrants, options and convertible notes) than were authorized under its articles of incorporation. The Company is currently authorized to issue 7,500,000 shares. Although in July 2000 shareholders approved a request to increase authorized shares to 30 million, the Company did not have sufficient funds to pay the requisite state fees and thus it was unable to increase its authorized share limit to 30 million. The number of shares of common stock legally issued and outstanding at September 30, 2004 was 4,437,976. However, the Company has entered into various transactions in which it is obligated to issue an aggregate of 2,950,277 shares of Common Stock (the "Committed Shares"), but the Company does not have a sufficient number of authorized and unissued shares to issue the Committed Shares after factoring in the number of Derivative Shares (defined below). Accordingly, the Company has proposed a 1:10 reverse stock to its shareholders. This split will be voted on in a November 17, 2004 special shareholders meeting. This Reverse Stock Split will allow the Company to fulfill its contractual obligations to such third parties by allowing it to issue the Committed Shares. In addition, the Company needs to have a sufficient number of shares of Common Stock available for issuance upon the exercise or conversion of its options, warrants and convertible notes (the "Derivative Securities"). Since the Derivative Securities are currently out of the money, it is not expected that they will be exercised or converted at this time. However, the Company wants to have sufficient authorized capital in order to issue its Common Stock in the event of an exercise or conversion of the Derivative Securities. The Derivative Securities currently outstanding represent 28,688,271 shares of Common Stock. In addition, the Company would like to have a sufficient number of authorized and unissued shares of Common Stock that can be issued in connection with such corporate purposes as may be considered advisable from time to time by the Board of Directors. Such corporate purposes include: (i) raising capital in order to have necessary capital resources to grow the business, (ii) having shares (pursuant to options or other equity incentives) available for employees and prospective employees and (iii) for acquisitions or other business combinations or collaborations. Having such shares available for issuance in the future will give the Company greater flexibility and will allow such shares to be issued as determined by the Board of Directors without the expense and delay of a special shareholders' meeting to approve such additional authorized capital stock. There are currently no plans or arrangements or agreements to issue additional securities in order to raise additional capital. Cash decreased to $919 at September 30, 2004 from $37,891 at September 30, 2003. The resources necessary to provide working capital for operations and to provide the resources for growth continue to be a major concern for the Company. The problems associated with an inadequate amount of working capital (such as inability to have the necessary resources to operate and expand the business) are exacerbated by the continued sluggishness in sales resulting primarily from the continuing slowdown in the general economic conditions and in the public safety marketplace that began in the second half of 2000. Because of these problems and the necessity of the Company to continue to strictly control its expenses despite the need for additional sales and marketing resources, the Company has not been able to expend any additional resources to increase sales. The Company continues to be hampered by insufficient cash resources. There can be no assurances that the Company will be able to generate adequate cash either through operations or additional financing to continue as a going concern. There can be no assurance about the Company's ability to repay its indebtedness or other obligations as they become due. If the Company's financial difficulties continue, it could have a material adverse effect on the Company, its creditors and its stockholders. As of December 31, 2003, the Company had accumulated $13,790,000 of federal net operating loss carryforwards that expire beginning in the year 2005. In addition, the Company has state net operating losses to carry forward of $8,772,264 which expire between the years 2004 and 2007. Under the Internal Revenue Code of 1986, as amended, the rate at which a corporation may utilize its net operating losses to offset income for federal tax purposes is subject to specified limitations during periods after the corporation has undergone an "ownership change." It has been determined that an ownership change did take place at the time of the Company's initial public offering in 1990. However, the limitations on the loss carryforward exceed the accumulated loss at the time of the "ownership change," thus there is no restriction on its use. At Sept. 30, 2004, Pamet Systems' balance sheet showed a $6,336,905 stockholders' deficit. PANOLAM INDUSTRIES: S&P Places B+ Rating on Planned $20M Facility ----------------------------------------------------------------- Standard & Poor's Ratings Services assigned its 'B+' bank loan rating and '2' recovery rating to Panolam Industries International Inc.'s proposed first-lien $20 million revolving credit facility and $130 million term loan B. The bank loan is rated the same as the corporate credit rating; the '2' recovery rating indicates that bank lenders can expect substantial recovery of principal (80% to 100%) in the event of default. Standard & Poor's also assigned its 'B-' bank loan rating and '5' recovery rating to the company's proposed $75 million second-lien term loan C. The second-lien term loan is rated two notches below the corporate credit rating; the '5' recovery rating indicates that bank lenders can expect negligible recovery of principal (0% to 25%) in the event of default. The Shelton, Connecticut-based company's 'B+' corporate credit rating was affirmed. The outlook is stable. "The ratings on Panolam reflect the company's exposure to the cyclicality of residential and commercial new construction and remodeling activities, volatile raw-material costs, limited product diversity, and a highly leveraged capital structure," said Standard & Poor's credit analyst Lisa Wright. These factors are partly offset by the company's market leadership in niche decorative panels markets, attractive operating margins, and its ability to generate free cash flow, even during an industry downturn. Panolam plans to use proceeds of the proposed bank loans to pay a $64 million dividend to its shareholders--private equity sponsor The Carlyle Group and company management--and to refinance approximately $140 million of existing debt. Panolam, with annual revenues of about $260 million, is the leading North American manufacturer of decorative thermally fused melamine panels -- TFMs -- and also participates in the market for high-pressure laminate panels, which are used in interior surfacing applications requiring greater surface wear and impact resistance than TFMs. About 80% of the company's sales are made to commercial end markets and 20% to residential end markets. About one-fourth of its sales are made to U.S. furniture manufacturers; this market has contracted significantly due to increased competition from China. PEGASUS SATTELITE: Wants Exclusive Periods Extended Until Mar. 31 ----------------------------------------------------------------- By this motion, the Pegasus Satellite Communications, Inc. and its debtor-affiliates ask the United States Bankruptcy Court for the District of Maine to further extend their: (a) exclusive period to file a plan of reorganization through January 31, 2005; and (b) exclusive period to solicit acceptances that plan through March 31, 2005. The Debtors have taken several key steps towards a successful and consensual resolution of their Chapter 11 cases, Robert J. Keach, Esq., at Bernstein, Shur, Sawyer & Nelson, in Portland, Maine, says. The most notable one was the consummation of the sale of substantially all of their Direct Broadcast Satellite business assets and the Global Settlement. Proposed Sale of Broadcast Assets Due to the sale of the DBS business to DIRECTV, Inc., the assets related to the Debtors' broadcast television business comprise substantially all of the Debtors' remaining assets. As part of the Global Settlement, the Official Committee of Unsecured Creditors and Pegasus Communications Corporation have agreed that the Broadcast Assets will be sold to PCC for $75,000,000 in cash, subject to better and higher offers, and with no break up fee. Mr. Keach tells Judge Haines that the agreement with the Committee and PCC provides the Debtors with a clear path to complete a reorganization plan promptly following the sale of the Broadcast Assets. Because PCC is intimately familiar with these assets and has little timing risk on receiving required FCC approvals, PCC is well situated to provide the negotiated floor bid, subject to higher and better offers. Despite the facilitating factor -- because the PCC bid is subject to higher and better offers and because the Debtors and Committee want to encourage active bidding for the Broadcast Assets -- the negotiations regarding the structure and documentation of the sale of the Broadcast Assets involve complex corporate, regulatory and tax issues. The complexity of the issues involved in the sale of the Broadcast Assets far exceeds the parties' initial expectations of the task at hand. Given the progress made to date, the Debtors anticipate in the next several weeks that the terms of the sale of the Broadcast Assets will be negotiated and memorialized in an agreement between PCC and the Debtors and that they will be filing a motion to: (A) approve the form of Subscription Agreement with PCC, subject to higher and better offers; (B) approve certain bidding procedures; (C) schedule a hearing to consider approval of the sale of substantially all of the Broadcast Assets; (D) approve the form and manner of notice of the auction and sale; and (E) authorize the sale of substantially all of the Broadcast Assets free and clear of all liens, claims, interests and encumbrances. Since the Chapter 11 plan for the Debtors will incorporate the sale of the Broadcast Assets, the Debtors anticipate that once the Broadcast Sale Motion is filed, the Debtors will be able to negotiate and propose a Chapter 11 plan. Employee Issues One of the significant challenges that the Debtors have faced throughout their Chapter 11 cases has been dealing with employee unrest and declining employee morale. Thus, senior management together with their attorneys and advisors devoted significant time and energy into trying to incentivize employees to remain in the Debtors' employ first during the process of selling and transitioning the DBS business to DIRECTV and during the process of selling the Broadcast Assets and through the plan confirmation and consummation process. The Debtors sought to implement an employee retention plan to provide a variety of incentives and benefits to certain of their management employees who have responsibilities relating to the DBS business. The Initial Key Employee Retention Plan Motion was filed just two days after the Court denied the Debtors' request for a temporary restraining order against DIRECTV and the National Rural Telecommunication Cooperative in the adversary proceeding that the Debtors had commenced against them. Given the high stakes of the Cornerstone Litigation and the NRTC's purported notice of termination effective August 31, 2004, most employees believed that they would be out of work, at the latest, by the end of the summer. Unfortunately, this has proven to be somewhat prophetic, as three-fourths of the Debtors' prepetition workforce related to their DBS business has been terminated on or before October 31, 2004. In connection with the Global Settlement, the Debtors and Committee were able to reach an agreement on the Proposed KERP with respect to the remaining facets of the program that had not previously been agreed to with respect to the junior management employees and with respect to all components of the Proposed KERP for certain senior management employees. The Debtors also sought and obtained the Court's authority for a supplemental management retention plan for Ted S. Lodge, President, Chief Operating Officer and Counsel for each of the Debtors. In addition, the Debtors have been challenged to retain employees of the Broadcast Debtors given the uncertainty of whether PCC or a third party will be the winning bidder for the Broadcast Assets. Those employees are needed throughout the sale process for the Broadcast Assets and any transition period to the winning bidder. Accordingly, the Debtors and Committee have been actively negotiating an employee retention plan for certain management employees of the Broadcast Debtors. The Debtors anticipate filing a motion in the near future to have that program approved by the Court. Claims Process The General Bar Date for filing proofs of claim has passed. The Debtors, with the help of their claims agent, The Trumbull Group, LLC, and their financial advisors, FTI Consulting, Inc., are in the process of reviewing and analyzing the claims filed. They will continue this process with respect to governmental claims after the November 30, 2004, governmental bar date has passed. Accordingly, the Debtors have accomplished the necessary first step in quantifying all potential liabilities. Cost Savings One of the most significant cost-saving measures that the Debtors undertook was the filing the Repayment Motion, which provided for the repayment of principal and non-default accrued interest with respect to the senior and junior secured loans outstanding as of the Petition Date. The Debtors were able to save about $1,000,000 per week in interest and other amounts accruing under the applicable loan and security documents. Review of Contracts and Leases Furthermore, the Debtors, together with their counsel and other advisors, have undertaken an extensive analysis of numerous contracts and leases relating to the DBS business. As a result the Debtors have sought to reject certain unexpired leases and executory contracts. Extension Should be Granted Collectively, the Debtors' actions in establishing bar dates, repaying principal and non-default interest to the secured lenders, and rejecting certain leases and executory contracts have helped quantify and minimize their liabilities for the benefit of their estates, a necessary step in formulating and confirming a Chapter 11 plan. Mr. Keach asserts that all of the Debtors' activities to date have been aimed at their ultimate goal -- to propose a consensual reorganization plan. While the Debtors have made significant progress towards reaching that goal with the closing of the sale to DIRECTV of the DBS business, additional time is still needed with respect to the Broadcast Assets. The sale of the Broadcast Assets is a complex transaction given the myriad of corporate, tax, and regulatory issues that must be addressed with respect to the sale of the Broadcast Assets. The Debtors, Committee and PCC have worked diligently together in addressing issues and finalizing the framework for the sale transaction. Since the sale of the Broadcast Assets will be part and parcel of a Chapter 11 plan or plans that the Debtors will propose, the plan process has taken longer than the Debtors originally anticipated. However, the Debtors believe that they will be able to file a Chapter 11 plan and solicit acceptances of that plan within the additional time frames requested. Mr. Keach states that the chances of obtaining a consensual reorganization plan will be decidedly increased if the Debtors are allowed the time to finalize the framework for the sale of the Broadcast Assets and incorporate that structure into a Chapter 11 plan, free from the distractions of a competing plan of reorganization. To deny an extension would jeopardize the significant progress the Debtors have made to date. Mr. Keach assures the Court that extending the Exclusive Periods will not prejudice the legitimate interests of any creditor or equity security holder, and will afford the parties the opportunity to pursue to fruition the beneficial objectives of a consensual reorganization plan. Headquartered in Bala Cynwyd, Pennsylvania, Pegasus Satellite Communications, Inc. -- http://www.pgtv.com/-- is a leading independent provider of direct broadcast satellite (DBS) television. The Company, along with its affiliates, filed for chapter 11 protection (Bankr. D. Me. Case No. 04-20889) on June 2, 2004. Larry J. Nyhan, Esq., James F. Conlan, Esq., and Paul S. Caruso, Esq., at Sidley Austin Brown & Wood, LLP, and Leonard M. Gulino, Esq., and Robert J. Keach, Esq., at Bernstein, Shur, Sawyer & Nelson, represent the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $1,762,883,000 in assets and $1,878,195,000 in liabilities. (Pegasus Bankruptcy News, Issue No. 11; Bankruptcy Creditors' Service, Inc., 215/945-7000) PENN NATIONAL: Moody's Reviewing Low-B Ratings Due to Merger Plans ------------------------------------------------------------------ Moody's Investors Service placed the ratings of Penn National Gaming, Inc. and Argosy Gaming Company on review for possible downgrade following the announcement that both companies entered into a definitive merger agreement under which Penn will acquire all of the outstanding shares of Argosy Gaming for $47.00 per share. The transaction is valued at approximately $2.2 billion, including approximately $805 million of long-term debt of Argosy Gaming and its subsidiaries. This represents about an 8.5 purchase multiple based on Argosy's most recent 12-month EBITDA. Pro forma debt/EBITDA for the combined entity is about 5.8x, a level Moody's considers high for the Ba3 senior implied rating category. Penn's ability to maintain its Ba3 senior implied rating will depend on the company's ability and willingness to maintain debt/EBITDA at or below 4.5x over the long-term. Although the company has been able to quickly accomplish meaningful debt reduction following prior acquisitions, the considerable size of this acquisition creates a debt burden that may be more difficult to reduce over the next two years, particularly if Penn pursues additional acquisitions during that time period. Moody's expects to meet with Penn's management in the next few weeks to discuss transaction specifics as well as debt reduction plans over the next two years. The rating decision will also take into account any changes in Moody's understanding of Penn's overall financial policy and growth strategy. Moody's expects to make a rating decision prior to the end of this year. The transaction is subject to approval by the Argosy Gaming stockholders and by each company's respective state regulatory bodies, and to certain other necessary regulatory approvals and other customary closing conditions contained in the merger agreement. The transaction is not conditioned on financing and is expected to close in the second half of 2005. Penn has received a $2.9 billion senior secured underwritten commitment from several large banks. These Penn National ratings were placed on review for possible downgrade: * Senior implied rating -- Ba3; * Senior unsecured issuer rating -- B1; * $399.7 million senior secured term loan D due 2007 - Ba3. * $100 million senior secured revolving credit facility due 2007 -- Ba3; * $200 million 11.125% senior subordinated notes due 2008 - B2; * $175 million 8.875% senior subordinated notes due 2010 - B2; and * $200 million 6.875% senior subordinated notes due 2011 - B2. These Argosy ratings were placed on review for possible downgrade: * Senior implied rating - Ba2; * Senior unsecured issuer rating - Ba3; * $500 million senior secured revolver due 2009 - Ba1; * $175 million senior secured term loan B due 2011 - Ba1; * $350.0 million 7% non-guaranteed senior subordinated debt due 2014 - B1; * $200.0 million 9% guaranteed senior subordinated notes due 2011 - Ba3; * Senior secured shelf - (P)Ba1; * Senior unsecured shelf -(P)Ba3; * Senior subordinate shelf - (P)B1; and * Subordinate shelf - (P)B2. Headquartered in Wyomissing, Pennsylvania, Penn National Gaming, Inc. owns and operates: three Hollywood Casino properties located in Illinois, Mississippi and Louisiana; Charles Town Races & Slots in West Virginia; two Mississippi casinos; a riverboat gaming facility in Louisiana; and the Bullwhackers casino properties in Colorado. Headquartered in Alton, Illinois, Argosy Gaming Company owns and operates the Alton Belle Casino and the Empress Casino Joliet in Illinois; the Argosy Casino Riverside in Missouri; the Argosy Casino Baton Rouge in Louisiana; the Argosy Casino Sioux City in Iowa; and the Argosy Casino Lawrenceburg in Indiana. PEREGRINE SYSTEMS: Providing Update in Nov. 10 Conference Call -------------------------------------------------------------- Peregrine Systems, Inc. (OTC: PRGN), a provider of asset and service management solutions, will host a conference call on Wednesday, Nov. 10, at 2:00 p.m. PST (5:00 p.m. EST) to provide a business update for investors, customers, partners and other stakeholders. During the conference call, John Mutch, Peregrine president and CEO, plans to provide an update of the company's strategic and operational initiatives, discuss its current business model and elaborate on its organizational plans for the remaining quarters of the fiscal year. The company does not plan to discuss its financial condition or address questions during this call. The company is making steady progress to become current in the filing of its periodic reports with the U.S. Securities and Exchange Commission. Earlier this week, Peregrine filed its historical quarterly reports on Form 10-Q for its fiscal 2004 quarters ended Sept. 30, 2003 and Dec. 31, 2003, and the company is working to complete its annual report on Form 10-K for the fiscal year ended March 31, 2004 as well as its quarterly reports on Form 10-Q for the fiscal 2005 quarters ended June 30, 2004 and Sept. 30, 2004. However the company does not know when it will be in a position to file these reports. Until the company's periodic reports are current, investors will not have current financial information. For this reason, and based on the other risk factors described in the company's fiscal year 2003 Form 10-K, Peregrine believes that trading in its securities at this time is highly speculative and involves a high degree of risk. To participate in the conference call, please call 888-208-1812 or 719-457-2654. A replay of the call, which can be accessed by calling 888-203-1112 or 719-457-0820, will be available until Nov. 17. The confirmation code for both the live call and replay is 965375. About the Company Peregrine Systems Inc. develops enterprise software solutions that enable organizations to evolve their IT service and asset management practices for reduced costs, improved IT productivity and service, and lower risk. The company's asset and service management offerings -- such as Asset Tracking, Expense Control, Service Control and Service Alignment -- address specific business problems. These solutions make it possible for IT organizations to maintain a changing IT infrastructure, manage their relationships with end-users and service providers, and gain greater visibility into how IT investments are performing. The Peregrine Evolution Model provides a roadmap for companies that want to systematically evolve the sophistication and effectiveness of their IT operating practices. Founded in 1981, Peregrine Systems has sustained a rich tradition of delivering solutions with superior functionality to a broad segment of the global enterprise customer market. Headquartered in San Diego, Calif., the company conducts business from offices in the Americas, Europe, and Asia Pacific. For more information, visit http://www.peregrine.com/ At June 30, 2004, Peregrine System' balance sheet showed a $272,116,000 stockholders' deficit, compared to a $263,999,000 deficit at March 31, 2003. PG&E NATIONAL: Moves to Pay TransCanada $12.7 Mil. Break-Up Fee --------------------------------------------------------------- John Lucian, Esq., at Blank Rome, LLP, in Baltimore, Maryland, reports that TransCanada Hydro Northeast, Inc., was unwilling to hold open its offer to purchase the Hydro Facilities under the terms of the Purchase Agreement unless it is compensated for the considerable time, money, and energy it expended in pursuing a transaction with USGen New England, Inc. Accordingly, the parties agreed that if the Purchase Agreement is terminated as a result of USGen pursuing a Qualified Bid, which is superior to the offer made by TransCanada, USGen will reimburse TransCanada for its actual reasonable expenses not to exceed $5,000,000 and pay a $12,750,000 break-up fee. The Expense Reimbursement Fee and the Break-Up Fee will constitute administrative superpriority expenses of USGen's estate under Sections 503(b), 507(a)(1), and 507(b) of the Bankruptcy Code in full satisfaction of any and all claims of TransCanada relating to the termination of the Purchase Agreement. The Expense Reimbursement Fee and the Break-Up Fee would be payable in accordance with the terms of the Purchase Agreement. The Break-Up Fee represents 2.5% of the total purchase price before giving effect to TransCanada's assumption of various Assigned Contracts and Leases and other obligations. Mr. Lucian assures the Court that the payment of the Expense Reimbursement Fee and the Break-Up Fee will not diminish USGen's estate. Moreover, USGen will not terminate the Purchase Agreement so as to incur the obligation to pay the Expense Reimbursement Fee and the Break-Up Fee, unless to accept a Qualified Bid which is superior to the offer made by TransCanada. Hence, USGen seeks the Court's authority to pay the Expense Reimbursement Fee and the Break-Up Fee. Headquartered in Bethesda, Maryland, PG&E National Energy Group, Inc. -- http://www.pge.com/-- (n/k/a National Energy & Gas Transmission, Inc.) develops, builds, owns and operates electric generating and natural gas pipeline facilities and provides energy trading, marketing and risk-management services. The Company filed for Chapter 11 protection on July 8, 2003 (Bankr. D. Md. Case No. 03-30459). Matthew A. Feldman, Esq., Shelley C. Chapman, Esq., and Carollynn H.G. Callari, Esq., at Willkie Farr & Gallagher represent the Debtors in their restructuring efforts. When the Company filed for protection from its creditors, it listed $7,613,000,000 in assets and $9,062,000,000 in debts. NEGT received bankruptcy court approval of its reorganization plan in May 2004, and emerged from bankruptcy on Oct. 29, 2004. (PG&E National Bankruptcy News, Issue No. 29; Bankruptcy Creditors' Service, Inc., 215/945-7000) PG&E NATIONAL: Wants Court OK on Hydro Facilities Bidding Protocol ------------------------------------------------------------------ USGen New England, Inc., asks the Court to establish uniform bidding procedures so it may identify and select higher and better offers for its Connecticut River and Deerfield River hydroelectric systems. USGen believes that an auction of the Hydro Facilities conducted in accordance with the Bidding Procedures will preserve the benefits of the Purchase Agreement and facilitate the receipt and analysis of competing bids, as well as maximize the Hydro Facilities' value. USGen proposes that the deadline for submitting bids for the Hydro Facilities will be no later than 12:00 noon Eastern Time on December 3, 2004. If needed, USGen will conduct an auction on December 9, 2004. To qualify, potential purchasers must execute confidentiality agreements with USGen and provide evidence of their financial ability to purchase the Hydro Facilities and timely consummate the sale. Qualified Bidders must also provide USGen with a copy of their proposed modifications to the existing Purchase Agreement. Each Qualified Bidder must produce a mark-up of TransCanada Purchase Agreement that exceeds the cash amount payable under the Purchase Agreement by at least $22,750,000, which excess represents an amount equal to the $12,750,000 Break-Up Fee, plus the $5,000,000 maximum amount of the Expense Reimbursement, plus $5,000,000. Additionally, each bid must be accompanied by a good faith deposit equal to 4% of the cash portion of the Purchase Price, in the form of a wire transfer payable to an escrow account designated by USGen. The TransCanada Purchase Agreement is a qualified bid. TransCanada, however, may make subsequent bids at the Auction. Additionally, TransCanada may include the Break-Up Fee and Expense Reimbursement in the amount of any subsequent bid. TransCanada is entitled to credit the amount of the Break-Up Fee and Expense Reimbursement against the purchase price of the subsequent bid payable at the Closing. A full-text copy of the Bidding Procedures is available at no charge at: http://bankrupt.com/misc/Hydro_Asset_Bidding_Procedures.pdf USGen also asks the Court to hold a sale hearing on December 15, 2004. In the event an Auction occurs on December 9, 2004, and TransCanada is not the Winning Bidder, USGen requests that the Sale Hearing be scheduled for January 6, 2005. USGen will mail notices of the Bid Deadline, the Auction, and the Sale Hearing to all known creditors. USGen will also publish the Notices in The National Edition of The Wall Street Journal. USGen will consult the Official Committee of Unsecured Creditors on a timely basis concerning all acts, decisions or determinations that USGen makes in connection with the bidding and the sale transaction. Headquartered in Bethesda, Maryland, PG&E National Energy Group, Inc. -- http://www.pge.com/-- (n/k/a National Energy & Gas Transmission, Inc.) develops, builds, owns and operates electric generating and natural gas pipeline facilities and provides energy trading, marketing and risk-management services. The Company filed for Chapter 11 protection on July 8, 2003 (Bankr. D. Md. Case No. 03-30459). Matthew A. Feldman, Esq., Shelley C. Chapman, Esq., and Carollynn H.G. Callari, Esq., at Willkie Farr & Gallagher represent the Debtors in their restructuring efforts. When the Company filed for protection from its creditors, it listed $7,613,000,000 in assets and $9,062,000,000 in debts. NEGT received bankruptcy court approval of its reorganization plan in May 2004, and emerged from bankruptcy on Oct. 29, 2004. (PG&E National Bankruptcy News, Issue No. 29; Bankruptcy Creditors' Service, Inc., 215/945-7000) PILGRIM'S PRIDE: S&P Puts Low-B Ratings on $500M Debt Securities ---------------------------------------------------------------- Standard & Poor's Ratings Services revised its outlook on vertically integrated poultry processor Pilgrim's Pride Corp. to stable from negative. At the same time, Standard & Poor's assigned its preliminary 'BB- /B+' ratings on the company's $500 million debt securities Rule 415 shelf filing, which allows Pilgrim's Pride to issue senior unsecured or subordinated debt. Also, Standard & Poor's affirmed its ratings on the company, including its 'BB' corporate credit rating. Pittsburg, Texas-based Pilgrim's Pride had about $796 million of debt that was outstanding (including accounts receivable securitization) at July 3, 2004. "The outlook revision reflects the company's improved operating performance and the related improvement in financial measures since the acquisition of ConAgra Foods Inc.'s fresh chicken division in November 2003, fairly positive industry and consumption trends, and the expectation of lower feed costs (which account for about 33% of total costs)," said Standard & Poor's credit analyst Jayne M. Ross. In addition, the company has realized about $27 million of the $50 million in cost savings from integrating ConAgra Foods' operations well ahead of schedule. The expectation is that the remaining $13 million in savings will occur by the end of the first quarter of fiscal 2005 (2004 calendar year end). There is cyclicality in the commodity-oriented poultry industry, which will result in volatility in earnings and credit protection measures. Key to a revision of the outlook to positive will be the company's ability to sustain fairly strong credit measures, on average, throughout a business cycle. PILLOWTEX CORP: Selling Miscellaneous Assets for $350,000 --------------------------------------------------------- Pursuant to the Court-approved Miscellaneous Asset Sale Procedures, Pillowtex Corporation and its debtor-affiliates notify the Court that they will sell these miscellaneous assets for $350,000: (1) Assets: Certain inventory, located in Kannapolis, North Carolina Debtor-seller: PTEX, Inc. Purchaser: International Home Fashions, Inc. Price: $200,000 (2) Assets: Certain inventory, located in Kannapolis, North Carolina Debtor-seller: PTEX, Inc. Purchaser: International Home Fashions, Inc. Price: $150,000 Headquartered in Dallas, Texas, Pillowtex Corporation -- http://www.pillowtex.com/-- sold top-of-the-bed products to virtually every major retailer in the U.S. and Canada. The Company filed for Chapter 11 protection on November 14, 2000 (Bankr. Del. Case No. 00-4211), emerged from bankruptcy under a chapter 11 plan, and filed a second time on July 30, 2003 (Bankr. Del. Case No. 03-12339). The second chapter 11 filing triggered sales of substantially all of the Company's assets. David G. Heiman, Esq., at Jones Day, and William H. Sudell, Jr., Esq., at Morris Nichols Arsht & Tunnel, represent the Debtors. On July 30, 2003, the Company listed $548,003,000 in assets and $475,859,000 in debts. (Pillowtex Bankruptcy News, Issue No. 71; Bankruptcy Creditors' Service, Inc., 215/945-7000) QUIGLEY COMPANY: Judge Beatty Denies Committee's Recusal Motion --------------------------------------------------------------- The Honorable Prudence Carter Beatty declined a request from the Official Committee of Unsecured Creditors (comprised of asbestos claimants) appointed in Quigley Company, Inc.'s chapter 11 case to step down in the company's on-going restructuring proceeding. Judge Beatty denied the Committee's motion seeking her recusal pursuant to 28 U.S.C. Sec. 455. Judge Beatty rejects the Committee's out-of-context snippets from the transcript of the first-day hearing in Quigley's case as evidence demonstrating that her "impartiality might reasonably be questioned." "I do not believe that my recusal is warranted," Judge Beatty said from the bench at the Nov. 1 hearing on this matter. "I do not believe that I am partial, and I don't believe that I have created the appearance of partiality, and I don't think there is a reasonable question about my impartiality." Judge Beatty says the Committee distorts what she said at the first-day hearing. A full-text copy Judge Beatty's Nov. 1 Bench Ruling is available at no charge at: http://bankrupt.com/misc/RecusalTranscript.pdf Quigley and Pfizer, Inc., supported Judge Beatty's continuing oversight of the chapter 11 process. Elihu Inselbuch, Esq., at Caplin & Drysdale, Chartered, representing the Committee, asked Judge Beatty for a stay of her recusal order pending an appeal to the U.S. District Court. Judge Beatty rejected that suggestion. As previously reported in the Troubled Company Reporter, the Official Committee of Unsecured Creditors was offended by comments Judge Beatty made from the bench at the First Day Hearing in Quigley's case. She questioned: -- the extent of the Debtor's asbestos-related liability, -- the legitimacy of asbestos-related claims, and -- the number of legitimate claimants. Judge Beatty suggested that claimants might have to prove their claims. When lawyers at Weitz & Luxenberg told Judge Beatty they represented 20% of claimants against Quigley, she asked, "Haven't I seen the name of your firm on subway train ads, looking for more people?" A full-text copy of the Committee's Recusal Motion and Memorandum of Law is available at no charge at: http://bankrupt.com/misc/102-A.pdf and a transcript of the First Day Hearing the Committee finds offensive is available at no charge at: http://bankrupt.com/misc/102-B.pdf Elihu Inselbuch, Esq., Peter Van N. Lockwood, Esq., Walter B. Slocombe, Esq., Albert G. Lauber, Esq., and Preston Burton, Esq., at Caplin & Drysdale, Chartered, represent the Committee. Headquartered in Manhattan, Quigley Company is a subsidiary of Pfizer, Inc., which used to produce and market a broad range of refractories and related products to customers in the iron, steel, glass and other industries. The Company filed for chapter 11 protection on Sept. 3, 2004 (Bankr. S.D.N.Y. Case No. 04-15739) to resolve legacy asbestos-related liability. When the Debtor filed for protection from its creditors, it listed $155,187,000 in total assets and $141,933,000 in total debts. Pfizer has agreed to contribute $405 million to an Asbestos Claims Settlement Trust over 40 years through a note, contribute approximately $100 million in insurance, and forgive a $30 million loan to Quigley. Michael L. Cook, Esq., at Schulte Roth & Zabel LLP, represents the Company in its restructuring efforts. QUIGLEY COMPANY: Look for Bankruptcy Schedules by November 19 ------------------------------------------------------------- The U.S. Bankruptcy Court for the Southern District of New York gave Quigley Company, Inc., more time to file its schedules of assets and liabilities, statement of financial affairs, and schedule of executory contracts and unexpired leases. The Debtor has until November 15, 2004, to file those documents. Quigley Company tells the Court that the extension will give it more time to: a) compile and list in Quigley Company's Schedules information for each of the more than 160,000 plaintiffs who have asserted asbestos-related personal injury claims against Quigley; and b) review and reconcile Quigley Company's books and records in order to provide accounting and financial information to complete the Schedules. Quigley Company assures the Court that the extension will not prejudice any creditors or other parties in interest as it will request the establishment of a date by which all proofs of claim must be filed that is consistent with the extension it requested. Headquartered in Manhattan, Quigley Company is a subsidiary of Pfizer, Inc., which used to produce and market a broad range of refractories and related products to customers in the iron, steel, glass and other industries. The Company filed for chapter 11 protection on Sept. 3, 2004 (Bankr. S.D.N.Y. Case No. 04-15739) to resolve legacy asbestos-related liability. When the Debtor filed for protection from its creditors, it listed $155,187,000 in total assets and $141,933,000 in total debts. Pfizer has agreed to contribute $405 million to an Asbestos Claims Settlement Trust over 40 years through a note, contribute approximately $100 million in insurance, and forgive a $30 million loan to Quigley. Michael L. Cook, Esq., at Schulte Roth & Zabel LLP, represents the Company in its restructuring efforts. RCN CORP: Court Oks Kasowitz Benson as Debtors' Conflicts Counsel ----------------------------------------------------------------- The United States Bankruptcy Court for the Southern District of New York approved the employment of Kasowitz, Benson, Torres & Friedman, LLP, as special conflicts counsel for RCN Corp. and its debtor-affiliates' chapter 11 cases, effective as of Sept. 15, 2004. Kasowitz Benson will provide legal representation on matters that the Debtors' primary bankruptcy counsel, Skadden Arps Slate Meagher & Flom, LLP, cannot provide due to a conflict, adverse interest, or other connection. Additionally, Kasowitz Benson is retained in connection with a significant claim asserted against the Debtors' estates as to which the Firm has particular expertise. Kasowitz Benson is a law firm of more than 160 attorneys and has been actively involved in numerous major Chapter 11 cases. Deborah M. Royster, RCN Corporation's Senior Vice President, General Counsel and Corporate Secretary, tells Judge Drain that Kasowitz Benson is well qualified to serve as special conflicts counsel in the Debtors' Chapter 11 cases. The Debtors will compensate Kasowitz Benson for its services based on the Firm's customary hourly rates: Members $475 - 775 Counsel and Associates 200 - 525 Paraprofessionals 90 - 200 The Firm will also be reimbursed for its actual and necessary expenses incurred. Kasowitz Benson will also render services on behalf of RCN's non- debtor affiliates. These services will be billed directly to the Non-Debtor Affiliates and not to the Debtors' estates. In circumstances where the services are rendered to both the Debtors and the Non-Debtor Affiliates, which are for the benefit of both, Kasowitz Benson will allocate a proportional amount of its fees and expenses for the services to the Non-Debtor Affiliates, and will only seek payment from the Debtors' estates of that portion allocated to the Debtors. Aaron H. Marks, a member of Benson Kasowitz, assures the Court that the Firm is a "disinterested person" as that term is defined in Section 101(14) of the Bankruptcy Code, and does not hold any interest adverse to the Debtors' estate. Headquartered in Princeton, New Jersey, RCN Corporation -- http://www.rcn.com/-- provides bundled Telecommunications services. The Company, along with its affiliates, filed for chapter 11 protection (Bankr. S.D.N.Y. Case No. 04-13638) on May 27, 2004. Frederick D. Morris, Esq., and Jay M. Goffman, Esq., at Skadden Arps Slate Meagher & Flom LLP, represent the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $1,486,782,000 in assets and $1,820,323,000 in liabilities. (RCN Corp. Bankruptcy News, Issue No. 13; Bankruptcy Creditors' Service, Inc., 215/945-7000) SALOMON BROTHERS: Fitch Slices Class M-3 Rating to BB+ from BBB --------------------------------------------------------------- Fitch Ratings has taken rating actions on these Salomon Brothers Mortgage Securities (SBMS) VII, Inc. issues: * Salomon Brothers Mortgage Securities VII, Inc. asset-backed floating-rate certificates, series 1997-LB4 -- Class M-3 upgraded to 'A' from 'BBB'. * Salomon Brothers Mortgage Securities VII, Inc. asset-backed floating-rate certificates, series 1997-LB5 -- Class M-2 affirmed at 'A'. * Salomon Brothers Mortgage Securities VII, Inc. asset-backed certificates, series 1997-LB6 -- Classes A-5, A-6 affirmed at 'AAA'; -- Class B-1 upgraded to 'AAA' from 'AA'; -- Class B-2 affirmed at 'A'. * Salomon Brothers Mortgage Securities VII, Inc. asset-backed certificates, series 1998-AQ1 -- Classes A-5 - A-7 affirmed at 'AAA'; -- Class B-1 affirmed at 'AA'. * Salomon Brothers Mortgage Securities VII, Inc. New Century asset-backed floating-rate certificates, series 1998-NC1 -- Class A affirmed at 'AAA'; -- Class M-1 affirmed at 'AA'; -- Class M-2 affirmed at 'A'. * Salomon Brothers Mortgage Securities VII, Inc. New Century asset-backed floating-rate certificates, series 1998-NC2 -- Class M-1 affirmed at 'AA'; -- Class M-2 affirmed at 'A'; -- Class M-3 affirmed at 'BBB'. * Salomon Brothers Mortgage Securities VII, Inc. New Century asset-backed certificates, series 1998-NC3 -- Classes A-5, A-6 affirmed at 'AAA'; -- Class M-1 affirmed at 'AA'; -- Class M-2 affirmed at 'A'; -- Class M-3 is downgraded to 'BB+' from 'BBB'. * Salomon Brothers Mortgage Securities VII, Inc. New Century asset-backed floating-rate certificates, series 1998-NC4 -- Class M-1 upgraded to 'AAA' from 'AA'; -- Class M-2 affirmed at 'A'; -- Class M-3 affirmed at 'BBB'. * Salomon Brothers Mortgage Securities VII, Inc. New Century asset-backed floating-rate certificates, series 1998-NC6 -- Class A affirmed at 'AAA'; -- Class M-1 affirmed at 'AA'; -- Class M-2 affirmed at 'A'; -- Class M-3 affirmed at 'BBB'. * Salomon Brothers Mortgage Securities VII, Inc. asset-backed floating-rate certificates, series 1998-OPT1 -- Class M-1 affirmed at 'AA'; -- Class M-2 affirmed at 'A'. * Salomon Brothers Mortgage Securities VII, Inc. asset-backed floating-rate certificates, series 1998-OPT2 -- Class M-1 affirmed at 'AA'; -- Class M-2 affirmed at 'A'. * Salomon Brothers Mortgage Securities VII, Inc. floating-rate mortgage pass-through certificates, series 1999-AQ1 -- Class M-1 upgraded to 'AAA' from 'AA'; -- Class M-2 upgraded to 'AA' from 'A'; -- Class M-3 upgraded to 'A' from 'BBB'. * Salomon Brothers Mortgage Securities VII, Inc. mortgage pass- through certificates, series 1999-NC1 -- Class A-2 affirmed at 'AAA'; -- Class M-1 affirmed at 'AA'; -- Class M-2 affirmed at 'A'; -- Class M-3 affirmed at 'BBB'. * Salomon Brothers Mortgage Securities VII, Inc. floating Rate mortgage pass-through certificates, series 1999-NC2 -- Class M-1 affirmed at 'AA'; -- Class M-2 affirmed at 'A'; -- Class M-3 affirmed at 'BBB'. * Salomon Brothers Mortgage Securities VII, Inc. floating-rate mortgage pass-through securities certificates, series 1999-NC3 -- Class M-2 upgraded to 'AA' from 'A'; -- Class M-3 affirmed at 'BBB'. * Salomon Brothers Mortgage Securities VII, Inc. mortgage pass- through certificates, series 1999-NC4 -- Class M-1 affirmed at 'AAA'; -- Class M-2 upgraded to 'AA' from 'A'; -- Class M-3 affirmed at 'BBB'. * Salomon Brothers Mortgage Securities VII, Inc. floating-rate mortgage pass-through certificates, series 1999-NC5 -- Class M-2 upgraded to 'AA' from 'A'; -- Class M-3 affirmed at 'BBB'. The upgrades reflect an increase in credit enhancement relative to future loss expectations and affect approximately $170 millions in total certificates. The affirmations reflect credit enhancement levels consistent with future loss expectations and affect approximately $300 millions in total certificates. The downgrade of the M-3 bond of 1998-NC3 series affects approximately $5 million outstanding as of October 25, 2004. The M-3 bond of the 1997-LB4 series ($1,656,760 outstanding as of the October 25, 2004 distribution date) currently benefits from 37.87% credit enhancement in the form of overcollateralization. The current pool factor (current mortgage loans outstanding as a percentage of the initial pool) is 1.88%. The B-1 bond of the 1997-LB6 series ($7,926,751 outstanding as of the October 25, 2004 distribution date) currently benefits from 41.43% subordination. The current pool factor is 7.61%. The negative rating action on the M-3 bond of the 1998-NC3 series ($5,307,682 outstanding as of October 25, 2004), is due to the worse than expected performance of the underlying collateral. The average monthly losses have been $249,087 over the past three months and the average monthly excess interest during the same period has been $120,134. The net monthly losses ($249,987 - $120,134) have averaged $128,953 over the past three months. The 90+ delinquencies are currently 16.63% of the pool balance. The current pool factor is 11.39%. As of the Oct. 25, 2004 distribution date, the OC was $1,712,880 with a stepped down target of $2,370,000 -- OC floor. The M-1 bond of the 1998-NC4 series ($2,750,054 outstanding as of the October 25, 2004 distribution date) currently benefits from 69.58% subordination in addition to 13.56% credit enhancement in the form of OC for a total credit enhancement of 83.14%. The current pool factor is 5.53%. The M-1 bond of the 1999-AQ1 series ($32,181,727 outstanding as of the Oct. 25, 2004 distribution date) currently benefits from 56.39% subordination in addition to 15.79% credit enhancement in the form of OC for a total credit enhancement of 72.18%. The M-2 bond ($36,531,000 outstanding as of the October 25, 2004 distribution date) currently benefits from 24.81% subordination in addition to 15.79% credit enhancement in the form of OC for a total credit enhancement of 40.60%. The M-3 bond ($28,703,000 outstanding as of the October 25, 2004 distribution date) currently benefits from 15.79% credit enhancement in the form of OC. The current pool factor is 11.08%. The M-2 bond of the 1999-NC3 series ($8,698,665 outstanding as of the October 25, 2004 distribution date) currently benefits from 33.54% subordination in addition to 26.07% credit enhancement in the form of OC for a total credit enhancement of 59.61%. The current pool factor is 6.83%. The M-2 bond of the 1999-NC4 series ($24,841,798 outstanding as of the October 25, 2004 distribution date) currently benefits from 23.99% subordination in addition to 20.11% credit enhancement in the form of OC for a total credit enhancement of 44.10%. The current pool factor is 8.69%. The M-2 bond of the 1999-NC5 series ($26,994,949 outstanding as of the October 25, 2004 distribution date) currently benefits from 36.45% subordination in addition to 19.29% credit enhancement in the form of OC for a total credit enhancement of 55.74%. The current pool factor is 10%. SHAW COMMUNICATIONS: Renews Normal Course Issuer Bid ---------------------------------------------------- Shaw Communications Inc. has received approval from The Toronto Stock Exchange to renew its normal course issuer bid to purchase its Class B Non-Voting Shares for a further one year period. Shaw's normal course issuer bid, which was due to expire on November 6, 2004, will now expire on November 7, 2005, in accordance with the rules of the TSX. Under Shaw's original issuer bid, commencing November 7, 2003, Shaw has purchased an aggregate of 4,587,500 Class B Non-Voting Shares at a weighted average price of $20.80. All such shares have been cancelled. As approved by the TSX, Shaw is now authorized to acquire up to an additional 10,900,000 Class B Non-Voting Shares on or before November 7, 2005, representing approximately 5% of the currently issued and outstanding Class B Non-Voting Shares. The total number of issued and outstanding Class B Non-Voting Shares of Shaw is 219,655,872. Shaw continues to believe that its Class B Non-Voting Shares are undervalued. The purchase and cancellation of outstanding Class B Non-Voting Shares under the bid may represent an opportunity to provide capital appreciation and market stability for the benefit of Shaw's shareholders. Class B Non-Voting Shares will be purchased by Shaw on the open market through the facilities of the TSX pursuant to its rules governing normal course issuer bids. The price that Shaw will pay for any shares purchased pursuant to the bid will be the prevailing market price for the shares on the TSX at the time of such purchase. Any Class B Non-Voting Shares purchased back by Shaw pursuant to the bid will be cancelled. The bid does not apply to Class A Voting Participating Shares of Shaw. About the Company Shaw Communications Inc. (S&P, BB+ Corporate Credit Rating, Stable) is a diversified Canadian communications company whose core business is providing broadband cable television, Internet and satellite direct-to-home services to approximately 2.9 million customers. Shaw is traded on the Toronto and New York stock exchanges. Shaw is traded on the Toronto and New York stock exchanges (Symbol: TSX - SJR.B, NYSE - SJR). SITHE/INDEPENDENCE: Fitch Assigns BB Rating to Secured Debts ------------------------------------------------------------ Fitch Ratings placed the 'BB' rating of Sithe/Independence Funding Corporation's secured notes and bonds on Rating Watch Negative. The rating action follows the recent announcement by Dynegy Inc. (rated 'CCC+', Outlook Positive by Fitch) of the acquisition of Sithe Energies, the indirect owner of the Sithe/Independence project, from Exelon Corp. (rated 'BBB+' by Fitch). Concurrent with the acquisition, Exelon will purchase the remaining ownership interests in Sithe Energies, giving Dynegy 100% ownership of the Sithe/Independence project. Fitch downgraded the securities from 'BBB-' to 'BB' in July 2002 due to the diminished credit quality of Dynegy Holdings Inc., (rated 'CCC+', Outlook Positive by Fitch) the guarantor of contracts representing approximately 35% of Sithe/Independence's revenues. That rating action incorporated the concern of a heightened risk of contractual default with the absence of alternate offtake arrangements with pricing that would support debt service with sufficient cushion to justify the former rating level. Fitch believes it unlikely that the current contracts guaranteed by Dynegy Holdings will be modified as a result of the acquisition. The Rating Watch Negative action reflects the new concerns that could result from the Sithe/Independence project being wholly owned by an entity of speculative credit quality. Provisions under the project documents, as well as the organization structure and actions of Sithe Energies and the Sithe/Independence project, provide certain protections to holders of the securities. The Rating Watch will be resolved once Fitch has completed its review of these protections and the potential effect from the change in ownership. STEWART ENTERPRISES: Moody's Puts Low-B Ratings on Loans & Bonds ---------------------------------------------------------------- Moody's Investors Service assigned a Ba3 rating to the proposed secured revolver and term loan B facility of Stewart Enterprises, Inc. Concurrently, Moody's affirmed the ratings on Stewart's guaranteed senior subordinated notes and maintained a stable ratings outlook. The ratings benefit from the company's improved recent financial performance, strong operating margins and large backlog of preneed funeral and cemetery contracts. The ratings are constrained by significant leverage and industry challenges including declining death rates and the trend towards lower revenue and gross profit cremation services. Moody's assigned these ratings: * $125 million revolving credit facility due 2009, rated Ba3; * $100 million term loan B, due 2011, rated Ba3. Moody's affirmed these ratings: * $300 million guaranteed senior subordinated notes due 2008, rated B2; * Senior Implied, rated Ba3; * Senior Unsecured Issuer Rating, rated B1. The ratings outlook is stable. Moody's will withdraw these ratings upon closing of the proposed credit facilities: * $175 million revolving credit facility due 2005, rated Ba3; * $63.6 million term loan B due 2005, rated Ba3. Proceeds from the proposed credit facility are expected to be used to refinance borrowings under Stewart's existing secured credit facilities. Stewart has completed asset sales in recent years, primarily foreign operations and certain small domestic properties, to reduce debt. Debt levels have declined from about $694 million at October 31, 2001 to about $437 million at July 31, 2004. However, Stewart's financial and operating performance weakened from 2001 through 2003. Revenues from retained operations declined about 5% from the fiscal year ended October 30, 2001 to the fiscal year ended October 31, 2003. Despite the debt reductions, free cash flow as a percentage of debt weakened. Free cash flow from operations (excluding non-recurring tax refunds) as a percentage of debt in the fiscal years ended October 31, 2002 and 2003 and the latest twelve month -- LTM -- period ended July 31, 2004 was 11%, 6% and 10%, respectively. Free cash flow in each of the periods reflects the payment of over $30 million in preneed acquisition costs. Stewart's financial performance over the last few years reflects the challenges facing the death care industry. The revenue decline from 2001 to 2003 reflects pressure from decreases in funeral services volume and preneed cemetery sales, a shift in revenue mix toward cremations and weakness in trust earnings. Death rates in the United States have declined in the last few years and may continue to decline in the near term. In addition, consumers are showing an increased preference for cremations, which tend to generate lower revenues and gross profit per service. About 37% of the total funeral services the company performs from continuing operations are cremation services. Stewart has taken steps to improve its financial performance. Stewart has implemented various initiatives designed to improve average revenue per funeral service, increase funeral events performed, increase preneed cemetery property and preneed funeral sales and reduce its cost structure. In the nine month period ended July 31, 2004, revenue increased about 3% versus the comparable period in 2003 and gross margin improved to about 27% from about 24% in 2003. Stewart's ratings benefit from the recent improvements in financial performance, strong operating margins and a large backlog derived from preneed funeral and cemetery contracts supported by trust funds or third party insurance companies. The stable ratings outlook reflects the expectation that the company will experience stable revenues and margins and utilize free cash flow from operations to pay down debt. Moody's expects that the company's strategic initiatives to improve revenues and reduce costs will offset the impact of declining death rates and increases in cremation rates. The ratings or outlook would likely benefit from a significant reduction in leverage or improvement in free cash flow due to a sustained increase in revenues or operating margins. The ratings or outlook could be pressured if the company increases leverage due to an acquisition or revenues and margins decline due to decreases in funeral volume, increases in cremation rates or further declines in trust performance. Stewart's free cash flow to debt is weak within the Ba3 ratings category, reflecting in part the company's significant payments for preneed acquisition costs. Free cash flow to debt for the LTM period ended July 31, 2004 (excluding a $33 million tax refund) was about 10%. Total debt to EBITDA was approximately 2.6 times for the LTM period. For the LTM period, debt to revenues was high at about 85% and EBITDA less capital expenditures coverage of interest was approximately 3.1 times. Stewart and two of its Puerto Rican subsidiaries will be borrowers under the proposed credit facility. The facility will be secured by substantially all the assets of the company including the stock of subsidiaries and excluding real estate and trust assets, which had a combined book value in excess of $1 billion at July 31, 2004. The Ba3 rating reflects the credit facility's senior position in the capital structure. No notching above the senior implied rating of Ba3 reflects the absence of tangible asset coverage in a distress scenario, as well as the sizable amount of senior secured debt in the capital structure (about 43% of debt capitalization assuming a fully drawn revolver). Pro- forma for the proposed refinancing at July 31, 2004, approximately $35 million is expected to be borrowed under the $125 million revolver and approximately $15 million is reserved for letters of credit. Availability under the revolver is further reduced by the amount that is bonded in the state of Florida (currently $41 million). Pro forma effective availability under the revolver is about $34 million, down from about $50 million pursuant to the existing credit facility. Annual term amortization is expected to remain minimal at roughly 1% per year. Proposed financial covenants will include maximum total and secured leverage ratios and a minimum interest coverage ratio. The maximum total leverage covenant is expected to be increased from the existing credit facility, providing the company with the flexibility to increase total leverage. The B2 rating confirmed for the senior subordinated notes reflects their contractual subordination to senior debt. Stewart Enterprises, Inc., headquartered in Jefferson, Louisiana, is the third largest provider of funeral and cemetery services in the United States. For the LTM period ended July 31, 2004 revenue from continuing operations was approximately $512 million. STRUCTURED ASSET: Fitch Places Low-B Ratings on 10 Cert. Classes ---------------------------------------------------------------- Fitch Ratings upgrades 17 and affirms 26 classes of Structured Asset Securities Corp. residential mortgage-backed certificates, as follows: * Structured Asset Securities Corp., mortgage pass-through certificates, series 2002-AL1: -- Class A affirmed at 'AAA'; -- Class B-1 affirmed at 'AA'; -- Class B-2 affirmed at 'A'; -- Class B-3 affirmed at 'BBB'; -- Class B-4 affirmed at 'BB'; -- Class B-5 affirmed at 'B'. * Structured Asset Securities Corp., mortgage pass-through certificates, series 2002-1A pool 1: -- Class 1A affirmed at 'AAA'; -- Class B1-I upgraded to 'AAA' from 'AA'; -- Class B2-I upgraded to 'AA' from 'A'; -- Class B3-I upgraded to 'BBB+' from 'BBB'; -- Class B4-I upgraded to 'BBB-' from 'BB'; -- Class B5-I upgraded to 'BB' from 'B'. * Structured Asset Securities Corp., mortgage pass-through certificates, series 2002-1A pool 2: -- Class 2A affirmed at 'AAA'; -- Class B1-II affirmed at 'AA'; -- Class B2-II affirmed at 'A'; -- Class B3-II upgraded to 'BBB+' from 'BBB'; -- Class B4-II affirmed at 'BB'; -- Class B5-II affirmed at 'B'. * Structured Asset Securities Corp., mortgage pass-through certificates, series 2002-1A pools 3, 4, and 5: -- Classes 3A, 4A, and 5A affirmed at 'AAA'; -- Class B1-III upgraded to 'AAA' from 'AA'; -- Class B2-III upgraded to 'AA' from 'A'; -- Class B3-III upgraded to 'BBB+' from 'BBB'; -- Class B4-III upgraded to 'BBB-' from 'BB'; -- Class B5-III upgraded to 'BB+' from 'B'. * Structured Asset Securities Corp., mortgage pass-through certificates, series 2002-8A pools 1-6: -- Classes 1A, 2A, 3A, 4A, 5A, and 6A affirmed at 'AAA'; -- Class B1-I upgraded to 'AA+' from 'AA'; -- Class B2-I upgraded to 'A+' from 'A'; -- Class B3-I affirmed at 'BBB'; -- Class B4-I upgraded to 'BB+' from 'BB'; -- Class B5-I upgraded to 'BB' from 'B'. * Structured Asset Securities Corp., mortgage pass-through certificates, series 2002-8A pool 7: -- Class 7A affirmed at 'AAA'; -- Class B1-II upgraded to 'AA+' from 'AA'; -- Class B2-II upgraded to 'A+' from 'A'; -- Class B3-II affirmed at 'BBB'; -- Class B4-II affirmed at 'BB'; -- Class B5-II affirmed at 'B'. The upgrades reflect a substantial increase in credit enhancement relative to future loss expectations and affect $379,848,614 of outstanding certificates. The affirmations reflect credit enhancement consistent with future loss expectations and affect $887,093,157 of outstanding certificates. As of the Sept. 25, 2004 distribution, the senior class A certificates of series 2002-AL1 are benefiting from 15.67% subordination (up from 10.86% as of the closing date, March 8, 2002) provided by classes B1 to B5 and the not rated class B6. The current credit enhancement of classes B1, B2, B3, B4, and B5 is 11.73%, 8.72%, 6.46%, 4.59%, and 3.13%, respectively, compared with 8.16%, 6.11%, 4.56%, 3.28%, and 2.28% as of closing. Currently, 40% of the collateral has paid down. As of the September 25, 2004 distribution, the senior class A certificates of series 2002-1A pool 1 are benefiting from 17.35% subordination (up from 4.50% as of the closing date, January 30, 2002) provided by classes B1-I to B5-I and the not rated class B6-I. The current credit enhancement of classes B1-I, B2-I, B3-I, B4-I, and B5-I is 10.73%, 6.85%, 4.32%, 2.57%, and 1.79%, respectively, compared with 2.80%, 1.80%, 1.15%, 0.70%, and 0.50% as of closing. Currently, 86% of the collateral has paid down. As of the September 25, 2004 distribution, the senior class A certificates of series 2002-1A pool 2 are benefiting from 13.35% subordination (up from 6.25% as of the closing date, January 30, 2002) provided by classes B1-II to B5-II and the not rated class B6-II. The current credit enhancement of classes B1- II, B2-II, B3-II, B4-II, and B5-II is 8.83%, 5.93%, 3.56%, 2.48%, and 1.73%, respectively, compared with 4.15%, 2.80%, 1.70%, 1.20%, and 0.85% as of closing. Currently, 57% of the collateral has paid down. As of the September 25, 2004 distribution, the senior class A certificates of series 2002-1A pools 3, 4, and 5 are benefiting from 18.74% subordination (up from 3.25% as of the closing date, Jan. 30, 2002) provided by classes B1-III to B5-III and the not rated class B6-III. The current credit enhancement of classes B1-III, B2-III, B3-III, B4-III, and B5-III is 12.40%, 7.50%, 4.04%, 2.89%, and 2.03%, respectively, compared with 2.15%, 1.30%, 0.70%, 0.50%, and 0.35% as of closing. Currently, 93% of the collateral has paid down. As of the September 25, 2004 distribution, the senior class A certificates of series 2002-8A pools 1-6 are benefiting from 10.00% subordination (up from 5.00% as of the closing date, April 30, 2002) provided by classes B1-I to B5-I and the not rated class B6-I. The current credit enhancement of classes B1-I, B2-I, B3-I, B4-I, and B5-I is 5.40%, 3.20%, 2.00%, 1.85%, and 1.82%, respectively, compared with 2.70%, 1.60%, 1.00%, 0.60%, and 0.30% as of closing. Currently, 84% of the collateral has paid down. As of the September 25, 2004 distribution, the senior class A certificates of series 2002-8A pool 7 are benefiting from 11.94% subordination (up from 6.00% as of the closing date, April 30, 2002) provided by classes B1-II to B5-II and the not rated class B6-II. The current credit enhancement of classes B1-II, B2-II, B3-II, B4-II, and B5-II is 6.47%, 3.98%, 2.69%, 1.69% and 0.80%, respectively, compared with 3.25%, 2.00%, 1.35%, 0.85%, and 0.40% as of closing. Currently, 50% of the collateral has paid down. SUN HEALTHCARE: Revised Sept. 30 Balance Sheet Shows $119M Deficit ------------------------------------------------------------------ Sun Healthcare Group, Inc. (NASDAQ: SUNH) reported that the financial information expressed in its press release of Nov. 2, 2004, will be adjusted to reflect a change in its auditor's guidance regarding the Company's application of FASB Interpretation No. 46. The Company previously recognized the effect of consolidating the real estate ownership of nine facilities, due to an option agreement giving the other equity owners of the real estate the right to sell their interest to the Company, as a cumulative effect of change in accounting principle, which increased the Company's net income by $11.9 million. Based upon additional discussion and guidance from its auditors, the Company has now determined that the effect of the option agreement should have been recognized as a reduction in the carrying value of the nine facilities and, accordingly, the cumulative effect of change in accounting principle should not have been recorded. The revised application of FIN 46 results in a $4.8 million improvement in the Company's balance sheet versus the $13.1 million originally reported. The adjustment has a recurring effect on positive quarterly EBITDA of approximately $0.8 million, as well as additional depreciation and interest charges totaling $1.3 million. Those impacts therefore remain as previously reported. The revision to the Company's application of FIN 46 will not change the Company's results from continuing operations nor alter the guidance stated in the Nov. 2, 2004 press release as to revenues, EBITDAR, and EBITDA. The elimination of the previously reported non-cash $11.9 million cumulative effect of change in accounting principle causes the Company's net income in the third quarter to be reduced by $11.9 million from $0.8 million to a loss of $11.1 million. That adjustment also affects the net income for the nine months ended Sept. 30, 2004 and the Company's guidance as to net income by the same amount. About Sun Healthcare Group, Inc. Sun Healthcare Group, Inc., with executive offices located in Irvine, California, owns SunBridge Healthcare Corporation and other affiliated companies that operate long-term and postacute care facilities in many states. In addition, the Sun Healthcare Group family of companies provides therapy through SunDance Rehabilitation Corporation, medical staffing through CareerStaff Unlimited, Inc., home care through SunPlus Home Health Services, Inc., and medical laboratory and mobile radiology services through SunAlliance Healthcare Services, Inc. At Sept. 30, 2004, Sun Healthcare's revised balance sheet showed a $119,041,000 stockholders' deficit, compared to a $166,398,000 deficit at Dec. 31, 2003. TEXAS STATE: Moody's Pares Subordinate Revenue Bond Rating to Ba3 ----------------------------------------------------------------- Moody Investors Service downgraded the rating of Texas State Affordable Housing Corporation Multifamily Housing Revenue Bonds (Housing Initiatives Corporation - Arborstone/Baybrook/Crescent Oaks Development) Senior Series 2001A&B to Baa3 from Baa1 and Subordinate Series 2001C to Ba3 from Ba1. The outlook for the ratings is negative. The bonds are are currently on watchlist. The underlying rating downgrades reflects a lower then anticipated rental revenue stream, as evidenced by a current debt service coverage ratio of 1.22x on the senior bonds and 1.09x on the subordinate bonds from monthly unaudited financial statements as well as annualized projections on the properties. The ratings have been downgraded due to the weakened financial performance of the properties compared with projected debt service coverage levels. When the transaction was rated in 2001, the bonds were underwritten to achieve 1.40x debt service coverage on the Senior Series 2001A and B, 1.25x debt service coverage on the Subordinate Series 2001C. The bonds are secured by the revenues from three cross collateralized properties, Arborstone Apartments, Baybrook Apartments and Crescent Oaks Apartments, as well as by funds and investments pledged to the trustee under the indenture as security for the bonds. Vacancy and dwelling adjustments reflecting concessions, loss to lease, non-revenue units, delinquencies and past due collections have increased signficantly with the Arborstone and Baybrook properties. In addition to the decline in occupancy, Arborstone has recently suffered damage attributable to a fire. The damage has left one building of eight units uninhabitable. While the displaced tenants have been moved to adjacent units and rent continues to be collected, the currently vacant units have been set aside for the displaced tenants of the other units. This is a serious impediment to any quick turnaround in Arborstone's overall occupancy. Arborstone together with Baybrook account for 76% of the apartment pool (1,312 units). Occupancy levels for Arbostone has hovered around the low 80 percentiles for the past year, while Baybrook has slowly increased to a current 86%. Crescent Oaks (429 units)continues to exhibit strong and stablized occupancy. As of 11/1/04 occupancy levels for Arborstone, Baybrook and Crescent Oaks were 83%, 86% and 93% respectively. In an effort to reach higher occupancy and underwriittn rent levels, HIC has proactively implemented changes in property managers. Asset Plus who is property manager for Crescent Oaks is now also managing Baybrook. Myan managment has been contracted to manage Arborstone. The erosion of debt service coverage levels is a direct result of a decline in rental revenues as exhibited in increased vacancies. While the Arborstone/Baybrook/Crescent Oaks Apartment Pool has continued to generate rental revenues suffice to pay debt service, they have been experiencing some softness in the market. As previously reported, the Baybrook property in Webster, Texas and the Arborstone property in Dallas have been most affected. Webster has experienced some softness in the market as reflected in the performance of the Baybrook property. Baybrook accounts for 776 units of the 1741 unit apartment pool (approximately 44%). Webster has recently suffered job loss due to closures of large retail establishments such as Walmart and Best Buy. The affect of these closures has trickled down to the rental market of Webster, as evidenced by the fluctuating occupancy of the Baybrook Apartments project. The unemployment rate of Webster and Dallas continue to have a negative impact on stablized occupancy and collected rents. Strong marketing and concessions are in place and occupany has already inrementally increased. Utlity expenses and insurance premiums in particular, continue to rise, exerting downward pressure on the net operating income on all three properties. While high insurance premiums continue to be the norm, Asset Plus, Myan and KPE Development management companies continue to shop for competitive rates in this market. Arborstone Apartments (Dallas): a 536-unit garden style apartment complex constructed in 1983 on a 24.5 acre site located in the southern section of the City of Dallas. The property, comprised of 36 two and three-story structures of wood frame construction on concrete slab foundations, is located in a moderate-income area of older commercial and residential development. Project amenities include three swimming pools, a playground, a tennis court, an exercise room, laundry facilities, and mature landscaping. At this time Arborstone is undergoing repairs to fire units. Baybrook Village Apartments (Webster): a 776-unit garden style project constructed in 1980-81 on a 25 acre site located in the City of Webster, which lies in the southeastern part of the Houston metropolitan area. The complex is comprised of 52 two- story buildings of wood frame and brick veneer construction on concrete slab foundations. The submarket is generally comprised of moderate-middle income residents, and land uses consist primarily of newer residential/commercial developments. Significant residential demand generators include the nearby Johnson Space Center, local malls, and Hobby Airport. Project amenities include four swimming pools, 2 spas, exercise room, and laundry facilities. At this time Baybrook is planning the installation of a new irrigation system around the perimeter of the community development. Crescent Oaks Apartments (Houston): a 429-unit garden style apartment complex constructed on 15.5 acres in 1969-70. The complex is comprised of 46 two and three-story buildings of wood frame and brick veneer construction on concrete slab foundations. Crescent Oaks is located in a low-moderate income neighborhood located about 10 miles northwest of downtown Houston. The submarket consists of generally older construction of mixed commercial/residential uses, developed primarily from the 1950's through the 1970's. Amenities at Crescent Oaks include three in- ground swimming pools, playgrounds, a sports court, and laundry facilities. The current outlook is negative for the Senior and Subordinate Bonds and the bonds remain on watch. This reflects the soft market environment of the properties, debt service coverage levels continuing to trend negatively and prolonged vacnacies in the pooled apartment units. THOMSON MEDIA: Moody's Assigns Single-B Ratings to Loan Pacts ------------------------------------------------------------- Moody's Investors Service assigned first-time ratings to Thomson Media Inc. following the announcement that Investcorp, a private equity firm, has acquired the company from Thomson Corporation (A3 senior unsecured) for $350 million, a 10.4x EBITDA multiple (last twelve months as of September 30, 2004). Proceeds from the financing, in addition to $160 million in private equity and $17 in senior notes issued at Thomson Media Holdings that will be contributed to Thomson Media as equity, will be used to fund the acquisition. The ratings are: * B1 -- $35 million first lien senior secured revolving credit facility due 2010 (expected to be undrawn at closing) * B1 -- $160 million first lien senior secured term loan B, due 2011 * B2 -- $40 million second lien senior secured term loan C due 2012 * B1 -- Senior Implied rating * B3 -- Senior Unsecured Issuer rating The rating outlook is stable. The ratings reflect Thomson Media's high financial leverage and Moody's belief that the company is dependent upon a weakened business-to-business (B2B) advertising sector and could face potential operating and capital investment risks associated with the electronic disintermediation of print media. The ratings are supported by the company's high quality financial publications, including "American Banker" and "The Bond Buyer", with strong competitive positions and fairly wide circulation, an experienced management, adequate liquidity, positive free cash flow and a recent improvement in organic revenue growth following one of the worst recessions in B2B advertising spending history. The stable rating outlook reflects Moody's belief that Thomson Media will continue to experience top-line organic revenue growth following an industry-wide decline in B2B publishing revenue. Until 2004, Thomson Media, as a business segment of Thomson Corporation, had experienced 4.1% average annual revenue declines from 2000-2003, which still outpaced most of its competitors, due to the challenging economic environment. However, in view of the recent improvement in the economy in 2004, Moody's estimates Thomson Media's revenue growth will improve by 3-4% and EBITDA margins will improve from 16.7% in 2003 to 19% this year. Moody's believes this trend will continue given the leveling off of circulation erosion at many of its flagship publications since 2003. Given the high financial leverage, Moody's believes the company is weakly positioned in the rating category. Therefore, the stable outlook is predicated on improvement in debt protection measures and the maintenance of significant liquidity through internally generated free cash flow, which benefits significantly from the pre-payment of subscriptions, and availability under the $35 million revolver. In 2004, pro-forma for the proposed financing, Moody's expects that Thomson Media's financial leverage will be a relatively high 6.7x total adjusted debt-to-EBITDAR, approximately 9% free cash flow to total debt and EBITDA less capex total interest coverage of 2.2x. By the end of 2006, Moody's expects financial leverage will improve to below 6.0x total adjusted debt-to-EBITDAR, debt-to-free cash flow will improve and then remain above 10% and EBITDA less capex total interest coverage will also improve and remain above 2.5x. Moody's anticipates that positive ratings pressure is only likely over the extended rating horizon should the company demonstrate operating improvements, as evidenced by EBITDA operating margins that consistently exceed 20% and a strengthened balance sheet, as evidenced by adjusted debt-to-EBITDAR well under 5.0x, free cash flow to debt well above 10% and EBITDA less capex total interest coverage above 3.0x, all on a sustained basis. Alternatively, if the company is unable to meet Moody's expected performance levels and the B2B operating environment were to worsen, the rating outlook and/or the company's ratings would likely face downward pressure. The senior implied rating resides with Thomson Media Inc., as the highest issuer of rated debt in the corporate structure. However, the rating recognizes that Thomson Media's parent, Thomson Holdings, will issue approximately $17 million in senior notes, whose coupon may be paid in cash or added to the outstanding principal, the proceeds of which will be invested in the subsidiary as equity. While initially, Investcorp intends to invest approximately $160 million in equity, ultimately, Moody's expects the senior notes at the parent will need to be refinanced or serviced by a distribution from the subsidiary. Moody's has rated the first-lien bank debt at parity with the senior implied rating as it represents the bulk of the debt capital structure. The rating for the $40 million second lien facility is notched down from the first-lien debt rating in recognition of the substantial amount of first-lien debt that ranks ahead of it, and the view that this layer of capital may have some equity-like risk associated with it in a downside scenario. In the event of a default, second-lien lenders may only pursue recovery action once first-lien holder claims have been fully satisfied. In addition to a priority lien on the collateral security, in the first 180 days following default, the first-lien debt holders have the sole right to negotiate up to $50 million in debtor-in-possession financing and the right to receive post- petition interest without having to obtain the consent of the second-lien debt holders Senior secured lenders, which includes both the first and second- lien debt holders, will receive a perfected security interest in the stock of Thomson Media and each of its operating subsidiaries and substantially all tangible and intangible assets, most importantly the company's high quality brands. Financial covenants are meant to limit indebtedness through maximum debt-to- EBITDA leverage and minimum EBITDA interest coverage levels. In addition, the bank definition of EBITDA is adjusted to reflect the pro-forma results of any acquired businesses, and also to exclude certain non-recurring items. Moody's believes the company will delever its balance sheet given the moderate level of projected free cash flow over the intermediate term and a 50% excess cash flow sweep commencing in fiscal 2005. However, Moody's believes the pace of debt repayment could slow if the company needs to invest additional capital in its technology infrastructure given Moody's opinion that electronic distribution is quickly becoming the fastest growing information platform in the B2B industry. Thomson Media Inc., headquartered in New York City, is a leading provider of multimedia information to professionals in the banking, financial services and related technology markets. Its flagship publications include "American Banker", "The Bond Buyer" and "Investment Dealer's Digest". For the 12 months ending September 30, 2004, the company generated $175 million and $33.2 million in revenue and adjusted EBITDA, respectively. TRUMP HOTELS: Releases Details on $100MM DIP Loan Beal's Arranging ------------------------------------------------------------------ With lots of compliments from Chairman & CEO Donald J. Trump and President & COO Scott C. Butera, Trump Hotels & Casino Resorts, Inc., disclosed last week that it selected Beal Bank, S.S.B., as the sole lead arranger for a $100 million interim financing arrangement. That arrangement is a $100 million debtor-in- possession, senior secured, revolving loan facility. Trump Hotels & Casino Resorts, Inc., Trump Atlantic City Associates, Trump Casino Holdings, LLC, and their wholly owned domestic subsidiaries, as debtors and debtors-in-possession, are the Borrowers. The facility matures by its own terms on the Effective Date of a confirmed chapter 11 plan. Loans bear interest at LIBOR plus 1.5%. The fees Trump will pay Beal are set forth in a Fee Schedule the parties haven't made public. All borrowings under the DIP Facility will be accorded superpriority claim status in Trump's to-be-commenced bankruptcy cases and will secured by: * Section 364(d) liens and security interests having priority over the liens securing the 11.25% TAC notes and the 11-5/8% first priority TCH mortgage notes and the 17-5/8% second priority TCH mortgage notes in all existing and after- acquired assets (including all real property, personal property or otherwise) of each Borrower, including without limitation, the properties commonly known as Trump Taj Mahal, Trump Plaza, Trump Marina and Trump Indiana, all accounts receivable, inventory, equipment, contracts, intellectual property (including trademarks), investment property and general intangibles (excluding causes of action arising under Chapter 5 of the Bankruptcy Code, and all products and proceeds of the foregoing (including insurance proceeds), whether now owned or hereafter arising; and * Liens pursuant to Sections 364(c)(2) and (c)(3) of the Bankruptcy Code that are junior to all other valid, perfected and non-avoidable pre-petition liens in all existing and after-acquired assets, including the Casinos but excluding Chapter 5 avoidance actions. Beal agrees to a Carve-Out from its liens -- in an amount to be determined -- that will allow for payment of the professionals' fees and fees payable to the U.S. Trustee and court clerk in the event of a default. Before Beal will lend a dime, an executive officer of each Borrower must deliver a certificate stating that the trailing 12- month EBITDA is not less than $150,000,000 in the aggregate for TCH and TAC on a consolidated basis or $125,000,000 for TAC on a standalone basis, measured as of the most recent quarterly test. About Beal Bank Beal Bank was founded in 1988 and is designated a wholesale bank. Beal Bank is headquartered near Dallas, Texas, with affiliate offices in New York City, Las Vegas, and California. With commercial real estate financing as its core business, Beal Bank's capitalization has grown to over $1.5 billion as of June 30, 2004, with assets of more than $7.0 billion in numerous industries including aircraft, power, timber, retail and gaming. Beal Bank traditionally provides fixed assets financing with limited or no financial covenants. Syndication risk is eliminated due to Beal Bank's ability to solely fund its loans and hold them to maturity. About Trump Hotels & Casino Resorts Through its subsidiaries, Trump Hotels & Casino Resorts, Inc., owns and operates four properties and manages one property under the Trump brand name. Trump Hotels' owned assets include Trump Taj Mahal Casino Resort and Trump Plaza Hotel and Casino, located on the Boardwalk in Atlantic City, New Jersey, Trump Marina Hotel Casino, located in Atlantic City's Marina District, and the Trump Casino Hotel, a riverboat casino located in Gary, Indiana. In addition, the Company manages Trump 29 Casino, a Native American owned facility located near Palms Springs, California. Together, the properties comprise approximately 451,280 square feet of gaming space and 3,180 hotel rooms and suites. The Company is the sole vehicle through which Donald J. Trump conducts gaming activities and strives to provide customers with outstanding casino resort and entertainment experiences consistent with the Donald J. Trump standard of excellence. Trump Hotels is separate and distinct from Mr. Trump's real estate and other holdings. As reported in the Troubled Company Reporter on October 22, 2004, Trump Hotels & Casino Resorts, Inc., Donald J. Trump and holders of approximately 57% of Trump Atlantic City Associates' First Mortgage Notes due 2006, approximately 68% of Trump Casino Holdings, LLC's First Priority Mortgage Notes due 2010 and approximately 81% of Trump Casino Holdings, LLC's Second Priority Notes due 2010 entered into a support agreement in connection with the recapitalization of the Company pursuant to a plan of reorganization. As part of the Plan, Donald J. Trump, who will remain the Company's Chairman and Chief Executive Officer, will invest approximately $71.4 million into the recapitalized Company. Mr. Trump's investment will consist of a $55 million cash equity investment and the conversion of approximately $16.4 million principal amount of TCH Second Priority Notes owned by him into shares of the recapitalized Company's common stock. Upon consummation of the Plan, Mr. Trump is expected to remain the largest individual stockholder of the Company, with beneficial ownership of approximately 27% of the Company's common stock. TW, INC.: Wants Solicitation Period Stretched to Jan. 31 -------------------------------------------------------- TW, Inc., and its debtor-affiliates ask the U.S. Bankruptcy Court for the District of Delaware for an extension of their exclusive period in which to solicit acceptances of a liquidating chapter 11 plan through January 31, 2005. The Debtor liquidated its inventory and closed the doors of THE WIZ for good in early 2003. THE WIZ, a subsidiary of GBO Electronics Acquisition, LLC, was a premier consumer electronics retailer in the New York-New Jersey-Connecticut tri-state area. The Debtors' plan is simple: distribute the proceeds of the liquidation sale to creditors in order of their statutory priority. A battle between the Debtors and their creditors over intercompany claims has stalled progress toward confirmation of that liquidating plan and mediation attempts failed. Creditors owed $40 million don't want to share a pro-rata 12% distribution with the holder of a $90 million intercompany claim. The Debtors are hopeful that more time will result in a consensual resolution of the dispute. Judge Walrath will consider the Debtor's request at a Nov. 30 hearing. Objections, if any, must be filed and served by Nov. 23. TW, Inc., filed for chapter 11 protection on March 14, 2003 (Bankr. Del. Case No. 03-10785). Jeremy W. Ryan, Esq., and Mark Minuti, Esq., at Saul Ewing LLP represent the Debtors. When the Company filed for protection from its creditors, it listed assets of over $50 million and debts of more than $100 million. UAL CORP: Gets Interim Extension to File Plan Until December 1 -------------------------------------------------------------- As reported in the Troubled Company Reporter on Oct. 4, 2004, Judge Wedoff extends UAL Corporation and its debtor-affiliates' eriod within which they have the exclusive right to file a Plan until November 1, 2004. The Debtors' request is continued to the November 19, 2004 hearing. In the interim, Judge Wedoff extends the Debtors' exclusive period to file a plan through December 1, 2004. The Debtors have through January 31, 2004, to seek acceptance of that plan. Headquartered in Chicago, Illinois, UAL Corporation -- http://www.united.com/-- through United Air Lines, Inc., is the holding company for United Airlines -- the world's second largest air carrier. The Company filed for chapter 11 protection on December 9, 2002 (Bankr. N.D. Ill. Case No. 02-48191). James H.M. Sprayregen, Esq., Marc Kieselstein, Esq., David R. Seligman, Esq., and Steven R. Kotarba, Esq., at Kirkland & Ellis, represent the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $24,190,000,000 in assets and $22,787,000,000 in debts. (United Airlines Bankruptcy News, Issue No. 63; Bankruptcy Creditors' Service, Inc., 215/945-7000) UAL CORP: Gets Court Nod to Reject Four Aircraft Leases ------------------------------------------------------- As reported in the Troubled Company Reporter on Oct. 8, 2004, UAL Corporation and its debtor-affiliates sought the Court's authority to reject leases for four Boeing 737-300 Aircraft and related Engines. The Aircraft bear Tail Nos. N316UA, N317UA, N353UA and N368UA. United Air Lines, Inc., entered into the Leases as part of the so-called Leveraged Lease Financing arrangements. The lessor is a common law trust that holds the legal title to the equipment on behalf of various equity participants. An Indenture Trustee holds a security interest in the relevant pieces of equipment on behalf of lending parties to the financing arrangement. According to James H.M. Sprayregen, Esq., at Kirkland & Ellis, in Chicago, Illinois, the Debtors need to maximize their fleet utility at the lowest possible cost. Mr. Sprayregen reports that the Debtors analyzed several aircraft financings and considered the financing structure and related equipment in light of the projected demand for air travel, flight schedules, maintenance requirements, labor costs and other business factors. After careful review, the Debtors determined that they have an excess supply of 737-300 aircraft in their fleet. The rate under the leases exceeds the current market value and the payment obligations far outweigh the benefits that the Debtors receive from using the Aircraft. As a result, the Aircraft are burdensome to the estates. Mr. Sprayregen tells the Court that the Owner Trustee for all four Aircraft is Wilmington Trust Company. The Aircraft are parked at Southern California Aviation in Victorville, California. * * * Judge Wedoff grants the Debtors' request. Headquartered in Chicago, Illinois, UAL Corporation -- http://www.united.com/-- through United Air Lines, Inc., is the holding company for United Airlines -- the world's second largest air carrier. The Company filed for chapter 11 protection on December 9, 2002 (Bankr. N.D. Ill. Case No. 02-48191). James H.M. Sprayregen, Esq., Marc Kieselstein, Esq., David R. Seligman, Esq., and Steven R. Kotarba, Esq., at Kirkland & Ellis, represent the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $24,190,000,000 in assets and $22,787,000,000 in debts. (United Airlines Bankruptcy News, Issue No. 63; Bankruptcy Creditors' Service, Inc., 215/945-7000) UNITED AIRLINES: Flight Attendants Balk at New Concession Demands ----------------------------------------------------------------- United Airlines declared war on its employees Friday, proposing cuts in wages, benefits and work rules. The Association of Flight Attendants-CWA United Airlines Master Executive Council received the latest litany of United Airlines' demand for concessions that totals $137,614,000 annually. This demand is over and above the annual $314 million already sacrificed by flight attendants and the hundreds of millions of dollars United's management intends to extract from employees by terminating their pension plans. The union promised to fight the company 'over every dime.' Greg Davidowitch, president of the United Airlines Flight Attendant Master Executive Council, made the following statement regarding United's demands: "The company's demands are disastrous. If management stands by these stipulations, they will destroy United Airlines. We're not going to let that happen. We will fight them at the bargaining table and we will fight them in court. AFA will not stand by and let management destroy the flight attendant career and United Airlines. "The devastating effects these proposed changes will visit upon the flight attendants are not the product of real need but managements' desire. What is most tragic about what the company is attempting to do is that it will be viewed by many if not most of our members as a plan of employee liquidation. The company's demands from flight attendants are not fair, equitable nor necessary for a successful reorganization. Management and their lawyers are doing this because they think they can get away with it under the protection of bankruptcy." The leadership of the United flight attendants will convene a special meeting beginning Friday, November 12, 2004. More than 46,000 flight attendants, including the 21,000 flight attendants at United, join together to form AFA, the world's largest flight attendant union. AFA is part of the 700,000 member strong Communications Workers of America, AFL-CIO. Visit us at http://www.unitedafa.org/ Headquartered in Chicago, Illinois, UAL Corporation -- http://www.united.com/-- through United Air Lines, Inc., is the holding company for United Airlines -- the world's second largest air carrier. The Company filed for chapter 11 protection on December 9, 2002 (Bankr. N.D. Ill. Case No. 02-48191). James H.M. Sprayregen, Esq., Marc Kieselstein, Esq., David R. Seligman, Esq., and Steven R. Kotarba, Esq., at Kirkland & Ellis, represent the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $24,190,000,000 in assets and $22,787,000,000 in debts. UNITED ONLINE: Moody's Rates Planned $150M Senior Secured Loan B1 ----------------------------------------------------------------- Moody's Investors Service has assigned a B1 senior implied rating and a SGL-2 speculative grade liquidity rating for United Online, Inc., as well as a B1 rating for the proposed $150 million four- year senior secured term loan. Proceeds from the transaction and cash on hand will finance the company's tender offer for approximately $154 million (including fees) or 27% of the company's outstanding common stock. The ratings reflect the substantial business risk of the dial-up ISP market, characterized by an eroding aggregate subscriber base, competition from other ISP providers and larger cable and telco providers for subscribers, and integration risk inherent in United's acquisition of Classmates.com, a company approximately 44% the size of United (based on paying subscribers). These risks are offset by the company's relatively conservative financial profile and competitive position. The rating outlook is stable. This is the first time that Moody's has rated United Online. Moody's assigned these ratings: -- a B1 senior implied rating, -- a B1 rating to the proposed $150 million senior secured term loan, -- a B3 senior unsecured issuer rating, -- a SGL-2 speculative grade liquidity rating The rating outlook is stable. The B1 senior implied rating incorporates the concentration of United's business in one service offering, subscription dial-up Internet access, a commodity product. Moody's believes that in the short-term United Online will maintain a competitive advantage as a value-priced Internet access provider. Longer-term we question the sustainability of this price advantage, as larger providers begin to target the lower-income market segment to maintain their existing market share. Maintaining profitable growth may also prove challenging as higher marketing outlays (i.e. TV and off-line advertising) and other operating expenses accompany the fight for subscribers. Other operating risks include United's exposure to an unreliable advertising revenue stream (10% of LTM revenues down from 16% in 2002). As an Internet access provider, advertising is not United's strategic focus, and thus the company is likely to continue to lose this revenue base to more compelling media formats. The ratings also assume that in a distressed scenario, the coverage provided to secured lenders is likely to provide only modest cushion given the commodity nature of the product as well as the high proportion of intangible assets. Positive factors supporting the ratings include United's significant brand value, leading competitive position in the discount ISP segment, a stable and recurring revenue stream, conservative financial profile (pro forma for the transaction and Classmates acquisition, about 1.2x total debt-to-EBITDA, 2004 estimate), management's track record for converting free-based customers to pay subscriptions, and opportunities for further growth in the value-priced dial-up segment. With the acquisition of Classmates.com, United diversifies its cash flow stream with a complementary asset to its existing free and pay subscription base. Moreover, it provides United Online with an additional vehicle for growth through the cross-selling of service offerings to the Classmates subscriber base. The stable outlook incorporates the company's attractive margins and strong liquidity. It also reflects Moody's expectation that United will achieve improvements in leverage as the company uses excess free cash flow to pay down debt instead of returning additional cash to equity holders, and will be conservative in the financing of future acquisitions. Upward rating momentum might occur if Moody's believed United's business risk was mitigated by a less competitive operating environment and/or by greater than expected profitable growth from the Classmates acquisition. Downward pressure on the ratings would likely result from increased competition in the dial-up ISP market, a lack of profitable subscriber growth, or an inability to achieve synergies from the Classmates acquisition. The senior secured credit facility is guaranteed by all of the direct and indirect subsidiaries of the company. It benefits from a first priority perfected security interest in all of the stock and other tangible and intangible assets of the borrower, the parent, United Online, and any subsidiary guarantor. The senior first priority secured term loan is the only debt in the firm's capital structure. United's SGL-2 rating reflects the company's "good" liquidity profile as projected over the next twelve months, reflecting the strong free cash flow generating ability and substantial cash balances. Pro forma for the debt issuance and Classmates acquisition, Moody's expects United to have liquidity of approximately $142 million, comprised mostly of cash balances and operating cash flow. United Online continues to be able to fund its core operating expenditures, including modest capital investments, with cash flow, and is expected to remain comfortably in compliance with its bank financial covenants. In addition, United Online is likely to continue to build cash. While the absence of readily monetizeable assets and the lack of a liquidity facility somewhat impede financial flexibility, United's pro forma cash position of $125 million provides more than ample coverage to fund the $35 million in near-term amortization payments due under the term loan. Pro forma for the proposed debt issuance, United's total debt is about 1.4 times debt-to-EBITDA and pro forma interest coverage is about 15 times for the last twelve months ended September 30, 2004. United Online, Inc., headquartered in Woodland Hills, California, is a leading provider of consumer Internet subscription services. UNIVERSAL ACCESS: Wants 6 More Months to Propose a Chapter 11 Plan ------------------------------------------------------------------ Universal Access Global Holdings, Inc., wants its exclusive right to propose and file a chapter 11 plan extended by six months. The Debtor asks the U.S. Bankruptcy Court for the Northern District of Illinois to extend, pursuant to 11 U.S.C. Sec. 1121, its exclusive right to file a plan through June 3, 2005, and grant a concomitant extension of its exclusive period to solicit acceptances of that plan through August 3, 2005. The Debtor has recently hired Daniels & Associates, L.P., as its investment banker to organize asset sales. "It would be premature to file a plan until knowing how a successful buyer would want to proceed," the Debtor tells the Bankruptcy Court. The Honorable Jack B. Schmetterer will convene a hearing in Chicago on Nov. 12 to review the Debtor's request. Objections, if any, must be filed and served by Nov. 9. Judge Schmetterer previously granted the Debtor an extension of its time to elect to assume, assume and assign, or reject unexpired nonresidential real property leases and executory contracts through April 1, 2005. Headquartered in Chicago, Illinois, Universal Access Global Holdings, Inc. -- http://www.universalaccess.com/-- provides network infrastructure services and facilitates the buying and selling of capacity on communications networks. The company, and its debtor-affiliates, filed for a chapter 11 protection on August 4, 2004 (Bankr. N.D. Ill. Case No. 04-28747). John Collen, Esq., and Rosanne Ciambrone, Esq., at Duane Morris LLC, represent the Company. David W. Wirt, Esq., and David Neier, Esq., at Winston & Strawn, represent an Official Committee of Unsecured Creditors. When the Debtor filed for protection from its creditors, it listed $22,047,000 in total assets and $24,054,000 in total debts. VARTEC TELECOM: Look for Schedules & Statements by Dec. 16 ---------------------------------------------------------- Vartec Telecom, Inc., and its debtor-affiliates ask the U.S. Bankruptcy Court for the Northern District of Texas, Dallas Division, for an extension of time to file their schedules and statements of financial affairs. According to the Debtors, an extension until Dec. 16 is sufficient. The Debtors submit that due to the size and complexity of their businesses they need more time to gather the vast amount of information that is required to accurately complete their schedules and financial statements. The Debtors ask the Court that they be entitled to use the book value of their assets instead of the market value. They explain that they can only speculate on their assets market value since they don't maintain a book for market valuation. Headquartered in Dallas, Texas, Vartec Telecom Inc. -- http://www.vartec.com/-- is a provider of local and long distance service and is considered a pioneer in promoting 10-10 calling plans. The Company and its affiliates filed for chapter 11 protection on November 1, 2004 (Bankr. N.D. Tex. Case No. 04-81695). Daniel C. Stewart, Esq., William L. Wallander, Esq., and Richard H. London, Esq., at Vinson & Elkins represent the Debtors in their restructuring efforts. When the Company filed for protection from its creditors, it listed more than $100 million in assets and debts. VARTEC TELECOM: Brings In Hughes & Luce as Special Counsel ---------------------------------------------------------- Vartec Telecom and its debtor-affiliates seek authority from the U.S. Bankruptcy Court for the Northern District of Texas, Dallas Division, to retain Hughes & Luce, LLP, as their special counsel. Hughes & Luce is expected to: a) negotiate, arbitrate and litigate in proceedings before administrative agencies as well as state and federal courts of issues relating to interconnection agreements with competitive local exchange carriers; b) negotiate and litigate in state and federal courts of disputes related to fees assertedly due to municipalities and water districts growing out of use of streets, right-of-way ditches and other facilities owned or managed by such municipalities and water districts; c) litigate in state and federal courts of subscriber class actions involving goods and services sold by SBC to customers; and d) legislate matters pending before various state legislative bodies, especially the Texas Legislature. Craig W. Budner, Esq., a partner at Hughes & Luce, will be the lead attorney in these proceedings. According to Mr. Budner, his Firm received approximately $178,354 retainer fee. He discloses the Firm's professionals current hourly rates: Designation Billing Rate ----------- ------------ Partners $295 to $390 Associates $175 to $255 Paralegals $150 To the best of the Debtors' knowledge, Hughes & Luce is a "disinterested" party as that term is defined in Section 101(14) of the Bankruptcy Code. Headquartered in Dallas, Texas, Vartec Telecom Inc. -- http://www.vartec.com/-- provides local and long distance service and is considered a pioneer in promoting 10-10 calling plans. The Company and its affiliates filed for chapter 11 protection on November 1, 2004 (Bankr. N.D. Tex. Case No. 04-81695). Daniel C. Stewart, Esq., William L. Wallander, Esq., and Richard H. London, Esq., at Vinson & Elkins represent the Debtors in their restructuring efforts. When the Company filed for protection from its creditors, it listed more than $100 million in assets and debts. VERESTAR INC: American Tower Tries to Torpedo Debtors' Plan ----------------------------------------------------------- American Tower Corporation, by its counsel Barry N. Seidel, Esq., of King & Spalding LLP, tells the U.S. Bankruptcy Court for the Southern District of New York it objects to the proposed Disclosure Statement explaining the Joint Consolidated Liquidating Plan of Reorganization filed by Verestar Inc. and its debtor- affiliates in September. American Tower tells the Court that approving the Disclosure Statement will be useless since Verestar's underlying Plan is not confirmable. American Tower explain that it intends to vote to reject the Plan because it fails to provide sufficient information on the treatment of it's $535 million claim against Verestar. Being Verestar's largest creditor, the Plan will not be confirmed without American Tower's affirmative vote. American Tower wants the Court to give it permission to file an alternative plan of reorganization for the Debtors. The Joint Liquidating Plan of Reorganization Verestar's Plan provides for the consolidation of all of the Debtors' estates and intermingling of operations. Under the Plan, the Company will liquidate all of its assets and will cease to operate as a satellite service provider once liquidation is completed. The Plan allows for the full payment of: * administrative claims; * allowed priority tax claims; * secured claims; and * SkyTerra secured claims on the Effective Data or as soon as practicable. General Unsecured claims will receive their pro rata share of available cash. All equity holders will not receive any distribution under the Plan. A full-text copy of the Disclosure Statement is available for a fee at: http://www.researcharchives.com/download?id=040812020022 American Tower's Claim The Debtors' Schedules reflect an alleged prepetition unsecured debt to American Tower in the approximate amount of $522,122,000. The initial result of the Official Committee of Unsecured Creditors' investigation reveals that the Debtors may be able to contest the said claim based on recharacterization and equitable subordination. The Committee further believes that the Debtors may be able to file: * avoidance actions under chapter 5 of the Bankruptcy Code; and * various cases involving among others fraud, conversion, tortious interference with contract, breach of fiduciary duty, insolvency and negligent misrepresentation against American Tower. Headquartered in Fairfax, Virginia, Verestar, Inc., -- http://www.verestar.com/-- is a provider of satellite and terrestrial-based network communication services. The Company and two of its affiliates filed for chapter 11 protection on December 22, 2003 (Bankr. S.D.N.Y. Case No. 03-18077). Matthew Allen Feldman, Esq., at Willkie Farr & Gallagher LLP represents the Debtors. When the Company filed for protection from its creditors, it listed assets and debts of more than $100 million each. VIVENTIA BIOTECH: Dan Group Completes Private Placement ------------------------------------------------------- Leslie Dan and Andrea Dan-Hytman, the principal shareholders of Viventia Biotech Inc. (TSX: VBI), a Canadian biopharmaceutical company specializing in the discovery and development of fully monoclonal antibodies for the treatment of cancer, reported that they have, directly and indirectly through entities controlled by them, completed their previously announced private placement with the Company. In accordance with the terms of the Private Placement, the Dan Group invested $14 million in secured convertible debentures of the Company and converted $8.9 million plus accrued interest of currently outstanding unsecured demand bridge financing loans into Debentures. The Debentures are secured by a first charge over all of the assets of the Company and bear interest at the rate of 4.5% per annum, compounded annually. The Debentures will mature two years from the date of issuance, when both interest and principal will be payable. The principal amount of the Debentures is convertible at the option of the holder at any time into units at a price of $1.50 per Unit. Each Unit is comprised of one common share of the Company and one half of a common share purchase warrant. Each whole common share purchase warrant will enable the holder to purchase an additional common share at an exercise price of $2.00 per common share at any time for a period of four years from the date of issuance. The conversion price of any accrued interest on the Debentures will be equal to the ten-day weighted average trading price of the Company's common shares for the ten consecutive trading days prior to conversion less the maximum discount permitted by the TSX. As a result of the Private Placement and internal transactions between members of the Dan Group, Leslie Dan and/or entities affiliated with him own Debentures in the principal amount of $12,584,142.47 and Andrea Dan-Hytman and/or entities affiliated with her own Debentures in the principal amount of $10,562,568.49. Prior to the completion of Private Placement, Leslie Dan and/or entities affiliated with him owned 16,416,924 common shares and 5,995,972 warrants to purchase common shares, representing 56.2% of the issued and outstanding common shares of the Company and 52.4% of the issued and outstanding warrants of the Company and Andrea Dan-Hytman and/or entities affiliated with her owned 7,758,737 common shares and 4,049,040 warrants to purchase common shares, representing 26.6% of the issued and outstanding common shares of the Company and 35.4% of the issued and outstanding warrants of the Company. After giving effect to the Private Placement, and assuming the conversion of the principal amount of the Debentures, Leslie Dan and/or entities affiliated with him own 24,806,352 common shares and 10,190,686 warrants to purchase common shares, representing 55.6% of the issued and outstanding common shares of the Company and 53.2% of the issued and outstanding warrants of the Company and Andrea Dan-Hytman and/or entities affiliated with her own 14,800,449 common shares and 7,569,896 warrants to purchase common shares, representing 33.2% of the issued and outstanding common shares of the Company and 39.5% of the issued and outstanding warrants of the Company. The purchase of the Debentures has been made for investment purposes. Subject to applicable securities laws Leslie Dan and Andrea Dan-Hytman and/or entities controlled by them may, depending on market and other conditions, increase or decrease their ownership, control or direction over securities of the Company, through market transactions, private agreements or otherwise. About the Company Viventia Biotech Inc. is a biopharmaceutical company advancing a new generation of monoclonal antibody therapeutics designed to offer safer, more beneficial therapies for cancer patients. Viventia's fully integrated technology platform is based upon the isolation of human monoclonal antibodies from cancer patients, and the development of those antibodies to deliver cancer-killing payloads directly to cancer cells. Viventia's lead product candidate Proxinium(TM) is in clinical development for the treatment of head and neck cancer and bladder cancer, and several other product candidates are in pre-clinical development. At June 30, 2004, Viventia's shareholders' deficit widened to $13,283,000, compared to a $4,484,000 deficit at Dec. 31, 2003. W.R. GRACE: Employees Sue Over $40-Mil Retirement Fund Sell-Out --------------------------------------------------------------- Employees of W. R. Grace & Co. (NYSE: GRA), have filed a class action against Grace to recover $40 million in profits lost by the class in their personal retirement accounts. A full-text copy of the 27-page Complaint, filed in the U.S. District Court for the Eastern District of Kentucky, is available at no charge at: http://bankrupt.com/misc/04-218-DLB.pdf The defendants named in the lawsuit are: * W.R. Grace & Co. * W.R. Grace Investment and Benefits Committee * Fred E. Festa * Paul J. Norris * Robert R. Tarola * John F. Akers * Henry Furlong Baldwin * Ronald C. Cambre * Marye Anne Fox * John J. Murphy * Thomas A. Vanderslice * Fidelity Management Trust Company * State Street Bank and Trust Company and * State Street Global Advisors The employees claim that Grace and its investment advisors forced the employees to sell their Grace stock at a distressed price of $3.50 per share. Soon after the sale, the stock value tripled but the employees got nothing. The 300% profit -- nearly $40 million -- was taken from the Grace employees and pocketed or diverted to others by State Street Bank & Trust of Boston, the Plan's investment advisor, according to the federal court complaint filed by the employees. The employees and the class members are represented by Waite, Schneider, Bayless & Chesley of Cincinnati, Ohio, a nationally known business litigation law firm. "This case is corporate arrogance at its worst -- Grace just walked all over its employees and destroyed their life savings," said Stan Chesley, one of the employees' trial attorneys. According to the lawsuit, Grace purposely set up the retirement plan so the personal savings of the employees could be used to buy the company's stock. In early 2004, Grace hired State Street Bank & Trust of Boston to rapidly liquidate all of the employees' Grace stock investment at an artificially low sales price. Grace ignored the protests and objections of the employees, the lawsuit says. The employees were even instructed by Grace to have no communication with State Street, their retirement plan's advisor. The case will be heard by Judge David Bunning of the U.S. District Court in Covington, Kentucky. As part of the early stages of the case, the employees' attorneys are investigating the unusual relationship among Grace, State Street and others involved in the transactions, according to Jim Cummins, the employees' other principal trial attorney. WASHINGTON MUTUAL: Fitch Lifts Classes B2 & B5's Ratings to BBB --------------------------------------------------------------- Fitch Ratings has taken rating actions on the following Washington Mutual residential mortgage-backed certificates: * Washington Mutual mortgage pass-through certificates, series 2000-1 -- Class A2 affirmed at 'AAA'; -- Class M1 affirmed at 'AAA'; -- Class M2 upgraded to 'AAA' from 'AA+'; -- Class M3 upgraded to 'AA' from 'A+'; -- Class B1 upgraded to 'A' from 'BB+'; -- Class B2 upgraded to 'BBB' from 'B+'. * Washington Mutual mortgage pass-through certificates, series 2001-7 -- Class A affirmed at 'AAA'; -- Class M1 affirmed at 'AAA'; -- Class M2 upgraded to 'AA+' from 'AA'; -- Class M3 upgraded to 'A+' from 'A'. * Washington Mutual mortgage pass-through certificates, series 2002-AR11 -- Classes A1, M1 affirmed at 'AAA'; -- Class B1 upgraded to 'AAA' from 'AA'; -- Class B2 upgraded to 'AAA' from 'A'; -- Class B3 upgraded to 'AA' from 'BBB'; -- Class B4 upgraded to 'A' from 'BB'; -- Class B5 upgraded to 'BBB' from 'B'. The upgrades, affecting approximately $69 million, are being taken as a result of low delinquencies and losses, as well as increased credit support levels. The affirmations, affecting approximately $1.36 billion, are due to credit enhancement consistent with future loss expectations. The credit enhancement for the reviewed classes as of Oct. 25th, 2004 distribution increased as much as four times (x) the original credit enhancement percentage. The collateral of WAMU 2000-1 primarily consists of negative amortization COFI adjustable-rate, 30-40 year fully amortizing mortgage loans, secured by first liens on one- to four-family residential properties. WAMU 2001-7 has collateral consisting of jumbo, negative amortizing MTA-indexed adjustable-rate, 30-40 year fully amortizing mortgage loans, secured by first liens on one- to four-family residential properties. Finally, WAMU 2002-AR11 has collateral consisting of conventional, fully amortizing 30-year adjustable-rate mortgage loans, secured by first liens on one- to four-family residential properties. The three deals have pool factors (i.e., percentage of remaining pool balance out of the original balance as of the cut-off date) ranging from 14% to 18% as of October 25, 2004 distribution. WILSON N. JONES: Weak Balance Sheet Cues Fitch to Cut Rating to B+ ------------------------------------------------------------------ Fitch Ratings downgraded to 'B+' from 'BB+' the rating on the outstanding $45,900,000 Metro Health Facilities Development Corp. (Sherman, TX) hospital revenue bonds, series 2001. Fitch does not rate the series 1993 ($39,960,000 outstanding), which are insured by Ambac Assurance Corp. (rated 'AAA' by Fitch). The Rating Outlook has been revised to Stable from Negative. The rating downgrade to 'B+' reflects Wilson N. Jones Regional Health System's weakening balance sheet, a high debt burden, high bad debt exposure, and weak utilization trends. WNJ's unrestricted cash and investments totaled $13 million (43 days cash on hand), net of $3.1 million short-term debt at September 30, 2004. This equates to a 17.8% cash-to-debt ratio, compared with Fitch's 2004 median cash-to-debt ratio of 30.5% for non-investment grade credits. WNJ continues to have a covenant violation regarding the required maintenance of 70 days cash on hand and management expects cash on hand to decline to 35.0 days at December 31, 2004 due to additional capital spending from cash reserves. Fitch considers WNJ's debt burden to be high, as evidenced by maximum annual debt service (MADS) being 6.1% of revenue at September 30, 2004, compared with Fitch's 2004 median ratio for non-investment grade credits of 4.6%. This includes roughly $4.5 million of an already-accrued liability, based on a court-ordered settlement with the Pension Guaranty Benefit Corp. -- PGBC. Through September 30, 2004, WNJ's bad debt expense as a percentage of revenues was 16.5%, compared with Fitch's 2004 median ratio of 7% for non-investment grade credits, and reflective of an economically weak service area. Finally, WNJ's utilization trends since 2003 have been negative. Management states that declines in inpatient utilization are attributable to the closure of several large employers in the service area, increased outmigration to Dallas, and to the 2003 closure of WNJ's unprofitable trauma unit. A new competing heart hospital is expected to open in Plano, TX, in December 2004, and the effects of this are unclear. Cardiology is one of WNJ's clinical strengths. Credit strengths include the new management at WNJ, positive financial operations since 2003, and WNJ's continued leading market share in the primary service area. In fiscal 2003, WNJ's chief executive officer and chief financial officer were fired, and interim management was brought in by Cambio Health Solutions, which was approved by bondholders. In 2004, a new full-time CEO and CFO were hired by the board of directors, and management is continuing to implement Cambio's recommendations. WNJ is returning to profitability, with a 1.6% margin in 2003 and 1.9% margin through September 30, 2004, which Fitch views positively. Days in accounts receivable has improved to 50.9 through nine months of 2004 from 57.6 in 2002 after the write-down in bad debt. However, there are still major operational challenges at WNJ, principally at the North Campus that continues to be a financial drain before it is leased to SeniorHealth, expected to be effective in either the first or second quarter of 2005. The Stable Outlook reflects Fitch's belief that while restoration of the balance sheet will take considerable time, positive financial margins are a positive trend, though management still faces numerous obstacles to fully turn around operations. Fitch's definition of 'B' category ratings indicates that significant credit risk is present, but a limited margin of safety remains. Financial commitments are currently being met; however, capacity for continued payment is contingent upon a sustained, favorable business and economic environment. Located in Sherman, Texas (65 miles north of Dallas in Grayson County), WNJ is a small hospital system that operates 285 beds at two campuses. WNJ had $139 million in total operating revenue in fiscal 2003. WNJ covenants to provide quarterly disclosure to bondholders, including a balance sheet, income statement, and statement of cash flows, which Fitch views favorably. WORLDCOM INC: R.A.K. Wants Court to Compel Cure Claim Payment ------------------------------------------------------------- The WorldCom, Inc. and its debtor-affiliates lease space at 1201 Main Street in Dallas, Texas, owned by R.A.K. Mainplace Associates, L.P., and license space at the Main Street Premises for conduit, switches and hardware, which are utilized in their businesses. Pursuant to the Confirmed Plan, the Debtors assumed all leases of real property and executory contracts, which were not listed on Schedule 8.01(b) of the Plan. Michael V. Blumenthal, Esq., at Brown Raysman Millstein Felder & Steiner, LLP, in New York, tells Judge Gonzalez that R.A.K.'s Leases and Licenses were not listed on Schedule 8.01(b) of the Plan and were therefore assumed by the Debtors. On September 23, 2003, R.A.K. filed two amended proofs of claim against the Debtors' estate: (1) Claim No. 36289, which replaced Claim No. 22028, asserts a $481,402 unsecured claim and a $116,919 administrative claim; and (2) Claim No. 36317, which replaced Claim No. 22029, asserts a $571,645 unsecured claim and a $122,140 administrative claim. The Debtors objected to R.A.K.'s claims. Mr. Blumenthal notes that under the Plan, the Debtors were required to cure the defaults under the Leases and Licenses by May 20, 2004, unless R.A.K.'s Cure Claims were disputed claims as of that date. R.A.K.'s. Cure Claims were not disputed at the time the Debtors were required to pay cure claims under the Plan. Therefore, the Debtors are in default of their obligations under the Plan to pay the Cure Claims. The Cure Claims were filed as amended claims after R.A.K. discovered that the Debtors incorrectly installed electric meters at the Premises, Mr. Blumenthal relates. The meters failed to accurately reflect the Debtors' electric usage at the Premises. R.A.K.'s Claim No. 36317 asserts, inter alia, a claim for unbilled metered electricity for $502,767, consisting of $407,540 in prepetition electric charges and $95,227 in postpetition electric charges. The Debtors acknowledged that the incorrect installation of an electric meter resulted in miscalculations of the amounts due and owing from the Debtors for electric usage. Specifically, on August 16, 2004, Bob Fries, one of the Debtors' business persons, sent an e-mail to R.A.K. acknowledging that the Debtors owe R.A.K. $416,523 with respect to the electric charges, relating to Claim No. 36317. R.A.K. believes that the outstanding unbilled electric charges with respect to Claim No. 36317 exceed the $416,523 acknowledged by the Debtors. Since $416,523 in electric charges is not disputed, then under the Plan, the charges are allowed and should be immediately paid by the Debtors. Mr. Blumenthal points out that the balance of Claim No. 36317 remains disputed and should be resolved after an evidentiary hearing before the Court. Mr. Blumenthal asserts that the Debtors' objection to the Cure Claims that R.A.K. failed to provide sufficient documentation to support its claims is devoid of merits and should be overruled. On January 12, 2004, counsel for R.A.K. received an e-mail from the Debtors' counsel requesting back-up documentation for R.A.K.'s Cure Claims. The following day, R.A.K.'s counsel sent a package containing the back-up documentation for the Cure Claims to the Debtors' counsel. The Debtors' counsel made no further requests for information concerning the Cure Claims. Accordingly, R.A.K. asks Judge Gonzalez to compel the Debtors to immediately pay the Cure Claims. Headquartered in Clinton, Mississippi, WorldCom, Inc., now known as MCI -- http://www.worldcom.com/-- is a pre-eminent global communications provider, operating in more than 65 countries and maintaining one of the most expansive IP networks in the world. The Company filed for chapter 11 protection on July 21, 2002 (Bankr. S.D.N.Y. Case No. 02-13532). On March 31, 2002, the Debtors listed $103,803,000,000 in assets and $45,897,000,000 in debts. The Bankruptcy Court confirmed WorldCom's Plan on October 31, 2003, and on April 20, 2004, the company formally emerged from U.S. Chapter 11 protection as MCI, Inc. (Worldcom Bankruptcy News, Issue No. 63; Bankruptcy Creditors' Service, Inc., 215/945-7000) WORLDCOM INC: Agrees to Withdraw Labor Department's ERISA Claims ---------------------------------------------------------------- Elaine L. Chao, Secretary of the United States Department of Labor, filed Claim Nos. 17120, 17121, 17123 to 17188, 17190, 17191, and 17196 to 17248 against Worldcom Inc. and its debtor- affiliates. The Claims include contingent claims against the Debtors arising from possible breaches of fiduciary duties under the Employee Retirement Income Security Act of 1974, as amended. To resolve certain ERISA claims, the Debtors and certain persons other than Ms. Chao entered into a Class Action Settlement Agreement dated July 2, 2004. On July 21, 2004, the United States District Court for the Southern District of New York granted preliminary approval of the ERISA Settlement Agreement. On August 24, 2004, the Bankruptcy Court approved the ERISA Settlement Agreement, subject to certain contingencies including the entry of the Final Order by the District Court, and the occurrence of the Effective Date of the ERISA Settlement Agreement. The Principal Class Settlement Amount has been deposited into the Settlement Fund as required under the ERISA Settlement Agreement. The District Court has scheduled a fairness hearing to decide whether to approve the ERISA Settlement Agreement and to enter the Final Order. The ERISA Settlement Agreement allows the Debtors to terminate the ERISA Settlement Agreement at any time up to seven days before the Fairness Hearing, if any issue between the Secretary and the Debtors has not been resolved on terms acceptable to the Debtors. The Debtors desire to remove any uncertainty as to how the Proofs of Claim affect the ERISA Settlement Agreement or the Fairness Hearing, and the Secretary is willing to facilitate the Fairness Hearing by agreeing to the withdrawal of the Proofs of Claim. Thus, the Debtors and the Labor Secretary agree that: (a) The Labor Secretary's Claims will be deemed withdrawn in their entirety and with prejudice. On the Effective Date of the ERISA Settlement Agreement, the Labor Secretary will have no claims against the Debtors based thereon, without the necessity of further action on the part of the Debtors, the Labor Secretary, the District Court or the Bankruptcy Court; (b) The withdrawal of the Claims will not apply to any claims of the Labor Secretary arising from: * $637,000 in participant account balance forfeitures reported for the CompuServe 401(k) Plan during the period October 1998-2002; or * health benefits owed to participants in the WorldCom Severance Plan, whose employment were terminated as the result of the Company's June 28, 2002 reduction in force; and (c) In the event the Effective Date of the ERISA Settlement Agreement does not occur and the ERISA Settlement Agreement terminates: (a) the Proofs of Claim will revert to their original status; and (b) the time by which the Debtors may file objections to the Proofs of Claim will be extended through and including the date that is 75 days from the day the termination of the ERISA Settlement Agreement is effective. Headquartered in Clinton, Mississippi, WorldCom, Inc., now known as MCI -- http://www.worldcom.com/-- is a pre-eminent global communications provider, operating in more than 65 countries and maintaining one of the most expansive IP networks in the world. The Company filed for chapter 11 protection on July 21, 2002 (Bankr. S.D.N.Y. Case No. 02-13532). On March 31, 2002, the Debtors listed $103,803,000,000 in assets and $45,897,000,000 in debts. The Bankruptcy Court confirmed WorldCom's Plan on October 31, 2003, and on April 20, 2004, the company formally emerged from U.S. Chapter 11 protection as MCI, Inc. (Worldcom Bankruptcy News, Issue No. 63; Bankruptcy Creditors' Service, Inc., 215/945-7000) * U.S. Corporate Credit Quality Slips in October, Says Kamakura --------------------------------------------------------------- Kamakura Corporation reported that its monthly index of troubled companies in the United States increased for the third consecutive month, rising 0.2% in September to 14.6% of the public company universe. Kamakura classifies any company with a default probability of more than one percent as troubled. Among highly rated companies, AAA-rated Merck & Co. saw its default probabilities jump 50-150 basis points over the course of the month. Generally speaking, the increase in Kamakura's troubled company index was due to an increase in companies with probabilities of failure between 10% and 100%. The Kamakura troubled company index hit a low of 11.1% in April, 2004. "The October credit quality of public companies in North America was variable from week to week, but the downward trend in credit quality is clear," commented Dr. Donald R. van Deventer, Kamakura Chairman and Chief Executive Officer. "The number of companies with default probabilities between 1% and 5% stayed at 8.3% of the universe compared to September. Companies with default probabilities between 5 and 10% were also unchanged at 2.4% for October. Companies with default probabilities between 10% and 20% increased 0.1% to 1.5% of the universe. The riskiest firms in the universe, those with default probabilities over 20%, now total 2.4% of the universe, an increase of 0.1%." Kamakura is offering free trials of its KRIS default probability service to qualified institutions. For more information on Kamakura's free trial offer please contact Kamakura at info@kamakuraco.com. More information can also be found on the Kamakura Corporation web site http://www.kamakuraco.com/and in "Advanced Financial Risk Management" (John Wiley & Sons, 2004) by Kamakura's van Deventer, Kenji Imai, and Mark Mesler -- available on http://www.amazon.com/ About the Company Kamakura Corporation is a leading provider of risk management information, processing and software. Kamakura has been a provider of daily default probabilities for listed companies since November, 2002. Kamakura launched its private firm modeling product in January 2004. Kamakura is also the first company in the world to develop and install a fully integrated credit risk, market risk, asset and liability management, and transfer pricing system. Kamakura has clients ranging in size from $3 billion in assets to $1 trillion in assets. Kamakura's risk management software is currently used in the United States, Germany, Canada, the United Kingdom, Australia, China and many other countries in Asia. Kamakura's research effort is led by Professor Robert Jarrow, who was named Financial Engineer of the Year in 1997 by the International Association of Financial Engineers. Professor Jarrow and Dr. van Deventer were both named to the 50 member RISK Hall of Fame in December 2002. Kamakura management has published twenty-one books and more than 100 publications on credit risk, market risk, and asset and liability management. Kamakura has world-wide distribution alliances with IPS-Sendero -- http://www.ips-sendero.com/and Unisys -- http://www.unisys.com/-- making Kamakura products available in almost every major city around the globe. * BOND PRICING: For the week of November 8 - November 12, 2004 -------------------------------------------------------------- Issuer Coupon Maturity Price ------ ------ -------- ----- Adelphia Comm. 6.000% 02/15/06 21 Allied Holdings 8.625% 10/01/07 75 American Airline 4.250% 09/23/23 73 AMR Corp. 4.500% 02/15/24 65 AMR Corp. 9.000% 08/01/12 63 AMR Corp. 9.000% 09/15/16 60 AMR Corp. 10.200% 03/15/20 56 Applied Extrusion 10.750% 07/01/11 58 Armstrong World 6.350% 08/15/03 71 Bank New England 8.750% 04/01/99 10 Burlington Northern 3.200% 01/01/45 57 Calpine Corp. 7.750% 04/15/09 57 Calpine Corp. 7.785% 04/01/08 63 Calpine Corp. 8.500% 07/15/10 72 Calpine Corp. 8.500% 02/15/11 58 Calpine Corp. 8.625% 08/15/10 58 Calpine Corp. 8.750% 07/15/07 71 Comcast Corp. 2.000% 10/15/29 44 Continental Airlines 4.500% 02/01/07 71 Delta Air Lines 7.711% 09/18/11 68 Delta Air Lines 7.900% 12/15/09 47 Delta Air Lines 8.000% 06/03/23 47 Delta Air Lines 8.300% 12/15/29 37 Delta Air Lines 9.000% 05/15/16 37 Delta Air Lines 9.250% 03/15/22 37 Delta Air Lines 9.750% 05/15/21 37 Delta Air Lines 10.000% 08/15/08 55 Delta Air Lines 10.125% 05/15/10 46 Delta Air Lines 10.375% 02/01/11 46 Dobson Comm. Corp. 8.875% 10/01/13 68 Evergreen Int'l Avi. 12.000% 05/15/10 65 Falcon Products 11.375% 06/15/09 62 Federal-Mogul Co. 7.500% 01/15/09 31 Finova Group 7.500% 11/15/09 44 Foamex L.P. 9.875% 06/15/07 72 Greyhound Lines 8.500% 03/31/07 75 Iridium LLC/CAP 14.000% 07/15/05 10 Inland Fiber 9.625% 11/15/07 46 Kaiser Aluminum & Chem. 12.750% 02/01/03 18 Kulicke & Soffa 0.500% 11/30/08 75 Level 3 Comm. Inc. 2.875% 07/15/10 71 Level 3 Comm. Inc. 6.000% 09/15/09 60 Level 3 Comm. Inc. 6.000% 03/15/10 59 Liberty Media 3.750% 02/15/30 68 Liberty Media 4.000% 11/15/29 73 Mirant Corp. 2.500% 06/15/21 67 Mirant Corp. 5.750% 07/15/07 67 Mississippi Chem. 7.250% 11/15/07 56 National Vision 12.000% 03/30/09 62 Northern Pacific Railway 3.000% 01/01/47 57 Northwest Airlines 7.875% 03/15/08 72 Northwest Airlines 10.000% 02/01/09 73 Nutritional Src. 10.125% 08/01/09 65 Oglebay Norton 10.000% 02/01/09 44 O'Sullivan Ind. 13.375% 10/15/09 39 Owens Corning 7.000% 03/15/09 52 Owens Corning 7.500% 05/01/05 56 Owens Corning 7.500% 08/01/18 53 Pegasus Satellite 12.375% 08/01/06 64 Pegasus Satellite 13.500% 03/01/07 2 Pen Holdings Inc. 9.875% 06/15/08 51 PG&E National Energy 10.375% 05/16/11 75 RCN Corp. 10.000% 10/15/07 53 RCN Corp. 10.125% 01/15/10 55 RCN Corp. 11.125% 10/15/07 53 Reliance Group Holdings 9.000% 11/15/00 18 Spacehab Inc. 8.000% 10/15/07 65 Syratech Corp. 11.000% 04/15/07 45 Trico Marine Service 8.875% 05/15/12 50 Tower Automotive 5.750% 05/15/24 60 United Air Lines 9.125% 01/15/12 6 United Air Lines 10.670% 05/01/04 5 Univ. Health Services 0.426% 06/23/20 58 Westpoint Stevens 7.875% 06/15/08 0 Zurich Reinsurance 7.125% 10/15/23 64 ********* Monday's edition of the TCR delivers a list of indicative prices for bond issues that reportedly trade well below par. Prices are obtained by TCR editors from a variety of outside sources during the prior week we think are reliable. Those sources may not, however, be complete or accurate. The Monday Bond Pricing table is compiled on the Friday prior to publication. Prices reported are not intended to reflect actual trades. Prices for actual trades are probably different. Our objective is to share information, not make markets in publicly traded securities. Nothing in the TCR constitutes an offer or solicitation to buy or sell any security of any kind. It is likely that some entity affiliated with a TCR editor holds some position in the issuers' public debt and equity securities about which we report. Each Tuesday edition of the TCR contains a list of companies with insolvent balance sheets whose shares trade higher than $3 per share in public markets. At first glance, this list may look like the definitive compilation of stocks that are ideal to sell short. Don't be fooled. Assets, for example, reported at historical cost net of depreciation may understate the true value of a firm's assets. A company may establish reserves on its balance sheet for liabilities that may never materialize. The prices at which equity securities trade in public market are determined by more than a balance sheet solvency test. 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 are available at your local bookstore or through Amazon.com. Go to http://www.bankrupt.com/books/to order any title today. Monthly Operating Reports are summarized in every Saturday edition of the TCR. For copies of court documents filed in the District of Delaware, please contact Vito at Parcels, Inc., at 302-658-9911. For bankruptcy documents filed in cases pending outside the District of Delaware, contact Ken Troubh at Nationwide Research & Consulting at 207/791-2852. ********* 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., Fairless Hills, Pennsylvania, USA, and Beard Group, Inc., Frederick, Maryland USA. Yvonne L. Metzler, Emi Rose S.R. Parcon, Rizande B. Delos Santos, Jazel P. Laureno, Cherry Soriano-Baaclo, Marjorie Sabijon, Terence Patrick F. Casquejo and Peter A. Chapman, Editors. Copyright 2004. 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 $675 for 6 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. For subscription information, contact Christopher Beard at 240/629-3300. *** End of Transmission ***